No new investments for Blue Capital listed ILS fund until future decided

The London exchange listed Blue Capital Alternative Income Fund insurance and reinsurance linked investment strategy has stopped making any new investments pending a vote to decide whether it should be put into run-off or not.

In May the Board of the fund, which is managed by insurance-linked securities (ILS) and collateralized reinsurance investment fund manager Blue Capital Management, a subsidiary of Sompo International Holdings Ltd. recommended that the portfolio be run-off and put the future of the strategy to the vote.

This followed shareholders representing 39% of the ILS fund voting not to continue the company, leading the Board to recommend an orderly run-off.

Until this decision is taken the Blue Capital Alternative Income Fund will not be underwriting any new contracts, so no new investments are being made at the mid-year reinsurance renewals.

Mike McGuire, CEO of Blue Capital Management, explained, “In light of the board of directors’ recommendation to shareholders of an orderly run-off of the Company, Blue Capital ceased making new investments on behalf of the Company pending the outcome of a Special General Meeting of Shareholders expected to be held in July 2018.”

Currently the fund has a net asset value of $130.3 million, with investments currently valued at $104.4 million in the master fund Blue Capital Global Reinsurance SA‐1, as well as collateral of $25.9 million held in trust relating to expired or loss affected contracts.

The Blue Capital Alternative Income Fund was hit hard by the major hurricanes and other catastrophe events of 2017, with the impact reducing its available capital for deployment in 2018 as collateral was trapped on loss affected contracts.

As a result the size of the ILS fund was diminished, making it a less viable ongoing concern in the eyes of certain investors which led to the vote against the continuation of the company by the investors holding 39% of the fund.

The fund’s current portfolio, which is now fixed until its future is decided, contains business underwritten that is expected to produce a net rate-on-line (premium rate as percentage of limit) for the portfolio of 21.5%. While this is not an indication of performance potential, as it doesn’t take into account any losses, costs, expenses or other factors, it is a sign of the value of the portfolio.

But size is an issue and for the investors it may be preferable to wind-down this strategy, with other options available to continue investing in Blue Capital portfolios anyway.

Also, for the manager the cost of maintaining this listed strategy may also make its running-off an attractive option, allowing Blue Capital Management to concentrate on offering its other institutional ILS products to its clients.

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