Blue Capital Re grows premiums earned in Q2, CATS dent income

Blue Capital Reinsurance Holdings Ltd. (BCRH), the listed collateralized reinsurance subsidiary of Bermuda firm Montpelier Re, has reported its second quarter earnings revealing growth in premiums earned, but an impact from some catastrophe events.

Blue Capital Re reported that it had earned $11.1m of reinsurance premiums during the second quarter, slightly up on the Q1 figures, representing approximately 25% of the expected total annual premium associated with its in-force reinsurance contracts at June 30, 2014, keeping its earnings on target.

During the first six months of the year, Blue Capital Re bound collateralized indemnity reinsurance contracts with expected total annual premiums of $45.4 million and wrote $32.6 million in premium. Since its inception, the business underwritten by the reinsurer collectively represents $203.5 million in total reinsurance contract limit.

The firms net income and operating income for the quarter was $1.2 million ($0.13 per share), which is down on Q1 due to some losses from catastrophe events during Q2. Blue Capital Re reported a combined ratio for the quarter of 89.2% largely due to losses from catastrophes.

William Pollett, President and CEO, commented on the results; “Our second quarter results were impacted by a series of smaller industry catastrophe events. However, our underwriting team executed well during the key June 1 renewal period, successfully deploying our available capital to construct a diversified portfolio of risks and expanding our client base.”

Loss and loss adjustment expenses for the quarter reached $7.3 million, which Blue Capital Re said also includes a provision for losses that are believed to have occurred but for which no claims have been reported so far. The catastrophe losses reported during the quarter are largely from severe tornadoes in the U.S., as well as Windstorm Ela in Western Europe.

Blue Capital Re continued to meet its dividend promises in the quarter and its fully converted book value per common share (FCBVPS) was $20.02 at June 30, 2014, which reflects a 0.6% increase for the quarter and a 4.1% increase for the first half, both inclusive of dividends declared in the quarters.

During the quarter Blue Capital Re closed on a $20m revolving credit facility, to be used as working capital as and when the firm requires liquidity, allowing it to fully deploy all of the net proceeds it raised at its launch in the renewals up to June.

As a result, the firm now reports its total assets as $201.9 million, up from $175.5 million at the end of 2013.

Blue Capital Re’s strategy of returning much of its profit in the form of dividends remains a good opportunity for investors to access the reinsurance asset class through a different, stock exchange listed type of collateralized reinsurance vehicle. As the firm grows over time, loss events like these will not make such a big dent in quarterly net income as its capital to deploy in underwriting increases allowing it to take larger lines across diversified reinsurance business.