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 fourth quarter of 2017.
The Company recorded break-even results of $0.0 million ($0.00
per share) for the fourth quarter of 2017 and a net loss of $43.2
million ($4.94 per share) for the twelve months ended
December 31, 2017. The Company’s fully converted book value
per common share was $14.48 at December 31, 2017, reflecting
no change during the current quarter and a 23.6% decrease over the
past twelve months, each inclusive of dividends declared in such
periods.
Reinsurance premiums written for the current quarter were $6.7
million decreasing by $2.0 million over the same period a year ago
while reinsurance premiums written for the full year 2017 were
$46.1 million, increasing by $2.9 million over the comparable
period. The decrease in the current quarter's reinsurance premium
was predominantly driven by the timing of premium recognition.
The combined ratios for the current quarter and year-to-date
were 102.3% and 201.3% compared to 61.1% and 65.0% in the same
periods a year ago. The increase in the current periods' combined
ratios was due to significantly higher loss and loss adjustment
expense ratios. The current quarter's loss and loss adjustment
expenses of $7.3 million reflected fourth quarter losses related to
the California wildfires and additional estimated losses related to
the third quarter hurricanes. Reinsurance acquisition costs for the
current quarter were $1.9 million compared to $2.4 million a year
ago, reflecting lower profit commissions driven by the reduced
profitability. General and administrative expenses for the current
quarter of $0.9 million were modestly lower than a year ago due to
lower management and performance fees.
Michael J. McGuire, Chairman and CEO, commented: "Our 2017
results were driven by the significant catastrophe losses which
included a record setting three Category 4 hurricanes hitting the
United States, earthquakes in Mexico and wildfires in California.
Collectively, the 2017 events are estimated to have generated
insurance industry losses in excess of $100 billion. Our portfolio
performed in line with our modeled expectations and our teams are
fully engaged in efficiently settling claims for our customers.
Looking forward, pricing improvements are expected through 2018,
particularly in loss affected areas. At January1st renewals,
pricing reflected the impact of these events as our renewing
business experienced an overall price increase of 12% -- a reversal
of pricing declines experienced in recent years. We remain well
positioned to participate in the improving market for the benefit
of our shareholders."
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)
|
|
|
December 31, 2017 |
|
December 31, 2016 |
Assets |
|
(Unaudited) |
|
|
Cash and cash
equivalents |
|
$ |
1.0 |
|
|
$ |
1.6 |
|
Cash and cash
equivalents pledged as collateral |
|
5.0 |
|
|
3.1 |
|
Reinsurance premiums
receivable |
|
11.1 |
|
|
7.7 |
|
Deferred reinsurance
acquisition costs |
|
0.1 |
|
|
0.1 |
|
Funds held by reinsured
companies as collateral |
|
164.8 |
|
|
191.4 |
|
Other assets |
|
0.2 |
|
|
0.8 |
|
Total Assets |
|
$ |
182.2 |
|
|
$ |
204.7 |
|
Liabilities |
|
|
|
|
Loss and loss
adjustment expense reserves |
|
$ |
43.4 |
|
|
$ |
11.1 |
|
Unearned reinsurance
premiums |
|
1.0 |
|
|
0.9 |
|
Reinsurance balances
payable |
|
10.1 |
|
|
7.1 |
|
Other liabilities |
|
0.6 |
|
|
2.3 |
|
Total Liabilities |
|
55.1 |
|
|
21.4 |
|
Shareholders’
Equity |
|
|
|
|
Common Shares |
|
8.8 |
|
|
8.8 |
|
Additional paid-in
capital |
|
165.6 |
|
|
165.5 |
|
Retained (deficit)
earnings |
|
(47.3 |
) |
|
9.0 |
|
Total Shareholders’ Equity |
|
127.1 |
|
|
183.3 |
|
Total
Liabilities and Shareholders’ Equity |
|
$ |
182.2 |
|
|
$ |
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 Ended December
31, |
|
Twelve months ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues |
|
|
|
|
|
|
|
|
Reinsurance premiums written |
|
$ |
6.7 |
|
|
$ |
8.7 |
|
|
$ |
46.1 |
|
|
$ |
43.2 |
|
Change in
net unearned reinsurance premiums |
|
3.2 |
|
|
2.8 |
|
|
(0.1 |
) |
|
0.4 |
|
Net
reinsurance premiums earned |
|
9.9 |
|
|
11.5 |
|
|
46.0 |
|
|
43.6 |
|
Net
(loss) gain from derivative instruments |
|
(0.2 |
) |
|
(0.6 |
) |
|
2.3 |
|
|
(1.2 |
) |
Net
investment income |
|
0.4 |
|
|
0.1 |
|
|
1.1 |
|
|
0.2 |
|
Total
revenues |
|
10.1 |
|
|
11.0 |
|
|
49.4 |
|
|
42.6 |
|
Expenses |
|
|
|
|
|
|
|
|
Underwriting expenses: |
|
|
|
|
|
|
|
|
Loss and
loss adjustment expenses - current year |
|
7.5 |
|
|
3.7 |
|
|
77.9 |
|
|
13.7 |
|
Loss and
loss adjustment expenses - prior year |
|
(0.2 |
) |
|
(0.3 |
) |
|
1.1 |
|
|
— |
|
Acquisition costs |
|
1.9 |
|
|
2.4 |
|
|
8.7 |
|
|
9.6 |
|
General
and administrative expenses |
|
0.9 |
|
|
1.2 |
|
|
4.9 |
|
|
5.0 |
|
Total
expenses |
|
10.1 |
|
|
7.0 |
|
|
92.6 |
|
|
28.3 |
|
Net (loss)
income and comprehensive (loss) income |
|
$ |
— |
|
|
$ |
4.0 |
|
|
$ |
(43.2 |
) |
|
$ |
14.3 |
|
Per share
data: |
|
|
|
|
|
|
|
|
Basic and
diluted earnings per Common Share |
|
$ |
0.00 |
|
|
$ |
0.46 |
|
|
$ |
(4.94 |
) |
|
$ |
1.63 |
|
Dividends
declared per Common Share and RSU(1) |
|
— |
|
|
— |
|
|
1.49 |
|
|
2.14 |
|
Insurance
ratios: |
|
|
|
|
|
|
|
|
Loss and
loss adjustment expense ratio |
|
73.0 |
% |
|
29.2 |
% |
|
171.6 |
% |
|
31.5 |
% |
Acquisition cost ratio |
|
19.6 |
% |
|
21.1 |
% |
|
19.0 |
% |
|
22.1 |
% |
General
and administrative expense ratio |
|
9.7 |
% |
|
10.8 |
% |
|
10.7 |
% |
|
11.4 |
% |
Combined
ratio |
|
102.3 |
% |
|
61.1 |
% |
|
201.3 |
% |
|
65.0 |
% |
RSU = restricted share
unit |
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The twelve month period ended December 31, 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 |
) |
Expense recognized for
RSUs |
|
0.1 |
|
|
— |
|
|
0.1 |
|
|
— |
|
Dividends declared on
Common Shares and RSUs |
|
(13.1 |
) |
|
— |
|
|
— |
|
|
(13.1 |
) |
Balance at
December 31, 2017 |
|
$ |
127.1 |
|
|
$ |
8.8 |
|
|
$ |
165.6 |
|
|
$ |
(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 |
|
14.3 |
|
|
— |
|
|
— |
|
|
14.3 |
|
Expense recognized for
RSUs |
|
0.2 |
|
|
— |
|
|
0.2 |
|
|
— |
|
Dividends declared on
Common Shares and RSUs |
|
(18.8 |
) |
|
— |
|
|
— |
|
|
(18.8 |
) |
Balance at December 31,
2016 |
|
$ |
183.3 |
|
|
$ |
8.8 |
|
|
$ |
165.5 |
|
|
$ |
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BOOK VALUE AND FULLY CONVERTED BOOK VALUE
PER COMMON SHARE(1)Unaudited
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
September 30, 2017 |
|
June 30, 2017 |
|
December 31, 2016 |
Book value per
share numerator (in millions of U.S. dollars): |
|
|
|
|
|
|
|
|
[A]
Shareholders’ Equity (in millions of U.S. dollars) |
|
$ |
127.1 |
|
|
$ |
127.0 |
|
|
$ |
181.6 |
|
|
$ |
183.3 |
|
Book value per
share denominators (in thousands of shares): |
|
|
|
|
|
|
|
|
[B]
Common Shares outstanding |
|
8,761 |
|
|
8,761 |
|
|
8,761 |
|
|
8,756 |
|
Restricted Share Units outstanding |
|
12 |
|
|
12 |
|
|
12 |
|
|
13 |
|
[C]
Fully converted book value per common share denominator |
|
8,773 |
|
|
8,773 |
|
|
8,773 |
|
|
8,769 |
|
Book value per
common share [A]/[B] |
|
$ |
14.50 |
|
|
$ |
14.50 |
|
|
$ |
20.73 |
|
|
$ |
20.93 |
|
Fully converted
book value per common share [A]/[C] |
|
$ |
14.48 |
|
|
$ |
14.48 |
|
|
$ |
20.70 |
|
|
$ |
20.90 |
|
Change in fully
converted book value per common share:(2) |
|
|
|
|
|
|
|
|
From
September 30, 2017 |
|
— |
% |
|
|
|
|
|
|
From
December 31, 2016 |
|
(23.6 |
)% |
|
|
|
|
|
|
(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 $0.00 and $1.49
during the three and twelve month periods ended December 31,
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 January 1, 2018. Our January
1, 2018 estimated net exposures by zone were in compliance with our
underwriting guidelines. Namely, our estimated net exposure from
any one catastrophe loss event in any individual zone was at or
below 50% of our then-projected December 31, 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 estimated 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 January 1, 2018 our estimated single event loss exposures
were within our underwriting guidelines. Namely, the estimated 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 December 31, 2017 shareholders’
equity, and the estimated 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 December 31, 2017
shareholders’ equity.
Updated Single Event Loss ProjectionsThe table that follows
details our estimated net impact from single event losses as of
January 1, 2018 for selected zones at specified return periods
using industry-recognized third-party vendor models. The
values noted take into account the impact of the 2017 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 December 31, 2017
Shareholders’ Equity |
U.S. - Florida
hurricane |
|
$ |
34 |
|
|
1 in
100 year |
|
27% |
U.S. - California
earthquake |
|
24 |
|
|
1 in
250 year |
|
19% |
Japan earthquake |
|
20 |
|
|
1 in
250 year |
|
16% |
U.S. - Gulf
hurricane |
|
19 |
|
|
1 in
100 year |
|
15% |
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.
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