State National, the Markel owned program and fronting specialist is selling one of the shell insurance companies it has used for certain catastrophe exposed programs to managing general agent (MGA) and cat underwriting specialist Velocity Risk.
Velocity Risk was already writing most of its business via an AM Best non-admitted and ‘A’ rated carrier called Independent Specialty Insurance Company, which was part of Markel’s program fronting specialist State National Insurance Group.
But MGA Velocity Risk Underwriters looks set to take greater ownership over its own pipeline of business now, with an acquisition of that insurance company from State National.
Velocity Holdco, LLC, a Tennessee based holding entity and part of the Velocity Risk corporate structure, is set to acquire 100% of Independent Specialty Insurance Company in an all-stock deal, we understand.
Technically the entity selling ISIC to Velocity Risk is United Specialty Insurance Company (USIC), which is one of the insurer fronts that are owned and operated by State National Group, the program fronting division of Markel.
As a rated excess and surplus lines carrier, ISIC will provide Velocity Risk a route to write policies on its own paper, rather than always relying on fronting entities for that task.
It’s worth noting that Velocity Risk was an MGA created by specialist insurance-linked securities (ILS) investment manager Nephila Capital, also a Markel subsidiary.
ISIC was an insurer used for program business that Velocity Risk underwrote on behalf of Nephila ILS capacity, while State National provided the fronting carrier.
A majority stake in Velocity Risk was sold to Oaktree by Nephila Capital at the end of 2021.
Nephila is still a capacity provider to Velocity Risk, but this acquisition appears to be the MGA taking ownership of a carrier that played a key role as a conduit between the capital markets and Velocity Risk cat exposed property program business.
Velocity will control another piece of the risk to capital pipeline this way, with a carrier it can now dedicate to E&S property business and potentially other categories of risk.
As part of the acquisition, ISIC is to reinsur all of its liabilities back to parent USIC under a loss portfolio transfer agreement, while State National will guarantee USIC’s obligations.
Rating agency AM Best noted that ISIC could face a ratings downgrade on the acquisition by Velocity Holdco closing, as the fronting insurer will no longer be part of an intercompany pooling agreement with State National.
