Montpelier Re manages $600m of collateralized reinsurance assets

Reinsurance linked assets under management at Bermuda short-tail and speciality reinsurance firm Montpelier Re’s third-party capital management unit, Blue Capital Management Ltd., have reached $600m, according to its CEO.

Blue Capital Management launched in earnest in the last quarter of 2012, when it began marketing its flagship London stock exchange listed fund, the Blue Capital Global Reinsurance Fund Limited. The third-party capital and reinsurance asset management unit has grown steadily and operates a number of investment strategies, including listed funds, a collateralized reinsurer and private mandates.

During Montpelier Re’s fourth-quarter earnings call on Friday third-party capital use at the reinsurer was discussed in some detail. It was during one of these discussions that Montpelier Re President and CEO Chris Harris revealed that assets under management at Blue Capital Management had reached $600m.

Chris Harris said that managing investors capital for use in collateralized reinsurance products enables Montpelier Re to provide greater product choice and to underwrite larger lines. Harris said; “Capital under management now exceeds $600 million, enabling us to provide a broader product mix and increased line sizes for select clients.”

Collateralized reinsurance business at Montpelier Re has been growing over the last eighteen months, with collateralized reinsurance premiums now accounting for a meaningful amount of the total premiums written at the reinsurer.

In Montpelier Re’s fourth-quarter earnings report it shows that of the $254.9m property catastrophe reisurance premiums written at the reinsurer in 2013, $36.8m, or 14.4%, were underwritten on a fully-collateralized basis. In 2012 the reinsurer only underwrote $2.4m of collateralized property catastrophe reinsurance premiums, less than 1% of its total prop cat premiums written.

Of total premiums written at Montpelier Re in 2013, which amount to $603.1m, the collateralized business accounted for over 6%, which is a meaningful portion of the firms business where it is now using lower cost capital. That lower cost capital will also be largely earning Montpelier Re a management fee as well, with a majority being sourced from third-party investors.

Collateralized reinsurance, while playing a growing role at Montpelier Re, has also proved profitable in 2013, with the reinsurers collateralized operations ending the year with a combined ratio of 34%, according to Harris.

During 2013 Montpelier Re also launched an interesting fully-collateralized reinsurer which it listed on the New York Stock Exchange. Harris commented on this launch; “The launch of Blue Capital Reinsurance holdings on the New York Stock Exchange in November further expanded our presence in the collateralized reinsurance market.”

Harris said during the earnings call that collateralized reinsurance has helped Montpelier Re to increase the flow of signings from clients at renewals. Harris explained that as Montpelier Re continues to expand both rated and collateralized paper it helps the reinsurer offer a combination of complementary products which has helped the reinsurer to grow its business.

Harris said that having both rated paper and collateralized capacity enables Montpelier Re to provide better choice. He commented; “It just gives you more flexibility because we don’t try to tell clients what to buy, we want to hear what they want to buy, and then we are willing to offer a product that we think make sense for them.”

When asked why Montpelier Re has two public listed vehicles, in the London listed Blue Capital Global Reinsurance Fund and the New York listed Blue Capital Reinsurance Holdings, Harris replied that there is more permanence to that type of capital and that the reinsurer had heard from clients that having a consistent capital base was very attractive. Harris also said that as Montpelier Re’s long-term strategy is to be a player in property catastrophe business the reinsurer felt the listings worth it.

It’s also worth adding that, by listing these two vehicles, it gives Montpelier Re access to a different class of investor to other ILS and collateralized players whose funds are not listed, thus diversifying the sources of third-party capital at the reinsurer even further.

Not all of this $600m is third-party capital it should be noted. Montpelier Re’s fourth-quarter report shows that non-controlling interests at the reinsurer reached $244.9m at the end of 2013.

That non-controlling interests figure only represents third-party investor capital contained in Montpelier Re’s UK-listed closed end Blue Capital Global Reinsurance fund, the New York listed collateralized reinsurer Blue Capital Reinsurance Holdings and the open-ended Blue Capital Mid Volume fund vehicles.

Total capital in these three vehicles amounted to $403m at the end of 2013, Artemis understands. That number had grown from just $124m at the end of 2012, which is growth of 225% for these three vehicles in just one year, which is particularly impressive.

Blue Capital also manages $192m of third-party capital within private reinsurance sidecar vehicles which it operates for external investors. The private sidecar business had $167m of capital at the end of 2012, so has grown by 15% during 2013.

So in total, at the 1st January 2014, Montpelier Re had $595m of collateralized reinsurance assets under management, with nearly $437m sourced from third-party investors and the remaining $158m sourced from Montpelier Re’s own shares in its three investment vehicles, the two funds and the NY listed reinsurer.

Judging by Chris Harris’ comments during the earnings call further capital has been raised since January 1st, taking Montpelier Re’s collateralized reinsurance assets managed over $600m.

That Montpelier Re has an interest in its third-party reinsurance vehicles will be attractive to investors who want to see some ownership from reinsurers that venture into third-party capital management. CEO Harris recognised this, saying; “We don’t just have skin in the game, we’ve got our whole body in the game.”

The way Montpelier Re has developed its third-party capital activities, under the Blue Capital Management banner, has been fascinating to watch. It now provides a great example of a reinsurer really embracing alternative capital and using a range of vehicles to ensure diversity and a breadth of opportunity when raising new funds.