Blue Capital Re reports improved ratios, shift to quota share strategy

Blue Capital Reinsurance Holdings Ltd., the stock exchange listed, collateralized reinsurer owned by Sompo International Holdings Ltd., has reported improved loss and combined ratios for the first-quarter and confirmed its shift towards a quota share investment strategy.

Blue Capital Re writes collateralized reinsurance for third-parties and in cooperation with its parent Sompo International, creating a portfolio of insurance-linked investments that is accessible through a stock exchange listed equity. As such it’s a little different to your standard ILS strategy, being more accessible to a wider range of investors and offering the liquidity you’d expect from an exchange listed equity.

For the first-quarter of 2019 Blue Capital Re reported net income of $1.8 million ($0.21 per share), much improved from the $0.5 million in the prior year quarter.

Book value per common share rose by 2% during the period, inclusive of dividends, reaching $10.38.

The combined ratio for the Q1 came out at 82.5%, much improved compared to the 98.0% from the prior year when the impacts of catastrophes was still hitting the company.

Blue Capital Re reported a significantly lower loss and loss adjustment expense ratio although slightly offset by higher acquisition and general and administrative expense ratios.

Reinsurance premiums written shrank though, as the impact of a lower level of available capital following the heavy catastrophe industry losses of the last two years has dented Blue Capital Re’s size.

$5.4 million of reinsurance premium was underwritten, down $7.1 million over the prior year period.

This decline was largely due to the smaller available capital base, but also partly related to the firms shift to quota share contract business, which sees written premiums accounted for as premiums are earned throughout the contract period, rather than at the start of the contract.

Loss and loss adjustment expenses were $1.9 million in Q1 2019, much better than the $4.5 million in the prior year when hurricane Irma loss creep had hit the company.

Reinsurance acquisition costs of $2 million were a little higher than the $1.9 million of the prior year quarter, which was related to the shift in the business mix to quota share business which comes with higher levels of commissions. General and administrative expenses offset this though and fell to $1 million, compared to $1.1 million in the prior year.

Michael J. McGuire, Chairman and CEO, commented on the results, “I am pleased with our first quarter results which delivered increased net income year over year, growth in book value per share inclusive of dividends of 2% and a combined ratio of 82.5%. During the January 1st renewals, we maintained our strong partnership with Sompo International and deployed all of our available capital into quota share contract business with attractive risk adjusted return potential. We continue to maintain our underwriting discipline and expect to remain cautious in our approach to capital deployment during remaining 2019 renewals.”

The shift towards quota share business began at the January renewals, which McGuire said at the time “have historically generated better returns with lower volatility.”

The company will be hoping for a quieter year in terms of catastrophe loss activity, to enable it to demonstrate the performance it can deliver to shareholders.

Blue Capital Reinsurance Holdings is the only reinsurance focused ILS investment strategy that can be accessed through a stock exchange at this time.

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