Blue Capital Re income drops on reinsurance purchase, loss ratio

by Artemis on May 2, 2017

Blue Capital Reinsurance Holdings, the New York stock exchange listed fully-collateralised reinsurance company that is a subsidiary of re/insurer Endurance, reported lower income for the first-quarter, as reinsurance acquisition costs and a loss to a derivative contract affected its results.

Blue Capital Re reported net income of $4.1 million for the quarter, which is down from the $5 million reported for Q1 a year earlier.

Higher current year losses of $1.3 million, up from $1 million, are likely due to the severe thunderstorm activity in the United States and other Q1 global catastrophe or weather activity. This trend for a more attritional rate of losses has been seen across reinsurance and ILS players.

Blue Capital Re also saw a loss on a derivative contract of -$400k, compared to a gain of $100k a year earlier, which lowered revenues to $9.9 million from $10.4 million. So the reinsurer’s underlying performance from its main reinsurance portfolio was actually very similar.

The other factor impacting results in this quarter were higher reinsurance acquisition costs, as the collateralized reinsurer looked to better protect its portfolio from peak exposures.

Reinsurance premiums underwritten were $17 million, down 2.6% compared to the same period in 2016 which the company said was predominantly driven by the larger reinsurance protection purchase.

The combined ratio rose to 56.5% in Q1 2017 as a result of these costs, up from 52.2%, but slightly offsetting the rises in loss and acquisition ratios was a decline in the general and administrative expenses as the company reduced its compensation due to slightly lower performance.

Investors continued to benefit from the returns generated by Blue Capital Re, including dividends, with the company delivering a 2.3% return for the quarter and a 7.7% return over the past twelve months. This is aligned with recent quarters run-rate.

Commenting on the quarter, new Chairman and CEO Michael McGuire, said; “I am pleased with the results we have generated in the first quarter, with excellent underwriting profitability, solid growth in book value per share inclusive of dividends and stable premium levels.   These strong results highlight the value of our disciplined underwriting, our high quality portfolio management and our important strategic alignment with Sompo Holdings, Inc. These core principles and the continuity of our underwriting and portfolio management teams position Blue Capital to continue its effective and disciplined deployment of capital in a challenging market.”

Blue Capital Re continues to offer an interesting platform that allows investors to access reinsurance linked returns and now it is part of the larger Sompo Holdings group the opportunities to acquire risk will increase and the vehicle will offer an interesting way to piggy-back on the performance of the re/insurer and its underwriting teams.

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