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| 8-K - FORM 8-K - Blue Capital Reinsurance Holdings Ltd. | d288505d8k.htm |
 Blue
Capital Reinsurance Holdings Ltd. (NYSE: BCRH) Investor Update
Q3 2016 Blue Capital Management Ltd. is licensed to conduct investment business by the Bermuda Monetary Authority
Blue Capital is a registered trademark
Exhibit 99.1 |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Safe Harbor
Statement Some of the statements in this presentation may include, and
Blue Capital Reinsurance Holdings Ltd. (the “Company” of “BRCH”) 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 presentation 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, a breach in our underwriting guidelines, potential treatment of us as an investment company or a passive foreign investment company for purposes of U.S. securities laws or U.S. federal taxation, respectively, our dependence as a holding company upon dividends or distributions from our operating subsidiaries, the unavailability of capital in the future, developments in the
world’s financial and capital markets and our access to such
markets, government intervention in the insurance and reinsurance industry, illiquidity in the credit markets, changes in general economic conditions and other factors described in our
Annual Report on Form 10-K for the year ended December 31, 2015 and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016 and September 30, 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 Annual Report on Form 10-K, Quarterly Report on Form 10-Q 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.
2 |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Achieving
Strong Returns Through Focusing Solely on Catastrophe Risks
An alternative investment manager focused exclusively on the insurance-linked
(“ILS”) asset class Run by a team of market leading
professionals experienced in insurance and capital markets Managed
approximately $672 million in assets across a range of ILS strategies as of December 31, 2015 Blue Capital is wholly owned by Endurance Exclusive focus on catastrophe reinsurance exposures Well diversified exposure risk profile is across global geographies, products and insurers
Underwrites collateralized reinsurance contracts offering attractive risk adjusted
returns A specialist reinsurance holding company (listed on the NYSE in
November 2013) Provides investors with access to returns largely
uncorrelated returns to financial markets $179.2 million of capital as of
September 30, 2016 Target return on common equity equal to 800 basis
points over the three-month U.S. Treasury yield per
annum 3
Blue Capital Reinsurance Holdings (“BCRH”) BCRH’s Strategy Blue Capital Management Ltd. (“Blue Capital”) 1 The 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 and Quarterly Report on Forms 10-Q. 1 |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE BCRH Has
Delivered Strong Investor Returns 4
Fully Converted Book Value Per Common Share
From December 31, 2013 – September 30, 2016 1. Dividend yield calculated by dividing dividends paid during the year by the beginning of the year share price. The company intends to distribute through dividends or share repurchases a minimum of 90% of annual distributable income Dividends have historically included recurring dividends of $0.30 for the first three quarters of the year and a special dividend paid in the first quarter of the following year Attractive Dividend Yields From December 31, 2013 – September 30, 2016 2014 2015 2016 Beg. Stock Price 18.37 $ 17.75 $ 17.15 $ Dividends Paid 0.90 $ 1.56 $ 2.14 $ Dividend Yield 4.9% 8.8% 12.5% $19.80 $20.62 $21.41 $20.44 $0.90 $2.46 $4.60 $0 $5 $10 $15 $20 $25 $30 2013 2014 2015 3Q16 Diluted Book Value Per Share |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Introduction
to Reinsurance Risk Transfer 5
Risk Distribution Chain
Households buy insurance from
Insurance Companies Reinsurers opportunistically hedge against the risk of infrequent large losses Traditional Insurance Companies purchase Catastrophe Reinsurance to protect against infrequent large losses Insurance Companies Reinsurers Retrocessionaires Traditional Collateralized Reinsurance Industry Loss Warranties (ILWs) Catastrophe Bonds BCRH Business focus Reinsurance Products Retrocession BCRH can invest in these products opportunistically, but they are not the key focus Households Traditional Reinsurance Transparency of the underlying risk is key to optimal portfolio construction Excess Low Medium High Collateralized |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Execution of
a Successful Strategy
6 Preferred access to catastrophe market opportunities Returns are generated from the construction of a portfolio of in catastrophe reinsurance
contracts Avoid non-catastrophe risks such as surety, casualty, accident and health and other long tail
reinsurance lines of business
Strong inception to date performance Percentage?
Minimal underlying investment asset risk
Invested collateral is Cash or Cash equivalent securities held in custody by Bank of
New York Mellon
Disciplined approach to portfolio execution
Seasoned team equipped with analytics and optimized pricing metrics
Risk management provided by our proprietary pricing and portfolio management
system Leveraging the strength and expertise of Blue Capital
Allows broad access through a global network of operations headquartered in
Bermuda Leverages Endurance’s staffing and provides access to
a well diversified global catastrophe book of business
Well positioned to manage the pricing cycle with strong brand recognition, a
successful multi- year track record and its strategic relationship
with Endurance |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Michael
McGuire Chairman of The Board
D. Andrew Cook Audit Committee Chairman Experienced Team and Strong Oversight 7 BCRH Board Of Directors Adam Szakmary Chief Executive Officer John Weale Compensation & Nominating Committee Chairman Eric Lemieux Lead Director • CFO of Endurance since 2006 • Extensive insurance industry experience • CFO Global Partners Acquisition Corp • Financial Expert • Active in the launch of Blue Capital in 2012 • CEO of BCRH since August 2015 • Has held numerous industry executive roles • Over 30 years industry experience • Extensive catastrophe risk management experience • Fellow of the Casualty Actuarial Society BCRH Officers Adam Szakmary Chief Executive Officer Greg Garside Chief Financial Officer John Del Col Secretary |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE What
Differentiates BCRH from a Traditional Reinsurer? Blue Capital
Reinsurance Holdings Ltd.
Traditional Reinsurer Business Focus Collateralized property catastrophe reinsurance Diversified portfolio of short-tail and long-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 Management Policy Low single-digit dividend yield (typically 1-3%) Risk Profile Primarily natural catastrophe risks, predefined single event exposures Multitude of different risks including catastrophe risks, other frequency and severity insurance risks, interest rate, credit risk, equity risk, long-tail reserve risk, capital management, etc. Investment Profile Cash and cash equivalents, no investment risk or volatility Portfolio of fixed income, equity and hedge fund investments with 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
8 Target minimum dividends and/or share repurchases of 90% of distributable income |
  GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Geographic
Distribution of Premiums Portfolio of risks globally diversified by over
1,800 underlying contracts 9
BCRH maintains a diversified
portfolio of global risks
Successfully bound $42.5 million of
year to date annual premiums which
will be mainly recognized throughout
2016 Inforce portfolio as of July 1, 2016 consisted of 27% first event coverages, 50% quota shares and the remaining balance supports second and subsequent events * (1) “Worldwide” comprises reinsurance contracts that cover risks in more
than one geographic area and do not specifically exclude the U.S.
(2) “Worldwide, excluding U.S.” comprises reinsurance contracts that cover risks in more than one geographic area but specifically exclude the U.S. 3Q16 YTD ($ in millions) September 30, 2016 Worldwide (1) $26.2 76% USA: Nationwide $3.4 10% Florida $2.8 8% Gulf region $0.8 2% California $0.3 1% Mid-Atlantic Region $0.4 1% Midwest region and other $0.4 1% Worldwide, excluding U.S. (2) $0.2 1% $34.5 100% * 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 1,819 positions in catastrophe related insurance contracts, as at
July 1, 2016. |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Financial
Highlights 10
First nine months of 2016 results:
- 5.5% growth in book value per share - $10.3 million of net income and a combined ratio of 66.4% Impacted by a higher frequency of global catastrophe events in second quarter 2016 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 Financial Results 2014 2015 3Q16 YTD Production: Gross Premiums Written (in millions) $45.0 $38.6 $34.5 Net Premiums Earned (in millions) $43.9 $38.3 $32.1 Underwriting Results: Loss Ratio 39.0% 6.9% 32.3% Expense Ratio 28.2% 38.4% 34.1% Combined Ratio 67.2% 45.3% 66.4% Per Share Data: Earnings per Share $1.72 $2.36 $1.17 Regular Dividends Declared $0.90 $0.90 $0.90 Special Dividends Declared $0.66 $1.24 $0.00 Total Dividends Declared $1.56 $2.14 $0.90 Earnings Payout Ratio 90.4% 90.4% 76.9% Fully Converted Book Value Per Share $20.62 $21.41 $20.44 Growth in Book Value Per Share, Including Dividends Paid 8.7% 11.4% 5.5% |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Risk
Management: Single Event Loss Exposure Maintained Within Underwriting
Guidelines (1)
Our single event loss estimates represent snapshots as of June 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. Actual realized catastrophic losses could differ materially from our net loss estimates and our net loss estimates should not be considered as representative of
the actual losses that we may incur in connection with any particular
catastrophic event. The net loss estimates above rely significantly on
computer models created to simulate the effect of catastrophes on insured
properties based upon data emanating from past catastrophic events. Since comprehensive data collection regarding insured losses from catastrophe events is a relatively recent development in the insurance industry, the data upon which catastrophe models is
based is limited, which has the potential to introduce inaccuracies into
estimates of losses from catastrophic events, in particular those that occur infrequently. In addition, catastrophe models are significantly influenced by management’s assumptions regarding event characteristics, construction of insured property and the cost and
duration of rebuilding after the catastrophe. 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 and Quarterly Reports on Form 10-Q. (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. Projected Net Impact From Single Event Losses (1) at Specified Return Periods Net Impact (millions) Return Period (2) % of September 30, 2016 Shareholders’ Equity U.S. - Florida Hurricane $ 54 1 in 100 year 30% Japan – Earthquake $ 32 1 in 250 year 18% All other zones less than 15% 11 |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE
Conclusion Investments in catastrophe reinsurance contracts are largely uncorrelated to other financial market risks 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
which enhances diversification and risk selection
Differentiated reinsurance risk selection & portfolio construction
approach Close alignment of interest between Endurance, BCRH and
shareholders 12 |
 Appendix Blue Capital Management Ltd. is licensed to conduct investment business by the Bermuda Monetary Authority
Blue Capital is a registered trademark |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Endurance
Provides a Strong Support Base for BCRH 14
• “A” ratings from A.M. Best and S&P • $5.0 billion of shareholders’ equity available to the Company ($5.7 billion of total capital) as of September 30, 2016. • Conservative, short-duration, AA- rated investment portfolio • Prudent reserves that have historically developed favorably since our inception • Diversified and efficient capital structure with reduced leverage • Since inception returned nearly $2.2 billion to investors through dividends and share repurchases • Maintains $50 million anchor investment in BCRH • Gross premiums written of $4.0 billion on a trailing 12 month basis • Balanced portfolio of insurance and reinsurance diversified by product/geography in both short and long tail lines • Proven leader in specialty insurance and reinsurance and a market leader in global catastrophe reinsurance • The alignment with Endurance provides the Company access to a large, well-diversified catastrophe reinsurance portfolio • In October 2016, Endurance signed a merger agreement with Sompo Holdings, Inc., one of the largest insurance companies in Japan Endurance’s Strong Balance Sheet and Capital Endurance’s strong and seasoned franchise • $496 million of catastrophe gross premiums written on a trailing 12 month basis as of September 30, 2016 • Continuous improvement in performance and market positioning Endurance’s Diversified Portfolio of Businesses |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE Support
Provided By Endurance Through Service Agreements and Direct
Investment 15
Holders of Common Stock Blue Capital Reinsurance Holdings Ltd. Blue Capital Re Ltd. Blue Capital Re ILS Ltd. Endurance Specialty Holdings Ltd. Endurance Specialty Insurance Ltd. Blue Capital Management Ltd. 4.7% Owned 28.6% Owned Service Agreements 66.7% Owned Wholly Owned Wholly Owned |
 GLOBAL EXPERTS IN CATASTROPHE REINSURANCE
16 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 . BCRH actively invests in a diversified range of traditional reinsurance and ILS products
Broad Access to Growing Market
BCRH accesses entire market with
strategic focus on the largest segment
Source Guy Carpenter as at January 1, 2016.
Alternative Market 20% Traditional Catastrophe Reinsurance Market 80% Growing demand for alternative capital |
 CONTACT: Adam Szakmary President and CEO +1-441-278-0400 Adam. Szakmary@bluecapital.bm BLUE CAPITAL MANAGEMENT LTD. Waterloo House 100 Pitts Bay Road Pembroke HM 08 Bermuda |