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Markel to Brace Berth in Insurance-Linked Securities Sector

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Markel Corporation (MKL - Free Report) has agreed to buy Nephila Holdings Limited. The acquisition will uphold Markel as the largest manager of funds in insurance-linked securities sector. The transaction, pending closing conditions, is expected to culminate in the fourth quarter of 2018.

Nephila Holdings boasts being an insurance-linked securities manager in the world, managing more than 12 billion assets under management across the globe for 300 investors. The company has been successfully operating for two decades. Thus, leveraging Nephila Holdings’ unique capability to match investor risk appetites with client needs will help Markel serve policyholders, producers and shareholders in a better way. Also, the acquisition will expand Markel’s insurance, reinsurance, insurtech, fronting and existing insurance-linked securities capabilities.

Nephila Holdings generates revenues through management and incentive fees. Addition of Nephila Holdings to Markel’s portfolio and its combination with Markel CATCo unit will lead to $19 billion in assets under management, representing about 20% of the insurance-linked securities sector.

Post acquisition, Nephila will continue to operate as a separate business unit, led by its current management heads Greg Hagood and Frank Majors.

Markel considers strategic consolidations a prudent approach to ramp up its growth profile. Such transactions have earlier helped the company enhance its surety capabilities, boost its segment Markel Ventures’ revenues and also expand its reinsurance product offerings.

During the second quarter of 2018, the company announced a formation of Rosemont Investment Group as part of Markel Ventures. With regard to this business, the company will be investing in the ownership of the best of asset management firms. We note that the company has been pursuing integrations to achieve profitable growth in insurance operations and create an additional value on a diversified basis in Markel Ventures operations.

Markel boasts a solid balance sheet with increasing liquidity. Banking on this, the company decided to fund the acquisition with a solid cash balance.

Shares of the company have outperformed its industry year to date. This Zacks Rank #3 (Hold) insurer has gained 6.1% compared with the industry’s increase of 5.2%. Given its operational excellence, driven by a continued trend of strong segmental performances at insurance, investments and Markel Ventures, respectively, we expect the share price to appreciate.



 

Other Insurers Following Suit

Considering the insurance industry’s all-time high available capital resource, there has been a visible craze for consolidations in the space of late. Recently, Enstar Group Limited   announced to purchase Maiden Reinsurance North America, Inc. from a subsidiary of Maiden Holdings, Ltd. (MHLD - Free Report) . Also, Berkshire Hathaway Inc. (BRK.B - Free Report) bought a stake worth $356 million in Paytm’s parent One97 Communications in a bid to penetrate into financial payments sector in India. Further, TransRe, a wholly owned subsidiary of Alleghany Corporation (Y - Free Report) , announced to have purchased exclusive renewal rights of Maiden Holdings, Ltd.’s U.S. treaty reinsurance underwriting business.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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