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Rating agencies positive on Nephila takeover

Credit rating agencies view Markel's proposed buyout of Bermudian-based Nephila Capital positively.

The deal, which will result in Nephila being run as a stand-alone company by existing management as part of the Markel portfolio, was announced last Friday.

Nephila is the world's largest manager of insurance-linked securities and manages more than $12.3 billion of assets.

Markel, a US insurer, reinsurer and investment company with a market capitalisation of $16.8 billion, already has a presence on the island, having acquired island reinsurer Alterra in 2013 and collateralised reinsurance specialist CatCo Investment Management in 2015.

Rating agencies AM Best, Standard & Poor's and Moody's have all commented since the deal was made public. All noted the dominance that it would give Markel in the ILS market.

“We believe that despite some overlap with Markel CatCo, the combined presence gives Markel good ability to harness the opportunities pertaining to alternative capital, which, over several years, has grown in significance to the reinsurance sector (particularly property-catastrophe) and has pressured pricing for traditional reinsurers,” S&P stated.

The agency added that it did “not see much of an integration risk” as Nephila will operate as a stand-alone company.

AM Best said the transaction would enhance Markel's “business profile by affording it a predominant role in the (ILS) market, expanding on the scope of capabilities the organisation has built in its Markel CatCo operation”.

Moody's said: “On a pro forma basis, Markel will have $19 billion of assets under management including Nephila and its Markel CatCo asset manager.”

This figure amounts to around a fifth of the entire ILS sector.

Friday's statement from Markel made clear that co-founders Frank Majors and Greg Hagood, who are co-chief executive officers, will continue to lead Nephila. The company will also continue to be run out of offices in Bermuda, London, San Francisco and Nashville, Tennessee.

The terms of the deal, which is expected to close during the fourth quarter of this year, were not disclosed.

Nephila was founded in 1997 in London as part of reinsurance broker Willis Ltd and relocated to Bermuda in 1999 to build relationships in Bermuda's world-leading catastrophe reinsurance industry.

Over the past 20 years, the firm has grown in size and reputation, flourishing at the forefront of the ILS revolution.

Richie Whitt, Markel's co-CEO, said: “We are excited to welcome Nephila to the Markel team. Frank Majors and Greg Hagood have built the industry's pre-eminent and longest-tenured insurance-linked securities manager.

“With a proven 20-year track record of success, they bring with them an incredibly experienced and talented management team and a culture of creativity, innovation and excellence that exemplifies the Markel style.”

Nephila's Mr Majors said: “We are delighted to be joining Markel, a company with a similar culture, strategic outlook and long-term focus. They have built a great company with a sterling reputation for both outstanding performance and a collaborative business approach, and have a proven track record of successful acquisitions.”

ILS expansion: Markel is to grow its interests in Bermuda with the acquisition of Nephila

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Published September 04, 2018 at 9:00 am (Updated September 03, 2018 at 8:01 pm)

Rating agencies positive on Nephila takeover

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