Endurance focused on Blue Capital alignment, raising funds: Charman

by Artemis on May 20, 2016

Endurance Specialty Holdings is focused on creating a strong alignment between itself and the operations of ILS and collateralized reinsurance fund manager Blue Capital, but would like to raise more third-party funds, according to CEO John Charman.

Endurance President and Chief Executive Officer (CEO), John Charman, has noted the already strong alignment with Endurance and Blue Capital, adding that the firm would like to increase the contribution of third-party investor-backed capacity within the Blue Capital publicly traded vehicles.

Following Endurance’s acquisition of Bermudian reinsurer Montpelier Re last year, it acquired the Blue Capital franchise, which consists of the New York stock exchange collateralized reinsurance vehicle Blue Capital Reinsurance Holdings, and the Blue Capital Global Reinsurance Fund, which is listed on the London stock exchange.

Artemis discussed towards the end of last year how Endurance Chief Financial Officer (CFO), Mike McGuire, highlighted that the third-party reinsurance capital and insurance-linked securities (ILS) fund management operations of Blue Capital are a “nice benefit” of its Montpelier Re acquisition.

And now, following its first Q1 since the acquisition completed, President and CEO Charman has noted the already strong alignment between Endurance and Blue Capital, with the firm’s Q1 results revealed that Blue Capital participated in a greater portion of quota share.

“The quota share is really a quota share within Endurance and so that is the key focus for us in bringing Blue Capital into Endurance, to make sure there is very, very strong alignment. Endurance is interested as overall manager, and the outside investors’ investment into catastrophe reinsurance,” said Charman.

Charman continued to stress that Endurance already owns between 25% and 33% of the vehicles within Blue Capital, “and so that is another strong statement of the alignment,” he said.

Interestingly, Charman continued to add, “Clearly, attracting additional outside capital would be a preferred approach versus Endurance just putting more capital into that as we already have a pretty substantial anchor investment.”

Whether Endurance seeks to reduce its contribution to Blue Capital in replace for increased investment for ILS investors, or if it’s looking to grow the vehicles by adding third-party investor capital is unclear, but it does clearly want alternative reinsurance capital to play a greater role in some form.

The collateralized reinsurer, Blue Capital Re announced recently that during the first-quarter of 2016 it beat analyst estimates, reporting net income of $5 million, despite results being slightly down on Q1 2015.

Blue Capital enables investors with an attractive entry point to reinsurance linked investments, and the returns it can be seen to generate will likely continue to appeal to sophisticated ILS investors, meaning that Endurance shouldn’t find it too difficult to increase the contribution from third-party investors.

Charman also stressed the cost of capital difference with Endurance and Blue Capital; further supporting alignment and highlighting shared benefits.

“That’s part of the attractiveness of having that capability within the company as the investors that are seeking stray shots into a catastrophe portfolio generally have a lower view of return requirement than we would have deploying our own capital against it,” said Charman.

“So that’s where the mutual benefit comes. When we’re getting a reasonable capital benefit and reasonable fee income, investors are getting preferred access to a traditional reinsurance portfolio that they frankly cannot get elsewhere. So it’s a win-win situation,” he added.

Endurance has gained a successful, mature, and diversifying ILS management platform in Blue Capital, and clearly sees scope to increase the use of third-party investor capital, which the firm can look to expand and leverage alongside its traditional reinsurance operations, helping it navigate the softening landscape and providing a welcomed source of additional revenue.

Also read:

Blue Capital Re beats analyst estimates in Q1 2016.

Blue Capital ILS fund “sidesteps” most competitive market segments.

Blue Capital ILS fund returns 9.6% in 2015, reports 2016 portfolio.

Blue Capital Reinsurance Holdings returns 11.4% in 2015.

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