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Blue Capital Reinsurance Holdings beats estimates again, up 6% in 2015


Blue Capital Reinsurance Holdings Ltd. (BCRH), the NY stock exchange listed collateralized reinsurance subsidiary of Bermuda-based Montpelier Re, beat analyst estimates again in Q2, helping it to a 6% increase in book value for the first-half of 2015.

Blue Capital Re, established as an insurance-linked investment vehicle, allowing a different class of investors to access the strategies of investment manager Blue Capital Management Ltd. through a stock exchange listed equity, reported second quarter 2015 income of $5.5m, or $0.63 per share.

The reinsurer, which effectively operates a little like a stock exchange listed ILS fund or sidecar, aims to generate a total return for its investors from a combination of book value increase and dividends. In 2015 to date, the reinsurer has outperformed, now having generated a 6% return for the first-half, inclusive of dividends.

Bill Pollett, President and CEO of Blue Capital, commented on the results; “We had a strong second quarter and first half with an annualized year to date return of 12%, and the portfolio remains well-positioned.”

Blue Capital saw price decreases in its renewals at the mid-year, but the firm is another to have noticed a moderation in reinsurance price declines and some stability returning to the market.

“During the mid-year renewals, our portfolio experienced an average price decrease of 5%. However, price decreases moderated versus the prior year as we saw increased market demand coming from both new buyers as well as existing clients. Our underwriting team executed well in a dynamic market, and the Company was successful in constructing an attractive portfolio,” Pollett explained.

Blue Capital Re’s fully converted book value per common share rose to $20.59 at June 30th, which reflects a 3% increase for the quarter and a 6.0% increase year-to-date (following a 3% increase in Q1). This easily beat a consensus (across four) estimate of $0.51 per share reported by analysts at KBW.

KBW’s analysts cited lower than expected core losses and better than expected development on prior years, as contributing to the beat. Slightly lower than expected net earned premiums and higher than expected expenses offset this a little, but Blue Capital Re still easily beat the estimates.

KBW’s analysts note that Blue Capital Re trades at well below diluted book value, at around 81%. This is much lower than the peer group average of 110% of book value, making the stock an attractive option for those looking for a different way to access the returns of catastrophe reinsurance business.

Reinsurance premiums written in Q2 by Blue Capital Re amounted to $7.6m, down from $10.7m in the prior year period. This is likely due to a slight pull-back and that as Blue Capital Re scales and matures it will deploy its capacity across the different renewals in different proportions, so some change is likely year-on-year in a softening reinsurance market such as this.

Net reinsurance premiums earned came in at $9.7m, down from $11.1m in the prior year quarter, but the much lower expenses ($4.2m in Q2 2015 versus $10m in Q2 2014) made the difference, resulting in $5.5m of income compared to just $1.2m a year earlier.

Blue Capital Re continues to provide attractive returns to investors, returning much of its profit in the form of dividends on top of the book value growth.

This total return approach, combining book value growth, dividends and returns of reinsurance underwritten by Blue Capital Re offers an interesting way for investors to access the insurance-linked asset class through a different, stock exchange listed type of collateralized reinsurance vehicle.

The NY stock exchange listing means the collateralized reinsurers investors have the benefit of full, exchange traded liquidity, while also giving the manager Blue Capital greater access to more retail-type capital, as anyone can invest in the exchange listed reinsurance company.

With Montpelier Re, parent of Blue Capital Management, being acquired by Endurance, the ILS asset management unit and its vehicles such as Blue Capital Reinsurance Holdings will be changing owners.

Post-merger, the newly combined entity could provide investors in Blue Capital Re with enhanced access to new opportunities and potentially more chances for diversification as well. That may prove attractive to investors going forwards.

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