The fourth quarter of 2018 proved challenging for Blue Capital Reinsurance Holdings, the collateralised reinsurer owned by Sompo International Holdings, as it tackled with a significantly higher loss and loss adjustment expense ratio in connection with substantial cat losses from 2018 and 2017.
Blue Capital Re's combined ratio for the fourth quarter was 308.8 percent, a huge increase compared with 102.3 percent for the same period in 2017.
The company's loss and loss adjustment expenses of $33.2 million reflected fourth quarter 2018 losses related to the California wildfires and Hurricane Michael and additional estimated losses related to Typhoon Jebi which occurred in the third quarter of 2018 and Hurricane Irma which occurred in the third quarter of 2017.
However, for the full-year Blue Capital Re's combined ratio was 191.6 percent, slightly down from 201.3 percent for 2017.
The company experienced a net loss of $28.6 million for the whole of 2018 and a loss of $24.9 million for the fourth quarter alone.
Reinsurance premiums for 2018 totalled $33.2 million, a $12.9 million decrease on 2017. The Bermuda reinsurer wrote $9.1 million in premiums in the fourth quarter, a $2.4 million increase year-on-year.
The increase in reinsurance premiums was attributed to increased reinstatement premiums recorded in association with catastrophe losses occurring in the period while the decline in full year premiums was driven by a lower capital base in the current year.
Reinsurance acquisition costs for the fourth quarter were $3.1 million compared to $1.9 million a year ago, reflecting a higher proportion of earned premiums attributed to quota share contracts which maintain higher acquisition costs. General and administrative expenses for the quarter of $1.2 million were modestly higher than a year ago as increased legal fees were partially offset by lower management fees.
Bluestone Capital Re did benefit from some rate increases but its portfolio has also shrunk because of a mixture of less available collateral and the non renewal of underperforming accounts.
As of this January 2019, the company entered into reinsurance contracts with expected total annual premiums of $15.1 million compared to expected total annual premiums of $27.8 million in January 2018. Rates in the January 1st renewals increased approximately 1 percent on a risk adjusted basis.
"While good progress was made in 2018 to reduce volatility and improve the balance of our portfolio, adverse development from 2017 events and another active catastrophe year in 2018 masked underlying improvements,” said Michael McGuire, chairman and CEO.
“These improvements were evident in our current accident year loss ratio for the 2018 year which, while elevated at 94.3%, was significantly improved from the 169.1% achieved for the full year in 2017. Our 2018 portfolio benefited from increased rates, better balance and improved retrocessional protection."
McGuire continued: "Looking forward, market conditions remain competitive. While loss exposed contracts saw some pricing increases, the January renewals were relatively flat overall. As a result, we non-renewed several underperforming contracts and focused our capital deployment on quota share contracts which have historically generated better returns with lower volatility.
“We are closely monitoring market conditions for the upcoming April and June renewal periods where opportunities could emerge as more loss exposed contracts will be up for renewal during those periods. Lastly, we are cognizant of the current discount in the valuation of our stock and will be considering appropriate measures, including the potential commencement of a share repurchase program under the company’s existing 500,000 share authorisation."
Blue Capital, Sompo, Results, Bermuda