Blue Capital to add capital flexibility, new income source for Endurance

by Artemis on March 31, 2015

For Endurance Specialty Holdings, the addition of an established third-party reinsurance capital and ILS investments business in Blue Capital Management, thanks to the acquisition of Montpelier Re, will add capital flexibility and provide a stable source of income.

John Charman explained on a conference call held minutes ago; “Montpelier’s established collateralized reinsurance platform provides Endurance with a natural introduction to managing insurance and reinsurance products for third-party investors.”

Charman continued, saying that the addition of third-party reinsurance capital management, under the Blue Capital brand, would bring more opportunities to Endurance’s clients, add a new and stable source of income, as well as enhance overall capital flexibility for the firm.

Interestingly, John Charman has himself been outspoken when voicing opinions on third-party capital in the past, saying that there could be conflicts between reinsurance firms and their third-party capital management units.

This is not a concern with Blue Capital, Charman explained. He said that Blue Capital has been established in such a way by Montpelier Re that this is not an issue, meaning there are no conflicts, and he’s very comfortable with assuming the unit as part of the deal.

Endurance CFO Mike McGuire commented; “As we look at Blue Capital in the combined organisation it’s relatively small part. The Blue Capital platform will come along with the Montpelier transaction, it will form a part and parcel of our operations and strategy.”

McGuire continued, saying that the introduction to third-party reinsurance capital management that Blue Capital will provide Endurance, is “In a way that doesn’t overwhelm us on the underwriting side, but offers flexibility to clients and retrocession opportunities to Endurance.”

Charman said that overall the transaction with Montpelier Re creates a reinsurance company with a larger balance sheet, a meaningfully enhanced position, allowing the combined firm to capitalise on market conditions and client relationships, while benefiting from increased financial flexibility.

The addition of Blue Capital is a key addition for Endurance, adding a new source of income from fees and profit shares, as well as enhancing the reinsurers return on equity.

The Blue Capital platform will enable Endurance to offer collateralized paper to its clients, a new offering which if used wisely alongside its balance-sheet should add incremental business.

Finally, the ability to enter into quota shares with Blue Capital vehicles and funds will provide Endurance with a new retrocessional opportunity, as well as allowing the Blue Capital investors to benefit from access to its business.

With Blue Capital, Endurance gains the London and Bermuda dual stock exchange listed Blue Capital Global Reinsurance Fund. The New York stock exchange listed collateralized reinsurer Blue Capital Reinsurance Holdings. The Blue Water Re reinsurance vehicle, which is used to underwrite much of the business that goes into the funds. As well as any private mandates, funds of one and sidecars the unit operates at this time.

Overall this will enable Endurance to better optimise its portfolio across both rated and collateralized balance-sheets, increase its product range for clients to include collateralized options, enable it to add incremental business where collateralized paper is preferred or third-party capital more suited and generate new and non-conflicting revenue streams. A positive addition to the Endurance operations.

Endurance’s acquisition of Montpelier Re is expected to close in the 3rd quarter of 2015.

Also read: Endurance to buy Montpelier Re for $1.83B, to include Blue Capital.

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