Swiss Re Insurance-Linked Fund Management

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Blue Capital Re run-off plans take shape, with BMA to oversee


The run-off process for Blue Capital Reinsurance Holdings Ltd., the stock exchange listed, collateralized reinsurer owned by Sompo International Holdings Ltd., is beginning to take shape with the regulator set to oversee the process.

blue-capital-logoNYSE listed Blue Capital Re operated like a stock exchange listed insurance-linked securities (ILS) fund vehicle, but has suffered from the back-to-back major catastrophe loss years of late, as well as the below NAV valuation issues that have plagued all listed ILS structures so far.

Blue Capital Reinsurance Holdings (Blue Capital Re) shares had consistently been priced at a discount to the vehicles net asset value, as all listed ILS structures have ended up being. Alongside the loss experience this has made it harder to persist with the strategy, resulting in the company taking the decision to run-off the portfolio and return capital to its investors in July.

In light of the decision to run-off the vehicle, the regulator the Bermuda Monetary Authority (BMA) has amended the license of Blue Capital Reinsurance Holdings subsidiary Blue Capital Re Ltd.

The amendments preclude Blue Capital Re Ltd. from underwriting any additional reinsurance or retrocession contracts and also prevent it from making dividend payments or capital returns without the approval of the BMA first.

This will ensure that the remaining reinsurance and retrocession contracts and investments run their course and honour their obligations to ceding companies first, before they are then able to return any remaining capital to shareholders in the ILS vehicle.

It means the winding down and running off the Blue Capital Re portfolio will be overseen, with on-risk contracts allowed to mature and return capital as available, while any trapped collateral or extended contracts see out their course, ensuring that all sides interests are respected.

As a result, it could take some time for the running off to complete and for the shareholders to receive what capital can be made available to them, but we understand that the target remains getting the vehicle run-off by around March 2020.

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