Blue Capital warns on rate declines
Blue Capital Global Reinsurance Fund, the reinsurance fund formed by Montpelier Re in 2012, exceeded its anticipated performance in 2013 but has warned that challenging conditions in the reinsurance markets may make this tough to repeat.
The company targets an annualised dividend yield of LIBOR plus 6 percent and a net return to shareholders (comprised of dividends and other distributions to shareholders together with increases in the company's net asset value) of LIBOR plus 10 percent. It achieved a 11.8 percent increase in the net asset value of its shares during the period.
“The 11.8 per cent return during 2013 was in line with expectations for our first year of operations and was ahead of the LIBOR plus 10 per cent target return,” the company said.
But the fund’s chairman has warned that competitive conditions in the reinsurance markets have resulted in double digit declines in rates, which will create challenges for the business.
“The continuing convergence of traditional reinsurance and capacity from capital markets provides carriers with additional flexibility in their risk transfer solutions and establishes capital market solutions as a sustainable complement to traditional reinsurance. However, this will also result in challenges for our managers,” said John Weale, the chairman.
“The January 2014 underwriting period was a competitive one, characterised by pressure to reduce prices and offer more generous contractual terms and conditions. From a pricing standpoint, the company benefitted from its continued focus on regionally-exposed traditional reinsurance business. While prices in the retrocessional and cat bond markets decreased in excess of 20 per cent observed risk-adjusted price changes on the company's contract renewals were 12 per cent lower compared to the January 2013 renewals.
“Additionally, contractual terms and conditions on regionally-exposed traditional business remained consistent with market best practice. The January 2014 portfolio also incorporates the addition of a quota-share participation of a traditional property catastrophe book of business, which further increases the company's access to its preferred client base.”
Blue Capital Global Reinsurance Fund is an exempted closed-ended mutual fund company incorporated under the laws of Bermuda and listed on the London Stock Exchange's Specialist Fund Market with a secondary listing on the Bermuda Stock Exchange. Trading in the company's shares commenced on December 6, 2012, at which time the company raised $100.1 million from an initial public offering, $50 million of which was invested by Montpelier Reinsurance. Since then, the company raised an additional $52.3 million on May 3, 2013, and $23 million on November 15, 2013.
