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| 8-K - FORM 8-K - Blue Capital Reinsurance Holdings Ltd. | d166784d8k.htm |
| Exhibit 99.1
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Exhibit 99.1
Blue Capital Reinsurance Holdings Ltd. (NYSE: BCRH)
Investor Update Q4 2015
Blue Capital Management Ltd. is licensed to conduct investment business by the Bermuda Monetary Authority Blue Capital is a registered trademark
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Safe Harbor Statement
Some of the statements in this presentation may include, and Blue Capital Reinsurance Holdings Ltd. (the “Company”) and the Company’s manager, Blue Capital Management Ltd. (“Blue Capital”) may make related oral forward-looking statements which reflect our current views with respect to future events and financial performance. Such statements may include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements that include the words “should,” “would,” “expect,” “estimates”, “intend,” “plan,” “believe,” “project,” “target,” “anticipate,” “seek,” “will,” “deliver,” and similar statements of a future or forward-looking nature identify forward-looking statements in this press release for purposes of the U.S. federal securities laws or otherwise. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or may be important factors that could cause actual results to differ materially from those indicated in the forward-looking statements. These factors include, but are not limited to, the effects of competitors’ pricing policies, greater frequency or severity of claims and loss activity, changes in market conditions, decreased demand for property and casualty reinsurance, changes in the availability, cost or quality of reinsurance or retrocessional coverage, our inability to renew business previously underwritten or acquired, uncertainties in our reserving process, changes to our tax status, reduced acceptance of our existing or new products and services, a loss of business from and credit risk related to our broker counterparties, assessments for high risk or otherwise uninsured individuals, possible terrorism or the outbreak of war, a loss of key personnel, political conditions, changes in insurance regulation, operational risk, including the risk of fraud and errors and omissions, as well as technology breaches or failure, changes in accounting policies, our investment performance, the valuation of our invested assets, a breach of our investment guidelines, potential treatment of us as an investment company or a passive foreign investment company for purposes of U.S. securities laws or U.S. federal taxation, respectively, our dependence as a holding company upon dividends or distributions from our operating subsidiaries, the unavailability of capital in the future, developments in the world’s financial and capital markets and our access to such markets, government intervention in the insurance and reinsurance industry, illiquidity in the credit markets, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2014.
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 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.
Regulation G Disclaimer
In this presentation, management has included and discussed certain non-GAAP measures. 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.
Return on Equity (ROE) is comprised using the average common equity calculated as the arithmetic average of the beginning and ending common equity balances by quarter for stated periods. The Company presents various measures of Return on Equity that are commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
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Overview
The Company—Blue Capital Reinsurance Holdings Ltd. (“BCRH”) (NYSE:BCRH)
A specialist reinsurance holding company
Listed on the New York Stock Exchange in November 2013 with $200.6 million of capital as of 12/31/2015
Provides investors with direct access to reinsurance industry risk premiums with no underlying investment portfolio risk
Endurance Specialty Holdings Ltd. (“Endurance”) (NYSE:ENH) owns 33% of outstanding common shares
BCRH’s Strategy – Collateralized Reinsurance
Target minimum dividends and/or share repurchases of 90% of distributable income (achieved in first two full years of operation)
Focus on collateralized reinsurance contracts offering attractive risk adjusted returns
Exposure is well diversified across global geographies, products and insurers
Exclusive focus on catastrophe exposures
Target return on common equity equal to 800 basis points over the three-month U.S. Treasury yield per annum1
The Manager—Blue Capital Management Ltd. (“Blue Capital”)
An alternative investment manager focused exclusively on the insurance-linked (“ILS”) asset class
Run by a market leading team of professionals with a deep bench of experience in both reinsurance and capital markets
Manages approximately $670 million in assets across a range of ILS strategies
Blue Capital is wholly owned by Endurance a leading global specialty provider of property and casualty insurance and reinsurance
1The target long-term net return referenced above is a forward-looking statement that involves risks and uncertainties. Accordingly, there are or may be important factors that could cause actual returns to differ materially from the target long-term net return. Realization of the target long-term net return is dependent upon, (i) the portfolio of risks that BCRH constructs, (ii) the pricing BCRH is able to attain for the risks underwritten, (iii) BCRH’s investment return, (iv) the efficacy of the proprietary catastrophe modeling tools utilized by BCRH in estimating claims activity, (v) the claims activity BCRH actually experiences and (vi) BCRH’s ongoing corporate expenses. For a listing of risks related to BCRH and its future performance, please see “Risk Factors” in BCRH’s most recent Annual Report on Form 10-K.
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Why Invest in Blue Capital Reinsurance Holdings?
Investing in Catastrophe Risk provides returns which are directionally uncorrelated to financial markets…
2015 Growth In Book Value = 11.4%
90% min. +1,650
Earnings Underlying
Distribution1 Positions2
Attractive Diversified portfolio
annual yield construction approach
1. BCRH intends to distribute a minimum of 90% of its annual distributable income to shareholders and intends to make such distributions through regular quarterly dividend payments for each of the first three quarters of each year, followed by a fourth “special” dividend or common share repurchase program after the end of the year. 2. Investors who invest in a single share of BCRH enjoy the benefit of investing in a share that is diversified by underlying investments of greater than 1650 positions in catastrophe related insurance contracts, as at January 1, 2016.
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Catastrophe Reinsurance: Largely Uncorrelated Returns
Largely
uncorrelated
to other asset
classes
Attractive
returns
with
manageable
and
diversifiable
volatility
Increasing
institutional
acceptance
Global Index Returns (December 2005 – January 2016) (1)
250.0
230.0 Strong performance during
the financial crisis
210.0
190.0
170.0
150.0
130.0
110.0
90.0
70.0
50.0
Dec 05 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16
Property Catastrophe Insurance-linked Securities US Corporate High Yield
US Equities MSCI EAFE Hedge Funds
US Aggregate 3 Month T-Bills Muni Bonds
US MBS US ABS US CMBS
Largely Uncorrelated Returns vs. Other Financial Assets
(1) Property Catastrophe: Swiss Re Cat Bond Total Return Index; Insurance-linked Securities: Eureka ILS Advisors Index; US Corporate High Yield: Barclays U.S. Corporate High Yield Total Return Index; US Equities: S&P 500; MSCI EAFE: a free-float weighted equity index covering developing markets in Europe, Australasia and Far East regions; US Aggregate: Barclays U.S. Aggregate Total Return Index Source: Bloomberg
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Catastrophe Reinsurance: Attractive Risk / Return
Largely
uncorrelated
to other asset
classes
Attractive
returns
with
manageable
and
diversifiable
volatility
Increasing
institutional
acceptance
Global Index Returns vs. Volatility (December 2005 – January 2016) (1)
10.00%
Property Catastrophe Bonds
9.00%
8.00%
US Corporate High Yield US Equities
| 7.00% |
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Insurance-linked Securities |
iod
r
Pe 6.00%
r
e
ov
n s 5.00% US CMBS
tur US Aggregate
e
R
al 4.00%
u US MBS
n Muni Bonds
An
| 3.00% |
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US ABS |
| 2.00% |
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Hedge Funds |
| 1.00% |
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3 Month T-Bills |
0.00%
| 0.00% |
|
2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% |
Annual Return Standard Deviation
Attractive Risk/Return Characteristics
(1) Property Catastrophe: Swiss Re Cat Bond Total Return Index; Insurance-linked Securities: Eureka ILS Advisors Index; US Corporate High Yield: Barclays U.S. Corporate High Yield Total Return Index; US Equities: S&P 500; MSCI EAFE: a free-float weighted equity index covering developing markets in Europe, Australasia and Far East regions; US Aggregate: Barclays U.S. Aggregate Total Return Index Source: Bloomberg
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Confidential. Not for further distribution.
Insurance Risk Transfer
Risk Distribution Chain
Insurance
Households Reinsurers Retrocessionaires
Companies
Low Traditional Traditional
Medium
High
Excess Collateralized
Households buy insurance Insurance Companies purchase Reinsurers opportunistically
from Insurance Companies Catastrophe Reinsurance to protect hedge against the risk of
against infrequent large losses infrequent large losses
Reinsurance Products
Traditional Collateralized Industry Loss Catastrophe Retrocession
Reinsurance Reinsurance Warranties (ILWs) Bonds
Liquidity
BCRH can and will invest in these products opportunistically,
BCRH focus but they are not the key focus
Transparency of the original risk
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What Differentiates BCRH from a Traditional Reinsurer?
Blue Capital Traditional
Reinsurance Holdings Ltd. Reinsurer
Business Focus Collateralized property catastrophe reinsurance Diversified portfolio of short-tail reinsurance and other
specialty insurance and reinsurance lines
Security Offered
Clients Cash collateral, no leverage “Promise to Pay” backed by financial strength ratings
Capital
Target minimum dividends and/or share repurchases of
Management Low single-digit dividend yield
Policy 90% of distributable income
Multitude of different risks including catastrophe risks,
Risk Profile Primarily natural catastrophe risks, predefined single event other frequency and severity insurance risks, interest rate,
exposures credit risk, equity risk, long-tail reserve risk, capital
management, etc.
Investment Portfolio of fixed income and equity investments with
Cash and cash equivalents, no investment risk or volatility
Profile interest rate, credit and market risk
BCRH is a “pure play” catastrophe reinsurance alternative investment, which has paid out 90% of its distributable income for 2014 and 2015
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Execution of a Successful Strategy
Preferred access to catastrophe market opportunities
Returns are generated from the construction of a portfolio of investments in catastrophic reinsurance contracts
Low underlying asset risk
Invested collateral is held in Bank of New York Mellon trusts account in cash or 3 Month T-Bills
Disciplined approach to portfolio execution by seasoned team equipped with analytics and optimized pricing metrics
Risk management provided by our proprietary pricing and portfolio management system
Endurance ownership of the Manager
Allows broad access through a global network of operations headquartered in Bermuda and leverages Endurance’s staffing and global catastrophe book of business
Blue Capital is well placed to manage the cycle with strong brand recognition, a successful multiyear track record and its strategic relationship with Endurance
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Broad Access to Growing Market
Blue Capital has unique direct access to the traditional catastrophe reinsurance market through its reinsurance team and its direct relationship with Endurance:
Access to broader $350 billion global property catastrophe market
Provides BCRH investor access to > 90% of the market of catastrophe risk opportunities; not all of these opportunities are accessible by standalone reinsurance fund managers
Collateralized reinsurance capability provides additional access to growing segment in the global catastrophe reinsurance market
Growing demand for alternative capital
.
BCRH accesses entire market with strategic
focus on the largest segment
Traditional
Alternative
Catastrophe
Market
Reinsurance
20%
Market
80%
BCRH actively invests in a diversified range of traditional reinsurance and ILS products
Source Guy Carpenter as at January 1, 2016.
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Financial Highlights
Financial Results 2014 2015
Production:
Gross Premiums Written (in millions) $45.0 $38.6
Net Premiums Earned (in millions) $43.9 $38.3
Underwriting Results:
Loss Ratio 39.0% 6.9%
Expense Ratio 28.2% 38.4%
Combined Ratio 67.2% 45.3%
Per Share Data:
Earnings per Share $1.72 $2.36
Regular Dividends Declared $0.90 $0.90
Special Dividends Declared $0.66 $1.24
Total Dividends Declared $1.56 $2.14
Earnings Payout Ratio 90.4% 90.4%
Fully Converted Book Value Per $20.62 $21.41
Share
Growth in Book Value Per Share, 8.7% 11.4%
Including Dividends Paid
BCRH has generated very strong results in its first two full years of operations
11.4% Growth in Book Value Per Share inclusive of dividends paid in 2015
Benign catastrophe losses have contributed to strong earnings and book value growth
Returned 90.4% of distributable income through regular and special dividends
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Geographic Distribution of Premiums
Year Ended Year Ended
$ in millions December 31, 2014 December 31, 2015
Worldwide 1 $ 30.5 67.8% $ 24.1 62.4%
USA:
Nationwide $ 4.7 10.5% $ 5.6 14.5%
Florida $ 3.7 8.2% $ 2.4 6.2%
Gulf Region $ 1.5 3.3% $ 1.7 4.4%
California $ 1.2 2.7% $ 0.7 1.8%
Mid-Atlantic Region $ 1.0 2.2% $ 0.4 1.0%
Midwest Region and other $ 1.0 2.2% $ 0.6 1.6%
Worldwide, excluding U.S.2 $ 1.4 3.1% $ 3.1 8.1%
$ 45.0 100.0% $ 38.6 100.0%
1 “Worldwide” comprises reinsurance contracts that cover risk 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.
BCRH maintains a balanced portfolio of global risks
Retain flexibility to write business in regions with highest risk/return potential
Successfully bound $37.6 million of annual premiums at January 31, 2016 renewals
Inforce portfolio as of January 31, 2016 consisted of 21% first event coverages, 49% quota shares and remaining balance support second and subsequent events
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Risk Management: Single Event Loss Exposure
Net Impact From Single Event Losses(1) at Specified Return Periods
Net Impact% of December 31, 2015
Return Period (2)
(millions) Shareholders’ Equity
U.S.—Florida hurricane $ 61 1 in 100 year 33%
Japan – Earthquake $ 32 1 in 250 year 17 %
California—Earthquake $ 29 1 in 250 year 15%
All other zones less than 15%
(1) Our single event loss estimates represent snapshots as of January 1, 2016. The composition of our in-force portfolio may change materially at any time due to the acceptance of new policies, losses incurred, the expiration of existing policies and changes in our ceded reinsurance and derivative protections.
(2) A “100-year” return period can also be referred to as the 1.0% occurrence exceedance probability (“OEP”), meaning there is a 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 a 0.4% chance in any given year that this level will be exceeded.
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Conclusion
Exposure to catastrophe reinsurance, directionally uncorrelated to financial markets
Attractive return profile with negligible risk from financial assets
Leverages Endurance, a market recognized leading global specialty insurer and reinsurer
Provides access to greater than 90% of market of catastrophe risk opportunities Differentiated reinsurance risk selection & portfolio construction approach Close alignment of interest between Endurance, BCRH and shareholders
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Appendix
Blue Capital Management Ltd. is licensed to conduct investment business by the Bermuda Monetary Authority Blue Capital is a registered trademark
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Endurance Provides a Strong Support Base for BCRH
Strong Balance Sheet and Capital
“A” ratings from A.M. Best and
S&P
| $5.6 |
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billion of total capital and |
shareholders’ equity available to
the Company of $4.9 billion as of
December 31, 2015.
Conservative, short-duration,
AA- rated investment portfolio
Prudent reserves that have
historically developed favorably
since our inception
Diversified and efficient capital
structure
Since inception, returned nearly
| $2.2 |
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billion to investors through |
dividends and share repurchases
Diversified Portfolio of
Businesses
Gross premiums written of $3.3
billion for full year 2015
Strong organic growth
enhanced by Montpelier
Re Holdings Ltd.
(“Montpelier”) acquisition
Balanced portfolio of insurance
and reinsurance diversified by
product/geography in both short
and long tail lines
Proven leader in the U.S.
agriculture insurance industry
Focus on specialty lines of
business, with market
recognized, industry-leading
talent
Strategic Initiatives
Substantially expanded global
underwriting and leadership talent
Optimized balance of insurance
and reinsurance portfolios to lower
volatility and improve profitability
Increased strategic purchases of
reinsurance and retrocession to
support growth and manage cycle
Streamlined support operations to
generate significant savings to
fund underwriting additions
2015 financial results reflect
preliminary impact of
transformation initiatives
Strong and seasoned franchise
Inception to date operating ROE of 10.8%
10 year book value per share plus dividends CAGR of 12.8%
Continuous improvement in performance and market positioning
Financial results beginning to benefit from our transformation efforts
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Support Provided By Endurance Through Service Agreements and Direct Investment
Endurance Holders of
Specialty Common
Holdings Stock
Ltd.
4.7%
Owned 66.7%
Owned
Blue Capital
Reinsurance
28.6% Holdings
Endurance Owned Ltd.
Specialty
Insurance
Ltd. Wholly
Owned
Service
Agreements
Blue Capital Blue Capital
Management Ltd. Re Ltd.
(the “Manager”)
Wholly
Owned
Blue Capital
Re ILS Ltd.
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CONTACT:
Adam Szakmary President and CEO
+1-441-278-0485
Adam. Szakmary@bluecapital.bm
BLUE CAPITAL MANAGEMENT LTD.
Waterloo House, 100 Pitts Bay Road
PO Box HM2079,
Hamilton, Bermuda, HM HX