Blue Capital listed ILS fund liquidation to take up to 2021

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The liquidation and running off of the stock exchange listed Blue Capital Alternative Income Fund insurance and reinsurance linked investment strategy is set to continue into 2020, demonstrating the long process of unwinding collateralised reinsurance contract investments.

blue-capital-logoThe listed insurance-linked securities (ILS) investment fund strategy, which is managed by ILS and collateralized reinsurance specialist fund manager Blue Capital Management, a subsidiary of Sompo International Holdings Ltd., had been approved for liquidation by its shareholders almost a year ago.

The strategy was set to be wound down as it had not sufficient scale to make it economical to continue with, for the investors or the manager, following the impacts of the two major catastrophe loss years.

With Blue Capital Management having other, much larger, collateralized reinsurance and retrocession fund strategies, it made sense to shutter this small listed fund, that like all listed strategies had frequently seen its shares priced below NAV, in order to concentrate on its institutional focused investment funds.

In a report from the liquidators of the listed Blue Capital ILS fund, it reveals just how long it will take to wind down and free up all available capital for distributions to investors.

By the end of April 2019, the Blue Capital Alternative Income Fund had distributed $66.2 million of its capital to investors holding shares in the fund.

Distributions of the remaining capital are set to continue on a quarterly basis, as redemptions of master fund shares become possible and allowing for amounts needed to be held for reserves, but the company expects this to take time.

The majority of the fund’s capital is expected to be distributed through 2020, but some will still be flowing to investors into 2021, the liquidators said, reflecting the difficult process of fully realising losses and freeing up remaining collateral assets in reinsurance and retrocession.

With multi-year reinsurance contracts having proliferated in recent years, this has also extended the time required to recover collateral that had been deployed we suspect, even for contracts that were not affected by losses.

The winding down of the fund has been orderly and investors kept well-informed. In some ways the process will have been a learning experience for the manager, as the last two years of losses were really unprecedented for the way they impacted ILS fund strategies.

For Blue Capital Management, the focus now will be on maximising its position as part of the international re/insurance group Sompo International, as well as its institutional investor connections to deliver on its other, much larger ILS fund and investment strategies.

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