HAMILTON, Bermuda - May 2, 2016 - Blue Capital Reinsurance Holdings Ltd. (NYSE:BCRH) ("Blue Capital"), a Bermuda holding company that, through its operating subsidiaries, offers collateralized reinsurance in the property catastrophe market and invests in various insurance-linked securities, today reported its financial results for the first quarter of 2016.
The Company's net income and operating income was $5.0 million ($0.57 per share) for the three months ended March 31, 2016. The Company's fully converted book value per common share was $20.44 at March 31, 2016, reflecting a 2.7% increase for the quarter and an 11.5% increase over the past twelve months, each inclusive of dividends declared in such periods.
Reinsurance premiums written for the current quarter were $17.4 million, declining $2.7 million or 13.4% compared to the same period in 2015 primarily due to a shift in the composition of the business to a greater proportion of quota share reinsurance, which resulted in more written premiums during 2016 being recognized over the duration of the applicable reinsurance contracts rather than at inception.
The combined ratio for the current quarter was 52.2% compared to 44.6% in the first quarter of 2015. The increase in the current quarter's combined ratio was driven by higher loss and loss adjustment expense and general and administrative expense ratios partially offset by a lower acquisition cost ratio. Loss and loss adjustment expenses for the current quarter were $1.7 million and included $1.0 million in current quarter losses as well as $0.7 million from adverse development on losses related to the December 2015 storms in the United Kingdom. General and administrative expenses were $1.5 million, or $0.2 million higher than a year ago, largely due to modestly higher performance fees. Acquisition costs of $2.2 million declined 4.4% in the current quarter from a year ago, as the transition to a greater proportion of quota share premiums led to reduced fronting expenses.
During the first quarter of 2016, the Company declared a regular dividend of $0.30 per common share, which was paid on April 15, 2016 and a special dividend of $1.24 per common share which was paid on March 15, 2016.
Adam Szakmary, President and CEO, commented: "Blue Capital's strong results in a quarter marked by significant financial market volatility highlights the value of our strategy of providing investors with diversified access to the preferred traditional property catastrophe market. Blue Capital's partnership with Endurance, our underwriting expertise and our enhanced market position enabled us to successfully navigate the competitive marketplace and construct an attractive portfolio for 2016."
About Blue Capital
Blue Capital Reinsurance Holdings Ltd., through its operating subsidiaries, offers collateralized reinsurance in the property catastrophe market, leveraging underwriting expertise and infrastructure from established resources. Underwriting decisions, operations and other management services are provided to Blue Capital by Blue Capital Management Ltd., a subsidiary of Endurance Specialty Holdings Ltd. (NYSE: ENH), a recognized global specialty provider of property and casualty insurance and reinsurance and a leading property catastrophe and short tail reinsurer since 2001. Endurance acquired Blue Capital Management Ltd. as part of its acquisition of Montpelier Re Holdings Ltd. in July 2015. Additional information can be found in Blue Capital's public filings with the U.S. Securities and Exchange Commission or at www.bcapre.bm.
Phone: +1 441 278 0988
Safe Harbor for Forward-Looking Statements
Some of the statements in this press release may include, and Blue Capital may make related oral forward-looking statements which reflect our current views with respect to future events and financial performance. Such statements may include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements that include the words "should," "would," "expect," "estimates", "intend," "plan," "believe," "project," "target," "anticipate," "seek," "will," "deliver," and similar statements of a future or forward-looking nature identify forward-looking statements in this press release for purposes of the U.S. federal securities laws or otherwise. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or may be important factors that could cause actual results to differ materially from those indicated in the forward-looking statements. These factors include, but are not limited to, the effects of competitors' pricing policies, greater frequency or severity of claims and loss activity, changes in market conditions, decreased demand for property and casualty reinsurance, changes in the availability, cost or quality of reinsurance or retrocessional coverage, our inability to renew business previously underwritten or acquired, uncertainties in our reserving process, changes to our tax status, reduced acceptance of our existing or new products and services, a loss of business from and credit risk related to our broker counterparties, assessments for high risk or otherwise uninsured individuals, possible terrorism or the outbreak of war, a loss of key personnel, political conditions, changes in insurance regulation, operational risk, including the risk of fraud and errors and omissions, as well as technology breaches or failure, changes in accounting policies, our investment performance, the valuation of our invested assets, a breach of our investment guidelines, potential treatment of us as an investment company or a passive foreign investment company for purposes of U.S. securities laws or U.S. federal taxation, respectively, our dependence as a holding company upon dividends or distributions from our operating subsidiaries, the unavailability of capital in the future, developments in the world's financial and capital markets and our access to such markets, government intervention in the insurance and reinsurance industry, illiquidity in the credit markets, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2015.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Blue Capital's most recent report on Form 10-K and other documents of Blue Capital on file with the Securities and Exchange Commission. Any forward-looking statements made in this material are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Blue Capital will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Blue Capital or its business or operations. Except as required by law, Blue Capital undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
The contents of any website referenced in this press release are not incorporated by reference herein.
BLUE CAPITAL REINSURANCE HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
(In millions of U.S. dollars, except share amounts)
|March 31, 2016||December 31, 2015|
|Cash and cash equivalents||$||5.1||$||1.0|
|Cash and cash equivalents pledged as collateral||3.1||5.1|
|Reinsurance premiums receivable||12.3||15.9|
|Deferred reinsurance acquisition costs||1.0||0.1|
|Funds held by reinsured companies as collateral||182.7||195.3|
|Loss and loss adjustment expense reserves||$||5.1||$||4.0|
|Unearned reinsurance premiums||8.5||1.3|
|Reinsurance balances payable||4.2||7.6|
|Common Shares and additional paid-in capital||8.8||8.8|
|Additional paid-in capital||165.3||165.3|
|Total Shareholders' Equity||179.1||187.6|
|Total Liabilities and Shareholders' Equity||$||204.3||$||217.6|
|Common shares outstanding (000s)||8,752||8,752|
|Common and common equivalent shares outstanding (000s)||8,762||8,762|
BLUE CAPITAL REINSURANCE HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
(In millions of U.S. dollars, except per share data)
|Three Months Ended March 31,|
|Reinsurance premiums written||$||17.4||$||20.1|
|Change in net unearned reinsurance premiums||(7.1||)||(10.3||)|
|Net reinsurance premiums earned||10.3||9.8|
|Net income from derivative instruments||0.1||-|
|Loss and loss adjustment expenses - current year||1.0||0.9|
|Loss and loss adjustment expenses - prior year||0.7||(0.1||)|
|General and administrative expenses||1.5||1.3|
|Net income and comprehensive income||$||5.0||$||5.4|
|Per share data:|
|Basic and diluted earnings per Common Share||$||0.57||$||0.62|
|Dividends declared per Common Share and RSU (1)||1.54||0.96|
|Loss and loss adjustment expense ratio||16.9||%||8.5||%|
|Acquisition cost ratio||20.7||%||22.7||%|
|General and administrative expense ratio||14.6||%||13.4||%|
RSU = restricted share unit
(1) The three month period ended March 31, 2016 includes a special dividend with respect to 2015 of $1.24 per common share and RSU, which was declared and paid during the first quarter of 2016.
BLUE CAPITAL REINSURANCE HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions of U.S. dollars)
|Balance at January 1, 2016||$||187.6||$||8.8||$||165.3||$||13.5|
|Dividends declared on Common Shares and RSUs||(13.5||)||-||-||(13.5||)|
|Balance at March 31, 2016||$||179.1||$||8.8||$||165.3||$||5.0|
|Balance at January 1, 2015||$||180.5||$||8.8||$||165.2||$||6.5|
|Expense recognized for RSUs||0.1||-||0.1||-|
|Dividends declared on Common Shares and RSUs||(8.4||)||-||-||(8.4||)|
|Balance at March 31, 2015||$||177.6||$||8.8||$||165.3||$||3.5|
BOOK VALUE AND FULLY CONVERTED BOOK VALUE PER COMMON SHARE
|March 31, 2016||Dec. 31, 2015||March 31, 2015|
|Book value per share numerator (in millions of U.S. dollars):|
|[A] Shareholders' Equity (in millions of U.S. dollars)||$||179.1||$||187.6||$||177.6|
|Book value per share denominators (in thousands of shares):|
|[B] Common Shares outstanding||8,752||8,752||8,750|
|Restricted Share Units outstanding||10||10||7|
|[C] Fully converted book value per common share denominator||8,762||8,762||8,757|
|Book value per common share [A]/[B]||$||20.47||$||21.44||$||20.30|
|Fully converted book value per common share [A]/[C]||$||20.44||$||21.41||$||20.28|
|Change in fully converted book value per common share: (2)|
|From December 31, 2015||2.7||%|
|From March 31, 2015||11.5||%|
(1) These measures constitute "non-GAAP financial measures" as defined in Regulation G and as further described herein.
(2) Computed as the change in fully converted book value per common share after taking into account common dividends declared of $1.54 and $2.14 during the three and twelve month periods ended March 31, 2016, respectively.
BLUE CAPITAL REINSURANCE HOLDINGS LTD.
Natural Catastrophe Risk Management
The following discussion should be read in conjunction with the " Risk Factors " included in Item 1A of the Company's 2015 Form 10-K, as filed with the Securities and Exchange Commission, in particular the risk factor entitled "Our stated catastrophe and enterprise-wide risk management exposures are based on estimates and judgments which are subject to significant uncertainties."
The Company's Investment and Insurance Manager (the "Manager") monitors our net exposure to any one catastrophe loss event in any single zone within certain broadly defined major catastrophe zones. Our January 1, 2016 projected net exposures by zone were in compliance with our underwriting guidelines. Namely, our projected net exposure to any one zone was below 50% of our shareholders' equity at March 31, 2016. These broadly defined major catastrophe zones are defined as follows:
|North America :||Europe :||Rest of World:|
|U.S. - Northeast||Western Central Europe (1)||Australia|
|U.S. - Mid-Atlantic||Eastern Europe||New Zealand|
|U.S. - Florida||Southern Europe||Japan|
|U.S. - Gulf||Northern Europe, Benelux||South America|
|U.S. - New Madrid||and Scandinavia||Middle East|
|U.S. - Midwest||U.K. and Ireland|
|U.S. - California|
|U.S. - Hawaii|
|Canada - Eastern|
|Canada - Western|
(1) Consisting of France, Germany, Switzerland and Austria.
Single Event Losses
For certain defined natural catastrophe region and peril combinations, the Manager assesses the probability and likely magnitude of losses using a combination of industry third-party models, proprietary models and underwriting judgment. The Manager attempts to model the projected net impact from a single event, taking into account contributions from property catastrophe reinsurance (including retrocessional business), property pro-rata reinsurance and event-linked derivative securities, offset by the net benefit of any reinsurance or derivative protections we purchase and the benefit of premiums.
The table that follows details our projected net impact from single event losses as of January 1, 2016 for selected zones at specified return periods. It is important to note that each catastrophe model we use contains its own assumptions as to the frequency and severity of loss events, and results may vary significantly from model to model.
Since the Manager utilizes a combination of third-party models, its own proprietary models and underwriting judgment to project the net impact from single event losses, our internal projections may be higher or lower than those presented in the table below:
Net Impact From Single Event Losses at Specified Return Periods
|Return Period (1)||
Percentage of March 31, 2016
|U.S. - Florida hurricane||$||61||1 in 100 year||34||%|
|Japan earthquake||32||1 in 250 year||18||%|
|California earthquake||29||1 in 250 year||16||%|
|All other zones||less than 15%|
(1) A "100-year" return period can also be referred to as the 1.0% occurrence exceedance probability ("OEP"), meaning there is an estimated 1.0% chance in any given year that this level will be exceeded. A "250-year" return period can also be referred to as the 0.4% OEP, meaning there is an estimated 0.4% chance in any given year that this level will be exceeded.
Our January 1, 2016 projected single event loss exposures were within our underwriting guidelines. Namely, the projected net impact from any one catastrophe loss event (excluding earthquake) at the 1 in 100 year return period for any one zone did not exceed 35% of our shareholders' equity at March 31, 2016, and the projected net impact from any one earthquake loss event at the 1 in 250 year return period for any zone did not exceed 35% of our shareholders' equity at March 31, 2016.
Our single event loss estimates represent snapshots as of January 1, 2016. The composition of our in-force portfolio may change materially at any time due to the acceptance of new policies, losses incurred, the expiration of existing policies and changes in our ceded reinsurance and derivative protections. There were no material changes made to the composition of our in-force portfolio from January 1, 2016 to March 31, 2016.