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Catastrophe fund raises USD340m from UK institutions

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Bermuda-based Nephila Capital, an investment manager specialising in insurance-linked securities, attracted inflows of USD340m from 11 UK institutions into its catastrophe reinsurance fund in the second half of 2009.

The latest inflows bring total assets under management in the platform to USD2.6bn.

Nephila, in which Man Group has a 25 per cent stake, has multiple investment products and managed accounts dedicated to investing in insurance-linked instruments such as catastrophe bonds.

Catastrophe bonds are a form of insurance securitisation that spreads the risk of insured claims from large natural disasters, such as hurricane Katrina. Because returns on these instruments are based on physical events instead of market events, they offer investors access to an asset class which is totally uncorrelated to world stocks and bonds.

“Insurance-linked securities are clearly gaining broader acceptance from institutional investors and consultants,” says Paul Dackombe, head of UK institutional sales at Man,
“After the recent financial market turmoil, institutional investors are actively seeking return streams that are independent from the capital markets and catastrophe reinsurance certainly provides that portfolio benefit.”

Greg Hagood, co-founder of Nephila, says: “Insurance payouts for damages caused by hurricanes Gustav and Ike and the heavy investment losses and liquidity constraints brought about by the financial crisis have led to a major market shake out. Remaining participants, such as Nephila, have therefore been able to capitalise on this opportunity and charge higher catastrophe premiums.”

Nephila has bolstered its senior management team with the appointment of two new partners, Steve Glassman and Adolfo Pena, who will help support the ongoing growth of the business.

Glassman joined on 1 February 2010 as a managing partner after more than 20 years with Merrill Lynch. He will focus on strategy, product structuring and the management of human resources and business processes.

Pena, a portfolio strategist and seismic and financial engineer, joined Nephila in 2005. He will continue to co-manage the portfolio management and analytics group.

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