Blue Capital to run-off exchange listed ILS vehicle Blue Capital Re

Blue Capital Reinsurance Holdings Ltd., a stock exchange listed, collateralized reinsurer owned by Sompo International Holdings Ltd., is to be run-off, the company has announced.

The company, which acts like a stock exchange listed insurance-linked securities (ILS) fund vehicle of sorts, has suffered from the back-to-back years of major catastrophe loss events as well as the valuation issues that have plagued listed ILS structures.

The shares in Blue Capital Reinsurance Holdings (Blue Capital Re) have been priced at a discount to the vehicles net asset value for some time now, which led the company to suggest share buybacks in the past. Now it has taken the decision to run-off the portfolio and return capital to its investors.

Michael McGuire, Chairman and Chief Executive Officer, explained, “Recognizing the valuation level of the Company’s common shares in the public markets, the Board of Directors determined that an orderly runoff of the Company’s liabilities and return of the Company’s capital through special distributions is the best course of action to maximize value for our shareholders.”

The Board of the reinsurance vehicle said it had considered its strategic alternatives but concluded that it was in the best interests of investors to cease all active operations, pursue an orderly run-off of its liabilities and in-force portfolio, in order to return its capital to shareholders and winds up its operations.

The company said it will release its capital as and when its available to do so and expects that 20% of its existing shareholders’ equity will have been distributed or become available for distribution in 2019, while 65% will become available for distribution in 2020 and 15% subsequent to 2020. The first of these special distributions to investors is expected to be announced around August 30th 2019.

While this running off proceeds Blue Capital Re and its shares will still be exposed to its underlying in-force portfolio of reinsurance treaties and the future release of collateral, so distributions of capital to investors will be dependent on these factors, any losses and the release of trapped capital.

The aim is to complete the running off and delist the company from the stock exchanges it is listed on by the end of March 2020.

Like most other listed ILS funds and related structures, this Blue Capital Management operated vehicle struggled to attain a size sufficient to make it really viable over the longer-term.

Combined with the consistent valuation of its shares at below its assets, as well as the impacts from catastrophe losses in recent years, it makes sense to shutter this small operation to allow the investment manager Blue Capital to focus on its broader collateralized reinsurance fund strategies where it manages significantly more in assets.