(d) See "Management’s Discussion and Analysis of Financial Condition and Results of Operations" contained in
We ended 2015 with a FCBVPS of $21.41, an increase of 11.4% for the year after taking into account dividends declared on Common Shares and RSUs during the year. Our net income for 2015 was $20.7 million, which included $2.6 million of loss and LAE. Our 2015 GAAP combined ratio was 45.3% .
During the period from our formation on June 24, 2013 to December 31, 2013, we: (i) recorded no revenues; (ii) issued $175.0 million in Common Shares pursuant to the IPO and the Private Placement; (iii) incurred general and administrative expenses of $0.7 million; and (iv) incurred $1.0 million of Common Share issuance costs. As a result, we ended 2013 with a FCBVPS of $19.80 (down $0.20 from our initial FCBVPS on June 24, 2013).
The following table presents our computations of book value per Common Share ("BVPS") and FCBVPS as of December 31, 2015 and 2014:
Our computation of FCBVPS and the increase or decrease in FCBVPS are non-GAAP measures that we believe are important to our investors, analysts and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry.
During 2015 we declared and paid quarterly dividends of $0.30 per Common Share and RSU during each of the first three quarters and, on February 3, 2016, we announced a fourth "special" dividend with respect to 2015 of $1.24 per Common Share and RSU, which is payable on March 15, 2016 to all shareholders of record on February 29, 2016. The aggregate dollar value of all dividends declared with respect to 2016, which totaled $18.7 million, represented 90.4% of our Distributable Income for the year.
For 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 projected 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.
There is no single standard methodology or set of assumptions utilized industry-wide in estimating property catastrophe losses. As a result, it may be difficult to accurately compare estimates of risk exposure among different insurance and reinsurance companies due to, among other things, underwriting judgment, differences in modeling, modeling assumptions, portfolio composition and concentrations, and selected event scenarios.
The table that follows details our projected net impact from single event losses as of January 1, 2016 for selected zones at specified return periods. 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.
Since the Manager utilizes a combination of third-party models, its own proprietary models and underwriting judgment to project the net impact from single event losses, our internal projections may be higher or lower than those presented in the table below:
Our January 1, 2016 projected single event loss exposures were within our underwriting guidelines. Namely, the projected 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 shareholders’ equity at December 31, 2015, and the projected 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 shareholders’ equity at December 31, 2015.
Our single event loss estimates represent snapshots as of January 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.
We operate as a single business segment through the Company and its wholly-owned subsidiaries: (i) Blue Capital Re, a Bermuda exempted limited liability company registered as a Class 3A insurer in Bermuda, which offers collateralized
reinsurance; and (ii) Blue Capital Re ILS, a Bermuda exempted limited liability company which conducts hedging and other investment activities in support of Blue Capital Re’s operations.
Our consolidated results of operations for the years ended December 31, 2015 and 2014 and the period from June 24, 2013 to December 31, 2013 were as follows:
During 2015 and 2014, we wrote $38.6 million and $45.0 million of reinsurance premiums, respectively, all of which represented indemnity reinsurance contracts relating to property catastrophe risks. The decrease in reinsurance premiums written in 2015, compared to 2014 was primarily the result of rate decreases experienced on our 2015 year-to-date premium writings, as compared to the rates we experienced on our 2014 premium writings. See "Reinsurance Premiums and Acquisition Costs" in Note 1 of the Notes to Consolidated Financial Statements.
See Note 4 of the Notes to the Consolidated Financial Statements.
The following table summarizes the components of our consolidated loss and LAE incurred and our loss and LAE ratios for the years ended December 31, 2015 and 2014:
During 2015 we established $2.6 million of loss and LAE reserves for estimated losses incurred during the year, reflected as a combination of case and incurred but not reported ("IBNR") reserves. There were no individually significant known loss events that impacted us during the 2015 period. In addition, during the year ended December 31, 2015, we recognized $0.6 million of net favorable loss and LAE reserve development for estimated losses incurred during 2014. The prior year loss and LAE development we recognized during 2015 was primarily the result of new or revised loss information received from our cedants.
The following table summarizes our general and administrative expenses for the years ended December 31, 2015 and 2014 and for the period from June 24, 2013 to December 31, 2013.
We incurred lower general and administrative expenses in 2013 prior to commencing full operational activity.
On May 1, 2015, we renewed the Credit Agreement which permits us to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes. As of December 31, 2015 and 2014, we had $13.0 million and $8.0 million of outstanding borrowings under the Credit Agreement, respectively.
As of December 31, 2015 and 2014, we held $6.1 million and $11.5 million of cash and cash equivalents of which: (i) $5.1 million and $10.0 million was pledged to trust accounts established for the benefit of third parties; (ii) less than $0.1 million and $0.4 million was pledged to trust accounts established for the benefit of Blue Water Re (in support of the BW Retrocessional Agreement); and (iii) $1.0 million and $1.1 million represented unencumbered cash on hand, respectively.
As of December 31, 2014, the Company had $8.0 million of outstanding borrowings under the Credit Agreement. Of these borrowings, $4.0 million was repaid on January 26, 2015, and (while outstanding) was subject to an annual interest rate of 1.33%, and $4.0 million remained outstanding throughout 2015 and was subject to annual interest rates ranging between 1.18% and 1.41%. See Note 7 of the Notes to Consolidated Financial Statements.
During 2015 we declared and paid quarterly cash dividends of $0.30 per Common Share and RSU during each of the first three quarters of the year. In addition, in the first quarter of 2015 we declared a "special" cash dividend of $0.66 per Common Share and RSU with respect to the 2014 fiscal year. The total amount of dividends paid to holders of Common Shares and RSUs during 2015 was $13.7 million. During 2014 we declared and paid quarterly cash dividends of $0.30 per Common Share and RSU during each of the first three quarters of the year. The total amount of dividends paid to holders of Common Shares and RSUs during 2014 was $7.9 million. During 2013 we did not declare any dividends per Common Share.
On February 3, 2016, the Company declared a fourth "special" dividend of $1.24 per Common Share and RSU, which is payable on March 15, 2016 to holders of record on February 29, 2016. The total amount of the special dividend to be paid in March 2016 is $10.9 million. The Company intends to pay the special dividend with funds it expects to receive from Blue Capital Re, which are expected to be made available to Blue Capital Re in the normal course through scheduled releases of funds currently held as collateral.
Our total shareholders’ equity (or total capital) was $187.6 million and $180.5 million at December 31, 2015 and 2014, respectively. The increase in our total capital during the year ended December 31, 2015 was primarily the result of recording net income of $20.7 million and declaring $13.7 million in dividends to holders of Common Shares and RSUs.
We do not consider our short-term borrowings outstanding under the Credit Agreement to be a component of our capital structure.
Each of the reinsurance contracts that Blue Capital Re writes is required to be fully-collateralized by cash and cash equivalents or funds held by reinsurance companies. This collateral is not available to Blue Capital Re for any other purpose until the expiration of the applicable reinsurance contract (or, in the event of a covered loss, the resolution of such loss under the applicable contract).
The Company's contractual obligations as of December 31, 2015 are summarized as follows:
As of December 31, 2015, our total shareholders’ equity was $187.6 million. Assuming that our average total shareholders’ equity remains at this level in future periods, we would expect to pay the Manager a Management Fee of approximately $2.8 million per year pursuant to this agreement.
Since the Underwriting and Insurance Management Agreement is dependent on our future performance, we are unable to determine the amount of Performance Fees we would expect to pay the Manager in future periods pursuant to this agreement. To date, we have incurred $1.3 million in Performance Fees pursuant to this agreement.
Certain Termination Provisions Associated with the Foregoing Agreements. We may not terminate the Investment Management Agreement, the Underwriting and Insurance Management Agreement or the Administrative Services Agreement for five years after the completion of the IPO, whether or not the Manager’s performance results are satisfactory. Upon any termination or non-renewal of either of the Investment Management Agreement or the Underwriting and Insurance Management Agreement (other than for a material breach by, or the insolvency of, the Manager), we must pay a one-time termination fee to the Manager equal to 5% of our GAAP shareholders’ equity, calculated as of the most recently completed quarter prior to the date of termination.
As of December 31, 2015, if we were to terminate either the Investment Management Agreement or the Underwriting and Insurance Management Agreement, we would be required to pay the Manager a one-time termination fee of approximately $9.4 million.
Neither the Company nor its operating subsidiaries had any commitments for operating leases or capital expenditures at December 31, 2015 and neither the Company nor its operating subsidiaries expect any material expenditures of this type during the next 12 months or for the foreseeable future.
As of December 31, 2015, we were not subject to any off-balance sheet arrangements that we believe are material to our investors.
We experienced a net (decrease) increase in our cash and cash equivalents of $(5.4) million, $(162.3) million and $173.8 million during 2015, 2014 and 2013 respectively.
During the period from June 24, 2013 to December 31, 2013, we raised $174.0 million in net proceeds from the IPO and the Private Placement and used $0.2 million for operating cash purposes.
Estimating loss and LAE reserves requires us to make assumptions regarding reporting and development patterns, frequency and severity trends, claims settlement practices, potential changes in legal environments, inflation, loss amplification and other factors. These estimates and judgments are based on numerous considerations and are revised as: (i) we receive changes in loss amounts reported by ceding companies and brokers; (ii) we obtain additional information, experience or other data; (iii) new or improved methodologies are developed; or (iv) laws change.
Our loss and LAE reserves are comprised of case reserves, which are based on claims that have been reported to us, and IBNR reserves, which represent a provision for claims that have been incurred but not yet reported, as well as future loss development on losses already reported, in excess of the case reserves.
We believe that our reserves for loss and LAE are sufficient to cover losses that fall within the terms of our policies and agreements with our insured and reinsured customers on the basis of the methodologies used to estimate those reserves. There can be no assurance, however, that actual losses will not be less than or exceed our total established reserves.
Some of our reinsurance contracts may include contract terms that require an automatic reinstatement of coverage in the event of a loss. Reinstatement premiums are fully earned or expensed as applicable when a triggering loss event occurs and losses are recorded. We record reinstatement premiums on a basis consistent with our estimates of losses and LAE. During 2015 and 2014 we recorded net written and earned reinstatement premiums totaling less than $0.1 million and $0.3 million, respectively.
We routinely review the creditworthiness of our cedants on the basis of our market knowledge, the cedant’s current financial strength ratings, the timeliness of cedants’ past payments and the status of current balances owing. Based on our reviews, we have determined that we did not require an allowance for uncollectible reinsurance premiums receivable as of 2015 and 2014.
The financial statements and supplementary data have been filed as a part of this Report on Form 10-K as indicated in the Index to Consolidated Financial Statements and Financial Statement Schedules appearing on page 74 of this report.