Nephila AUM stable at $7.2bn. Markel’s Nephila ILS revenues rise

At the end of the second-quarter of 2023, assets under management at Nephila Capital, one of the largest insurance-linked securities (ILS) fund management operations in the market, were stable at $7.2 billion and its parent Markel Group reported that revenues from entities managed by Nephila rose slightly in the quarter.

The stabilisation of assets under management is a positive for Nephila Capital, as the ILS manager has seen its AUM slide over recent years.

We understand some capital raising success was seen in the second-quarter, that counteracted any further outflows or loss of capital in the period.

Perhaps even more encouraging for Nephila Capital is the return to more stable revenue and actually beating the revenue its entities earned a quarter earlier.

Markel reported that total revenues attributed to unconsolidated entities managed by Nephila reached $20.8 million for Q2 2023, which is up on the Q2 2022 figure of $17.5 million.

For the first-half, the total is still slightly down, at $30.6 million for H1 2023, compared to $39.9 million for H1 2022.

The stabilisation of assets under management at Nephila Capital and improvement in revenues earned by Nephila entities, suggests the ILS manager may now have turned a corner, with better results ahead for its parent Markel, catastrophe losses allowing.

Also signalling the continued integration of Nephila’s ILS operations into the Markel Group, the amount of premiums Markel entities underwrote for Nephila reached over $297 million in Q2 2023, up from $175 million a year earlier.

For the six months the total written premiums attributable to Nephila programs was over $534 million, up on the prior year figure of $490 million.

In addition, through a property quota share, Markel ceded a further $16.4 million of premium to Nephila reinsurance vehicles in Q2, up on the prior year figure of $13.5 million.

These figures continuing to grow shows both that Nephila is becoming increasingly integrated into Markel, sourcing business from the Markel insurers and program fronting entities, despite the sale of Nephila’s own MGA’s in recent years.

Importantly though, the fact these figures continue to rise, also suggests Nephila has more deployable AUM available to it, as the effects of trapped collateral lessen as the major losses of recent year’s move further into the past, something we’re seeing more broadly among ILS managers as well.

Also signalling an unlocking of certain contract exposure that Nephila and its reinsurers had, Markel reports that the reinsurance recoverables on its balance sheets due from Nephila reinsurers has dropped significantly in the first half, falling from $1.4 billion at the end of 2022, to now $949.3 million.

Again, this suggests loss activity unwinding, claims being paid and collateral being released where possible, we suspect.

Another positive for the second-quarter for Markel from the ILS business platform was the sale to Velocity Risk of one of the fronting carriers that had previously been a source of paper for underwritten business that was channelled to Nephila’s funds.

That sale resulted in a gain of $16.9 million during the second quarter of 2023, which adds to the value that Markel has generated out of reorganising the ILS and MGA platforms it acquired with Nephila and optimising its own internal structure to best position Nephila within the group and maximise synergies.

In Q2 2023, Markel made positive net revenue from the ILS business unit, with the company reporting that ILS revenues outpaced expenses, resulting in positive net ILS income of $1.76 million for Q2, far better than a net loss of $11.6 million a year earlier.

For the half-year, the net ILS income remained at a loss of -$2.86 million, but again that is substantially better than H1 2022 -$12.4 million.

So, overall there are positive signs for Markel from its insurance-linked securities (ILS) management unit Nephila Capital and it will be interesting to see how this develops going forwards, as more of the legacy of prior year losses rolls off, and positive AUM inputs and better market conditions play into future results.

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