Nephila Capital AUM rises $400m to $7bn in Q3, underlying revenue up from prior year

Nephila Capital’s assets under management (AUM) rose by $400 million in the third-quarter of the year to end September 2024 at $7 billion, while revenues from Nephila’s ILS business reported by its parent Markel are also up, if you exclude a one-off from the prior year.

Markel’s insurance-linked securities (ILS) investment management business has benefited from market conditions and growing investor appetites for ILS in recent months, it seems.

When we last reported on Nephila Capital’s results, Markel had disclosed a slide in assets under management (AUM), from  $6.8 billion at March 31st, down to $6.6 billion as of June 30th 2024.

It’s now clear that Nephila must have raised new commitments from investors for the mid-year contract renewal period, with the investment manager adding $400 million in assets, to lift its AUM by 6% to reach $7 billion at September 30th 2024.

Perhaps more notable than the AUM increase is the fact that, once a one-off from last year is excluded, the revenues reported from Nephila Capital’s business are up year-on-year as well.

Markel reported that total revenues attributed to unconsolidated entities managed by Nephila reached $25.1 million for Q3 2024 and $66.2 million for the nine-months.

That compares to $43.6 million and $74.1 million of revenue generated by Nephila entities for the same periods respectively in 2023, but Markel also highlighted a one-off that boosted the previous year.

In 2023, Nephila Capital had recognised $29.5 million of investment management fees in Q3 related to the release of capital from side pocket reserves, and there has been no comparable activity in 2024.

Subtracting that one-off means Nephila’s revenues were higher for Q3 2024 and the first nine-months of the year.

The one-off from 2023 was the transaction Nephila arranged and entered into with its parent Markel’s help to clean up its legacy reserves and eliminate trapped capital for its investors.

Markel also noted that another positive factor for 2024 is the fact Nephila’s results have benefited from a favorable impact due to changes in the mix of investment products within the funds managed. That’s something that could continue to flow through and it will be interesting to see how fees are recognised as we move into 2025, as performance has likely been attractive given market conditions in reinsurance and ILS.

Markel’s ILS business reported almost $3.7 million in positive income from Nephila’s revenues in the third-quarter of this year.

It’s also worth noting the other elements within Markel’s reporting that help to drive home the important role of Nephila within its insurance and reinsurance operations.

Gross premiums written by Markel’s program services and other fronting platforms on behalf of Nephila Capital entities were $94.3 million for Q3 2024 and reached $1.2 billion after the nine-months, all of which were ceded to Nephila reinsurance vehicles.

Nine-month 2023 premiums ceded to Nephila’s reinsurers were only $1 billion, so there has been continued expansion of the Nephila related activities at Markel over the course of this year. It’s more challenging to compare Q3, given the one-off and also changes in timing with when premiums have been booked, Q3 2023 being much higher at $501.8 million, but this year Q2 premiums ceded to Nephila vehicles rose significantly suggesting some were booked earlier in 2024.

The reinsurance recoverable Markel reports that is attributed to Nephila’s reinsurance vehicles fell slightly to $711.5 million at September 30th 2024, from $794.3 million at Dec 31st 2023.

No additional premiums changed hands between Nephila and its parent for the new program established in 2024 that sees Markel fronting ceded reinsurance contracts, industry loss warranties (ILWs) in this case, for its ILS operation. Gross written premiums ceded by Nephila under this protection and ILW hedging program remained static through Q3 at $168 million, as these hedges were put in place earlier in the year.

All in, it’s been another strong quarter for Nephila Capital’s business it seems, with greater stability in terms of revenues through the year so far and running ahead of 2023, while investor interest has climbed as the ILS manager returned to growth again in Q3.

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