The Blue Capital Global Reinsurance Fund, the London and Bermuda stock exchange listed reinsurance linked investment and ILS fund, has increased its premiums written and acquired more retrocessional protection in the first-half of 2016, but suffered from $7.6m of catastrophe losses.
Following adjustments to the listed insurance-linked securities (ILS) fund’s investment policy and portfolio construction, which followed the change in ownership as parent reinsurance company Endurance had acquired Montpelier Re, the previous owner of investment manager Blue Capital Management, the fund is seeing more opportunity and acquiring greater protection as well.
However, given the focus on investing in reinsurance contracts exposed to peak natural catastrophe events, as you’d expect the fund has also been hit by some of the catastrophe loss events during the half, with the Canadian wildfires, Texas hail and severe convective storms and Japanese earthquakes all contributing.
In its first-half 2016 report, the Blue Capital Global Reinsurance Fund’s Chairman John Weale writes that in the first six months of the year the fund made combined investments representing the deployment of $187.5 million across 93 different positions and 40 different clients. Investments were made into collateralised reinsurance largely in quota share form, industry loss warranties (ILW’s) and a single catastrophe bond position.
This deployment of substantially all of the assets of the fund generated $40.7 million of net insurance premium written and fixed ILW payments in the first-half, which Weale explained is an increase of $6.7 million from the first-half of 2015.
Greater premiums written and ILW payments due will help the fund to generate a greater return, catastrophe loss events aside.
The fund has also sought to better protect itself in 2016, acquiring more retrocessional reinsurance coverage. Weale said that portfolio retrocessional hedging amounted to $4.6 million, an increase of $2.9 million from the first half of 2015.
Losses hit the fund in the first-half which alongside operational costs, share repurchases and dividends paid to shareholders caused a decline in net assets to $216.1 million from $223.3 million at the start of the year. The net asset value (NAV) of the fund’s Ordinary Shares dropped by approximately 0.2%, excluding the impact of dividends declared, which will be a reflection of the impact of losses.
During the first-half of 2016 the reinsurer that the Blue Capital Global Reinsurance Fund invests in had incurred $7.437 million of catastrophe losses and loss adjustment expenses. The Fort McMurray, Canada wildfires in May 2016 represented the largest driver of loss activity. In the first-half to June 30th the firm had already paid claims of $2.364 million, the investment manager reports.
Much of the returns generated by reinsurance business collateralised and underwritten by Blue Capital is U.S. wind risk exposed, so will pay the majority of its premiums between July and October. At the June renewals the firm found market conditions more stable than in January, with a slower pace of rate decline evident.
Adam Szakmary, CEO of Blue Capital Management Ltd., explained; “We believe the stabilizing pricing environment was influenced in part by technical pricing discipline, and a continuing trend of increasing demand for open market reinsurance limit replacing the Florida Hurricane Catastrophe Fund. The Reinsurer was well positioned to take advantage of these market dynamics, constructing an attractive portfolio.”
With any losses to date likely accounted for the fund will benefit from U.S. wind premiums over the coming months which should help it to boost its NAV return, alongside the continued payment of the regular dividends its investors receive.