Blue Capital Reinsurance Holdings Ltd. (BCRH), a NY stock exchange listed collateralized reinsurance vehicle operated by Endurance third-party capital management subsidiary Blue Capital Management, has again beaten analysts earnings estimates.
Blue Capital Re, is an insurance-linked investment vehicle that allows investors to access the reinsurance and retrocession linked investment strategies of manager Blue Capital Management Ltd. through a New York stock exchange listed equity.
The exposure an investor gains is a little like an ILS fund or sidecar, but with the benefits of listed equity liquidity, with the vehicle targeting a total return to investors of increased book value per share plus regular dividends.
The low levels of catastrophe loss have again helped Blue Capital Reinsurance Holdings to outperform analyst estimates, reporting an impressive operating income of $4.4 million ($0.50 per share) for Q3 2015 and $15.3 million ($1.74 per share) for the first nine months.
With fully converted book value per common share of $20.80 at September 30th 2015, that reflects a 2.5% increase in book value for the quarter and an 8.4% increase year-to-date, inclusive of dividends declared during the periods.
Adam Szakmary, President and CEO, of the firm commented; “Over the course of the year and the current quarter we continued to generate very attractive results, which remain largely uncorrelated to larger financial market volatility. Blue Capital’s strategy remains focused on providing investors diversified access to the preferred traditional property catastrophe market, without adding underlying asset macro correlation.”
Blue Capital Re underwrote reinsurance premiums of $5.9 million for the quarter and $33.6 million for the year to end of September, down a little by $0.6 million and $5.4 million compared to the same periods in 2014. This is “primarily as a result of premium reductions in the global catastrophe market,” the company explained.
Driving the higher performance was a combined ratio of 50.8% in Q3, compared to 73.1% in the third quarter of 2014. The lower combined ratio was driven by a lower loss and loss adjustment expense ratio, partially offset by higher acquisition cost and general and administrative expense ratios.
It’s going to be interesting to watch the development of this vehicle over time, as it offers a unique opportunity to access the returns of collateralized reinsurance contracts and other insurance-linked securities in an equity investment, but with low corporate overhead exposure.
So many investors appreciate the returns of ILS but want the investment in an equity format. Blue Capital Re is the only vehicle which can offer that through a New York stock exchange listing. For investors who cannot access private sidecars, ILS funds etc, or prefer an equity investment, this could be an attractive alternative.
With Blue Capital now part of Endurance it will be interesting to see how the greater underwriting scale and broad access to business can benefit Blue Capital Re investors.
Szakmary explained; “Our ability to generate shareholder value was enhanced during the third quarter as Endurance Specialty Holdings Ltd. (“Endurance”) acquired partial ownership in Blue Capital as part of its acquisition of Montpelier Re Holdings Ltd. (“Montpelier”).
“Partnering with an underwriting organization that has greater scale, an enhanced market position and a larger more diversified global catastrophe book of business improves Blue Capital’s ability to compete in an increasingly competitive environment.”
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