Markel’s Nephila funds suffer 8.2% drop in ILS AuM on Hurricane Ian

Markel’s insurance-linked securities (ILS) unit Nephila suffered an 8.2% decline in assets under management (AuM) to $7.8 billion to end-Q3, a loss management put chiefly to the impact of Hurricane Ian.

The AuM count of $7.8 billion at end-Q3 was down around $700 million or 8.2% from the $8.5 billion figure reported in the mid-year statements.

Nephila acts as investment manager to several private funds (not owned or consolidated by Markel) and also acts as an insurance manager to reinsurers and Lloyd’s Syndicate 2357 (also not consolidated by Markel).

Management claimed only that the decline "reflects the impact of Hurricane Ian during the third quarter of 2022."

Aside from its own insurance segment losses on Hurricane Ian, Markel claimed gross losses and loss adjustment expenses of $850 million within its programme services and other fronting operations attributed to Hurricane Ian. Management claimed all of the sum had been ceded to third-party reinsurers managed through its ILS operations.

The gap between $850 million in losses and a $700 million decline in AuM is presumably attributable to funds garnered ahead of Ian’s end-quarter attack. The 8.2% AuM decline was measured after Markel had spent another quarter pushing increased volumes of gross written premium into reinsurance vehicles run by Nephila. Third quarter GWP cessions rose 41% year on year and about a quarter from levels seen in Q1 and Q2 to $399 million.

ILS services and other revenues rose by 11.5% against the second quarter, the first quarter after Markel's Q1 disposal of its MGA unit Velocity. The disposal still leaves segment revenues down 44% year on year.

Presumably the Q3 revenue tally vs Q2 reflects the rise in AuM prior to the end-quarter landfall and loss-booking of Hurricane Ian. Performance fees, if measured on a schedule other than end-quarter, might also have helped as most ILS fund indexes had shown market gains up to just before the Ian landfall.

Markel has since proceeded to dispose of its MGA operations Volante for $155 million cash. Management admits that the unit had similarly been a growth driver for the ILS unit.

Following the October sale of Volante, Nephila is exclusively composed of the fund management operations.

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