The third-party capital and reinsurance-linked fund management arm of Bermuda based reinsurer Montpelier Re, Blue Capital Management, has published a half yearly report for its flagship listed catastrophe reinsurance linked investment fund, the Blue Capital Global Reinsurance Fund Limited.
The Blue Capital Global Reinsurance Fund, having launched and been admitted for trading in December 2012, grew to around $153m in size after its launch placement of $101.1m and a follow on placement of another $52.3m of shares. Subsequently the firm deployed 97%, or $144.7m, of its assets into reinsurance contracts during the first half of 2013, building what Chairman of the fund John Weale termed the “Diversified portfolio that Blue Capital has created, which has attractive risk-adjusted return characteristics, consistent with the investment objectives.”
During the first-half of 2013, the net asset value (NAV) of the ordinary shares of the Blue Capital Global Reinsurance Fund increased by 2.7%, from $0.9793 per share to $1.0057 per share. This reflects the performance of the 2013 investment portfolio that Blue Capital has deployed its capital into. The ordinary shares traded at a premium of around 3% to net asset value.
Given the fact that Blue Capital had only finished deploying its capital at the middle of the year, along with the cyclical return nature of reinsurance contract returns, Blue Capital expects its U.S. wind focused portfolio will see strong returns from July to October.
The Blue Capital Global Reinsurance Fund portfolio has been deployed across 36 clients and 83 different positions which has generated $28m of net premium written. The exposures are largely U.S. wind, with some U.S. quake risks, Japanese windstorm and European windstorm as well as a number of second and subsequent event covers.
No events this year have affected Blue Capital as yet, although the firm did publish updates on the European floods and Oklahoma tornado, it does not expect any impact from them.
The investment manager commented on the recent decline in catastrophe reinsurance pricing, saying; “Pricing in the property catastrophe reinsurance market is cyclical in nature, and prices have deteriorated during the first six months of 2013. As the bulk of the Company’s 2013 underwriting capital has been deployed, January, 2014 represents the next significant renewal season. While we currently expect the challenging underwriting environment to persist through early 2014, the Company is confident that the Reinsurer’s growing market presence and established underwriting expertise will enable the Company to achieve an attractive risk-adjusted rate of return.”
Chairman John Weale commented; “With the three major reinsurance renewal periods behind us, we are delighted with the acceptance of our firm by the insurance company and reinsurance brokerage communities. The combined value of our collateralized reinsurance product and Montpelier Reinsurance Ltd.’s long-term client relationships has been proven by both the number and size of participations we were able to achieve on high-quality catastrophe reinsurance programs.”
More fundraising is possible for the Blue Capital Global Reinsurance Fund, as it has an open placing programme which it can use to raise capital through the end of this year.
John Weale added; “Looking ahead to the second half of the year, while little direct reinsurance will be bound prior to the January renewals, Blue Capital Management Ltd. (“Blue Capital”) will continue to look for opportunities to improve our portfolio and position us for the upcoming renewal season. In addition, the Company has the ability to issue further shares pursuant to the Placing Programme in order to raise further funds for investment in accordance with the Company’s investment policy.”
With the Blue Capital Global Reinsurance Fund now being close to fully invested it is expected that returns will accelerate through the remainder of the year. With the backing of Montpelier Re, the access to business that can bring and the chance to raise more capital if it chooses, Blue Capital looks well positioned as we move towards the next major renewals in January.