Nephila gets $300m Arachne mandate from Florida State pension in Q1

Nephila Capital, the insurance and reinsurance linked investment manager owned by Markel, has won a mandate from the Florida State Board of Administration during the first-quarter, to deploy $300 million into reinsurance through Arachne, a Bermuda based ILS structure, Artemis has learned.

The allocation has been won from the giant over $193 billion Florida Retirement System Pension Plan, which the State Board administers, and it is the second allocation to a Nephila Capital structure from the investor.

The Florida State Board first allocated to Nephila Capital’s vehicle Rubik Holdings Ltd. back in the first-quarter of 2018, with an initial $50 million investment.

During the second-quarter of 2019, the Florida State Board then allocated a further $125 million to the Nephila managed Rubik Holdings.

The Rubik allocation from the Florida Retirement System Pension Plan was valued at almost $174 million at the end of 2023, we understand.

The Florida State Board then added to its insurance-linked securities (ILS) investments in time for the January reinsurance renewals in 2024.

In total, as we reported earlier this year, some $398 million was allotted to reinsurance and retrocession investment opportunities across three ILS managers, Aeolus Capital Management, Pillar Capital Management and RenaissanceRe.

Which took the Florida State Board ILS allocation for the state pension plan to around the $1.35 billion level, which was roughly 0.75% of the total pension fund at the time.

However, finding reinsurance and ILS attractive, the Florida Retirement System Pension Plan has been looking to increase the size of its allocation to insurance-linked securities (ILS).

The target is to deploy as much as 1% of the total pension plan to ILS and reinsurance, which could be as much as $1.93 billion today.

So, it’s not that surprising to learn of a new allocation being made this year, with a $300 million commitment made to a new Nephila Capital structure named Arachne during the first-quarter of this year.

The $300 million is being allocated to a segregated account of Bermuda based Arachne (SAC) Holdings Ltd., a registered professional Class A fund structure.

Last December, a reinsurance vehicle was also established, which we presume will support this strategy, named Arachne (SAC) Re Ltd., a restricted special purpose insurer (SPI) domiciled in Bermuda as well.

As a result, it seems the overall ILS allocation of the Florida State Board of Administration, on behalf of the Florida Retirement System Pension Plan, has increased to somewhere around the $1.65 billion mark, perhaps more given the returns being generated in the current market environment.

That’s still below target, representing an allocation of roughly 0.85% of the total fund, when the target remains at 1% for re/insurance investments.

The investment advisory council of the Florida State Board heard recently that the reinsurance market remains very attractive.

We are told that the administrator is now looking closely at ways to allocate capital specifically to the Lloyd’s marketplace. We’re not sure at this time whether the Arachne structure could feed capital to, or take risk from, Nephila’s syndicates at Lloyd’s, but it is certainly possible.

At a meeting of the investment advisory council of the Florida State Board, attendees discussed the current market opportunity for investing into reinsurance and ILS fund strategies.

The discussion focused on where in the risk tower the opportunity may sit, highlighting that higher-layers and the top of the tower has become more crowded, resulting in greater competition and more pressure on reinsurance prices.

As a result, the SBA believe the opportunity may be best around the middle layers, which they believe could perform particularly well.

They heard that the investment opportunity may currently be as good as it’s ever been, this was around the start of this year (2024), we understand.

So it’s not surprising the Florida state pension plan is looking to increase its exposure to ILS and reinsurance at this time.

It’s not clear whether the $300 million Arachne allocation has been deployed yet, but given the time of year, being awarded during Q1, it seems safe to assume it will be deployed through the second-quarter and into the mid-year reinsurance renewals.

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