New York stock exchange listed fully-collateralised reinsurance company Blue Capital Reinsurance Holdings Ltd. has beaten analysts estimates in the fourth-quarter and reported today that its business underwritten for 2017 should produce a higher net rate-on-line for the portfolio.
Blue Capital Re, which is an Endurance subsidiary operated by the reinsurers third-party capital management unit Blue Capital Management, reported net income of $4 million (or $0.46 per share) for Q4 2016 and $14.3 million (or $1.63 per share) for the full-year 2016.
KBW analysts said that Wall Street had a $0.08 estimate for Q4 and its own was just a $0.02 estimate, so on that basis Blue Capital Re beat the Street significantly in the last quarter.
It’s an impressive result and as Adam Szakmary, President and CEO of Blue Capital Re, explained; “2016 was a solid year for Blue Capital as we generated growth in book value of 7.6% inclusive of dividends and a combined ratio of 65.0% against a backdrop of the costliest year for industry losses within the last five years.”
Once again the importance of risk selection and diversification proves key in the ability of Blue Capital Re, which is not the largest third-party capital vehicle around, to continue to deliver attractive returns even in a higher catastrophe loss year.
Book value per share of the reinsurance firm increased by 2.3% for the quarter and 7.6% for the full-year, inclusive of dividends.
Szakmary continued; “These results led to our declaring a special dividend for the third year in a row which, when combined with our previous 2016 regular quarterly dividends, represents a return of over 90% of total annual earnings.”
Being a fully collateralised reinsurance vehicle although listed on a stock exchange is a unique trait of Blue Capital Re, providing investors with the benefits of an ILS type investment, but with the liquidity available through a recognised major exchange. By returning so much of its earnings the reinsurer keeps expenses low and offers an enhanced return to investors.
During the fourth-quarter Blue Capital Re underwrote $8.7 million of reinsurance premiums and $43.2 million for the year, increasing by $3.7 million and $4.6 million compared to the same periods in 2015. The increase is largely due to increased participation in quota share contracts, a benefit from being part of the Endurance family from who Blue Capital Re sources some of its risk, partially offset by a decrease in direct written premiums. This also helps to keep the vehicles acquisition costs lower, we’d assume.
“2016 was also the first full year of the Company’s operations since Blue Capital Management Ltd. was purchased by Endurance Specialty Holdings Ltd., resulting in greater access by the Company to a larger more diversified catastrophe portfolio, thereby enhancing our ability to effectively select risks and build a higher quality portfolio designed to generate shareholder value,” Szakmary explained.
2016’s loss events did hit the company, as you’d expect, but the combined ratio was still only 61.1% for Q4 and 65.0% for 2016, compared to 42.4% and 45.3% for the same periods in 2015.
Loss and loss adjustment expenses were $3.4 million for Q4 and $13.7 million for 2016, up from $0.3 million and $2.6 million in 2015. This was driven by loss events such as Hurricane Matthew and the New Zealand earthquake in the fourth quarter and the Canadian wildfires, Japanese earthquake, and U.S. severe weather activity, earlier in 2016.
At the January renewal Blue Capital Re underwrote business that could deliver a higher return to its investors throughout 2017.
By January 31st 2017 Blue Capital Re had underwritten indemnity reinsurance contracts which could generate total annual premiums of $35.5 million, slightly down by $2.1 million compared to 2016 as a result of a timing change in binding the portfolio year over year, the company said.
However, the underwritten business is expected to produce a net rate-on-line for the portfolio of 21.2%, which is up by 1.7% compared to the prior year due to a shift to include more retrocession as the company found pricing more favourable in that market.
As of January 31st 2017 Blue Capital Re’s portfolio consisted of around 29.8% first event reinsurance contracts, 56.3% catastrophe quota share deals and the remainder allocated to second and subsequent event reinsurance covers.
Blue Capital Re continued to deliver attractive results, for a listed collateralised vehicle. With a higher rate-on-line in the portfolio for 2017 the company could exceed its performance of this year, however the diversification of the underwritten business will remain key.