UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to        

Commission file number  001-36169

Blue Capital Reinsurance Holdings Ltd.

(Exact Name of Registrant as Specified in Its Charter)

94 Pitts Bay Road

Pembroke HM 08

Bermuda

(Address of Principal Executive Offices)

(441) 296-5004

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of July 30, 2015, the registrant had 8,752,335 common shares outstanding, with a par value of $1.00 per share (“Common Shares”).

BLUE CAPITAL REINSURANCE HOLDINGS LTD.

INDEX TO FORM 10-Q

See Notes to Consolidated Financial Statements, including Note 11 which describes certain related party transactions.

See Notes to Consolidated Financial Statements, including Note 11 which describes certain related party transactions.

See Notes to Consolidated Financial Statements, including Note 11 which describes certain related party transactions.

See Notes to Consolidated Financial Statements, including Note 11 which describes certain related party transactions.

BLUE CAPITAL REINSURANCE HOLDINGS LTD.

Notes to Consolidated Financial Statements

(in millions of United States “U.S.” dollars, except share and per

share amounts or as otherwise indicated)

Unaudited

NOTE 1.          Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Overview

Blue Capital Reinsurance Holdings Ltd. (the “Company” or the “Registrant”) is a Bermuda exempted limited liability company that, through its subsidiaries (collectively “Blue Capital”), offers collateralized reinsurance in the property catastrophe market and invests in various insurance-linked securities. The Company was incorporated under the laws of Bermuda on June 24, 2013, and commenced its operations on November 12, 2013. The Company’s headquarters and principal executive offices are located at 94 Pitts Bay Road, Pembroke, Bermuda HM 08.

The unaudited consolidated financial statements incorporated in this report on Form 10-Q  have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, these interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows. All significant intercompany accounts and transactions have been eliminated in consolidation. These interim consolidated financial statements may not be indicative of financial results for the full year.  The December 31, 2014 condensed balance sheet data was derived from audited consolidated financial statements, but does not include all of the disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues earned and expenses incurred during the period. Actual results could differ materially from those estimates. The significant estimates reflected in these interim consolidated financial statements include, but are not limited to, loss and loss adjustment expense (“LAE”) reserves and written and earned reinsurance premiums.

The Company operates as a single business segment through its wholly-owned subsidiaries: (i) Blue Capital Re Ltd. (“Blue Capital Re”), a Bermuda Class 3A insurer which provides collateralized reinsurance; and (ii) Blue Capital Re ILS Ltd. (“Blue Capital Re ILS”), a Bermuda exempted limited liability company which conducts hedging and other investment activities, including entering into industry loss warranties and related instruments, in support of Blue Capital Re’s operations.

The Company’s business strategy is to build and maintain a diversified portfolio of reinsurance risks that will generate underwriting profits, which it intends principally to distribute to its shareholders through the payment of dividends, with returns commensurate with the amount of risk assumed. The Company seeks to provide its shareholders with the opportunity to own an alternative asset class whose returns are believed to have historically been largely uncorrelated to those of other asset classes, such as global equities and bonds. Subject to the discretion of the Company’s board of directors (the “Board”), the Company intends to distribute a minimum of 90% of its annual Distributable Income in the form of cash dividends to its holders of Common Shares and restricted share units (“RSUs”). “Distributable Income,” a non-GAAP measure, means GAAP net income plus (minus) non-cash expenses (revenues) recorded in net income for the period.  Subject to the discretion of the Board, the Company intends to make quarterly dividend payments for each of the first three quarters of each year, followed by a fourth “special” dividend after the end of the year to meet its dividend payout target for each calendar year.

Through each of the following roles and relationships, Blue Capital leverages Montpelier Re Holdings Ltd.’s (“Montpelier’s”) reinsurance underwriting expertise and infrastructure to conduct its business: (i) Blue Capital Management Ltd. (the “Manager”), a registered investment advisor with the SEC and a wholly-owned subsidiary of Montpelier, manages Blue Capital Re’s and Blue Capital Re ILS’s reinsurance underwriting decisions; (ii) Blue Water Re Ltd., Montpelier’s wholly-owned special purpose insurance and reinsurance vehicle, is a significant source of reinsurance business for Blue Capital Re; and (iii) certain officers of Montpelier also serve as the Company’s Chief Executive Officer (“CEO”), the Company’s Chief Financial Officer (“CFO”), and as two of the Company’s five directors, including the role of Chairman of the Board.

As of June 30, 2015 and December 31, 2014, Montpelier owned 33.3% of the Company’s outstanding Common Shares. See Note 11.

The Company qualifies as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, the Company is eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies. The Company intends to continue to take advantage of some, but not all, of the exemptions available to emerging growth companies until such time that it is no longer an emerging growth company.  The Company has, however, irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Cash and Cash Equivalents

Blue Capital’s cash and cash equivalents of $8.7 million and $11.5 million at June 30, 2015 and December 31, 2014, respectively, consisted of cash and fixed income investments with maturities of less than three months, as measured from the date of purchase.  For all periods presented, the amortized cost of each of Blue Capital’s cash equivalents approximated their fair value.

Net investment income is recorded net of investment management, custody and other investment-related expenses. During the three and six month periods ended June 30, 2015 and 2014, the amount of net investment income that Blue Capital earned on its cash and cash equivalents totaled less than $0.1 million.

Amounts Held in Trust for the Benefit of Ceding Companies

Blue Capital Re does not operate with a financial strength rating and, instead, fully collateralizes its reinsurance obligations through cash and cash equivalents held in various trust funds established for the benefit of ceding companies.

As of June 30, 2015, Blue Capital had pledged $5.3 million of its cash and cash equivalents to trust accounts established for the benefit of third parties. As of December 31, 2014, Blue Capital had pledged $10.4 million of its cash and cash equivalents to trust accounts established for the benefit of third parties ($10.0 million) and Blue Water Re ($0.4 million). The cash and cash equivalents pledged to Blue Water Re represent funds that have not yet been formally transferred to a trust account established by Blue Water Re for its benefit pursuant to the BW Retrocessional Agreement. See Note 11. These amounts are presented on the Company’s Consolidated Balance Sheets as “cash and cash equivalents.”

As of June 30, 2015 and December 31, 2014, Blue Capital had transferred $189.6 million and $183.6 million of its cash and cash equivalents, respectively, to a trust account established by Blue Water Re for its benefit pursuant to the BW Retrocessional Agreement. See Note 11.  These amounts are presented on the Company’s Consolidated Balance Sheets as “funds held by ceding companies.”

Reinsurance Premiums and Acquisition Costs

Blue Capital Re writes reinsurance contracts on both an excess-of-loss and a pro-rata basis. For excess-of-loss contracts, written premiums are typically based on the deposit or minimum premium specified in the reinsurance contract.  For pro-rata contracts, written premiums are recognized based on estimates of ultimate premiums provided by either the ceding companies or the Manager.

All of Blue Capital Re’s reinsurance contracts are currently being written on a losses-occurring basis, which means that all claims occurring during the period of the contract are covered, regardless of the inception dates of the underlying policies. Any claims occurring after the expiration of a losses-occurring contract are not covered.

For reinsurance contracts which incorporate minimum premium amounts, Blue Capital Re typically writes the entire ultimate premium at inception, and earns the associated premium after the premium is written over the term of the contract.  For reinsurance contracts which do not incorporate minimum premium amounts, Blue Capital Re typically writes the premium over the term of the contract, and earns the associated premium in the same periods that the premium is written.

Subsequent adjustments of written premium, based on reports of actual premium by the ceding companies, or revisions in estimates of ultimate premium, are recorded in the period in which they are determined. Such adjustments are generally determined after the associated risk periods have expired, in which case the premium adjustments are fully earned when written.

Unearned reinsurance premiums represent the portion of premiums written that are applicable to future reinsurance coverage provided by in-force contracts.

Reinsurance premiums receivable are recorded at amounts due less any provision for doubtful accounts. As of June 30, 2015 and December 31, 2014, Blue Capital Re did not require a provision for doubtful accounts.

When a reinsurance contract provides for a reinstatement of coverage following a covered loss, the associated reinstatement premiums are recorded as both written and earned when Blue Capital Re determines that such a loss event has occurred.

Deferred reinsurance acquisition costs are comprised of commissions, brokerage costs, premium taxes and excise taxes, each of which relates directly to the writing of reinsurance contracts. Deferred reinsurance acquisition costs are typically amortized over the underlying risk period of the related contracts. However, if the sum of a contract’s expected losses and LAE and deferred reinsurance acquisition costs exceeds related unearned premiums and any projected investment income, a premium deficiency is determined to exist. In this event, deferred reinsurance acquisition costs are immediately expensed to the extent necessary to eliminate the premium deficiency.  If the premium deficiency exceeds deferred reinsurance acquisition costs then a liability is accrued for the excess deficiency. There were no premium deficiency adjustments recognized during the periods presented.

Profit commissions incurred are included in “reinsurance acquisition costs” within the Company’s Consolidated Statement of Operations and Comprehensive Income.  Accrued profit commissions payable are included in “reinsurance balances payable” within the Company’s Consolidated Balance Sheets.

Reinsurance Balances Payable

Reinsurance balances payable consist of: (i) losses and LAE that have been approved for payment; and (ii) profit commissions payable.

As of June 30, 2015 and December 31, 2014, Blue Capital Re had reinsurance balances payable of $4.7 million and $2.8 million, respectively.

Reinsurance

In the normal course of business, Blue Capital Re may purchase reinsurance in order to manage its exposures. The amount of reinsurance that Blue Capital Re may buy will vary from year to year depending on its risk appetite, as well as the availability and cost of the reinsurance coverage. Ceded reinsurance premiums will be accounted for on a basis consistent with those used in accounting for the underlying reinsurance premiums assumed and will be reported as a reduction of net reinsurance premiums written and earned.

Under Blue Capital Re’s reinsurance security policy, its reinsurers are typically required to be rated “A-” (Excellent) or better by A.M. Best (or an equivalent rating with another recognized rating agency) at the time the policy is written. Blue Capital Re also considers reinsurers that are not rated or do not fall within this threshold on a case-by-case basis if collateralized up to policy limits, net of any premiums owed. The Manager will monitor the financial condition and ratings of Blue Capital’s reinsurers on an ongoing basis.

As of June 30, 2015 and December 31, 2014, Blue Capital Re had not purchased any reinsurance.

Fair Value Hierarchy

GAAP establishes a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value of certain assets and liabilities into the three broad levels described below. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date, Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, and Level 3 inputs are unobservable inputs (i.e., on the basis of pricing models with significant unobservable inputs or non-binding broker quotes) for the asset or liability.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements that are expected to have a material impact on the presentation of either the Company’s Consolidated Statements of Operations and Comprehensive Income or its Consolidated Balance Sheets.

NOTE 2.          Loss and LAE Reserve Movements

The following table summarizes Blue Capital Re’s loss and LAE reserve movements for the three and six month periods ended June 30, 2015 and 2014:

Loss and LAE reserves are comprised of case reserves (which are based on claims that have been reported) and IBNR reserves (which are based on losses that are believed to have occurred but for which claims have not yet been reported and may include a provision for expected future development on existing case reserves). Case reserves are set on the basis of loss reports received from third parties.  IBNR reserves are estimated by management using various actuarial methods as well as a combination of the Manager’s own loss experience, historical industry loss experience and management and the Manager’s professional judgment.

The uncertainties inherent in the reserving process, potential delays by cedants and brokers in the reporting of loss information, together with the potential for unforeseen adverse developments, may result in loss and LAE reserves ultimately being significantly greater or less than the reserve provided at the end of any given reporting period. The degree of uncertainty is further increased when a significant loss event takes place near the end of a reporting period. Loss and LAE reserve estimates are regularly reviewed and updated as new information becomes known. Any resulting adjustments are reflected in income in the period in which they become known.

Blue Capital Re’s reserving process is highly dependent on loss information received from its cedants and the Manager.

During the three and six month periods ended June 30, 2015, Blue Capital Re established $0.5 million and $1.4 million of current year loss and LAE reserves. There were no individually significant known loss events that impacted Blue Capital Re during the 2015 periods. During the three and six month periods ended June 30, 2014, Blue Capital Re established $7.3 million and $8.2 million of current year loss and LAE reserves, which related primarily to estimated losses incurred from U.S. tornadoes and European Windstorm Ela during the second quarter of 2014.

During the three and six month periods ended June 30, 2015, Blue Capital Re recognized $0.4 million and $0.5 million of favorable loss and LAE reserve development for estimated losses incurred during 2014. The prior year loss and LAE development that Blue Capital Re recognized during the 2015 periods was primarily the result of new or revised loss information received from its cedants.

NOTE 3.          Written and Earned Reinsurance Premiums

Written premiums represent business bound from ceding companies and net earned premiums represent the portion of net written premiums (gross written premiums less any ceded reinsurance) which is recognized as revenue over the period of time that coverage is provided.  See Note 1.

Blue Capital seeks to diversify its exposure across geographic zones around the world in order to obtain a prudent spread of risk. The spread of these exposures is also a function of market conditions and opportunities.

The following table sets forth a breakdown of Blue Capital’s premiums written by geographic area of risks insured during the three and six month periods ended June 30, 2015 and 2014:

(1)              “Worldwide” comprises reinsurance contracts that cover risks in more than one geographic area and do not specifically exclude the U.S.

(2)              “Worldwide, excluding U.S.” comprises reinsurance contracts that cover risks in more than one geographic area but specifically exclude the U.S.

The following table sets forth a breakdown of Blue Capital’s net premiums earned by geographic area of risks insured during the three and six month periods ended June 30, 2015 and 2014:

(1)              “Worldwide” comprises reinsurance contracts that cover risks in more than one geographic area and do not specifically exclude the U.S.

(2)              “Worldwide, excluding U.S.” comprises reinsurance contracts that cover risks in more than one geographic area but specifically exclude the U.S.

NOTE 4.                      Derivative Instruments

Inward Industry Loss Warranty (“ILW”) Swaps

In February 2015, Blue Capital Re ILS entered into an inward ILW swap (the “2015 Inward ILW Swap”) with a third-party under which qualifying loss payments are triggered by reference to the level of losses incurred by the insurance industry as a whole, rather than by losses incurred by the insured.  In return for a fixed payment of $0.6 million, Blue Capital Re ILS is required to make a floating payment in the event of certain losses incurred from specified natural catastrophes in the U.S., Europe, Japan, Australia and New Zealand from February 2015 to February 2016. Blue Capital Re ILS’s maximum payment obligation under the 2015 Inward ILW Swap is $5.2 million. Through June 30, 2015, Blue Capital Re ILS was not aware of any industry loss event occurring that would have triggered a payment obligation under the 2015 Inward ILW Swap.

The 2015 Inward ILW Swap is valued on the basis of models developed by the Manager, which represent unobservable (Level 3) inputs.  See Note 1.  As of June 30, 2015, the fair value of the 2015 Inward ILW Swap was $0.6 million, which was recorded as an “other liability” on the Company’s June 30, 2015 Consolidated Balance Sheet.

During the three and six month periods ended June 30, 2015, Blue Capital Re recognized income from derivative instruments of less than $0.1 million and $0.1 million, respectively, pursuant to the 2015 Inward ILW Swap.

In December 2013, Blue Capital Re ILS entered into an inward ILW swap (the “2013 Inward ILW Swap”) with a third-party under which qualifying loss payments were triggered by reference to the level of losses incurred by the insurance industry as a whole, rather than by losses incurred by the insured.  In return for a fixed payment of $1.5 million, Blue Capital Re ILS was required to make a floating payment in the event of certain losses incurred from specified natural catastrophes in the U.S., Europe, Japan, Australia and New Zealand from November 2013 to December 2014. Blue Capital Re ILS’s maximum payment obligation under the 2013 Inward ILW Swap was $10.0 million. During the term of the 2013 Inward ILW Swap, no industry loss event occurred which would have triggered a payment obligation by Blue Capital Re ILS.

The 2013 Inward ILW Swap was valued on the basis of a model developed by the Manager, which represented unobservable (Level 3) inputs.  See Note 1.

During the three and six month periods ended June 30, 2014, Blue Capital Re recognized income from derivative instruments of $0.1 million and $0.2 million, respectively, pursuant to the 2013 Inward ILW Swap.

Outward ILW Swaps

In June 2015, Blue Capital Re ILS entered into an outward ILW swap (the “2015 Outward ILW Swap”) with a third-party in order to purchase protection against U.S. wind exposures from June 2015 to December 2015. In return for a fixed payment of $0.7 million, Blue Capital Re ILS is entitled to receive a floating payment in the event of certain losses incurred by the insurance industry as a whole. The maximum recovery to Blue Capital Re ILS under the 2015 Outward ILW Swap is $3.7 million.  Through June 30, 2015, Blue Capital Re ILS was not aware of any industry loss event occurring which would have triggered a recovery under the 2015 Outward ILW Swap.

The 2015 Outward ILW Swap is valued on the basis of a model developed by the Manager, which represented unobservable (Level 3) inputs.  See Note 1.  As of June 30, 2015, the fair value of the 2015 Outward ILW Swap was $0.7 million, which was recorded as an “other asset” on the Company’s June 30, 2015 Consolidated Balance Sheet.

During each of the three and six month periods ended June 30, 2015, Blue Capital Re recognized a loss from derivative instruments of less than $0.1 million pursuant to the 2015 Outward ILW Swap.

In June 2014, Blue Capital Re ILS entered into an outward ILW swap (the “2014 Outward ILW Swap”) with a third-party in order to purchase protection against U.S. wind exposures from June 2014 to December 2014. In return for a fixed payment of $0.7 million, Blue Capital Re ILS was entitled to receive a floating payment in the event of certain losses incurred by the insurance industry as a whole. The maximum recovery to Blue Capital Re ILS under the 2014 Outward ILW Swap was $3.7 million. During the term of the 2014 Outward ILW Swap, no industry loss event occurred which would have triggered a recovery by Blue Capital Re ILS.

The 2014 Outward ILW Swap was valued on the basis of a model developed by the Manager, which represented unobservable (Level 3) inputs.  See Note 1.

During each of the three and six month periods ended June 30, 2014, Blue Capital Re recognized a loss from derivative instruments of less than $0.1 million, pursuant to the 2014 Outward ILW Swap.

NOTE 5.                      Shareholders’ Equity

Common Shares

The Company’s share capital consists of Common Shares with a $1.00 par value per share.  Holders of Common Shares are entitled to one vote for each share held, subject to any voting limitations imposed by the Company’s Bye-Laws.  As of June 30, 2015 and December 31, 2014, the Company had 8,752,335 and 8,750,000 Common Shares outstanding, respectively.

On June 15, 2015, the Company issued a total of 2,335 Common Shares in satisfaction of vested RSU obligations.  See Note 8.

Dividends to Holders of Common Shares and RSUs

The Company declared regular cash dividends per Common Share and RSU of $0.30 during each of the three month periods ended June 30, 2015 and 2014 and $0.60 per Common Share and RSU during each of the six month periods ended June 30, 2015 and 2014.  In addition, in February 2015, the Company declared a special dividend with respect to its 2014 Distributable Income of $0.66 per Common Share and RSU. As of June 30, 2015 and December 31, 2014, the Company had $2.6 million and zero of dividends payable to holders of Common Shares and RSUs, which is included within “accounts payable and accrued expenses” on its Consolidated Balance Sheets.

The total amount of dividends paid to holders of Common Shares and RSUs during the six month periods ended June 30, 2015 and 2014 was $8.4 million and $2.6 million, respectively.

There are restrictions on the payment of dividends by the Company, Blue Capital Re and Blue Capital Re ILS.  See Note 10.  Any future determination to pay dividends to holders of Common Shares and RSUs will be at the discretion of the Board and will be dependent upon many factors, including the Company’s results of operations, cash flows, financial position, capital requirements, general business opportunities, and legal, regulatory and contractual restrictions.

Common Share Repurchase Authorization

At June 30, 2015, the Company did not have an authorization to repurchase any of its Common Shares.

NOTE 6.                      Basic and Diluted Earnings Per Common Share

The Company applies the two-class method of calculating its earnings per Common Share. In applying the two-class method, any outstanding RSUs are considered to be participating securities.  See Note 8.  For all periods presented in which RSUs were outstanding, the two-class method was used to determine basic and diluted earnings per Common Share since this method yielded a more dilutive result than the treasury stock method.

For purposes of determining basic and diluted earnings per Common Share, a portion of net income is allocated to outstanding RSUs which serves to reduce the Company’s earnings per Common Share numerators. Net losses are not allocated to outstanding RSUs and, therefore, do not impact the Company’s per Common Share numerators in any period in which it incurs a net loss.

The following table outlines the Company’s computation of its basic and diluted earnings per Common Share for the three and six month periods ended June 30, 2015 and 2014:

(1)         During each of the three and six month periods ended June 30, 2015 and 2014, the net earnings allocated to participating securities totaled less than $0.1 million.

NOTE 7.                      Credit Agreement

On May 1, 2015, the Company renewed its 364-day unsecured credit agreement (the “Credit Agreement”) which permits it to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes.  Borrowings under the Credit Agreement bear interest, set at the time of the borrowing, at a rate equal to the 3-month LIBOR rate plus 100 basis points. The Company is also subject to an ongoing annual commitment and administrative fee of 0.375% of the facility’s total capacity.

Montpelier serves as a guarantor of the Company’s obligations under the Credit Agreement and receives an annual guarantee fee from the Company equal to 0.125% of the facility’s total capacity.  See Note 11.

As of June 30, 2015 and December 31, 2014, the Company had $9.0 million and $8.0 million of outstanding borrowings, respectively, under the Credit Agreement. With respect to the Company’s outstanding borrowings at June 30, 2015, $4.0 million must be repaid or extended, in the form of a new borrowing, no later than November 2, 2015 and is subject to an annual interest rate of 1.41%, and $5.0 million must be repaid or extended, in the form of a new borrowing, no later than December 21, 2015 and is subject to an annual interest rate of 1.45%.

The Company incurred and paid interest and commitment fees on its borrowings under the Credit Agreement of less than $0.1 million during each of the three and six month periods ended June 30, 2015 and 2014.

During each of the three and six month periods ended June 30, 2015 and 2014, the Company incurred $0.1 million in fees in connection with establishing/renewing the Credit Agreement.

The Credit Agreement contains covenants that limit the Company’s and, to a lesser extent, Montpelier’s ability to, among other things, grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain transactions with affiliates.  The Credit Agreement also contains covenants that require: (i) the Company to maintain a debt to total capitalization ratio less than or equal to 22.5%; (ii) Montpelier to maintain a financial strength rating from Fitch of at least “BBB+”; and (iii) each of the Company and Montpelier to maintain at least 70% of its total shareholders’ equity as of the date of the Credit Agreement.  If the Company or Montpelier were to fail to comply with any of these covenants, the lender could revoke the facility and exercise remedies against the Company or Montpelier.  As of June 30, 2015 and December 31, 2014, the Company and Montpelier (as a guarantor) were in compliance with each of the covenants associated with the Credit Agreement.

NOTE 8.                      Share-Based Compensation

The Company’s 2013 Long-Term Incentive Plan (the “2013 LTIP”), which was adopted by the Board in September 2013, permits the issuance of up to one percent of the aggregate Common Shares outstanding to participants. Incentive awards that may be granted under the 2013 LTIP include RSUs, restricted Common Shares, incentive share options (on a limited basis), non-qualified share options, share appreciation rights, deferred share units, performance compensation awards, performance units, cash incentive awards and other equity-based and equity-related awards.

At the discretion of the Board’s Compensation and Nominating Committee, incentive awards, the value of which are based on Common Shares, may be made to the Company’s directors, future employees and consultants pursuant to the 2013 LTIP.  For all periods presented, the Company’s outstanding share-based incentive awards consisted solely of RSUs.

RSUs are phantom (as opposed to actual) Common Shares which, depending on the individual award, vest in equal tranches over a one to five-year period, subject to the recipient maintaining a continuous relationship with the Company through the applicable vesting date. RSUs are payable in Common Shares upon vesting (the amount of which may be reduced by applicable statutory income tax withholdings at the recipient’s option). RSUs do not require the payment of an exercise price and are not entitled to voting rights, but they are entitled to receive payments equivalent to any dividends and distributions declared on the Common Shares underlying the RSUs.

On June 15, 2015, the Company awarded a total of 7,000 RSUs (the “2015 RSUs”) to its directors. The 2015 RSUs earn ratably each year based on continued service as a director over a three-year vesting period. The grant date fair value of the 2015 RSUs was $0.1 million. In determining the grant date fair value associated with the 2015 RSUs, the Company assumed a forfeiture rate of zero. The forfeiture assumption associated with the 2015 RSUs may be adjusted, if necessary, based on future experience.

On June 15, 2014, the Company awarded a total of 7,000 RSUs (the “2014 RSUs”) to its directors. The 2014 RSUs earn ratably each year based on continued service as a director over a three-year vesting period. The grant date fair value of the 2014 RSUs was $0.1 million. In determining the grant date fair value associated with the 2014 RSUs, the Company assumed a forfeiture rate of zero. The forfeiture assumption associated with the 2014 RSUs may be adjusted, if necessary, based on future experience.

On June 15, 2015, the Company paid out a total of 2,335 vested 2014 RSUs to its directors.  See Note 5.  The fair value of the 2014 RSUs paid out on June 15, 2015 was less than $0.1 million.  The RSUs payable to Mr. William Pollett, Montpelier’s Chief Corporate Development and Strategy Officer and Treasurer, and Mr. Christopher Harris, Montpelier’s Chief Executive Officer, were paid directly to Montpelier.  See Note 11.

During the three and six month periods ended June 30, 2015, the Company recognized less than $0.1 million and $0.1 million of RSU expense, respectively, and during each of the three and six month periods ended June 30, 2014, the Company recognized less than $0.1 million of RSU expense. The Company expects to incur future RSU expense associated with its currently outstanding RSUs of less than $0.1 million during the year ended December 31, 2015, $0.1 million during the year ended December 31, 2016 and less than $0.1 million during the years ended December 31, 2017 and 2018.

As of June 30, 2015 and December 31, 2014, there were 11,665 and 7,000 RSUs outstanding under the 2013 LTIP, respectively.

NOTE 9.                      Income Taxes

The Company and its subsidiaries are domiciled in Bermuda and each have received an assurance from the Bermuda government exempting them from all local income, withholding and capital gains taxes until March 31, 2035. At the present time, no such taxes are levied in Bermuda.

The Company and its subsidiaries intend to conduct substantially all of their operations in Bermuda in a manner such that they will not be engaged in a trade or business in the U.S. However, because there is no definitive authority regarding activities that constitute being engaged in a trade or business in the U.S. for federal income tax purposes, the Company cannot assure that the U.S. Internal Revenue Service will not contend, perhaps successfully, that the Company or any of its subsidiaries is engaged in a trade or business in the U.S.  A foreign corporation deemed to be so engaged would be subject to U.S. federal income tax, as well as branch profits tax, on its income that is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under an applicable tax treaty.

NOTE 10.               Regulation and Capital Requirements

Blue Capital Re is registered under The Insurance Act 1978 of Bermuda and related regulations, as amended (the “Insurance Act”), as a Class 3A insurer.  Class 3A insurers benefit from an expedited application process, less regulatory stringency and minimal capital and surplus requirements.  The Insurance Act also requires Blue Capital Re to maintain minimum levels of statutory net assets (“Statutory Capital and Surplus”), to maintain minimum liquidity ratios and to meet minimum solvency margins.  As a result of the approvals received from the Bermuda Monetary Authority (the “BMA”) and the terms of Blue Capital Re’s business plan, Blue Capital Re’s reinsurance contracts must be fully-collateralized.  While Blue Capital Re is not required to prepare and file statutory financial statements or statutory financial returns annually with the BMA, Blue Capital Re is required to prepare and file annual audited GAAP financial statements with the BMA.

The Insurance Act limits the maximum amount of annual dividends and distributions that may be paid by Blue Capital Re.  The payment of dividends in any year which would exceed 25% of its prior year-end Statutory Capital and Surplus requires the approval of the BMA.  Also, if Blue Capital Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. Blue Capital Re’s minimum solvency margin has been set by the BMA to be $1.0 million at all times, so long as: (i) Blue Capital Re only enters into contracts of reinsurance that are fully collateralized; and (ii) each transaction represents no material deviation from the original business plan filed with BMA at the time of Blue Capital Re’s registration.

With respect to the year ending December 31, 2015, Blue Capital Re has the ability to dividend up to $46.3 million to its parent without BMA approval. Blue Capital Re has not declared or paid any dividends to its parent since its inception.

The Insurance Act also limits the maximum amount of annual distributions that may be paid by Blue Capital Re.  Blue Capital Re may not reduce its total capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as capital.

With respect to the year ending December 31, 2015, Blue Capital Re has the ability to distribute up to $24.9 million of its total capital to its parent without BMA approval. During the six month period ended June 30, 2015, Blue Capital Re declared and paid $6.5 million in distributions of its capital to its parent.

The Insurance Act further provides a minimum liquidity ratio and requires general business insurers and reinsurers to maintain the value of their relevant assets at not less than 75% of the amount of their relevant liabilities.  Blue Capital Re exceeded its minimum liquidity requirements at June 30, 2015 by $197.2 million.

Blue Capital Re’s net income (which approximated its statutory net income) for the three and six month periods ended June 30, 2015 was $7.3 million and $14.0 million, respectively.  Blue Capital Re’s net income (which approximated its statutory net income) for the three and six month periods ended June 30, 2014 was $2.3 million and $9.4 million, respectively.

The Bermuda Companies Act 1981, as amended, also limits the Company’s, Blue Capital Re’s and Blue Capital Re ILS’ ability to pay dividends and make distributions to its shareholders. None of the Company, Blue Capital Re or Blue Capital Re ILS is permitted to declare or pay a dividend, or make a distribution out of contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would be less than its liabilities.

NOTE 11.               Related Party Transactions

Through each of the following roles and relationships, Blue Capital leverages Montpelier’s reinsurance underwriting expertise and infrastructure to conduct its business: (i) the Manager, a wholly-owned subsidiary of Montpelier, manages Blue Capital Re’s and Blue Capital Re ILS’s reinsurance underwriting decisions; (ii) Blue Water Re is a significant source of reinsurance business for Blue Capital Re;  (iii) Mr. Pollett, Montpelier’s Chief Corporate Development and Strategy Officer and Treasurer, serves as a director and CEO of the Company; (iv) Mr. Michael Paquette, Montpelier’s CFO, serves as the Company’s CFO; and (v) Mr. Harris, Montpelier’s Chief Executive Officer, serves as Chairman of the Board.

All of the compensation to which Messrs. Pollett and Harris are entitled as directors of the Company has been assigned directly to Montpelier.

As of June 30, 2015 and December 31, 2014, Montpelier owned 33.3% of the Company’s outstanding Common Shares.

Services Provided to Blue Capital by Montpelier

Montpelier provides services to Blue Capital through the following arrangements:

BW Retrocessional Agreement. Through a retrocessional contract dated December 31, 2013 (the “BW Retrocessional Agreement”), between Blue Capital Re and Blue Water Re, Blue Water Re has the option to cede to Blue Capital Re up to 100% of its participation in the ceded reinsurance business it writes, provided that such business is in accordance with the Company’s underwriting guidelines. Pursuant to the BW Retrocessional Agreement, Blue Capital Re may participate in: (i) retrocessional, quota share or other agreements between Blue Water Re and Montpelier Reinsurance Ltd. (“Montpelier Re”), a wholly-owned subsidiary of Montpelier, or other third-party reinsurers, which provides it with the opportunity to participate in a diversified portfolio of risks on a proportional basis; and (ii) fronting agreements between Blue Water Re and Montpelier Re or other well capitalized third-party rated reinsurers, which allows Blue Capital Re to transact business with counterparties who prefer to enter into contracts with rated reinsurers.

For all periods presented, all of the reinsurance business of Blue Capital Re was originated pursuant to the BW Retrocessional Agreement.

Investment Management Agreement.  The Company has entered into an Investment Management Agreement with the Manager.  Pursuant to the terms of the Investment Management Agreement, the Manager has full discretionary authority, including the delegation of the provision of its services, to manage the Company’s assets, subject to the Company’s underwriting guidelines, the terms of the Investment Management Agreement and the oversight of the Board.

Underwriting and Insurance Management Agreement. The Company, Blue Capital Re and the Manager have entered into an Underwriting and Insurance Management Agreement (the “Underwriting and Insurance Management Agreement”). Pursuant to the Underwriting and Insurance Management Agreement, the Manager provides underwriting, risk management, claims management, ceded retrocession agreements management and actuarial and reinsurance accounting services to Blue Capital Re. The Manager has full discretionary authority to manage the underwriting decisions of Blue Capital Re, subject to the Company’s underwriting guidelines, the terms of the Underwriting and Insurance Management Agreement and the oversight of the Company’s and Blue Capital Re’s boards of directors.

Administrative Services Agreement. The Company has entered into an Administrative Services Agreement with the Manager, as amended on November 13, 2014 (the “Administrative Services Agreement”).  Pursuant to the terms of the Administrative Services Agreement, the Manager provides Blue Capital with support services, including the services of Messrs. Pollett and Paquette, as well as finance and accounting, internal audit, claims management and policy wording, modeling software licenses, office space, information technology, human resources and administrative support.

Fees Incurred Pursuant to the Aforementioned Agreements

Three and Six Month Periods Ended June 30, 2015

During the three and six month periods ended June 30, 2015, the Company incurred general and administrative expenses of: (i) $0.6 million and $1.3 million, respectively, pursuant to the Investment Management Agreement; (ii) $0.2 million and $0.3 million, respectively, pursuant to the Administrative Services Agreement; and (iii) $0.5 million and $0.6 million, respectively, pursuant to the Underwriting and Insurance Management Agreement.

During each of the three and six month periods ended June 30, 2015, the Company incurred interest and financing expenses of less than $0.1 million pursuant to Montpelier’s guarantee of the Company’s obligations with respect to the Credit Agreement. See Note 7.

Three and Six Month Periods Ended June 30, 2014

During the three and six month periods ended June 30, 2014, the Company incurred general and administrative expenses of: (i) $0.6 million and $1.3 million, respectively, pursuant to the Investment Management Agreement; (ii) $0.2 million and $0.3 million, respectively, pursuant to the Administrative Services Agreement; and (iii) zero and less than $0.1 million, respectively, pursuant to the Underwriting and Insurance Management Agreement.

During each of the three and six month periods ended June 30, 2014, the Company incurred interest and financing expenses of less than $0.1 million pursuant to Montpelier’s guarantee of the Company’s obligations with respect to the Credit Agreement. See Note 7.

As of June 30, 2015 and December 31, 2014, the Company owed Montpelier $0.7 million and $0.5 million for the services performed pursuant to the aforementioned agreements, respectively.

NOTE 12.               Commitments and Contingent Liabilities

Commitments

As of June 30, 2015 and December 31, 2014, Blue Capital had no commitments for operating leases or capital expenditures and does not expect any material expenditures of this type during the foreseeable future.

The Company and its subsidiaries may not terminate the Investment Management Agreement, the Underwriting and Insurance Management Agreement or the Administrative Services Agreement until the fifth anniversary of the completion of its initial public offering in November 5, 2013 (the “IPO”), whether or not the Manager’s performance results are satisfactory. Upon any termination or non-renewal of either of the Investment Management Agreement or the Underwriting and Insurance Management Agreement (other than for a material breach by, or the insolvency of, the Manager), the Company must pay a one-time termination fee to the Manager equal to 5% of its GAAP shareholders’ equity (approximately $9.0 million as of June 30, 2015).

Litigation

Blue Capital, as a reinsurer, is subject to litigation and arbitration proceedings in the normal course of its business.  Such proceedings often involve reinsurance contract disputes which are typical for the reinsurance industry.  Blue Capital Re’s estimates of possible losses incurred in connection with such legal proceedings are provided for as “loss and loss adjustment expenses” on its Consolidated Statements of Operations and Comprehensive Income and are included within “loss and loss adjustment expense reserves” on its Consolidated Balance Sheets.

The Company and its subsidiaries had no unresolved legal proceedings at June 30, 2015 and December 31, 2014.

Concentrations of Credit and Counterparty Risk

Blue Capital Re ILS’s derivative instruments are subject to counterparty risk. The Company and the Manager routinely monitor this risk.

Blue Capital Re markets retrocessional and reinsurance policies worldwide through brokers.  Credit risk exists to the extent that any of these brokers may be unable to fulfill their contractual obligations to Blue Capital Re.  For example, Blue Capital Re is required to pay amounts owed on claims under policies to brokers, and these brokers, in turn, pay these amounts to the ceding companies that have reinsured a portion of their liabilities with Blue Capital Re. In some jurisdictions, if a broker fails to make such a payment, Blue Capital Re might remain liable to the ceding company for the deficiency. In addition, in certain jurisdictions, when the ceding company pays premiums for these policies to brokers, these premiums are considered to have been paid and the ceding insurer is no longer liable to Blue Capital Re for those amounts, whether or not the premiums have actually been received.

Blue Capital Re remains liable for losses it incurs to the extent that any third-party reinsurer is unable or unwilling to make timely payments under reinsurance agreements.  Blue Capital Re would also be liable in the event that its ceding companies were unable to collect amounts due from underlying third-party reinsurers.

NOTE 13.               Fair Value of Financial Instruments

GAAP requires disclosure of fair value information for certain financial instruments.  For those financial instruments in which quoted market prices are not available, fair values are estimated by discounting future cash flows using current market rates or quoted market prices for similar obligations.  These estimates are not necessarily indicative of amounts that could be realized in a current market exchange. Blue Capital carries its assets and liabilities that constitute financial instruments on its Consolidated Balance Sheets at fair value with the exception of its debt.

At June 30, 2015 and December 31, 2014, the fair value of the Company’s outstanding borrowings under the Credit Agreement, each of which were of a short duration, approximated their carrying value of $9.0 million and $8.0 million, respectively. See Note 7.

Item 2.                   Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following is a discussion and analysis of our results of operations for the three and six month periods ended June 30, 2015 and 2014, and our financial condition as of June 30, 2015 and December 31, 2014.  This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included in Part I, Item 1 of this report and with our audited consolidated financial statements and related notes thereto contained in the 2014 Form 10-K, as filed with the SEC.

This discussion contains forward-looking statements within the meaning of the U.S. federal securities laws, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that are not historical facts, including statements about our beliefs and expectations. These statements are based upon current plans, estimates and projections. Forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and various risk factors, many of which are outside our control.  See Item 1A “Risk Factors” contained in the 2014 Form 10-K, as filed with the SEC, for specific important factors that could cause actual results to differ materially from those contained in forward looking statements. You can identify forward-looking statements in this discussion by the use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.”  These forward-looking statements include, among others, statements relating to our future financial performance, our business prospects and strategy, our dividend policy and expected dividend payout, anticipated financial position, liquidity and capital needs and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Important events and uncertainties that could cause our results or future dividends on, or repurchases of, Common Shares to change include, but are not limited to:

·                                        the fact that we have limited operating history;

·                                        the possibility of severe or unanticipated losses from natural and man-made catastrophes, including those that may result from changes in climate conditions, including global temperatures and expected sea levels;

·                                        the effectiveness of our loss limitation methods;

·                                        our dependence on our Chief Executive Officer, our Chief Financial Officer and our service providers, particularly since these relationships are likely to be impacted by the pending merger among Montpelier and Endurance Specialty Holdings Ltd.;

·                                        our ability to effectively execute our business plan and any new ventures that we may enter into;

·                                        continued acceptance of our business strategy, security and financial condition by regulators, brokers and insureds;

·                                        failure by any service provider to carry out its obligations to us in accordance with the terms of its appointment;

·                                        conflicts of interest that could result from our relationships and potential overlaps in business with related parties, including Montpelier and its subsidiaries;

·                                        the cyclical nature of the property catastrophe insurance and reinsurance industry;

·                                        the availability of capital and financing, including our ability to raise more equity capital and our ability to release capital from existing obligations to redeploy annually;

·                                        the levels of new and renewal business achieved;

·                                        the availability of opportunities to increase writings within our property and catastrophe lines of business and our ability to capitalize on those opportunities;

·                                        the inherent uncertainty of our risk management process, which is subject to, among other things, industry loss estimates and estimates generated by modeling techniques;

·                                        changes in the availability, cost or quality of reinsurance or retrocessional coverage;

·                                        the accuracy of those estimates and judgments used in the preparation of our financial statements, including those related to revenue recognition, reserves for loss and LAE, reinsurance recoverables, asset valuations, contingencies and litigation which, for a newer reinsurance company like us, are even more difficult to make than those made by a mature company because of our limited operating history;

·                                        the inherent uncertainties in establishing loss and LAE reserves and unanticipated adjustments to premium estimates;

·                                        general economic and market conditions, including inflation, volatility in the credit and capital markets and conditions specific to the insurance and reinsurance markets in which we operate;

·                                        changes in and the impact of governmental legislation or regulation, including changes in tax laws in the jurisdictions where we conduct business;

·                                        statutory or regulatory developments, including those involving tax policy, reinsurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies or Bermuda-based insurers or reinsurers;

·                                        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;

·                                        the amount and timing of reinsurance recoveries;

·                                        the overall level of competition, and the related supply and demand dynamics in our markets relating to growing capital levels in our industry;

·                                        declining demand due to increased retentions by cedants and other factors;

·                                        acts of terrorism, political unrest, outbreak of war and other hostilities or other non-forecasted and unpredictable events;

·                                        unexpected developments concerning the small number of insurance and reinsurance brokers upon whom we rely for a large portion of revenues;

·                                        operational risks, including the risk of fraud and any errors and omissions, as well as technology breaches or failures;

·                                        our dependence as a holding company upon dividends or distributions from our operating subsidiaries; and

·                                        changes in accounting principles or the application of such principles by regulators.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

A widely-used measure of relative underwriting performance for an insurance or reinsurance company is the combined ratio. Our combined ratio is calculated by adding: (i) the ratio of incurred losses and LAE to earned premiums (known as the “loss and LAE ratio”); (ii) the ratio of acquisition costs to earned premiums (known as the “acquisition cost ratio”); and (iii) the ratio of general and administrative expenses to earned premiums (known as the “general and administrative expense ratio”), with each component determined in accordance with GAAP (the “GAAP combined ratio”).  A GAAP combined ratio under 100% indicates that an insurance or reinsurance company is generating an underwriting profit.  A GAAP combined ratio over 100% indicates that an insurance or reinsurance company is generating an underwriting loss.

Overview

Natural Catastrophe Risk Management

We reinsure exposures throughout the world against various natural catastrophe perils. The Manager manages our net exposure to these perils using a combination of industry third-party models, proprietary models, underwriting judgment and purchases of outwards reinsurance and/or derivative instruments.

Our multi-tiered risk management approach focuses on tracking exposed contract limits, estimating the potential net impact of a single natural catastrophe event and simulating our yearly net operating result to reflect an aggregation of modeled underwriting, investment and other risks.  The Manager and the Board regularly review the outputs from this process and the Manager routinely seeks to refine and improve our risk management process.

The following discussion should be read in conjunction with Item 1A “Risk Factors” included in the 2014 Form 10-K, as filed with the SEC, 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 Management

The Manager monitors our net exposure to any one catastrophe loss event in any single zone within certain broadly defined major catastrophe zones. Our June 1, 2015 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 June 30, 2015.

These broadly defined major catastrophe zones are currently defined as follows:

(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.

There is no single standard methodology or set of assumptions utilized industry-wide in estimating property catastrophe losses. As a result, it may be difficult to accurately compare estimates of risk exposure among different insurance and reinsurance companies due to, among other things, underwriting judgment, differences in modeling, modeling assumptions, portfolio composition and concentrations, and selected event scenarios.

The table that follows details the projected net impact from single event losses as of June 1, 2015 for selected zones at specified return periods using AIR Worldwide Corporation’s Touchstone 2.0 and CATRADER 16.0, both of which are industry-recognized third-party vendor models. It is important to note that each catastrophe model 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, 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