Montpelier to launch Blue Capital Reinsurance, listed collateralized reinsurer

Bermuda based reinsurer Montpelier Re looks set to launch a new collateralized reinsurance operation, according to documents filed with the SEC today. The reinsurer is launching Blue Capital Global Reinsurance Holdings, a collateralized reinsurer, listed on the New York Stock Exchange.

Blue Capital Reinsurance Holdings Ltd. is a newly formed Bermuda domiciled reinsurance holding company which Montpelier Re is launching with the aim of offering collateralized reinsurance capacity, primarily in the property catastrophe reinsurance market.

It’s an interesting launch as it looks like a new reinsurer but takes a similar form to many reinsurance sidecars in terms of strategy. By listing on a major global exchange like New York it should help Montpelier Re raise much more interest in reinsurance as an asset class and help it to access a wider third-party capital base.

The documents filed with the SEC show that Montpelier Re is seeking to dual list this new reinsurance holding firm on both the New York Stock Exchange and Bermuda Stock Exchange. In this initial public offering for Blue Capital Reinsurance Holdings, up to $100m of shares look set to be offered to private investors while Montpelier Re itself will also invest in the new reinsurer in a concurrent private placement. Deutsche Bank Securities are managing the offering of Blue Capital Reinsurance Holdings shares.

Blue Capital Reinsurance Holdings has two subsidiaries, Blue Capital Re Ltd., a Bermuda domiciled special purpose insurer and Blue Capital Re ILS Ltd. Blue Capital Re is the vehicle through which Blue Capital Reinsurance will undertake its collateralized reinsurance underwriting activities.

Blue Capital Re ILS is a Bermuda exempted company through which Blue Capital Reinsurance will conduct insurance-linked instrument activities, including hedging and investment activities like entering into industry loss warranty (ILW) contracts or purchasing catastrophe bond notes.

The strategy is to bring another source of capital into the Montpelier Re and Blue Capital business structure, through an NYSE listed reinsurance firm. By operating as a collateralized reinsurer, Blue Capital Reinsurance Holdings helps Montpelier Re to grow, bring new capital from new types of investors and increases the overall Montpelier Re groups influence come reinsurance renewal time.

Blue Capital Reinsurance Holdings will work closely alongside  Blue Capital Management, the third-party capital and reinsurance-linked fund management arm of Montpelier Re. There will be an investment management agreement between the two entities, meaning that Blue Capital Management will provide investment management services to the reinsurer.

The principal objective of Blue Capital Reinsurance Holdings will be to maximise returns for its investors by deploying its shareholder capital within a diversified portfolio of short-tail collateralized reinsurance contracts and investing in some insurance linked securities. It will seek to offer shareholders a regular dividend and aims to distribute a minimum of 90% of available cash as dividends for shareholders.

The strategy will be to enter into reinsurance contracts either directly and fully-collateralized or at times through fronting arrangements with Montpelier Re. Blue Capital Reinsurance will also provide facultative retrocessional reinsurance capacity to Blue Water Re, another Montpelier Re owned special purpose insurer which underwrites business for the Blue Capital Global Reinsurance Fund as well. The strategy will also involve quota share agreements with Montpelier Re and other third-party reinsurers as well as investing in catastrophe bonds and industry loss warranties.

In the future the Blue Capital Reinsurance strategy may broaden into non-catastrophe lines of business such as terrorism or workers compensation catastrophe cover. It may also involve over the counter or exchange traded catastrophe future or options listed on indices.

This is another interesting way that Montpelier Re can tap into third-party sources of capital. The reinsurers ILS investment management arm is currently in the middle of raising more funds for its flagship ILS fund offering, the Blue Capital Global Reinsurance Fund Limited.

This launch of an initial public offering for a new collateralized reinsurance entity will help Montpelier Re grow its third-party assets under management, increase its income from managing external capital, provide itself with new retrocessional reinsurance capacity and tap into a wider range of investors through an exchange listed reinsurer launch.

We’ll bring you more details as they become available or when the IPO of Blue Capital Reinsurance Holdings is completed.