Blue Capital Reinsurance Holdings Ltd. (NYSE:BCRH) (the "Company"),
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 third quarter of 2017.
The Company recorded a net loss of $51.9 million ($5.93 per
share) for the third quarter of 2017 and a net loss of $43.2
million ($4.94 per share) for the nine months ended
September 30, 2017. The Company’s fully converted book value
per common share was $14.48 at September 30, 2017, reflecting
a 28.6% decrease for the quarter and a 22.5% decrease over the past
twelve months, each inclusive of dividends declared in such
periods.
Reinsurance premiums written for the current quarter and
year-to-date were $10.3 million and $39.4 million, increasing by
$2.5 million and $4.9 million over the same periods a year ago. The
current quarter's reinsurance premium increase was predominantly
driven by increased reinstatement premiums recorded in association
with the significant catastrophe losses that occurred in the
period.
The combined ratios for the current quarter and year-to-date
were 455.7% and 228.7% compared to 63.5% and 66.4% in the same
periods a year ago. The deterioration in the current periods'
combined ratios were driven by significantly higher loss and loss
adjustment expense ratios. The current quarter's loss and loss
adjustment expenses of $68.1 million compared unfavorably to the
$2.6 million reported a year ago, reflecting the losses related to
Hurricanes Harvey, Irma, and Maria and to a lesser extent the two
September earthquakes in Mexico, partially offset by $5.0 million
of ILW recoveries. Reinsurance acquisition costs for the current
quarter were $1.6 million compared to $2.9 million a year ago, as
the current quarter included a reversal of profit commissions
accrued on quota share business, driven by the reduced
profitability. General and administrative expenses for the current
quarter of $1.3 million were modestly higher than a year ago.
During the third quarter of 2017, the Company declared a regular
dividend of $0.30 per common share, which was paid on October 12,
2017.
Michael J. McGuire, Chairman and CEO, commented: "The financial
impact to the insurance industry from the third quarter catastrophe
events is estimated to collectively be above $100 billion and these
catastrophe events had a meaningful impact on our results.
Due to our strong risk management practices, active portfolio
management and the leveraging of our partnership with Sompo
International our losses from these catastrophe events were within
our risk thresholds and our overall portfolio performed as expected
given the magnitude of these events. Looking forward, we expect
market pricing to improve during upcoming renewals and we have
positioned the Company appropriately in recognition of the changed
market conditions."
About the Company
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 the
Company by Blue Capital Management Ltd., a subsidiary of Sompo
International Holdings Ltd. (a wholly owned subsidiary of Sompo
Holdings, Inc.), a recognized global specialty provider of property
and casualty insurance and reinsurance and a leading property
catastrophe and short tail reinsurer since 2001. Additional
information can be found in the Company's public filings with the
U.S. Securities and Exchange Commission or at www.bcapre.bm.
ContactsInvestor RelationsPhone: +1 441 278 0988Email:
investorrelations@Sompo-Intl.com
Safe Harbor for Forward-Looking Statements
Some of the statements in this press release may include, and
the Company 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, 2016. 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 the Company's most recent report on Form 10-K and other
documents of the Company 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
the Company will be realized or, even if substantially realized,
that they will have the expected consequences to, or effects on,
the Company or its business or operations. Except as required by
law, the Company 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) |
|
|
|
September 30, 2017 |
|
December 31, 2016 |
Assets |
|
(Unaudited) |
|
|
Cash and cash
equivalents |
|
$ |
4.1 |
|
|
$ |
1.6 |
|
Cash and cash
equivalents pledged as collateral |
|
— |
|
|
3.1 |
|
Reinsurance premiums
receivable |
|
23.1 |
|
|
7.7 |
|
Deferred reinsurance
acquisition costs |
|
0.6 |
|
|
0.1 |
|
Funds held by reinsured
companies as collateral |
|
180.0 |
|
|
191.4 |
|
Other assets |
|
4.9 |
|
|
0.8 |
|
Total
Assets |
|
$ |
212.7 |
|
|
$ |
204.7 |
|
Liabilities |
|
|
|
|
Loss and loss
adjustment expense reserves |
|
$ |
68.1 |
|
|
$ |
11.1 |
|
Unearned reinsurance
premiums |
|
4.2 |
|
|
0.9 |
|
Reinsurance balances
payable |
|
9.7 |
|
|
7.1 |
|
Other liabilities |
|
3.7 |
|
|
2.3 |
|
Total Liabilities |
|
85.7 |
|
|
21.4 |
|
Shareholders’
Equity |
|
|
|
|
Common Shares |
|
8.8 |
|
|
8.8 |
|
Additional paid-in
capital |
|
165.5 |
|
|
165.5 |
|
Retained (deficit)
earnings |
|
(47.3 |
) |
|
9.0 |
|
Total Shareholders’ Equity |
|
127.0 |
|
|
183.3 |
|
Total
Liabilities and Shareholders’ Equity |
|
$ |
212.7 |
|
|
$ |
204.7 |
|
Common shares
outstanding (000s) |
|
8,761 |
|
|
8,756 |
|
Common and
common equivalent shares outstanding (000s) |
|
8,773 |
|
|
8,769 |
|
BLUE CAPITAL REINSURANCE HOLDINGS
LTD.CONSOLIDATED STATEMENTS OF NET INCOME AND
COMPREHENSIVE INCOME(In millions of U.S. dollars,
except per share data)Unaudited |
|
|
|
Three Months EndedSeptember 30, |
|
Nine Months EndedSeptember 30, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues |
|
|
|
|
|
|
|
|
Reinsurance premiums written |
|
$ |
10.3 |
|
|
$ |
7.8 |
|
|
$ |
39.4 |
|
|
$ |
34.5 |
|
Change in
net unearned reinsurance premiums |
|
5.3 |
|
|
2.6 |
|
|
(3.3 |
) |
|
(2.4 |
) |
Net
reinsurance premiums earned |
|
15.6 |
|
|
10.4 |
|
|
36.1 |
|
|
32.1 |
|
Net gain
(loss) from derivative instruments |
|
3.1 |
|
|
(0.6 |
) |
|
2.5 |
|
|
(0.6 |
) |
Net
investment income |
|
0.4 |
|
|
0.1 |
|
|
0.7 |
|
|
0.1 |
|
Total
revenues |
|
19.1 |
|
|
9.9 |
|
|
39.3 |
|
|
31.6 |
|
Expenses |
|
|
|
|
|
|
|
|
Underwriting expenses: |
|
|
|
|
|
|
|
|
Loss and
loss adjustment expenses - current year |
|
67.8 |
|
|
2.9 |
|
|
70.4 |
|
|
10.1 |
|
Loss and
loss adjustment expenses - prior year |
|
0.3 |
|
|
(0.3 |
) |
|
1.3 |
|
|
0.3 |
|
Acquisition costs |
|
1.6 |
|
|
2.9 |
|
|
6.8 |
|
|
7.2 |
|
General
and administrative expenses |
|
1.3 |
|
|
1.1 |
|
|
4.0 |
|
|
3.7 |
|
Total
expenses |
|
71.0 |
|
|
6.6 |
|
|
82.5 |
|
|
21.3 |
|
Net (loss)
income and comprehensive (loss) income |
|
$ |
(51.9 |
) |
|
$ |
3.3 |
|
|
$ |
(43.2 |
) |
|
$ |
10.3 |
|
Per share
data: |
|
|
|
|
|
|
|
|
Basic and
diluted earnings per Common Share |
|
$ |
(5.93 |
) |
|
$ |
0.38 |
|
|
$ |
(4.94 |
) |
|
$ |
1.17 |
|
Dividends
declared per Common Share and RSU(1) |
|
0.30 |
|
|
0.30 |
|
|
1.49 |
|
|
2.14 |
|
Insurance
ratios: |
|
|
|
|
|
|
|
|
Loss and
loss adjustment expense ratio |
|
437.5 |
% |
|
25.0 |
% |
|
198.8 |
% |
|
32.3 |
% |
Acquisition cost ratio |
|
10.1 |
% |
|
28.2 |
% |
|
18.9 |
% |
|
22.4 |
% |
General
and administrative expense ratio |
|
8.1 |
% |
|
10.3 |
% |
|
11.0 |
% |
|
11.7 |
% |
Combined
ratio |
|
455.7 |
% |
|
63.5 |
% |
|
228.7 |
% |
|
66.4 |
% |
RSU =
restricted share unit |
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The nine month period ended September 30, 2017 includes a
special dividend with respect to 2016 of $0.59 per common share and
RSU, which was declared and paid during the first quarter of
2017. |
BLUE CAPITAL REINSURANCE HOLDINGS
LTD.CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(In millions of U.S.
dollars)Unaudited |
|
|
|
Totalshareholders’equity |
|
CommonShares, atpar value |
|
Additionalpaid-incapital |
|
Retainedearnings |
Balance at
January 1, 2017 |
|
$ |
183.3 |
|
|
$ |
8.8 |
|
|
$ |
165.5 |
|
|
$ |
9.0 |
|
Net
loss |
|
(43.2 |
) |
|
— |
|
|
— |
|
|
(43.2 |
) |
Dividends declared on
Common Shares and RSUs |
|
(13.1 |
) |
|
— |
|
|
— |
|
|
(13.1 |
) |
Balance at
September 30, 2017 |
|
$ |
127.0 |
|
|
$ |
8.8 |
|
|
$ |
165.5 |
|
|
$ |
(47.3 |
) |
|
|
Totalshareholders’equity |
|
CommonShares, atpar value |
|
Additionalpaid-incapital |
|
Retainedearnings |
Balance at
January 1, 2016 |
|
$ |
187.6 |
|
|
$ |
8.8 |
|
|
$ |
165.3 |
|
|
$ |
13.5 |
|
Net income |
|
10.3 |
|
|
— |
|
|
— |
|
|
10.3 |
|
Expense recognized for
RSUs |
|
0.1 |
|
|
— |
|
|
0.1 |
|
|
— |
|
Dividends declared on
Common Shares and RSUs |
|
(18.8 |
) |
|
— |
|
|
— |
|
|
(18.8 |
) |
Balance at September
30, 2016 |
|
$ |
179.2 |
|
|
$ |
8.8 |
|
|
$ |
165.4 |
|
|
$ |
5.0 |
|
BOOK VALUE AND FULLY CONVERTED BOOK VALUE PER
COMMON SHARE(1)Unaudited |
|
|
|
September 30, 2017 |
|
June30, 2017 |
|
December31, 2016 |
|
September30, 2016 |
Book value per
share numerator (in millions of U.S. dollars): |
|
|
|
|
|
|
|
|
[A]
Shareholders’ Equity (in millions of U.S. dollars) |
|
$ |
127.0 |
|
|
$ |
181.6 |
|
|
$ |
183.3 |
|
|
$ |
179.2 |
|
Book value per
share denominators (in thousands of shares): |
|
|
|
|
|
|
|
|
[B]
Common Shares outstanding |
|
8,761 |
|
|
8,761 |
|
|
8,756 |
|
|
8,756 |
|
Restricted Share Units outstanding |
|
12 |
|
|
12 |
|
|
13 |
|
|
13 |
|
[C]
Fully converted book value per common share denominator |
|
8,773 |
|
|
8,773 |
|
|
8,769 |
|
|
8,769 |
|
Book value per
common share [A]/[B] |
|
$ |
14.50 |
|
|
$ |
20.73 |
|
|
$ |
20.93 |
|
|
$ |
20.47 |
|
Fully converted
book value per common share [A]/[C] |
|
$ |
14.48 |
|
|
$ |
20.70 |
|
|
$ |
20.90 |
|
|
$ |
20.44 |
|
Change in fully
converted book value per common share:(2) |
|
|
|
|
|
|
|
|
From June
30, 2017 |
|
(28.6 |
)% |
|
|
|
|
|
|
From
December 31, 2016 |
|
(23.6 |
)% |
|
|
|
|
|
|
From
September 30, 2016 |
|
(22.5 |
)% |
|
|
|
|
|
|
(1)
These measures constitute "non-GAAP financial measures" as defined
in Regulation G. Management believes that these non-GAAP
measures, which may be defined differently by other companies,
better explain the Company's results of operations in a manner that
allows for a more complete understanding of the underlying trends
in the Company's business. However, these measures should not be
viewed as a substitute for those determined in accordance with
GAAP.(2) Computed as the change in fully converted book value
per common share plus common dividends declared of $0.30, $1.49 and
$1.49 during the three, nine and twelve month periods ended
September 30, 2017, 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 2016
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."
Exposure ManagementThe 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 at each treaty renewal date.
The last major treaty renewal date was June 1, 2017. Our June 1,
2017 projected net exposures by zone were in compliance with our
underwriting guidelines. Namely, our projected net exposure from
any one catastrophe loss event in any individual zone was at or
below 50% of our then-projected September 30, 2017
shareholders’ equity. 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 LossesFor 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.
On June 1, 2017 our 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 then-projected September 30, 2017 shareholders’
equity, 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 then-projected September 30, 2017
shareholders’ equity.
Updated Single Event Loss ProjectionsThe table that follows
details our projected net impact from single event losses as of
September 30, 2017 for selected zones at specified return periods
using industry-recognized third-party vendor models. The
values noted take into account the impact of the third quarter loss
events on our limits reinsured and shareholders' equity. 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.
Net Impact From Single Event Losses at Specified
Return Periods
|
|
Net Impact(Millions) |
|
Return Period(1) |
|
Percentage of September 30, 2017
Shareholders’ Equity |
U.S. - Florida
hurricane |
|
$ |
42 |
|
|
1 in
100 year |
|
33% |
Japan earthquake |
|
31 |
|
|
1 in
250 year |
|
24% |
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 single event loss estimates represent snapshots as of the
time of such estimates. 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 June 1, 2017 to September 30, 2017 other than the
impact of the third quarter loss events included in our September
30, 2017 financial results.
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