Blue Capital Reinsurance Holdings Ltd. (NYSE:BCRH) (the "Company"),
a Bermuda holding company that, through its operating subsidiaries,
offers collateralized reinsurance in the property catastrophe
market and invests in various insurance-linked securities, today
reported its financial results for the first quarter of 2019.
The Company recorded net income of $1.8 million ($0.21 per
share) for the three months ended March 31, 2019. The
Company’s fully converted book value per common share was $10.38 at
March 31, 2019, reflecting a 2.0% increase for the quarter
inclusive of dividends declared.
Reinsurance premiums written for the current quarter were $5.4
million, decreasing by $7.1 million over the same period a year
ago. The decrease was a result of a smaller available capital
base and a shift to quota share contract business in which written
premiums are recognized as premiums are earned throughout the
contract period rather than at the contract's inception date.
The combined ratio for the current quarter was 82.5% compared to
98.0% in the same period a year ago. The improvement in the current
period's combined ratio was driven by a significantly lower loss
and loss adjustment expense ratio partially offset by higher
acquisition and general and administrative expense ratios. The
current quarter's loss and loss adjustment expenses of $1.9 million
compared favorably to the $4.5 million of loss and loss adjustment
expenses reported a year ago, which were elevated due to an
increase in estimated losses related to Hurricane Irma. Reinsurance
acquisition costs for the current quarter of $2.0 million were
modestly higher than the $1.9 million reported a year ago and the
acquisition expense ratio increased as a result of the shift in the
concentration to quota share business which exhibits higher levels
of commissions. General and administrative expenses for the current
quarter were $1.0 million compared to $1.1 million a year ago due
to lower management fees in the current quarter.
During the first quarter of 2019, the Company declared a regular
dividend of $0.15 per common share, which was paid on April 15,
2019.
Michael J. McGuire, Chairman and CEO, commented: "I am pleased
with our first quarter results which delivered increased net income
year over year, growth in book value per share inclusive of
dividends of 2% and a combined ratio of 82.5%. During the
January 1st renewals, we maintained our strong partnership with
Sompo International and deployed all of our available capital into
quota share contract business with attractive risk adjusted return
potential. We continue to maintain our underwriting
discipline and expect to remain cautious in our approach to capital
deployment during remaining 2019 renewals."
About the Company
Blue Capital Reinsurance Holdings Ltd., through its operating
subsidiaries, offers collateralized reinsurance in the property
catastrophe market, leveraging underwriting expertise and
infrastructure from established resources. Underwriting decisions,
operations and other management services are provided to the
Company by Blue Capital Management Ltd., a subsidiary of Sompo
International Holdings Ltd. (a wholly owned subsidiary of Sompo
Holdings, Inc.), a recognized global specialty provider of property
and casualty insurance and reinsurance and a leading property
catastrophe and short tail reinsurer since 2001. Additional
information can be found in the Company's public filings with the
U.S. Securities and Exchange Commission or at www.bcapre.bm.
ContactsInvestor RelationsPhone: +1 441 278 0988Email:
investorrelations@Sompo-Intl.com
Safe Harbor for Forward-Looking Statements
Some of the statements in this press release may include, and
the Company may make related oral forward-looking statements which
reflect our current views with respect to future events and
financial performance. Such statements may include forward-looking
statements both with respect to us in general and the insurance and
reinsurance sectors specifically, both as to underwriting and
investment matters. Statements that include the words "should,"
"would," "expect," "estimates", "intend," "plan," "believe,"
"project," "target," "anticipate," "seek," "will," "deliver," and
similar statements of a future or forward-looking nature identify
forward-looking statements in this press release for purposes of
the U.S. federal securities laws or otherwise. We intend these
forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in the Private Securities
Litigation Reform Act of 1995. All forward-looking statements
address matters that involve risks and uncertainties. Accordingly,
there are or may be important factors that could cause actual
results to differ materially from those indicated in the
forward-looking statements. These factors include, but are not
limited to, the effects of competitors’ pricing policies, greater
frequency or severity of claims and loss activity, changes in
market conditions, decreased demand for property and casualty
reinsurance, changes in the availability, cost or quality of
reinsurance or retrocessional coverage, our inability to renew
business previously underwritten or acquired, uncertainties in our
reserving process, changes to our tax status, reduced acceptance of
our existing or new products and services, a loss of business from
and credit risk related to our broker counterparties, assessments
for high risk or otherwise uninsured individuals, possible
terrorism or the outbreak of war, a loss of key personnel,
political conditions, changes in insurance regulation, operational
risk, including the risk of fraud and errors and omissions, as well
as technology breaches or failure, changes in accounting policies,
our investment performance, the valuation of our invested assets, a
breach of our investment guidelines, potential treatment of us as
an investment company or a passive foreign investment company for
purposes of U.S. securities laws or U.S. federal taxation,
respectively, our dependence as a holding company upon dividends or
distributions from our operating subsidiaries, the unavailability
of capital in the future, developments in the world’s financial and
capital markets and our access to such markets, government
intervention in the insurance and reinsurance industry, illiquidity
in the credit markets, changes in general economic conditions and
other factors described in our Annual Report on Form 10-K for the
year ended December 31, 2018. The foregoing review
of important factors should not be construed as exhaustive and
should be read in conjunction with the other cautionary statements
that are included herein and elsewhere, including the risk factors
included in the Company's most recent report on Form 10-K and other
documents of the Company on file with the Securities and Exchange
Commission. Any forward-looking statements made in this material
are qualified by these cautionary statements, and there can be no
assurance that the actual results or developments anticipated by
the Company will be realized or, even if substantially realized,
that they will have the expected consequences to, or effects on,
the Company or its business or operations. Except as required by
law, the Company undertakes no obligation to update publicly or
revise any forward-looking statement, whether as a result of new
information, future developments or otherwise. The contents
of any website referenced in this press release are not
incorporated by reference herein.
BLUE CAPITAL REINSURANCE HOLDINGS
LTD.CONSOLIDATED BALANCE
SHEETS(In millions of U.S. dollars, except share
amounts)
|
|
March 31, 2019 |
|
December 31, 2018 |
Assets |
|
(Unaudited) |
|
|
Cash and cash
equivalents |
|
$ |
1.8 |
|
|
$ |
2.2 |
|
Reinsurance premiums
receivable |
|
7.8 |
|
|
8.9 |
|
Deferred reinsurance
acquisition costs |
|
— |
|
|
0.1 |
|
Funds held by reinsured
companies as collateral |
|
131.9 |
|
|
150.4 |
|
Other assets |
|
2.5 |
|
|
1.7 |
|
Total Assets |
|
$ |
144.0 |
|
|
$ |
163.3 |
|
Liabilities |
|
|
|
|
Loss and loss adjustment
expense reserves |
|
$ |
38.6 |
|
|
$ |
49.9 |
|
Unearned reinsurance
premiums |
|
0.3 |
|
|
0.8 |
|
Debt |
|
4.0 |
|
|
4.0 |
|
Reinsurance balances
payable |
|
7.5 |
|
|
16.4 |
|
Other liabilities |
|
2.4 |
|
|
1.5 |
|
Total Liabilities |
|
52.8 |
|
|
72.6 |
|
Shareholders’
Equity |
|
|
|
|
Common Shares |
|
8.8 |
|
|
8.8 |
|
Additional paid-in
capital |
|
156.5 |
|
|
157.8 |
|
Retained deficit |
|
(74.1 |
) |
|
(75.9 |
) |
Total Shareholders’ Equity |
|
91.2 |
|
|
90.7 |
|
Total Liabilities
and Shareholders’ Equity |
|
$ |
144.0 |
|
|
$ |
163.3 |
|
Common shares
outstanding (000s) |
|
8,767 |
|
|
8,767 |
|
Common and common
equivalent shares outstanding (000s) |
|
8,784 |
|
|
8,784 |
|
BLUE CAPITAL REINSURANCE HOLDINGS
LTD.CONSOLIDATED STATEMENTS OF NET INCOME AND
COMPREHENSIVE INCOME(In millions of U.S. dollars,
except per share data)Unaudited
|
|
Three Months Ended March 31, |
|
|
2019 |
|
2018 |
Revenues |
|
|
|
|
Reinsurance premiums
written |
|
$ |
5.4 |
|
|
$ |
12.5 |
|
Change in
net unearned reinsurance premiums |
|
0.5 |
|
|
(4.9 |
) |
Net
reinsurance premiums earned |
|
5.9 |
|
|
7.6 |
|
Net
investment income |
|
0.8 |
|
|
0.4 |
|
Total
revenues |
|
6.7 |
|
|
8.0 |
|
Expenses |
|
|
|
|
Underwriting
expenses: |
|
|
|
|
Loss and
loss adjustment expenses - current year |
|
1.3 |
|
|
0.8 |
|
Loss and
loss adjustment expenses - prior year |
|
0.6 |
|
|
3.7 |
|
Acquisition
costs |
|
2.0 |
|
|
1.9 |
|
General and
administrative expenses |
|
1.0 |
|
|
1.1 |
|
Total
expenses |
|
4.9 |
|
|
7.5 |
|
Net income and
comprehensive income |
|
$ |
1.8 |
|
|
$ |
0.5 |
|
Per share
data: |
|
|
|
|
Basic and
diluted earnings per Common Share |
|
$ |
0.21 |
|
|
$ |
0.06 |
|
Dividends
declared per Common Share and RSU |
|
0.15 |
|
|
0.30 |
|
Insurance
ratios: |
|
|
|
|
Loss and
loss adjustment expense ratio |
|
31.2 |
% |
|
58.5 |
% |
Acquisition
cost ratio |
|
34.2 |
% |
|
24.7 |
% |
General and
administrative expense ratio |
|
17.1 |
% |
|
14.8 |
% |
Combined
ratio |
|
82.5 |
% |
|
98.0 |
% |
RSU = restricted share unit
BLUE CAPITAL REINSURANCE HOLDINGS
LTD.CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(In millions of U.S.
dollars)Unaudited
|
|
Totalshareholders’equity |
|
CommonShares, atpar value |
|
Additionalpaid-incapital |
|
Retaineddeficit |
Balance at
January 1, 2019 |
|
$ |
90.7 |
|
|
$ |
8.8 |
|
|
$ |
157.8 |
|
|
$ |
(75.9 |
) |
Net
income |
|
1.8 |
|
|
— |
|
|
— |
|
|
1.8 |
|
Dividends declared on
Common Shares and RSUs |
|
(1.3 |
) |
|
— |
|
|
(1.3 |
) |
|
— |
|
Balance at March
31, 2019 |
|
$ |
91.2 |
|
|
$ |
8.8 |
|
|
$ |
156.5 |
|
|
$ |
(74.1 |
) |
|
|
Totalshareholders’equity |
|
CommonShares, atpar value |
|
Additionalpaid-incapital |
|
Retaineddeficit |
Balance at
January 1, 2018 |
|
$ |
127.1 |
|
|
$ |
8.8 |
|
|
$ |
165.6 |
|
|
$ |
(47.3 |
) |
Net income |
|
0.5 |
|
|
— |
|
|
— |
|
|
0.5 |
|
Dividends declared on
Common Shares and RSUs |
|
(2.6 |
) |
|
— |
|
|
(2.6 |
) |
|
— |
|
Balance at March 31,
2018 |
|
$ |
125.0 |
|
|
$ |
8.8 |
|
|
$ |
163.0 |
|
|
$ |
(46.8 |
) |
BOOK VALUE AND FULLY CONVERTED BOOK VALUE
PER COMMON SHARE(1)Unaudited
|
|
March 31, 2019 |
|
December 31, 2018 |
|
March 31, 2018 |
Book value per
share numerator (in millions of U.S. dollars): |
|
|
|
|
|
|
[A]
Shareholders’ Equity (in millions of U.S. dollars) |
|
$ |
91.2 |
|
|
$ |
90.7 |
|
|
$ |
125.0 |
|
Book value per
share denominators (in thousands of shares): |
|
|
|
|
|
|
[B]
Common Shares outstanding |
|
8,767 |
|
|
8,767 |
|
|
8,761 |
|
Restricted Share Units outstanding |
|
17 |
|
|
17 |
|
|
12 |
|
[C]
Fully converted book value per common share denominator |
|
8,784 |
|
|
8,784 |
|
|
8,773 |
|
Book value per
common share [A]/[B] |
|
$ |
10.40 |
|
|
$ |
10.34 |
|
|
$ |
14.27 |
|
Fully converted
book value per common share [A]/[C] |
|
$ |
10.38 |
|
|
$ |
10.32 |
|
|
$ |
14.25 |
|
Change in fully
converted book value per common share:(2) |
|
|
|
|
|
|
From
December 31, 2018 |
|
2.0 |
% |
|
|
|
|
From March
31, 2018 |
|
(21.1 |
)% |
|
|
|
|
(1) These
measures constitute "non-GAAP financial measures" as defined in
Regulation G. Management believes that these non-GAAP
measures, which may be defined differently by other companies,
better explain the Company's results of operations in a manner that
allows for a more complete understanding of the underlying trends
in the Company's business. However, these measures should not be
viewed as a substitute for those determined in accordance with
GAAP.
(2) Computed as
the change in fully converted book value per common share plus
common dividends declared of $0.15 and $0.75 during the three and
twelve month periods ended March 31, 2019, respectively.
BLUE CAPITAL REINSURANCE HOLDINGS
LTD.Natural Catastrophe Risk
Management
The following discussion should be read in conjunction with the
"Risk Factors" included in Item 1A of the Company’s 2018
Form 10-K, as filed with the Securities and Exchange
Commission, in particular the risk factor entitled "Our stated
catastrophe and enterprise-wide risk management exposures are based
on estimates and judgments which are subject to significant
uncertainties."
Exposure ManagementThe Company’s Investment and Insurance
Manager (the "Manager") monitors our net exposure to any one
catastrophe loss event in any single zone within certain broadly
defined major catastrophe zones at each treaty renewal date.
The last major treaty renewal date was January 1, 2019. Our January
1, 2019 estimated net exposures by zone were in compliance with our
underwriting guidelines. Namely, our estimated net exposure from
any one catastrophe loss event in any individual zone was at or
below 50% of our then-projected March 31, 2019 shareholders’
equity. These broadly defined major catastrophe zones are defined
as follows:
|
North America: |
Europe: |
Rest of World: |
|
|
|
|
|
U.S. -
Northeast |
Europe |
Australia |
|
U.S. -
Southeast |
|
New Zealand |
|
U.S. -
Florida |
|
Japan |
|
U.S. -
Gulf |
|
South America |
|
U.S. - New
Madrid |
|
|
|
U.S. -
Midwest |
|
|
|
U.S. -
California |
|
|
|
U.S. -
Hawaii |
|
|
|
Canada -
Eastern |
|
|
Single Event LossesFor certain defined natural catastrophe
region and peril combinations, the Manager assesses the probability
and likely magnitude of losses using a combination of industry
third-party models, proprietary models and underwriting judgment.
The Manager attempts to model the estimated net impact from a
single event, taking into account contributions from property
catastrophe reinsurance (including retrocessional business),
property pro-rata reinsurance and event-linked derivative
securities, offset by the net benefit of any reinsurance or
derivative protections we purchase and the benefit of premiums.
On January 1, 2019, our estimated single event loss exposures
were within our underwriting guidelines. Namely, the estimated net
impact from any one catastrophe loss event (excluding earthquake)
at the 1 in 100 year return period for any one zone did not exceed
35% of our then-projected March 31, 2019 shareholders’ equity,
and the estimated net impact from any one earthquake loss event at
the 1 in 250 year return period for any zone did not exceed 35% of
our then-projected March 31, 2019 shareholders’ equity.
Updated Single Event Loss ProjectionsThe table that follows
details our estimated net impact from single event losses as of
January 1, 2019 for selected zones at specified return periods
using industry-recognized third-party vendor models. It is
important to note that each catastrophe model we use contains its
own assumptions as to the frequency and severity of loss events,
and results may vary significantly from model to model.
Net Impact From Single Event Losses at Specified
Return Periods
|
|
Net Impact(Millions) |
|
Return Period(1) |
|
Percentage of March 31, 2019
Shareholders’ Equity |
U.S. - Florida
hurricane |
|
$ |
21 |
|
|
1 in 100 year |
|
23% |
Japan earthquake |
|
9 |
|
|
1 in
250 year |
|
10% |
All other zones |
|
|
|
|
|
less than 10% |
(1) A "100-year" return period can also be referred to as
the 1.0% occurrence exceedance probability ("OEP"), meaning there
is an estimated 1.0% chance in any given year that this level will
be exceeded. A "250-year" return period can also be referred
to as the 0.4% OEP, meaning there is an estimated 0.4% chance in
any given year that this level will be exceeded.
Our single event loss estimates represent snapshots as of the
time of such estimates. The composition of our in-force portfolio
may change materially at any time due to the acceptance of new
policies, losses incurred, the expiration of existing policies and
changes in our ceded reinsurance and derivative protections. There
were no material changes made to the composition of our in-force
portfolio from January 1, 2019 to March 31, 2019.
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