Blue Capital seeks new fund raise to grow listed ILS strategy

by Artemis on April 5, 2018

Insurance-linked securities (ILS) and collateralized reinsurance investment fund manager Blue Capital Management, a subsidiary of Sompo International Holdings Ltd., may seek to raise more funds as it looks to grow its London-listed strategy, the Blue Capital Alternative Income Fund.

In the companies annual report the Board sets outs a plan to “improve the liquidity and scale” of the exchange listed ILS and reinsurance investment fund, with options under consideration including a new capital raise.

The Blue Capital Alternative Income Fund currently has net assets listed at just under $140 million and after a year in which the fund was impacted heavily be the major catastrophe losses of 2017, especially hurricanes Harvey, Irma and Maria, the management team are hoping to grow the fund to take advantage of opportunities and increase its assets under management.

The Board of the company cites positive market conditions, with reinsurance rates having seen their first increase since the fund was launched, and the resultant higher return potential for 2018, as well as its historic performance, the support of Sompo International and the access to risk that relationship provides, as well as a goal of growing fund.

Blue Capital Management clearly feels that market conditions will allow it to generate a better return for its investors, given the movement in rates and would like to raise more assets to take advantage of this.

As a result of the better reinsurance renewal conditions experienced, the manager recently said that its Blue Capital Alternative Income Fund would have an increased expected return range of 8% to 13% for 2018, up from 6% to 10% in 2017.

The manager expects improving rates to continue at the mid-year renewals as well.

Chairman of the fund company John Weale explained the rate improvements witnessed in January and expected beyond, “On average, loss affected business benefited from renewing premium rate increases of 15%-20%, while non-loss affected agreements benefited from rate increases of 3-5% (in each case compared to 2017 and net of expenses).  With the June 2018 renewal period approaching, the Investment Manager expects continued rate improvement with the majority of contracts renewing being loss affected.

As a result, raising capital in time for the mid-year renewal would be one option for the fund, to make the most of the improved renewal pricing on loss affected Florida and U.S. accounts.

The manager highlighted its strategy of targeting “heavily regulated regional insurance companies who purchase traditional reinsurance programmes” and participating on a collateralized basis for these companies which “tend to be more persistent buyers of reinsurance and generally have a superior risk adjusted expected return.

Blue Capital views its work with these clients as the basis for “a longer-term relationship which we hope to grow over time, subject to satisfactory terms and conditions,” given these regional companies tend to value the consistency of their counterparties, service quality and claims-paying history as important traits.

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