Blue Capital Management, the Sompo International (previously Endurance) owned reinsurance and insurance-linked securities (ILS) investment manager, has begun an investigation and assessment of the impacts from Hurricane Maria, to identify any impacts to its flagship listed ILS fund vehicle.
Shareholders in the stock exchange listed Blue Capital Alternative Income Fund (formerly known as the Blue Capital Global Reinsurance Fund) were told this morning that the ILS investment manager has commenced its post-event procedures, to estimate any loss to its ILS fund portfolio.
Given the size of the loss estimate that was released for hurricane Maria by AIR Worldwide, putting the loss to insurance and reinsurance interests in a range from $40 billion to $85 billion, many of the sectors ILS fund managers will be at work trying to identify whether their investments face any impacts from Maria.
Not all ILS fund managers will face a hurricane Maria loss, as alone the storm is unlikely to trigger any catastrophe bonds. However it could add aggregated losses to one or two retrocessional cat bonds, heightening their risk of losses.
But those ILS funds that invest in private contracts, collateralized reinsurance and quota shares, which Blue Capital does, are the most likely to find they have some impact to their portfolios from hurricane Maria.
Blue Capital said that its loss estimates will be derived using proprietary catastrophe modeling, the standard vendor cat models, as well as an in-depth review of in-force contracts and initial indications of losses received from clients and brokers.
The company warned, “The actual losses from this event may ultimately differ materially from estimated losses due to the nature of the risks assumed, the complexity of the assessment of damages and the limited number of reported claims received to date.”
ILS investment managers like Blue Capital Management have their work cut out to respond to the aggregation of major catastrophe loss events. With hurricanes Harvey, Irma and Maria to investigate, as well as the earthquake in Mexico City which could cause some losses to ILS interests, the complex process of identifying loss affected positions in the portfolio is made more complex by the sheer volume of work.
Blue Capital has already revealed the hit it expects that hurricane Harvey has had on the fund in its August NAV announcement.
It is the largest ever aggregation of major losses that the ILS sector has had to respond to, providing the industry with an opportunity to demonstrate its ability to swiftly identify and pay claims, while also working to manage the potential hit to investors.
Every ILS fund manager will be undergoing similar processes at this time. Blue Capital Management is just one of the few that is required to report more openly, due to the listed nature of its ILS fund vehicle.