The Blue Capital Global Reinsurance Fund has revealed more stable reinsurance pricing despite continued market pressures in their January renewals as the company reported on its underwritten portfolio for 2017.
The London and Bermuda stock exchange listed reinsurance and insurance linked securities (ILS) investment fund, which is managed by Blue Capital Management the third-party capital arm of re/insurer Endurance, posted a total Net Asset Value (NAV) return, inclusive of dividends, of 8.3% in 2016.
This time last year, the fund boasted an NAV return of 9.6% for 2015, but given the continued downwards pressure on pricing, January 2017 renewals demonstrated a more stable outlook with a price decrease down by a moderate 3% compared with more significant reductions experienced during previous reinsurance renewal periods.
For 2017, the company has a total investment of US$183.5 million in Blue Capital Global Reinsurance SA‐1 (the “Master Fund”), which is a $25 million reduction on the investment at 1/1 2016.
Adam Szakmary, President and CEO of Blue Capital Management (“Blue Capital”), commented: “I am very proud to report that BCGR has now begun its 5th year of operation with the continued focus on providing investors access to attractive, largely uncorrelated, investment returns of the traditional reinsurance and insurance linked securities market.
“The Company’s preferred access to risk, proprietary methodology of portfolio construction, and its conservative approach to reserving allowed the Company to deliver superior portfolio returns.”
“We remain confident that we can deliver attractive returns for our Shareholders in spite of the current insurance market cycle and the pro forma modelled return expectations for the portfolio constructed are consistent with the Company’s target return.”
The Blue Capital Master Fund has a combined investment portfolio of assets in preferred shares of Blue Water Re (consisting of collateralised reinsurance), industry loss warranty (“ILW”) derivatives and one catastrophe bond.
These investments generated US$41.5 million of net insurance premium written and fixed ILW payments – down US$3.1 million from last year.
Portfolio construction adjustments were made in response to changes in market conditions by asset class and region, and the redemption share process: as of 1 January 2017, the fund is made up 87.9 percent of property catastrophe exposures totalling a $US161.3 million, 11 percent industry loss warranty, and 1.1 percent in Cat Bond exposure.
Total retrocessional hedging now makes up 0.4% of the fund, as the manager seeks to protect its investors against major losses eroding the fund’s value.
Per the Master Fund’s Investment Policy, the net first event Probable Maximum Loss (“PML”) in any one zone will not exceed 35 per cent, reflective of the diversified approach that Blue Capital takes to creating its portfolio.