17 September 2014ILS

Blue Capital: hybrid structure has advantages

While quality clients with attractive margins are harder to come by, the opportunities are still there, William (Bill) Pollett, president and CEO of Blue Capital Management, told Monte Carlo Today.

“We will continue to provide meaningful capacity and service to our clients and support them through the market cycles,” he said.

He said the process is increasingly eased by the fact that institutional investors and consultants understand the advantage of partnering with a hybrid: Blue Capital is the asset management platform owned by reinsurer Montpelier Re.

“It gives us much better access to the wider market of business. You can benefit from all the data and the proprietary systems and relationships,” he said. “In hard markets all the products look very attractive—cat bonds, collateralised retro, collateralised reinsurance.

“In tougher markets you have to work harder and dig deeper and a traditional reinsurance platform, especially one like Montpelier Re, recognised as a leader in the property cat space, is definitely beneficial.”

Pollett said he is observing a degree of repositioning away from some of the more commoditised products such as cat bonds to some of the more bespoke traditional reinsurance specialty products—still cat, but not cat bonds.

“Montpelier stands to benefit from that given that our focus is on the smaller regional, insurer—US single state or, internationally, single country insurers—rather than the massive global players or the government pools that have seen the biggest pricing changes and pressure.”

Pollett believes that having access to clients that view reinsurance more as a permanent part of their capital structure adds value for longer-term investors.

“That’s the opportunity for us,” he said. “We’ve got two listed products which make us quite unique—no other reinsurer has one, let alone two, listed products on the New York and London stock exchanges. That’s helpful because it’s a pool of permanent capital.

“When we are deploying our product to our clients it’s a real benefit to be able to explain to them that this capital, although it is provided by capital market investors, is permanent—there is no redemption risk.

“If they view reinsurance as a permanent part of their capital structure, they are concerned that the ILS fund might get called by investors; in other words there might be redemptions and a lack of support for them the following year.

“With permanent capital that’s not a risk. We leverage that differentiation with our clients to sell our product and it’s very effective.”