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Nephila shrinks Florida book in June renewals

Leading Florida carrier Nephila Capital has withdrawn significant capacity in this year's June renewals, sister publication Trading Risk reported last week.

Multiple sources from both the broking and underwriting communities said that Nephila's participation on programmes had fallen year-on-year, as it quoted higher-than-market rates or walked away from softening business.

As well as these pricing-driven reactions, the competitive impact of the carrier's entry into the primary market also made its influence felt at the renewals.

It is understood one multi-year deal was cancelled due to concerns over Nephila competing directly with the cedant, although as yet the Bermudian has not been removed wholesale from other accounts.

But as Nephila's plans to expand the primary business through the Velocity Risk Underwriters platform gear up, the issue is likely to become more prominent in the negotiations for next year's renewals.

Nephila filed its first application to assume personal residential policies from state-backed insurer Citizens Property Insurance at the end of 2015. It followed this up with another takeout request in April.

Nephila co-founder Greg Hagood has said the firm has expanded down this path to give its investors access to a larger investible universe. "If we can access the risk in both markets, we can tilt the portfolio accordingly," he said in Clear Path Analysis's 2016 insurance-linked securities (ILS) report.

None of the executives spoken to for this article were prepared to estimate how much premium Nephila had forfeited overall this year, but one senior broker said the trend represented a "definite change" in how and where it had deployed capacity.

In a number of cases it had shifted to the top end of programmes, he added.

However, given Nephila's prominent role in the Florida reinsurance market, it has plenty of headroom to reduce its capacity and still remain one of the leading carriers supporting such business.

According to Trading Risk's recent study of reinsurance premiums ceded by the state's top 10 carriers in 2015, Nephila and associated entities, including Allianz Risk Transfer, assumed $263mn of premiums from the peer group.

Only Everest Re with $227mn of assumed premium neared these levels, with the next group of reinsurers clustered around the $50mn mark.

This dynamic meant that that this year there was room for shares that Nephila had previously written to be picked up by other collateralised funds such as Aeolus, Securis and Elementum, which expanded their footprint in the state, sources said.

By early June, ILS funds were full up on Florida and retro risk, another broker said, as the market found its peak zone limit despite an overall industry capital surplus.

"If we're inundated with capacity, I don't know where it is," he said.

In some cases, carriers that were late in renewing their programmes faced shortfalls in their required capacity, and some cedants might be left with higher rates than in previous years, one portfolio manager said.

"We found the bottom," the manager added.

Early in June, JLT Re estimated that risk-adjusted Florida property catastrophe rates fell by 3.1 percent year-on-year on average at renewal, compared to reductions of 8.5 percent in 2015 and 17.1 percent in 2014.


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