Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Blue Capital reports larger than expected price drop at June renewals


The June 1st reinsurance renewals saw pricing fall at a faster rate than expected, as pricing for Florida and U.S. property catastrophe business declined by as much as 10% in some cases. ILS specialists Blue Capital Management report that despite steeper than expected declines, the manager achieved “strong portfolio execution.”

Reinsurance and retrocessional reinsurance linked investment manager Blue Capital Management Ltd. reports that it saw conditions remaining testing at the June renewal, with some business having to be turned away due to unfavourable pricing or terms.

Mike McGuire, Chairman and CEO of Blue Capital, commented on the price environment at the June renewals; “We are pleased to report strong portfolio execution during the June renewal period.  Overall market price reductions were larger than initially anticipated, with the Florida market being 5% – 7.5% down year on year.”

Reporting on both the London and Bermuda stock exchange listed reinsurance fund, the Blue Capital Alternative Income Fund Limited, and the New York stock exchange listed collateralized reinsurer, Blue Capital Reinsurance Holdings Ltd., the ILS investment manager saw opportunities and also reasons to pull-back at the renewal.

The listed fund, Blue Capital Alternative Income (as it’s now known since a name change), saw its total investments following the June 2017 renewals drop by $17.3 million year on year, giving a total investment of $173.8 million at fair value in Blue Capital Global Reinsurance SA‐1 (its “Master Fund”).

The decline in investment value is largely down to the non-renewal of some reinsurance arrangements with less favorable terms, the manager said, adding that it will aim to reinvest the remaining assets over the rest of the year.

The Blue Capital Alternative Income Fund invests its assets in shares of Blue Water Re, the managers collateralized reinsurance vehicle, and directly into industry loss warranty (ILW) derivative contracts.

In total these investments by the Blue Capital listed fund add up to collateral deployment of $167.2 million across 98 different positions and 40 different clients, which the manager says will generate $41.1 million of net reinsurance premium written and fixed ILW payments, up by $0.7 million from the prior year.

Meanwhile, the NYSE listed collateralized reinsurance vehicle, Blue Capital Reinsurance Holdings, underwrote indemnity reinsurance contracts associated with total annual premiums of $4.7 million, up by $2 million compared to the June 2016 renewal.

The the manager expects this underwritten business will produce a net rate on line for the portfolio of 17.7%, which is up by 170 basis points compared to the prior year. The higher rate on line is down to increased deployment at the June renewal, which being Florida focused results in business being underwritten that generally has a higher rate on line than the portfolio average.

As of June 1st 2017 the Blue Capital Reinsurance Holdings portfolio is made up of around 30.2% supporting first event reinsurance coverages, 46.2% supporting catastrophe quota share coverages and the balance allocated to second and subsequent event reinsurance coverages.

Both of the Blue Capital reinsurance linked investment vehicles have portfolios which could offer a 15% no loss return in 2017, and the expected return range is 5% to 10% for the London listed fund vehicle, and 6% to 11% for the NYSE listed reinsurer, both reflecting that despite the ongoing price declines there are still attractive returns to be made from investments in reinsurance in the current environment.

CEO of Blue Capital Management McGuire commented on another succesful renewal; “Due to the strength of our established long term relationships, the high quality of our underwriting and portfolio management teams and our strategic alignment with Sompo International, we were able to construct an attractive portfolio with risk adjusted pricing down 3%.

The rate that prices declined at the June reinsurance renewal was a surprise to many, but with ILS capital remaining abundant and reinsurers well capitalised there is every chance that further declines are ahead over the rest of 2017 and into the key January 2018 renewal season.

Only a month left until our ILS Asia 2017 conference, tickets on sale here.
ILS Asia 2017

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

Artemis ILS Asia 2023 - Insurance-linked securities conference in Singapore

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.