Sompo-owned Blue Capital posts more heavy losses in 2018 on back of Q4 cats
Efforts by Sompo-owned Blue Capital Reinsurance Holdings to reduce volatility and improve the balance of its portfolio were scuppered by more heavy catastrophe losses in 2018 and further loss creep from events in 2017 as it posted another set of heavy losses.
The company said it had enjoyed some rate increases but its portfolio has also shrunk because of a mixture of less available collateral and the non renewal of underperforming accounts.
The Bermuda-based collateralised reinsurer posted a net loss of $28.6 million for the whole of 2018 and a loss of $24.9 million for the fourth quarter alone. It wrote $33.2 million of premiums for the year, a $12.9 million decrease on 2017, and wrote $9.1 million in the fourth quarter, a $2.4 million increase over the same period a year ago.
Its combined ratio for 2018 was 191.6 percent compared with 201.3 percent a year earlier and for the fourth quarter alone a whopping 308.8 percent, compared with 102.3 percent in the same period a year earlier.
It said the steep increase in the fourth quarter combined ratio was due to a significantly higher loss and loss adjustment expense ratio. The quarter's loss and loss adjustment expenses of $33.2 million reflected fourth quarter 2018 losses related to the California wildfires and Hurricane Michael and additional estimated losses related to Typhoon Jebi which occurred in the third quarter of 2018 and Hurricane Irma which occurred in the third quarter of 2017.
The increase in the quarter's reinsurance premium was predominantly driven by increased reinstatement premiums recorded in association with catastrophe losses occurring in the period while the decline in full year premiums was driven by a lower capital base in the current year, the company said.
Reinsurance acquisition costs for the fourth quarter were $3.1 million compared to $1.9 million a year ago, reflecting a higher proportion of earned premiums attributed to quota share contracts which maintain higher acquisition costs. General and administrative expenses for the quarter of $1.2 million were modestly higher than a year ago as increased legal fees were partially offset by lower management fees.
As of January 2019, the company said it entered into reinsurance contracts with expected total annual premiums of $15.1 million compared to expected total annual premiums of $27.8 million in January 2018. Rates in the January 1st renewals increased approximately 1 percent on a risk adjusted basis.
It said the decline in premiums was driven by lower available collateral and the non renewal of underperforming accounts. The company’s in-force portfolio deployed as of January 1, 2019 consisted of approximately 27.7 percent in support of first event reinsurance coverages, 71.3 percent in support of catastrophe quota share coverages and the balance in support of second and subsequent event coverages.
“During the first half of 2019, approximately $16 million of collateral is expected to be released from expired contracts. This capital will be evaluated for deployment in underwriting opportunities or for capital management depending on the relative attractiveness of the respective opportunities at the time.”
Michael McGuire, chairman and CEO, said: "While good progress was made in 2018 to reduce volatility and improve the balance of our portfolio, adverse development from 2017 events and another active catastrophe year in 2018 masked underlying improvements. These improvements were evident in our current accident year loss ratio for the 2018 year which, while elevated at 94.3 percent, was significantly improved from the 169.1 percent achieved for the full year in 2017. Our 2018 portfolio benefited from increased rates, better balance and improved retrocessional protection.
"Looking forward, market conditions remain competitive. While loss exposed contracts saw some pricing increases, the January renewals were relatively flat overall. As a result, we non-renewed several underperforming contracts and focused our capital deployment on quota share contracts which have historically generated better returns with lower volatility.
“We are closely monitoring market conditions for the upcoming April and June renewal periods where opportunities could emerge as more loss exposed contracts will be up for renewal during those periods.
“Lastly, we are cognizant of the current discount in the valuation of our stock and will be considering appropriate measures, including the potential commencement of a share repurchase program under the Company’s existing 500,000 share authorization."
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