Nephila Syndicate 2357 reports $189.1m profit, 57.5% combined ratio

Nephila Capital, a leading dedicated investment manager in the insurance-linked securities (ILS), weather and catastrophe reinsurance space, has reported a significant increase in the profitability of its flagship Syndicate 2357 at Lloyd’s, as the structure reported a combined ratio of just 57.5% for 2022.

Profit for the full 2022 calendar year is reported to have risen to $189.1 million in 2022, which is a 241% increase over the prior year.

For comparison, Nephila Capital’s Syndicate 2357 at Lloyd’s delivered a $41.5 million loss in 2020, followed by a $55.5 million profit in 2021.

Nephila Capital leverages Syndicate 2357 as a key component of its reinsurance market and investing infrastructure, helping it to flow insurance and reinsurance premiums around the world in a more efficient manner, while also benefiting from Lloyd’s licensing and central fund.

Syndicate 2357 is about making best use of available regulated platforms to heighten the efficiency of reinsurance capital for Nephila and ultimately its investors, playing an important role in how the ILS fund manager cedes risk between its underwriting structures and operations around the world.

In 2022, Syndicate 2357 underwrote a little less in premium for Nephila, at $583.6 million, down from 2021’s $662.7 million.

MGA insurance business written by the syndicate remained relatively flat, at $287 million, but reinsurance premiums written in 2022 declined to $296.5 million for the year.

However, the underwriting across both of these market segments was far more profitable in the last year, with business written by Nephila’s Syndicate 2357 only having a 45% loss ratio and 12.6% expense ratio for 2022, resulting in the combined ratio of 57.5%.

Nephila has trimmed back the stamp capacity target for 2023 a little for its flagship Lloyd’s syndicate, to $516 million, which is lower than the target for $655.4 million it had previously set for 2022.

Two interesting bits of information come with the latest annual report for Nephila Capital’s Syndicate 2357.

First, the return on stamp capacity for the still-open 2021 year of account is now reported at 27%, which is impressive considering the 2021 combined ratio was 86.5%. So the return on capacity for 2022, once it develops, could be even more impressive and signal stronger returns flowing to Nephila ILS strategies from the syndicate.

Second, the expense ratio for Syndicate 2357 being just 12.6% is far lower than Nephila’s newer Syndicate at Lloyd’s the specialty lines focused 2358.

As we reported earlier, Nephila Syndicate 2358 has delivered a profit in its first year of trading, with an 88.3% combined ratio.

However, the expense ratio for that Syndicate, which is only entering its second year of operations, is reported at 39.7%, which likely reflects a lot of the start-up costs.

As Syndicate 2358 gets up to speed and scale, those expense costs should come down and may reduce towards the levels Syndicate 2357 now reports, which will increase the return potential on capital supporting the syndicate and ultimately the returns to investors.