Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Blue Capital seeks to amend investment policy of listed reinsurance fund


Blue Capital Management, the third-party capital and reinsurance-linked asset manager of reinsurer Montpelier Re, has asked shareholders in its Blue Capital Global Reinsurance Fund to approve some amendments to its investment policy in advance of January renewals.

Any amendments to the investment policy of the London stock exchange listed Blue Capital Global Reinsurance Fund have to be approved by its shareholders, so as a result Blue Capital is calling a special general meeting at which a resolution will be put to shareholders asking for their approval of the changes.

The changes are not major and Blue Capital says that they reflect a refinement of the investment managers approach over the first year of the funds existence as well as seeking to bring the investment policy for this fund broadly into line with other Blue Capital products.

One proposed revision is the definition of aggregate exposure, which has been adjusted to substitute contract limit with collateral invested and to also specify that it is calculated net of reinsurance recoverables. A second revision is to the definition of probable maximum loss (PML), which has been adjusted to clarify that an offset is applied to any PML calculation for both net unearned premiums on the loss impacted contracts (as this will be earned immediately when there is a loss) as well as any reinsurance recoverable.

A small change is proposed to the geographic locations that the fund uses for diversification. Previously France had its own pillar but that is now only bundled into a single Western Europe risk bucket.

Another proposed change clarifies that investments can be made both by the fund directly or indirectly through the funds reinsurer, Blue Water Re Ltd. This likely would support the final proposed change which seeks to clarify the ability of the Blue Capital Global Reinsurance Fund to enter into quota share agreements, including at arm’s length and with pre-approval from Directors with the parent company reinsurer Montpelier Re.

The amendments sought should give Blue Capital a little more flexibility when managing the reinsurance-linked asset portfolio for the fund and the freedom to participate in quota-shares as well as direct reinsurance contracts and instruments. This will in turn bring more risk to investors, meaning that as Blue Capital Management can raise more capital for this fund it will have more deployment opportunities available to it.

Given current global property catastrophe market conditions and the high levels of competition, it is likely that Blue Capital will have a number of deals available to it which may require these amendments to be made. Hence the announcement of these proposed changes now and the scheduling of the special meeting for before Christmas.

Passing of these amendments should allow Blue Capital to fully deploy all of its available capital in January with the added benefit of being able to enter into quota-shares with parent Montpelier Re should any attractive opportunities arise.

You can read the full proposed amendments in a circular posted to the Blue Capital Management website.

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