Blue Capital Reinsurance Holdings Ltd. (BCRH), the New York stock exchange listed collateralized reinsurer, has reported an impressive 11.4% total return for 2015, based on book value per share growth inclusive of dividends.
The Blue Capital Reinsurance Holdings vehicle is managed and operated by reinsurer Endurance’s third-party capital management subsidiary Blue Capital Management. The vehicle is another interesting way to access the relatively uncorrelated returns of reinsurance and insurance-linked securities (ILS), but this way through a stock exchange listed equity to provide liquidity options.
Adam Szakmary, President and CEO of the company, commented on 2015’s performance; “I am delighted to report that 2015 was an excellent year for Blue Capital on many fronts. We continue to generate attractive growth in book value per share. Growth in 2015 of 11.4% inclusive of dividends was uncorrelated to financial market volatility. 2015 also marked the second consecutive year Blue Capital declared a special dividend resulting in the Company distributing over 90% of total annual earnings.”
The company reported income of $5.4 million for the fourth quarter of 2015 and $20.7 million for the full-year 2015. In terms of business underwritten, the reinsurer pulled-back a little, reporting reinsurance premiums of $5.0 million and $38.6 million, for the quarter and the full-year, which represent declines of $1.0 million and $6.4 million compared to the same periods in 2014.
These declines were “primarily as a result of portfolio management decisions and pricing reductions in the global catastrophe market,” the company said, reflecting a disciplined approach to the current reinsurance market environment.
This disciplined approach has seemingly been applied to the January reinsurance renewals, a key underwriting period for Blue Capital Re, which the company gave an update on today.
Szakmary explained; “We continue to be encouraged by our business prospects and the portfolio of catastrophe reinsurance risk assembled during the recent January underwriting period which provides investors preferred access to the reinsurance market. The acquisition of Blue Capital Management Ltd. by Endurance Specialty Holdings Ltd. has given Blue Capital access to a larger more diversified insurance group and catastrophe portfolio that enhances the Company’s positioning for future success.”
At the renewals the firm underwrote an increased amount of premiums, reporting indemnity reinsurance contracts with expected total annual premiums of $37.6 million, up $2.9 million on a year earlier, were written in January 2016.
The portfolio of risks underwritten is expected to produce a net rate-on-line of 19.5%, which is a 2.9% increase when compared to the same period in 2015, reflecting an increasing chance of higher profits and ultimately returns for the reinsurers investors.
The January 2016 portfolio is made up of around 21% first event reinsurance coverages, 49% catastrophe quota shares and the remainder consisting of second and subsequent event reinsurance coverages.
Blue Capital Reinsurance Holdings remains an intriguing opportunity for investors to access the ILS and reinsurance linked investments space through an exchange-listed equity holding. That’s a rarity in the sector, in fact BCRH is the only vehicle of its kind.
By underwriting collateralized property catastrophe reinsurance as well as investing in a variety of insurance-linked securities (ILS) the company can access a wide range of reinsurance returns. With Endurance the parent to the investment manager, Blue Capital Management, the potential for growing the portfolio and accessing more quality business keeps growing.
Many investors appreciate the returns of ILS, but would prefer the investment in an equity format. Similarly many private equity investors and funds like reinsurers as investments, but find the current market challenges make it hard to justify.
BCRH could be the answer for some of these investors. A vehicle providing a more efficient capital model, with reduced corporate overheads and risk exposure, while still providing the low correlation, diversification and steady returns of an ILS fund or collateralized reinsurance vehicle.