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Blue Capital Global Reinsurance cuts target return

Blue Capital Global Reinsurance Fund is proposing to revise its investment policy and modify its performance fees. They want to do this in advance of the January 2016 reinsurance cycle. they also feel it is appropriate to reduce the company’s target return.

The key changes proposed to the investment policy are as follows:

  • the formal adoption of investment guidelines and restrictions relating to the classes of reinsurance (e.g. indemnity reinsurance, indemnity retrocession, quota share, etc.) in which the Master Fund may invest.;
  • the adjustment to certain maximum net aggregate exposure and net probable maximum loss limits, enabling the Master Fund to have more flexibility to pursue exposure to particular zones (being specific occurrences of specific perils in specific geographical regions) ; and
  • the removal of the prohibition on the Master Fund from investing directly in contracts or securities with a premium of less than 5 per cent. of the limit exposed to a single event.

To better reflect the expected long-term market conditions, the Company believes that, with effect on and from 1 January 2016, it is appropriate to change its target net return from LIBOR plus 10% per annum to LIBOR plus 8% per annum, to be achieved over the longer term. For the avoidance of doubt, the Company’s distribution target remains unchanged, being an annualised dividend yield of LIBOR plus 6% per annum on the original issue price of its ordinary shares in December 2012.

Under the terms of the Underwriting and Insurance Management Agreement, the performance fee payable by the Master Fund to the Investment Manager is calculated by reference to a Performance Hurdle and a Performance Trigger.  Broadly, a performance fee is paid in respect of a particular Performance Period on profits over the Performance Hurdle, but only if the profits exceed the Performance Trigger. In connection with the revised target return and the adoption of the revised investment policy, the Board believes that, in light of long-term market expectations, the Investment Manager will be more appropriately incentivised and more closely aligned with the Company’s interests if the Performance Trigger is reduced from LIBOR plus 10% to LIBOR plus 8%, meaning that annual performance has to meet the revised target return for a performance fee to be paid.  However, it is also proposed that the Performance Hurdle is increased from LIBOR plus 3% to LIBOR plus 5%, meaning that the performance fee will only be paid on profits over a higher threshold than is currently in place.

BCGR : Blue Capital Global Reinsurance cuts target return

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