Irma industry loss creep triggers aggregate ILW for Blue Capital Re

The industry loss from 2017’s hurricane Irma has continued to rise in recent weeks, with the latest increase having triggered an aggregate industry-loss warranty (ILW) for the still running-off Blue Capital Reinsurance Holdings Ltd., the stock exchange listed, collateralised reinsurance vehicle owned by Sompo International Holdings Ltd.

Blue Capital Re has been in the process of being run-off and its shares liquidated, with capital returned to third-party investors, for around a year now.

When we last covered the listed collateralised reinsurance structure it was in January to report on some positive development of prior year losses, as well as positive premium adjustments and better than forecast expenses, as the run-off continued.

But the issues with hurricane Irma and in particular the creeping Florida industry loss from the storm has now hit a legacy position from 2017 that was still in the Blue Capital Re portfolio.

The company reported the notification of a loss to an aggregate catastrophe reinsurance contract, as impacts from 2017 catastrophe events have risen again.

The company said that Property Claims Service (PCS) has revised the industry loss estimate for 2017’s hurricane Irma upwards in August 2020.

This will have come on the back of new loss reports from primary carriers in Florida, some of who continued to experience loss creep from Irma through the second-quarter of 2020.

“The increase in the Hurricane Irma industry loss estimate, when aggregated with other 2017 loss events, triggered an Industry Loss Warranty (“ILW”) issued by the Company in 2017,” Blue Capital Re reported.

The purchaser of the ILW coverage has notified Blue Capital Re of its claim and has withdrawn the funds from the related trust account, the company said.

As a result, Blue Capital Re said it has suffered a loss of $3.1 million, or $0.35 per diluted share, in relation to the ILW claim.

This loss will be recognised as a reduction in net assets in liquidation when Blue Capital Re reports its end of Q3 financial position, the company said.

The company also pointed out that, while the loss represents a significant proportion of the remaining assets in liquidation, it was only 1.7% of Blue Capital Re’s assets at the time the ILW contract was written in January 2017.

The position will have been held as trapped collateral since the end of 2017, with the protection buyer waiting for industry loss estimates to stabilise for the 2017 hurricanes before releasing the position.

In this case the loss creep continued, thanks to hurricane Irma and in particular the Florida market issues around social inflation and as a result the protection buyer has still been able to claim on the ILW coverage even though this is almost three years after the hurricane struck.

It’s possible the increase in PCS’ hurricane Irma industry loss estimate could have triggered, or counted for further aggregation against, certain industry loss based reinsurance or retrocession contracts that remain in-force or extended from the 2017 U.S. wind season.