New York exchange listed fully-collateralized reinsurance company Blue Capital Reinsurance Holdings Ltd. (BCRH), a subsidiary of Endurance, has announced that it anticipates a $5.1m hit from second quarter 2016 catastrophe events.
The Fort McMurray wildfires in Canada, severe convective storms in Texas and Europe and also the Kumamoto earthquake in Japan, have all impacted the collateralized reinsurance company in recent months.
As ILS vehicles and other insurance-linked investment platforms grow they are just as exposed to global catastrophe events as the major reinsurers. The majority of the world’s reinsurance companies will have taken some hit from these events, and Blue Capital Re is no different.
Blue Capital Re offers fully collateralized reinsurance products and invests in insurance-linked securities (ILS), but rather than a fund structure the listed nature of the company enables a different class of investor to access the returns of the reinsurance market and with the added benefit of liquidity from a stock exchange.
The initial estimated net negative financial impact of $5.1m includes the sum of net loss to Blue Capital Re and loss adjustment expenses, factoring in $0.7m of reinstatement premiums.
Blue Capital Re said that its estimate comes from a combination of its proprietary catastrophe modeling, standard industry models, a review of its in-force and potentially exposed reinsurance contracts, as well as from discussions with clients and brokers.
However, Blue Capital Re also notes that the amount of reported claims from these events is still limited, which suggests that the final impact could be materially different (in either way) to the estimated amounts.
Analysts at KBW explained that the Blue Capital Re loss estimate represents around 2.8% of shareholder equity (based on Q1 data) and could add as much as 44.5% to its estimate of Blue Capital Re’s Q2 loss ratio.
KBW also said that it believes with the flurry of loss announcements, as the majority of the reinsurance sector pre-announced losses prior to Q2 results season, that investors in reinsurance equities may be becoming desensitized to these losses this year, despite the fact they could be the worst for some time.
Blue Capital Management Ltd., the Endurance ILS and collateralized reinsurance unit which operates Blue Capital Re, also operates the London stock exchange listed Blue Capital Global Reinsurance Fund. The same Q2 catastrophe events also hit that fund a little, with the manager reserving prudently for any loss.
With companies like the Blue Capital ILS vehicles suffering some impact due to the Q2 catastrophes it shows that many other reinsurance and retrocessional vehicles, such as collateralized ILS funds, sidecars and reinsurers, will all likely be seeing some level of loss due to the events of the recent quarter.