Blue Capital Re establishes dividend policy, targets 8% RoE

Blue Capital Reinsurance Holdings, the third-party capital backed collateralized reinsurance firm being launched as a subsidiary of Bermuda-based reinsurer Montpelier Re, has set out its policy for the first dividend to be paid to investors as it moves towards its IPO.

The initial public offering of shares in Blue Capital Re will see Montpelier Re take $50m in a concurrent offering while 6,250,000 shares will be offered to third-party investors, amounting to around $125m at a target price of $20 per share, so giving Blue Capital re a potential total size of $175m. The shares will be listed on the New York Stock Exchange, meaning they can be traded and investors in the reinsurer will have full liquidity available to them.

Blue Capital Re will essentially operate almost like type of sidecar reinsurance vehicle, underwriting fully-collateralized reinsurance business and provide its returns to investors through any gains in its share price and also through dividends. It’s a different type of vehicle for the ILS space, but the capital raised will give Montpelier Re and its third-party capital management arm Blue Capital Management another vehicle offering collateralized reinsurance capacity, primarily in the property catastrophe reinsurance market, just in time for the end of year reinsurance renewals.

Montpelier Re and Blue Capital are expanding the ways they can give investors access to the returns of the global reinsurance markets; through Montpelier Re equity, the listed Blue Capital investment fund, private accounts and now this stock exchange listed reinsurer, which opens avenues to new types of investor for the firm.

Blue Capital Reinsurance will announced Friday that it expects to pay its first quarterly dividend or distribution after the first quarter of 2014. It expects the size of this dividend to be approximately $0.30 per share, although that amount is subject to approval at the time. This gives shareholders an estimate of how they will stand to profit even if the share price for Blue Capital Re remained static after the initial offering.

The latest prospectus from Blue Capital Reinsurance explains that the reinsurer will target a return on common equity to its shareholders of 800 basis points (8%) above the three-month U.S. Treasury yield per annum. That is a typical figure for an ILS or reinsurance-linked investment and is sufficiently high so as to be attractive to investors looking for sources of yield with low-correlation to wider markets.

Also at the end of last week Blue Capital Reinsurance Holdings filed a registration statement with the SEC for the 6,250,000 common shares that will be offered to third-party investors in its IPO.

It will be interesting to see how Blue Capital Reinsurance Holdings utilises its Blue Capital Re ILS entity, which it says will be used for  insurance-linked instrument activities, including hedging and investment activities such as entering into industry loss warranty (ILW) contracts or purchasing catastrophe bonds notes.

We’ll keep you updated as the Blue Capital Reinsurance IPO progresses and the results of the offering are announced.

– Blue Capital Reinsurance Holdings to target $125m in IPO

– More details on the forthcoming launch of Blue Capital Reinsurance Holdings can be found in this article.

– Read our recent article on Blue Capital’s contribution to Montpelier Re Q3 results.