Blue Capital sees $1 billion opportunity, will target retail and institutional investors

Bermudian reinsurer Montpelier Re is moving into the reinsurance-linked investment arena with the launch of their Blue Capital asset management platform and successful launch of their first offering the Blue Capital Global Reinsurance Fund which raised $100.1m in its first share offering this week. Montpelier Re and Blue Capital see this new venture as an opportunity that could be worth as much as $1 billion over the longer term and intend to offer a range of products to both institutional and retail investors.

The reinsurance-linked investment opportunity is still hugely attractive to large institutional investors such as pension funds, sovereign wealth entities, hedge funds and other asset managers. At a time when returns from more typical asset classes remain unattractive, the returns that an investment across the reinsurance and catastrophe risk spectrum can offer continues to attract new capital into the space. Through their new Blue Capital Management Ltd. asset manager, Montpelier Re have clearly seen an opportunity to capitalise on the strong interest in the space to attract money which they can put to work underwriting more catastrophe risk business, splitting the premiums earned with their investors.

Chris Harris, President and CEO of Montpelier, commented; “Montpelier has been successfully managing third-party capital since 2004, and Blue Capital represents the latest step in the expansion of our underwriting partnership business. Blue Capital broadens the product mix we can offer clients, and investors benefit from Montpelier’s long-established underwriting expertise and relationships.”

Blue Capital has now announced the full team who will be working in the new asset management firm. William (Bill) Pollett, Montpelier’s Chief Corporate Strategy and Development Officer, has been named as President of Blue Capital Management Ltd. Jason Pratt, Montpelier’s Chief Investment Officer, has been named President of Blue Capital Advisors Ltd., the U.S. based investor marketing arm of Blue Capital. Both will retain their existing roles at Montpelier Group in addition to jointly leading Blue Capital. Adam Szakmary, previously Vice President, Underwriting and Risk Management and an underwriter with Montpelier since 2004, has been appointed Portfolio Manager of Blue Capital Management Ltd., subject to the approval of the Bermuda Department of Immigration. Christopher Schaper, President of Montepelier Reinsurance Ltd., has been named as Chair of Blue Capital’s Underwriting Committee and so is charged with ensuring that all of the catastrophe linked investments meet with Montpelier Re’s underwriting standards.

Blue Capital is seen as an asset management platform which will offer a range of innovative catastrophe reinsurance-linked investment products to both institutional and retail investors. It’s interesting that Blue Capital seek to target retail investors too as it’s possibly the largest opportunity currently in the space, judging by all the enquiries we receive from retail investors asking how to access reinsurance and catastrophe risk as an asset class. Retail, particularly high net worth, investors have become increasingly interested in the space given all the publicity that insurance-linked securities and reinsurance-linked investments have been receiving this year. It’s a good time to target this growing area as there are still only a few options to access the asset class available to them.

The Blue Capital offering is composed of a number of entities. An investment management firm, Blue Capital Management Ltd. who manage and offer the reinsurance-linked investment products and funds. A reinsurance manager Blue Capital Insurance Managers Ltd. which is licensed and regulated by the Bermuda Monetary Authority as an insurance manager and insurance agent. A reinsurer Blue Water Reinsurance Ltd., a licensed and regulated exempted company whose underwriting plan is focused on fully collateralised catastrophe reinsurance and retrocession. A number of segregated cell master funds and feeder funds which give investors a mechanism to access diversified portfolios of catastrophe reinsurance through investments in contracts underwritten by Blue Water Re.

Blue Capital will offer a range of products to suit a number of investment scenarios for retail and institutional investors. Open ended funds, such as the Blue Capital Mid Vol Fund which launched back in June 2012, which are for qualified institutional investors. Closed-ended funds, such as Blue Capital Global Reinsurance, which allow both qualified institutional and retail investors to access the catastrophe reinsurance risk-return profile. Customised individual accounts, of Funds of One, which are established as special segregated fund accounts for qualified institutional investors and can be highly customised to meet a particular investors needs. Finally, private sidecars allow qualified institutional investors to participate in the global property catastrophe reinsurance market through customised quota share agreements with Montpelier themselves.

Given this wide range of products it’s no surprise to learn that Blue Capital intend to enter the market with an aggressive strategy to grow through further issuances of shares for their funds and by raising more capital for their private investment offerings. In comments made to the Financial Times Bill Pollett said that they see this as a $500m to $1 billion opportunity, which is significant when you realise that Montpelier Re Holdings itself has only $3.5 billion of assets. Blue Capital will, if it achieves its aggressive targets, become a major component of the Montpelier underwriting business bringing a significant new chunk of reinsurance capacity to the market and shifting their business further towards the collateralised end of the market.

Bill Pollett added; “Blue Capital is delighted to launch this listed fund which will provide targeted exposure to the reinsurance market via a partnership with Montpelier’s global property catastrophe franchise. We believe Montpelier’s reach and expertise will allow Blue Capital to construct a diversified portfolio with attractive risk-adjusted return characteristics.”

Prime Management has been engaged to perform fund administration services for the Blue Capital Master Fund.

Blue Capital is possibly the most ambitious asset management play from a major reinsurer to date. It could see Montpelier’s business move to be more than a quarter dedicated to asset management and fully collateralised reinsurance underwriting. Montpelier has a track record of managing third-party capital, having managed over $750m since 2004. Blue Capital formalises this strategy into a dedicated entity and it will be interesting to see how large that side of the Montpelier business can become.

You can find more details on the Blue Capital Global Reinsurance Fund strategy in this article from 30th November.

Details of the successful fund-raising for the Blue Capital Global Reinsurance Fund can be found here.