WATFORD HOLDINGS LTD. (“Watford” or the “Company”) (NASDAQ: WTRE)
today reported net income of $0.2 million, after $2.6 million of
preference dividends and $4.2 million of accelerated amortization
costs related to the redemption of preference shares, for the three
months ended September 30, 2019, compared to net income of
$18.8 million, after payment of $4.9 million of preference
dividends, in the same period in 2018. The results included:
- Net income available to common shareholders of $0.2 million, or
$0.01 per diluted common share, compared to net income of $18.8
million, or $0.83 per diluted common share for the 2018 third
quarter;
- Book value per diluted common share of $42.05 at
September 30, 2019;
- Combined ratio of 104.0%, comprised of a 76.5% loss ratio, a
21.9% acquisition expense ratio and a 5.6% general and
administrative expense ratio, compared to a combined ratio of
100.7% for the prior year third quarter, comprised of a 71.5% loss
ratio, a 24.9% acquisition expense ratio and a 4.3% general and
administrative expense ratio;
- Net interest income of $29.5 million, a 1.4% yield on average
net assets for the 2019 third quarter, compared to net interest
income of $27.4 million and a 1.3% yield on average net assets for
the 2018 third quarter;
- Net investment income of $14.0 million, a 0.6% return on
average net assets for the 2019 third quarter, compared to net
investment income of $21.4 million and a 1.1% return on average net
assets for the 2018 third quarter.
- On July 2, 2019, the Company completed an offering of $175.0
million of 6.5% senior notes, with a maturity date of July 2, 2029.
The net proceeds from the offering were used to redeem 76.34% of
the Company’s 8½% cumulative redeemable preference shares. In
addition to the accelerated amortization noted above, the redeemed
preference shares were paid dividends totaling $1.3 million.
Commenting on the 2019 third quarter financial results, John
Rathgeber, CEO of Watford, said:
“Our results for the 2019 third quarter, while essentially break
even from a net income standpoint, contained many positives and are
stronger than a cursory reading of our financials might first
reveal.
Due to the refinancing of a sizable portion of our preference
shares, this quarter’s results were impacted by charges totaling
$5.5 million for accelerated amortization and other one-time
payments related to the redemption.
The third quarter results were also impacted by approximately
$15 million of net unrealized investment losses in the quarter,
which was largely in line with the slight spread widening
experienced by the high yield market overall.
Net interest income, at $29.5 million, was up approximately 8%
from the 2018 third quarter despite the more recent declining
interest rate environment.
The combined ratio was 104.0% and, when adjusted for certain
corporate expenses and other underwriting income, the adjusted
combined ratio was 101.8%. Given our mix of business and the
sizable industry catastrophe events during the quarter, most
notably Hurricane Dorian and Typhoon Faxai, we are pleased with the
third quarter underwriting results. Our loss reserves for prior
accident years continued to hold up well, with slight net favorable
development in the quarter.
Insurance and reinsurance market conditions in most lines of
business continue to trend more favorably than we have seen in
several years, which we believe should translate into even stronger
underwriting results in future quarters.
We were also pleased to implement, in connection with our
previously announced share repurchase program, a Rule 10b5-1 share
repurchase plan, which took effect on September 30, 2019. As
the plan incepted at the end of the third quarter, and there is a
short settlement lag following trades, the reduction in share count
will not be reflected in our financial results until the fourth
quarter.
Through nine months, our total book value has increased 8.0%
from year-end 2018 and we remain optimistic about continued strong
book value growth.”
Underwriting
The following table summarizes the Company’s underwriting
results on a consolidated basis:
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Gross premiums written |
$ |
249,960 |
|
|
$ |
185,033 |
|
|
35.1 |
% |
|
$ |
598,627 |
|
|
$ |
574,078 |
|
|
4.3 |
% |
Net premiums written |
155,752 |
|
|
151,677 |
|
|
2.7 |
% |
|
420,509 |
|
|
471,815 |
|
|
(10.9 |
)% |
Net premiums earned |
125,832 |
|
|
135,624 |
|
|
(7.2 |
)% |
|
423,244 |
|
|
431,889 |
|
|
(2.0 |
)% |
Underwriting income (loss)
(1) |
(5,021 |
) |
|
(912 |
) |
|
(450.5 |
)% |
|
(16,257 |
) |
|
(3,180 |
) |
|
(411.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Point Change |
|
|
|
|
|
% Point Change |
Loss ratio |
76.5 |
% |
|
71.5 |
% |
|
5.0 |
% |
|
75.2 |
% |
|
72.3 |
% |
|
2.9 |
% |
Acquisition expense ratio |
21.9 |
% |
|
24.9 |
% |
|
(3.0 |
)% |
|
22.9 |
% |
|
24.7 |
% |
|
(1.8 |
)% |
General & administrative
expense ratio |
5.6 |
% |
|
4.3 |
% |
|
1.3 |
% |
|
5.7 |
% |
|
3.8 |
% |
|
1.9 |
% |
Combined ratio |
104.0 |
% |
|
100.7 |
% |
|
3.3 |
% |
|
103.8 |
% |
|
100.8 |
% |
|
3.0 |
% |
Adjusted combined ratio (2) |
101.8 |
% |
|
99.5 |
% |
|
2.3 |
% |
|
101.3 |
% |
|
99.5 |
% |
|
1.8 |
% |
(1) Underwriting income (loss) is a non-U.S. GAAP financial
measure and is calculated as net premiums earned, less loss and
loss adjustment expenses, acquisition expenses and general and
administrative expenses. See “Comments on Regulation G” for further
discussion, including a reconciliation of underwriting income
(loss) to net income (loss) available to common shareholders.
(2) Adjusted combined ratio is a non-U.S. GAAP financial measure
and is calculated by dividing the sum of loss and loss adjustment
expenses, acquisition expenses and general and administrative
expenses, less certain corporate expenses, by the sum of net
premiums earned and other underwriting income (loss). See “Comments
on Regulation G” for further discussion, including a reconciliation
of our adjusted combined ratio to our combined ratio.
The following table shows the components of our loss and loss
adjustment expenses for the three and nine months ended
September 30, 2019 and 2018:
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Loss and Loss AdjustmentExpenses |
|
% of Earned Premiums |
|
Loss and Loss Adjustment Expenses |
|
% of Earned Premiums |
|
Loss and Loss Adjustment Expenses |
|
% of Earned Premiums |
|
Loss and Loss Adjustment Expenses |
|
% of Earned Premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Current year |
$ |
96,417 |
|
|
76.6 |
% |
|
$ |
99,215 |
|
|
73.2 |
% |
|
$ |
318,812 |
|
|
75.3 |
% |
|
$ |
314,381 |
|
|
72.8 |
% |
Prior year development
(favorable)/adverse |
(203 |
) |
|
(0.1 |
)% |
|
(2,258 |
) |
|
(1.7 |
)% |
|
(332 |
) |
|
(0.1 |
)% |
|
(2,294 |
) |
|
(0.5 |
)% |
Loss
and loss adjustment expenses |
$ |
96,214 |
|
|
76.5 |
% |
|
$ |
96,957 |
|
|
71.5 |
% |
|
$ |
318,480 |
|
|
75.2 |
% |
|
$ |
312,087 |
|
|
72.3 |
% |
|
The following
table provides summary information regarding premiums written and
earned by line of business: |
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Gross premiums written: |
|
|
|
|
|
|
|
Casualty reinsurance |
$ |
145,129 |
|
|
$ |
80,274 |
|
|
$ |
253,287 |
|
|
$ |
222,636 |
|
Other specialty
reinsurance |
22,453 |
|
|
37,434 |
|
|
84,587 |
|
|
151,083 |
|
Property catastrophe
reinsurance |
3,461 |
|
|
1,353 |
|
|
15,382 |
|
|
8,740 |
|
Insurance programs and
coinsurance |
78,917 |
|
|
65,972 |
|
|
245,371 |
|
|
191,619 |
|
Total |
$ |
249,960 |
|
|
$ |
185,033 |
|
|
$ |
598,627 |
|
|
$ |
574,078 |
|
|
|
|
|
|
|
|
|
Net premiums written: |
|
|
|
|
|
|
|
Casualty reinsurance |
$ |
92,084 |
|
|
$ |
80,149 |
|
|
$ |
199,226 |
|
|
$ |
221,669 |
|
Other specialty
reinsurance |
22,093 |
|
|
35,466 |
|
|
81,798 |
|
|
138,259 |
|
Property catastrophe
reinsurance |
3,040 |
|
|
1,342 |
|
|
14,643 |
|
|
8,515 |
|
Insurance programs and
coinsurance |
38,535 |
|
|
34,720 |
|
|
124,842 |
|
|
103,372 |
|
Total |
$ |
155,752 |
|
|
$ |
151,677 |
|
|
$ |
420,509 |
|
|
$ |
471,815 |
|
|
|
|
|
|
|
|
|
Net premiums earned: |
|
|
|
|
|
|
|
Casualty reinsurance |
$ |
52,266 |
|
|
$ |
63,292 |
|
|
$ |
183,085 |
|
|
$ |
206,532 |
|
Other specialty
reinsurance |
31,563 |
|
|
36,987 |
|
|
118,759 |
|
|
125,271 |
|
Property catastrophe
reinsurance |
3,617 |
|
|
2,481 |
|
|
9,707 |
|
|
7,443 |
|
Insurance programs and
coinsurance |
38,386 |
|
|
32,864 |
|
|
111,693 |
|
|
92,643 |
|
Total |
$ |
125,832 |
|
|
$ |
135,624 |
|
|
$ |
423,244 |
|
|
$ |
431,889 |
|
Results for the three months ended September 30, 2019
versus 2018:
Gross and net premiums written in the 2019 third quarter were
35.1% and 2.7% higher, respectively, than the 2018 third
quarter. The increase in premiums reflected a higher level of
new and renewal business bound in casualty reinsurance and
insurance programs and coinsurance. This increase was offset
in part by a reduction in other specialty reinsurance premiums in
the 2019 third quarter.
Net premiums earned in the 2019 third quarter were 7.2% lower
than the 2018 third quarter. The decrease in premiums reflected
prior period reduced participations in casualty reinsurance and
other specialty reinsurance, offset in part by increased writings
in insurance programs and coinsurance.
The loss ratio was 76.5% in the 2019 third quarter compared to
71.5% in the 2018 third quarter. The increase in the loss
ratio largely reflects changes in the mix and type of
business. In addition, the prior period loss ratio benefited
from 1.7 points of net favorable loss reserve development while
loss reserve development this quarter was essentially flat.
The acquisition expense ratio was 21.9% in the 2019 third
quarter, compared to 24.9% in the 2018 third quarter, reflecting
changes in the mix and type of business.
The general and administrative expense ratio was 5.6% in the
2019 third quarter, compared to 6.5% in the 2019 second quarter and
4.3% in the 2018 third quarter. The 0.9 point decrease this quarter
versus the 2019 second quarter reflected the timing of certain
long-term incentive compensation expenses, including a one-time
accelerated expense equating to approximately 1.0% of earned
premium in the 2019 second quarter. The 1.3 point increase versus
the prior year third quarter was attributable to ongoing public
company expenses. Removing certain corporate expenses, our adjusted
general and administrative expense ratio was 3.9% in the 2019 third
quarter compared to 3.3% in the 2019 second quarter.
Investments
The following table summarizes the Company’s key investment
returns on a consolidated basis:
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Interest income |
$ |
41,376 |
|
|
$ |
38,704 |
|
|
$ |
123,113 |
|
|
$ |
109,830 |
|
Investment management fees -
related parties |
(4,606 |
) |
|
(4,314 |
) |
|
(13,585 |
) |
|
(12,616 |
) |
Borrowing and miscellaneous
other investment expenses |
(7,234 |
) |
|
(6,993 |
) |
|
(23,143 |
) |
|
(19,636 |
) |
Net interest income |
29,536 |
|
|
27,397 |
|
|
86,385 |
|
|
77,578 |
|
Realized gains (losses) on
investments |
645 |
|
|
4,004 |
|
|
2,716 |
|
|
(9,387 |
) |
Unrealized gains (losses) on
investments |
(15,291 |
) |
|
(7,621 |
) |
|
15,422 |
|
|
(6,850 |
) |
Investment performance fees -
related parties |
(850 |
) |
|
(2,407 |
) |
|
(8,342 |
) |
|
(6,606 |
) |
Net investment income
(loss) |
$ |
14,040 |
|
|
$ |
21,373 |
|
|
$ |
96,181 |
|
|
$ |
54,735 |
|
|
|
|
|
|
|
|
|
Unrealized gains on
investments (balance sheet) |
$ |
46,193 |
|
|
$ |
49,325 |
|
|
$ |
46,193 |
|
|
$ |
49,325 |
|
Unrealized losses on
investments (balance sheet) |
(140,987 |
) |
|
(64,841 |
) |
|
(140,987 |
) |
|
(64,841 |
) |
Net unrealized gains (losses)
on investments (balance sheet) |
$ |
(94,794 |
) |
|
$ |
(15,516 |
) |
|
$ |
(94,794 |
) |
|
$ |
(15,516 |
) |
|
|
|
|
|
|
|
|
Net interest income yield on
average net assets (1) |
1.4 |
% |
|
1.3 |
% |
|
4.1 |
% |
|
3.9 |
% |
Non-investment grade portfolio (1) |
1.7 |
% |
|
1.7 |
% |
|
5.2 |
% |
|
5.1 |
% |
Investment grade portfolio (1) |
0.6 |
% |
|
0.5 |
% |
|
1.8 |
% |
|
1.4 |
% |
Net investment income return
on average net assets (1) |
0.6 |
% |
|
1.1 |
% |
|
4.5 |
% |
|
2.8 |
% |
Non-investment grade portfolio (1) |
0.6 |
% |
|
1.4 |
% |
|
5.1 |
% |
|
4.2 |
% |
Investment grade portfolio (1) |
0.8 |
% |
|
0.4 |
% |
|
2.9 |
% |
|
0.1 |
% |
|
|
|
|
|
|
|
|
Net investment income return
on average total investments (2) |
0.5 |
% |
|
0.8 |
% |
|
3.5 |
% |
|
2.1 |
% |
Non-investment grade portfolio (2) |
0.5 |
% |
|
1.1 |
% |
|
4.3 |
% |
|
3.4 |
% |
Investment grade portfolio (2) |
0.8 |
% |
|
0.4 |
% |
|
2.9 |
% |
|
0.1 |
% |
(1) Net interest income yield on average net assets and net
investment income return on average net assets are calculated by
dividing net interest income, and net investment income (loss),
respectively, by average net assets. Net assets is calculated as
the sum of total investments, accrued investment income and
receivables for securities sold, less revolving credit agreement
borrowings, payable for securities purchased and payable for
securities sold short. For the three- and nine-month period,
average net assets is calculated using the averages of each
quarterly period. However, for the investment grade portfolio
component of these returns, revolving credit agreement borrowings
are not subtracted from the net assets calculation. The separate
components of these returns (non-investment grade portfolio and
investment grade portfolio) are non-U.S. GAAP financial measures.
See “Comments on Regulation G” for further discussion, including a
reconciliation of these components of our net interest income yield
on average net assets and net investment income return on average
net assets.
(2) Net investment income return on average total investments is
calculated by dividing net investment income by average total
investments. For the three- and nine-month period, average total
investments is calculated using the averages of each quarterly
period. The separate components of these returns (non-investment
grade portfolio and investment grade portfolio) are non-U.S. GAAP
financial measures. See “Comments on Regulation G” for further
discussion, including a reconciliation of these components of our
net investment income return on average total investments.
The following chart shows the composition of our non-investment
grade and investment grade portfolios as of September 30,
2019:
|
As of September 30, 2019 |
|
Non-Investment Grade |
|
($ in millions) |
Total non-investment grade investments |
$ |
1,876.3 |
|
|
|
|
|
Portfolio allocation by asset
class: |
|
|
|
Term loans |
55.4 |
% |
Corporate bonds |
14.8 |
% |
Asset-backed securities |
10.4 |
% |
Short-term investments |
11.9 |
% |
Equities |
5.4 |
% |
Other investments |
1.6 |
% |
Mortgage-backed
securities |
0.5 |
% |
Total |
100.0 |
% |
|
As of September 30, 2019 |
|
Investment Grade |
|
($ in millions) |
Total investment grade investments |
$ |
893.5 |
|
|
|
|
|
Portfolio allocation by asset
class: |
|
|
|
U.S. government and government
agency bonds |
33.5 |
% |
Corporate bonds |
17.4 |
% |
Asset-backed securities |
16.1 |
% |
Non-U.S. government and
government agency bonds |
15.2 |
% |
Short-term investments |
15.1 |
% |
Mortgage-backed
securities |
2.5 |
% |
Municipal government and
government agency bonds |
0.2 |
% |
Total |
100.0 |
% |
Corporate Function
The Company has a corporate function that includes general and
administrative expenses related to corporate activities, interest
expense, net foreign exchange gains (losses), income tax expense
and items related to the Company’s contingently redeemable
preference shares.
The Company incurred an interest expense of $2.8 million for the
three and nine months ended September 30, 2019, in relation to
the 6.5% senior notes issued on July 2, 2019. Interest will be paid
semi-annually in arrears on January 2 and July 2, commencing
January 2, 2020.
There were net foreign exchange gains for the 2019 third quarter
of $0.2 million, compared to net foreign exchange gains for the
2018 third quarter of $2.6 million. There were net foreign exchange
losses for the nine months ended September 30, 2019 of $0.7
million, compared to a net foreign exchange gains for the nine
months ended September 30, 2018 of $1.8 million.
Preference dividends for the 2019 third quarter were $2.6
million, inclusive of the final $1.3 million paid on the shares
that were redeemed, compared to $4.9 million for the 2018 third
quarter. Preference dividends for the nine months ended
September 30, 2019 were $12.4 million, compared to $14.7
million for the nine months ended September 30, 2018.
During the 2019 third quarter, the Company incurred an expense
of $4.2 million related to the accelerated amortization of issuance
and discount costs on the preference shares redeemed on August 1,
2019.
The dividend rate on the remaining 2,145,202 preference shares
will be adjusted quarterly to a rate equal to the 3-month USD LIBOR
on the first calendar day of the quarter (or the next business day,
if such first day is not a business day) plus a margin of
6.678%.
Conference Call
The Company will hold a conference call on Wednesday, October
30, 2019 at 1:00 p.m. Eastern time to discuss its 2019 third
quarter results. A live webcast of this call will be available via
the Investors section of the Company’s website at
http://investors.watfordre.com. A replay of the conference call
will also be available via the Investors section of the Company’s
website beginning on November 1st.
About Watford Holdings Ltd.
Watford Holdings Ltd. is a global property and casualty
insurance and reinsurance company with approximately $1.2 billion
in capital as of September 30, 2019, comprised of: $172.4
million of senior notes, $52.3 million of contingently redeemable
preference shares and $960.8 million of common shareholders’
equity, with operations in Bermuda, the United States and Europe.
Its operating subsidiaries have been assigned financial strength
ratings of “A-” (Excellent) from A.M. Best and “A” from Kroll Bond
Rating Agency.
|
|
CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|
(Unaudited) |
|
|
|
September 30, |
|
December 31, |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
Assets |
($ in thousands) |
Investments: |
|
|
|
Term loans, fair value option (Amortized cost: $1,109,393 and
$1,055,664) |
$ |
1,040,983 |
|
|
$ |
1,000,652 |
|
Fixed maturities, fair value
option (Amortized cost: $583,530 and $972,653) |
563,214 |
|
|
922,819 |
|
Short-term investments, fair
value option (Cost: $359,837 and $281,959) |
357,611 |
|
|
282,132 |
|
Equity securities, fair value
option |
56,905 |
|
|
56,638 |
|
Other investments, fair value
option |
29,583 |
|
|
49,762 |
|
Investments, fair value option |
2,048,296 |
|
|
2,312,003 |
|
Fixed maturities, available
for sale (Amortized cost: $675,542 and $397,509) |
678,094 |
|
|
393,351 |
|
Equity securities, fair value
through net income |
43,488 |
|
|
33,013 |
|
Total investments |
2,769,878 |
|
|
2,738,367 |
|
Cash and cash
equivalents |
80,390 |
|
|
63,529 |
|
Accrued investment income |
18,277 |
|
|
19,461 |
|
Premiums receivable |
302,265 |
|
|
227,301 |
|
Reinsurance recoverable on
unpaid and paid losses and loss adjustment expenses |
144,437 |
|
|
86,445 |
|
Prepaid reinsurance
premiums |
129,909 |
|
|
61,587 |
|
Deferred acquisition costs,
net |
67,241 |
|
|
80,858 |
|
Receivable for securities
sold |
25,283 |
|
|
24,507 |
|
Intangible assets |
7,650 |
|
|
7,650 |
|
Funds held by reinsurers |
51,134 |
|
|
44,830 |
|
Other assets |
15,031 |
|
|
18,321 |
|
Total assets |
$ |
3,611,495 |
|
|
$ |
3,372,856 |
|
Liabilities |
|
|
|
Reserve for losses and loss
adjustment expenses |
$ |
1,164,945 |
|
|
$ |
1,032,760 |
|
Unearned premiums |
454,148 |
|
|
390,114 |
|
Losses payable |
63,731 |
|
|
24,750 |
|
Reinsurance balances
payable |
79,264 |
|
|
21,034 |
|
Payable for securities
purchased |
40,586 |
|
|
60,142 |
|
Payable for securities sold
short |
65,736 |
|
|
8,928 |
|
Revolving credit agreement
borrowings |
519,197 |
|
|
693,917 |
|
Senior notes |
172,350 |
|
|
— |
|
Amounts due to
affiliates |
4,700 |
|
|
5,888 |
|
Investment management and
performance fees payable |
13,647 |
|
|
3,807 |
|
Other liabilities |
20,137 |
|
|
20,916 |
|
Total liabilities |
$ |
2,598,441 |
|
|
$ |
2,262,256 |
|
Commitments and
contingencies |
|
|
|
Contingently redeemable
preference shares |
52,281 |
|
|
220,992 |
|
Shareholders’ equity |
|
|
|
Common shares ($0.01 par;
shares authorized: 120 million; shares issued and
outstanding: |
|
|
|
|
|
22,692,300 and 22,682,875) |
227 |
|
|
227 |
|
Additional paid-in
capital |
897,900 |
|
|
895,386 |
|
Retained earnings
(deficit) |
60,334 |
|
|
(1,275 |
) |
Accumulated other
comprehensive income (loss) |
2,312 |
|
|
(4,730 |
) |
Total shareholders’ equity |
960,773 |
|
|
889,608 |
|
|
|
|
|
|
|
|
|
Total liabilities, contingently redeemable preference shares and
shareholders’ equity |
$ |
3,611,495 |
|
|
$ |
3,372,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(UNAUDITED)
|
(Unaudited) |
|
(Unaudited) |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
Change QTR % |
|
2019 |
|
2018 |
|
Change YTD % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
($ in thousands except share and per share data) |
Gross premiums written |
$ |
249,960 |
|
|
$ |
185,033 |
|
|
35 |
% |
|
$ |
598,627 |
|
|
$ |
574,078 |
|
|
4 |
% |
Gross premiums ceded |
(94,208 |
) |
|
(33,356 |
) |
|
182 |
% |
|
(178,118 |
) |
|
(102,263 |
) |
|
74 |
% |
Net premiums written |
155,752 |
|
|
151,677 |
|
|
3 |
% |
|
420,509 |
|
|
471,815 |
|
|
(11 |
)% |
Change in unearned
premiums |
(29,920 |
) |
|
(16,053 |
) |
|
86 |
% |
|
2,735 |
|
|
(39,926 |
) |
|
(107 |
)% |
Net premiums earned |
125,832 |
|
|
135,624 |
|
|
(7 |
)% |
|
423,244 |
|
|
431,889 |
|
|
(2 |
)% |
Other underwriting income
(loss) |
579 |
|
|
703 |
|
|
(18 |
)% |
|
1,844 |
|
|
2,092 |
|
|
(12 |
)% |
Interest income |
41,376 |
|
|
38,704 |
|
|
7 |
% |
|
123,113 |
|
|
109,830 |
|
|
12 |
% |
Investment management fees -
related parties |
(4,606 |
) |
|
(4,314 |
) |
|
7 |
% |
|
(13,585 |
) |
|
(12,616 |
) |
|
8 |
% |
Borrowing and miscellaneous
other investment expenses |
(7,234 |
) |
|
(6,993 |
) |
|
3 |
% |
|
(23,143 |
) |
|
(19,636 |
) |
|
18 |
% |
Net interest income . |
29,536 |
|
|
27,397 |
|
|
8 |
% |
|
86,385 |
|
|
77,578 |
|
|
11 |
% |
Realized and unrealized gains
(losses) on investments |
(14,646 |
) |
|
(3,617 |
) |
|
305 |
% |
|
18,138 |
|
|
(16,237 |
) |
|
(212 |
)% |
Investment performance fees -
related parties |
(850 |
) |
|
(2,407 |
) |
|
(65 |
)% |
|
(8,342 |
) |
|
(6,606 |
) |
|
26 |
% |
Net investment income
(loss) |
14,040 |
|
|
21,373 |
|
|
(34 |
)% |
|
96,181 |
|
|
54,735 |
|
|
76 |
% |
Total revenues |
140,451 |
|
|
157,700 |
|
|
(11 |
)% |
|
521,269 |
|
|
488,716 |
|
|
7 |
% |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment
expenses |
(96,214 |
) |
|
(96,957 |
) |
|
(1 |
)% |
|
(318,480 |
) |
|
(312,087 |
) |
|
2 |
% |
Acquisition expenses |
(27,612 |
) |
|
(33,778 |
) |
|
(18 |
)% |
|
(97,003 |
) |
|
(106,708 |
) |
|
(9 |
)% |
General and administrative
expenses |
(7,027 |
) |
|
(5,801 |
) |
|
21 |
% |
|
(24,018 |
) |
|
(16,274 |
) |
|
48 |
% |
Interest expense |
(2,841 |
) |
|
— |
|
|
100 |
% |
|
(2,841 |
) |
|
— |
|
|
100 |
% |
Net foreign exchange gains
(losses) |
167 |
|
|
2,582 |
|
|
(94 |
)% |
|
(711 |
) |
|
1,847 |
|
|
(138 |
)% |
Total expenses |
(133,527 |
) |
|
(133,954 |
) |
|
— |
% |
|
(443,053 |
) |
|
(433,222 |
) |
|
2 |
% |
Income (loss) before income
taxes |
6,924 |
|
|
23,746 |
|
|
(71 |
)% |
|
78,216 |
|
|
55,494 |
|
|
41 |
% |
Income tax expense |
— |
|
|
— |
|
|
— |
% |
|
(20 |
) |
|
(27 |
) |
|
(26 |
)% |
Net income (loss) before
preference dividends |
6,924 |
|
|
23,746 |
|
|
(71 |
)% |
|
78,196 |
|
|
55,467 |
|
|
41 |
% |
Preference dividends |
(2,608 |
) |
|
(4,909 |
) |
|
(47 |
)% |
|
(12,423 |
) |
|
(14,724 |
) |
|
(16 |
)% |
Accelerated amortization of
costs related to the redemption of preference shares |
(4,164 |
) |
|
— |
|
|
100 |
% |
|
(4,164 |
) |
|
— |
|
|
100 |
% |
Net income (loss) available to
common shareholders |
$ |
152 |
|
|
$ |
18,837 |
|
|
(99 |
)% |
|
$ |
61,609 |
|
|
$ |
40,743 |
|
|
51 |
% |
Earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.01 |
|
|
$ |
0.83 |
|
|
(99 |
)% |
|
$ |
2.71 |
|
|
$ |
1.80 |
|
|
51 |
% |
Diluted |
$ |
0.01 |
|
|
$ |
0.83 |
|
|
(99 |
)% |
|
$ |
2.71 |
|
|
$ |
1.80 |
|
|
51 |
% |
Weighted average number of
ordinary shares used in the determination of earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
22,765,802 |
|
|
22,682,875 |
|
|
— |
% |
|
22,729,848 |
|
|
22,682,875 |
|
|
— |
% |
Diluted
. |
22,776,204 |
|
|
22,682,875 |
|
|
— |
% |
|
22,734,464 |
|
|
22,682,875 |
|
|
— |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
($ in thousands except share and per share data) |
Net income (loss) before preference dividends |
$ |
6,924 |
|
|
$ |
23,746 |
|
|
$ |
78,196 |
|
|
$ |
55,467 |
|
Preference
dividends |
|
(2,608 |
) |
|
|
(4,909 |
) |
|
|
(12,423 |
) |
|
|
(14,724 |
) |
Accelerated amortization of
costs related to the redemption of preference shares |
|
(4,164 |
) |
|
|
— |
|
|
|
(4,164 |
) |
|
|
— |
|
Net income (loss) available to
common shareholders |
$ |
152 |
|
|
$ |
18,837 |
|
|
$ |
61,609 |
|
|
$ |
40,743 |
|
Denominator: |
|
|
|
|
|
|
|
Weighted average common shares
outstanding - basic |
|
22,765,802 |
|
|
|
22,682,875 |
|
|
|
22,729,848 |
|
|
|
22,682,875 |
|
Effect of dilutive common
share equivalents: |
|
|
|
|
|
|
|
Weighted average non-vested
restricted share units (1) |
|
10,402 |
|
|
|
— |
|
|
|
4,616 |
|
|
|
— |
|
Weighted average common shares
outstanding - diluted |
|
22,776,204 |
|
|
|
22,682,875 |
|
|
|
22,734,464 |
|
|
|
22,682,875 |
|
Earnings (loss) per common
share: |
|
|
|
|
|
|
|
Basic |
$ |
0.01 |
|
|
$ |
0.83 |
|
|
$ |
2.71 |
|
|
$ |
1.80 |
|
Diluted |
$ |
0.01 |
|
|
$ |
0.83 |
|
|
$ |
2.71 |
|
|
$ |
1.80 |
|
(1) During the
second quarter of 2019, the Company granted 165,287 restricted
share units and common shares to certain employees and directors,
82,360 of which are non-vested as of September 30, 2019. |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
|
2019 |
|
2019 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
($ in thousands except share and per share data) |
Total shareholders’ equity |
$ |
960,773 |
|
|
$ |
961,296 |
|
|
$ |
941,891 |
|
|
$ |
889,608 |
|
Denominator: |
|
|
|
|
|
|
|
Common shares outstanding -
basic |
|
22,765,802 |
|
|
|
22,765,802 |
|
|
|
22,682,875 |
|
|
|
22,682,875 |
|
Effect of dilutive common
share equivalents: |
|
|
|
|
|
|
|
Non-vested restricted share
units (1) |
|
82,360 |
|
|
|
82,360 |
|
|
|
— |
|
|
|
— |
|
Common shares outstanding -
diluted |
|
22,848,162 |
|
|
|
22,848,162 |
|
|
|
22,682,875 |
|
|
|
22,682,875 |
|
|
|
|
|
|
|
|
|
Book value per common
share |
$ |
42.20 |
|
|
$ |
42.23 |
|
|
$ |
41.52 |
|
|
$ |
39.22 |
|
Book
value per diluted common share |
$ |
42.05 |
|
|
$ |
42.07 |
|
|
$ |
41.52 |
|
|
$ |
39.22 |
|
(1) During the
second quarter of 2019, the Company granted 165,287 restricted
share units and common shares to certain employees and directors,
82,360 of which are non-vested as of September 30, 2019. |
Comments on Regulation G
Throughout this release, the Company presents its operations in
the way it believes will be the most meaningful and useful to
investors, analysts, rating agencies and others who use the
Company’s financial information in evaluating the performance of
the Company and that investors and such other persons benefit from
having a consistent basis for comparison between quarters and for
comparison with other companies within the industry. These measures
may not, however, be comparable to similarly titled measures used
by companies outside of the insurance industry. Investors are
cautioned not to place undue reliance on these non-GAAP financial
measures in assessing the Company’s overall financial
performance.
This presentation includes the use of “underwriting income
(loss)” (which is defined as net premiums earned less loss and loss
adjustment expenses, acquisition expenses and general and
administrative expenses), “adjusted underwriting income (loss)”
(which is defined as underwriting income (loss) plus other
underwriting income (loss) less certain corporate expenses), and
“adjusted combined ratio” (which is calculated by dividing the sum
of loss and loss adjustment expenses, acquisition expenses and
general and administrative expenses, less certain corporate
expenses, by the sum of net premiums earned and other underwriting
income (loss)). Certain corporate expenses are generally
comprised of non-recurring costs of the holding company, such as
costs associated with the initial setup of subsidiaries, as well as
costs associated with the ongoing operations of the holding company
such as compensation of certain executives.
The presentation of underwriting income (loss), adjusted
underwriting income (loss) and the adjusted combined ratio are
non-GAAP financial measures as defined in Regulation G. The
reconciliation of such measures to net income (loss) available to
common shareholders (the most directly comparable GAAP financial
measure) in accordance with Regulation G is included on the
following pages of this release.
Underwriting income (loss) is useful in evaluating our
underwriting performance, without regard to other underwriting
income (losses), net investment income (losses), net foreign
exchange gains (losses), interest expense, income tax expenses and
preference dividends, and adjusted underwriting income (loss) is
useful in evaluating our underwriting performance, without regard
to net investment income (losses), net foreign exchange gains
(losses), interest expense, income tax expenses, preference
dividends and certain corporate expenses, and the adjusted combined
ratio is a key indicator of our profitability, without regard to
certain corporate expenses. The Company believes that
preference dividends, income tax expense, foreign exchange gains
(losses), interest expense, net investment income (loss), other
underwriting income (loss) and certain corporate expenses in any
particular period are not indicative of the performance of, or
trends in, the Company’s underwriting performance. Although
preference dividends, income tax expense, foreign exchange gains
(losses), interest expense, net investment income (loss) and other
underwriting income (loss) are an integral part of the Company’s
operations, the decision to realize investment gains or losses, the
recognition of the change in the carrying value of investments
accounted for using the fair value option in net realized gains or
losses, and the recognition of foreign exchange gains or losses are
independent of the underwriting process and result, in large part,
from general economic and financial market conditions. Furthermore,
certain users of the Company’s financial information believe that,
for many companies, the timing of the realization of investment
gains or losses is largely opportunistic. The Company believes that
certain corporate expenses, due to their non-recurring nature, are
not indicative of the performance of, or trends in, the Company’s
business performance. Due to these reasons, the Company excludes
preference dividends, income tax expense, foreign exchange gains
(losses), interest expense, net investment income (loss), other
underwriting income (loss) from the calculation of underwriting
income (loss), and excludes preference dividends, income tax
expense, foreign exchange gains (losses), interest expense, net
investment income (loss) and certain corporate expenses from the
calculation of adjusted underwriting income (loss) and the adjusted
combined ratio.
The Company believes that showing underwriting income (loss),
adjusted underwriting income (loss) and the adjusted combined ratio
exclusive of the items referred to above reflects the underlying
fundamentals of the Company’s business since the Company evaluates
the performance of its business using underwriting income (loss),
adjusted underwriting income (loss) and the adjusted combined
ratio. The Company believes that this presentation enables
investors and other users of the Company’s financial information to
analyze the Company’s performance in a manner similar to how the
Company’s management analyzes performance. The Company also
believes that this measure follows industry practice and,
therefore, allows the users of the Company’s financial information
to compare the Company’s performance with its industry peer group.
The Company believes that the equity analysts and certain rating
agencies, which follow the Company and the insurance industry as a
whole generally exclude these items from their analysis for the
same reasons.
This presentation also includes the non-investment grade
portfolio and investment grade portfolio components of our
investment returns: “net interest income yield on average net
assets” (calculated as net interest income divided by average net
assets), “net investment income return on average total
investments” (calculated as net investment income divided by
average total investments), and “net investment income return on
average net assets” (calculated as net investment income divided by
average net assets). Net assets is calculated as the sum of total
investments, accrued investment income and receivables for
securities sold, less revolving credit agreement borrowings,
payable for securities purchased and payables for securities sold
short. For the three and nine-month periods, average net assets is
calculated using the averages of each quarterly period. However,
for the investment grade portfolio component of these returns, the
impact of the revolving credit agreement borrowings is not
subtracted from net interest income, net investment income (loss)
or the net assets calculation.
The presentation of the separate components of our investment
returns (non-investment grade portfolio and investment grade
portfolio) are non-GAAP financial measures as defined in Regulation
G. The reconciliation of such measures to net interest income and
net investment income (loss), the most directly comparable GAAP
financial measures, in accordance with Regulation G is included on
the following pages of this release.
The non-investment grade portfolio and investment grade
portfolio components of our investment returns (net interest income
yield on average net assets, net investment income return on
average net assets and on average total investments, respectively)
are useful in evaluating our investment performance. The
non-investment grade portfolio components of these investment
returns reflect the performance of our investment strategy under
HPS Investment Partners, LLC (“HPS”), which includes the use of
leverage. The investment grade portfolio component of these returns
reflect the performance of the investment portfolios that
predominantly support our underwriting collateral.
The following tables presents a reconciliation of underwriting
income (loss) to net income (loss) available to common
shareholders, and a reconciliation of adjusted underwriting income
(loss) to underwriting income (loss):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Net income (loss) available to common shareholders |
$ |
152 |
|
|
$ |
18,837 |
|
|
$ |
61,609 |
|
|
$ |
40,743 |
|
Preference dividends |
2,608 |
|
|
4,909 |
|
|
12,423 |
|
|
14,724 |
|
Accelerated amortization of
costs related to the redemption of preference shares |
4,164 |
|
|
— |
|
|
4,164 |
|
|
— |
|
Net income (loss) before
dividends |
6,924 |
|
|
23,746 |
|
|
78,196 |
|
|
55,467 |
|
Income tax expense |
— |
|
|
— |
|
|
20 |
|
|
27 |
|
Interest expense |
2,841 |
|
|
— |
|
|
2,841 |
|
|
— |
|
Net foreign exchange (gains)
losses |
(167 |
) |
|
(2,582 |
) |
|
711 |
|
|
(1,847 |
) |
Net investment (income)
loss |
(14,040 |
) |
|
(21,373 |
) |
|
(96,181 |
) |
|
(54,735 |
) |
Other underwriting (income)
loss |
(579 |
) |
|
(703 |
) |
|
(1,844 |
) |
|
(2,092 |
) |
Underwriting income
(loss) |
(5,021 |
) |
|
(912 |
) |
|
(16,257 |
) |
|
(3,180 |
) |
Certain corporate
expenses |
2,172 |
|
|
947 |
|
|
8,930 |
|
|
3,100 |
|
Other underwriting income
(loss) |
579 |
|
|
703 |
|
|
1,844 |
|
|
2,092 |
|
Adjusted underwriting income (loss) |
$ |
(2,270 |
) |
|
$ |
738 |
|
|
$ |
(5,483 |
) |
|
$ |
2,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjusted combined ratio reconciles to the combined ratio for
the three and nine months ended September 30, 2019 and 2018 as
follows:
|
Three Months Ended September 30, |
|
2019 |
|
2018 |
|
Amount |
|
Adjustment |
|
As Adjusted |
|
Amount |
|
Adjustment |
|
As Adjusted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Losses and loss adjustment expenses |
$ |
96,214 |
|
|
$ |
— |
|
|
$ |
96,214 |
|
|
$ |
96,957 |
|
|
$ |
— |
|
|
$ |
96,957 |
|
Acquisition expenses |
27,612 |
|
|
— |
|
|
27,612 |
|
|
33,778 |
|
|
— |
|
|
33,778 |
|
General & administrative
expenses (1) |
7,027 |
|
|
(2,172 |
) |
|
4,855 |
|
|
5,801 |
|
|
(947 |
) |
|
4,854 |
|
Net premiums earned (1) |
125,832 |
|
|
579 |
|
|
126,411 |
|
|
135,624 |
|
|
703 |
|
|
136,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio |
76.5 |
% |
|
|
|
|
|
71.5 |
% |
|
|
|
|
Acquisition expense ratio |
21.9 |
% |
|
|
|
|
|
24.9 |
% |
|
|
|
|
General & administrative
expense ratio (1) |
5.6 |
% |
|
|
|
|
|
4.3 |
% |
|
|
|
|
Combined ratio |
104.0 |
% |
|
|
|
|
|
100.7 |
% |
|
|
|
|
Adjusted loss ratio |
|
|
|
|
76.1 |
% |
|
|
|
|
|
71.1 |
% |
Adjusted acquisition expense
ratio |
|
|
|
|
21.8 |
% |
|
|
|
|
|
24.8 |
% |
Adjusted general &
administrative expense ratio |
|
|
|
|
3.9 |
% |
|
|
|
|
|
3.6 |
% |
Adjusted combined ratio |
|
|
|
|
101.8 |
% |
|
|
|
|
|
99.5 |
% |
(1) Adjustments
include certain corporate expenses, which are deducted from general
and administrative expenses, and other underwriting income (loss),
which is added to net premiums earned. |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
Amount |
|
Adjustment |
|
As Adjusted |
|
Amount |
|
Adjustment |
|
As Adjusted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Losses and loss adjustment expenses |
$ |
318,480 |
|
|
$ |
— |
|
|
$ |
318,480 |
|
|
$ |
312,087 |
|
|
$ |
— |
|
|
$ |
312,087 |
|
Acquisition expenses |
97,003 |
|
|
— |
|
|
97,003 |
|
|
106,708 |
|
|
— |
|
|
106,708 |
|
General & administrative
expenses (1) |
24,018 |
|
|
(8,930 |
) |
|
15,088 |
|
|
16,274 |
|
|
(3,100 |
) |
|
13,174 |
|
Net premiums earned (1) |
423,244 |
|
|
1,844 |
|
|
425,088 |
|
|
431,889 |
|
|
2,092 |
|
|
433,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio |
75.2 |
% |
|
|
|
|
|
72.3 |
% |
|
|
|
|
Acquisition expense ratio |
22.9 |
% |
|
|
|
|
|
24.7 |
% |
|
|
|
|
General & administrative
expense ratio (1) |
5.7 |
% |
|
|
|
|
|
3.8 |
% |
|
|
|
|
Combined ratio |
103.8 |
% |
|
|
|
|
|
100.8 |
% |
|
|
|
|
Adjusted loss ratio |
|
|
|
|
74.9 |
% |
|
|
|
|
|
71.9 |
% |
Adjusted acquisition expense
ratio |
|
|
|
|
22.8 |
% |
|
|
|
|
|
24.6 |
% |
Adjusted general &
administrative expense ratio |
|
|
|
|
3.6 |
% |
|
|
|
|
|
3.0 |
% |
Adjusted combined ratio |
|
|
|
|
101.3 |
% |
|
|
|
|
|
99.5 |
% |
(1) Adjustments
include certain corporate expenses, which are deducted from general
and administrative expenses, and other underwriting income (loss),
which is added to net premiums earned. |
|
The following tables summarize the components of our total
investment return for the three and nine months ended
September 30, 2019 and 2018:
|
Three Months Ended September 30, 2019 |
|
Three Months Ended September 30, 2018 |
|
Non-Investment Grade |
|
Investment Grade |
|
Cost ofU/W Collateral (4) |
|
Total |
|
Non-Investment Grade |
|
Investment Grade |
|
Cost ofU/W Collateral (4) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Interest income |
$ |
35,014 |
|
|
$ |
6,362 |
|
|
$ |
— |
|
|
$ |
41,376 |
|
|
$ |
34,338 |
|
|
$ |
4,366 |
|
|
$ |
— |
|
|
$ |
38,704 |
|
Investment management fees -
related parties |
(4,204 |
) |
|
(402 |
) |
|
— |
|
|
(4,606 |
) |
|
(4,008 |
) |
|
(306 |
) |
|
— |
|
|
(4,314 |
) |
Borrowing and miscellaneous
other investment expenses |
(3,573 |
) |
|
(225 |
) |
|
(3,436 |
) |
|
(7,234 |
) |
|
(4,050 |
) |
|
(80 |
) |
|
(2,863 |
) |
|
(6,993 |
) |
Net interest income |
27,237 |
|
|
5,735 |
|
|
(3,436 |
) |
|
29,536 |
|
|
26,280 |
|
|
3,980 |
|
|
(2,863 |
) |
|
27,397 |
|
Net realized gains (losses) on
investments |
(750 |
) |
|
1,395 |
|
|
— |
|
|
645 |
|
|
4,095 |
|
|
(91 |
) |
|
— |
|
|
4,004 |
|
Net unrealized gains (losses)
on investments (1) |
(15,668 |
) |
|
377 |
|
|
— |
|
|
(15,291 |
) |
|
(7,129 |
) |
|
(492 |
) |
|
— |
|
|
(7,621 |
) |
Investment performance fees -
related parties |
(850 |
) |
|
— |
|
|
— |
|
|
(850 |
) |
|
(2,407 |
) |
|
— |
|
|
— |
|
|
(2,407 |
) |
Net investment income
(loss) |
$ |
9,969 |
|
|
$ |
7,507 |
|
|
$ |
(3,436 |
) |
|
$ |
14,040 |
|
|
$ |
20,839 |
|
|
$ |
3,397 |
|
|
$ |
(2,863 |
) |
|
$ |
21,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total investments
(2) |
$ |
1,854,911 |
|
|
$ |
915,081 |
|
|
$ |
— |
|
|
$ |
2,769,992 |
|
|
$ |
1,924,657 |
|
|
$ |
827,085 |
|
|
$ |
— |
|
|
$ |
2,751,742 |
|
Average net assets (3) |
$ |
1,586,134 |
|
|
$ |
915,632 |
|
|
$ |
(328,751 |
) |
|
$ |
2,173,015 |
|
|
$ |
1,501,942 |
|
|
$ |
827,058 |
|
|
$ |
(295,647 |
) |
|
$ |
2,033,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income yield on
average net assets (3) |
1.7 |
% |
|
0.6 |
% |
|
|
|
1.4 |
% |
|
1.7 |
% |
|
0.5 |
% |
|
|
|
1.3 |
% |
Net investment income return
on average total investments (2) |
0.5 |
% |
|
0.8 |
% |
|
|
|
0.5 |
% |
|
1.1 |
% |
|
0.4 |
% |
|
|
|
0.8 |
% |
Net
investment income return on average net assets (3) |
0.6 |
% |
|
0.8 |
% |
|
(1.0 |
)% |
|
0.6 |
% |
|
1.4 |
% |
|
0.4 |
% |
|
(1.0 |
)% |
|
1.1 |
% |
(1) Net unrealized gains (losses) on investments excludes
unrealized gains and losses from the available for sale portfolios,
which are recorded in other comprehensive income.
(2) Net investment income return on average total investments is
calculated by dividing net investment income by average total
investments. For the three-month period, average total investments
is calculated using the average of the beginning and ending balance
of each quarterly period. However, for the investment grade
portfolio component of these returns, the impact of revolving
credit agreement borrowings is not subtracted from net investment
income.
(3) Net interest income yield on average net assets and net
investment income return on average net assets are calculated by
dividing net interest income, and net investment income (loss),
respectively, by average net assets. For the non-investment grade
component of investment returns and total investment returns, net
assets is calculated as the sum of total investments, accrued
investment income and receivables for securities sold, less total
revolving credit agreement borrowings, payable for securities
purchased and payable for securities sold short. However, for
the investment grade portfolio component of these returns, the
impact of the revolving credit agreement borrowings is not
subtracted from net interest income, net investment income (loss),
or the net assets calculation.
(4) The cost of underwriting collateral is calculated as the
revolving credit agreement expenses for the investment grade
portfolios divided by the average total revolving credit agreement
borrowings for the investment grade portfolios during the
period.
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
Nine Months Ended September 30, 2018 |
|
Non-Investment Grade |
|
Investment Grade |
|
Cost of U/W Collateral
(4) |
|
Total |
|
Non-Investment Grade |
|
Investment Grade |
|
Cost of U/W Collateral
(4) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Interest income |
$ |
104,845 |
|
|
$ |
18,268 |
|
|
$ |
— |
|
|
$ |
123,113 |
|
|
$ |
97,594 |
|
|
$ |
12,236 |
|
|
$ |
— |
|
|
$ |
109,830 |
|
Investment management fees -
related parties |
(12,446 |
) |
|
(1,139 |
) |
|
— |
|
|
(13,585 |
) |
|
(11,728 |
) |
|
(888 |
) |
|
— |
|
|
(12,616 |
) |
Borrowing and miscellaneous
other investment expenses |
(12,240 |
) |
|
(667 |
) |
|
(10,236 |
) |
|
(23,143 |
) |
|
(11,575 |
) |
|
(274 |
) |
|
(7,787 |
) |
|
(19,636 |
) |
Net interest income |
80,159 |
|
|
16,462 |
|
|
(10,236 |
) |
|
86,385 |
|
|
74,291 |
|
|
11,074 |
|
|
(7,787 |
) |
|
77,578 |
|
Net realized gains (losses) on
investments |
392 |
|
|
2,324 |
|
|
— |
|
|
2,716 |
|
|
(5,198 |
) |
|
(4,189 |
) |
|
— |
|
|
(9,387 |
) |
Net unrealized gains (losses)
on investments (1) |
7,446 |
|
|
7,976 |
|
|
— |
|
|
15,422 |
|
|
(560 |
) |
|
(6,290 |
) |
|
— |
|
|
(6,850 |
) |
Investment performance fees -
related parties |
(8,342 |
) |
|
— |
|
|
— |
|
|
(8,342 |
) |
|
(6,606 |
) |
|
— |
|
|
— |
|
|
(6,606 |
) |
Net investment income
(loss) |
$ |
79,655 |
|
|
$ |
26,762 |
|
|
$ |
(10,236 |
) |
|
$ |
96,181 |
|
|
$ |
61,927 |
|
|
$ |
595 |
|
|
$ |
(7,787 |
) |
|
$ |
54,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total investments
(2) |
$ |
1,874,014 |
|
|
$ |
910,784 |
|
|
$ |
— |
|
|
$ |
2,784,798 |
|
$ |
1,833,711 |
|
|
$ |
799,012 |
|
|
$ |
— |
|
|
$ |
2,632,723 |
Average net assets (3) |
$ |
1,546,871 |
|
|
$ |
909,169 |
|
|
$ |
(324,452 |
) |
|
$ |
2,131,588 |
|
$ |
1,465,589 |
|
|
$ |
801,481 |
|
|
$ |
(282,191 |
) |
|
$ |
1,984,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income yield on
average net assets (3) |
5.2 |
% |
|
1.8 |
% |
|
|
|
4.1 |
% |
|
5.1 |
% |
|
1.4 |
% |
|
|
|
3.9 |
% |
Net investment income return
on average total investments (2). |
4.3 |
% |
|
2.9 |
% |
|
|
|
3.5 |
% |
|
3.4 |
% |
|
0.1 |
% |
|
|
|
2.1 |
% |
Net
investment income return on average net assets (3) |
5.1 |
% |
|
2.9 |
% |
|
(3.2 |
)% |
|
4.5 |
% |
|
4.2 |
% |
|
0.1 |
% |
|
(2.8 |
)% |
|
2.8 |
% |
(1) Net unrealized gains (losses) on investments excludes
unrealized gains and losses from the available for sale portfolios,
which are recorded in other comprehensive income.
(2) Net investment income return on average total investments is
calculated by dividing net investment income by average total
investments. For the nine-month period, average total investments
is calculated using the average of the beginning and ending balance
of each quarterly period. However, for the investment grade
portfolio component of these returns, the impact of revolving
credit agreement borrowings is not subtracted from net investment
income.
(3) Net interest income yield on average net assets and net
investment income return on average net assets are calculated by
dividing net interest income, and net investment income (loss),
respectively, by average net assets. For the non-investment grade
component of investment returns and total investment returns, net
assets is calculated as the sum of total investments, accrued
investment income and receivables for securities sold, less total
revolving credit agreement borrowings, payable for securities
purchased and payable for securities sold short. However, for
the investment grade portfolio component of these returns, the
impact of the revolving credit agreement borrowings is not
subtracted from net interest income, net investment income (loss),
or the net assets calculation.
(4) The cost of underwriting collateral is calculated as the
revolving credit agreement expenses for the investment grade
portfolios divided by the average total revolving credit agreement
borrowings for the investment grade portfolios during the
period.
|
|
|
|
|
As of September 30, 2019 |
|
As of September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Investment Grade |
|
Investment Grade |
|
Borrowings for U/W
Collateral |
|
Total |
|
Non-Investment Grade |
|
Investment Grade |
|
Borrowings for U/W
Collateral |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
Average total investments -
QTD |
$ |
1,854,911 |
|
|
$ |
915,081 |
|
|
$ |
— |
|
|
$ |
2,769,992 |
|
|
$ |
1,924,657 |
|
|
$ |
827,085 |
|
|
$ |
— |
|
|
$ |
2,751,742 |
|
Average total investments -
YTD |
1,874,014 |
|
|
910,784 |
|
|
— |
|
|
2,784,798 |
|
|
1,833,711 |
|
|
799,012 |
|
|
— |
|
|
2,632,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average net assets - QTD |
1,586,134 |
|
|
915,632 |
|
|
(328,751 |
) |
|
2,173,015 |
|
|
1,501,942 |
|
|
827,058 |
|
|
(295,647 |
) |
|
2,033,353 |
|
Average net assets - YTD |
1,546,871 |
|
|
909,169 |
|
|
(324,452 |
) |
|
2,131,588 |
|
|
1,465,589 |
|
|
801,481 |
|
|
(282,191 |
) |
|
1,984,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
$ |
1,876,346 |
|
|
$ |
893,532 |
|
|
$ |
— |
|
|
$ |
2,769,878 |
|
|
$ |
1,928,336 |
|
|
$ |
847,644 |
|
|
$ |
— |
|
|
$ |
2,775,980 |
|
Accrued Investment Income |
13,805 |
|
|
4,472 |
|
|
— |
|
|
18,277 |
|
|
14,082 |
|
|
3,568 |
|
|
— |
|
|
17,650 |
|
Receivable for Securities
Sold |
25,274 |
|
|
9 |
|
|
— |
|
|
25,283 |
|
|
35,956 |
|
|
197 |
|
|
— |
|
|
36,153 |
|
Less: Payable for Securities
Purchased |
36,870 |
|
|
3,716 |
|
|
— |
|
|
40,586 |
|
|
127,708 |
|
|
7,982 |
|
|
— |
|
|
135,690 |
|
Less: Payable for Securities
Sold Short |
65,736 |
|
|
— |
|
|
— |
|
|
65,736 |
|
|
9,288 |
|
|
— |
|
|
— |
|
|
9,288 |
|
Less: Revolving credit
agreement borrowings |
190,447 |
|
|
— |
|
|
328,750 |
|
|
519,197 |
|
|
322,455 |
|
|
— |
|
|
301,487 |
|
|
623,942 |
|
Net assets |
$ |
1,622,372 |
|
|
$ |
894,297 |
|
|
$ |
(328,750 |
) |
|
$ |
2,187,919 |
|
|
$ |
1,518,923 |
|
|
$ |
843,427 |
|
|
$ |
(301,487 |
) |
|
$ |
2,060,863 |
|
Non-investment grade borrowing
ratio (1) |
11.7 |
% |
|
|
|
|
|
|
|
21.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on
investments |
$ |
34,794 |
|
|
$ |
11,399 |
|
|
$ |
— |
|
|
$ |
46,193 |
|
|
$ |
49,208 |
|
|
$ |
117 |
|
|
$ |
— |
|
|
$ |
49,325 |
|
Unrealized losses on
investments |
(131,453 |
) |
|
(9,534 |
) |
|
— |
|
|
(140,987 |
) |
|
(49,227 |
) |
|
(15,614 |
) |
|
— |
|
|
(64,841 |
) |
Net
unrealized gains (losses) on investments |
$ |
(96,659 |
) |
|
$ |
1,865 |
|
|
$ |
— |
|
|
$ |
(94,794 |
) |
|
$ |
(19 |
) |
|
$ |
(15,497 |
) |
|
$ |
— |
|
|
$ |
(15,516 |
) |
(1) The
non-investment grade borrowing ratio is calculated as revolving
credit agreement borrowings divided by net assets. |
|
Cautionary Note Regarding Forward-Looking
Statements
The Private Securities Litigation Reform Act of 1995 (the
“PSLRA”) provides a “safe harbor” for forward-looking statements.
This release or any other written or oral statements made by or on
behalf of the Company may include forward-looking statements, which
reflect the Company’s current views with respect to future events
and financial performance. All statements other than statements of
historical fact included in or incorporated by reference in this
release are forward-looking statements. Forward-looking statements,
for purposes of the PSLRA or otherwise, can generally be identified
by the use of forward-looking terminology such as “may,” “will,”
“expect,” “intend,” “estimate,” “anticipate,” “believe” or
“continue” and similar statements of a future or forward-looking
nature or their negative or variations or similar terminology.
Forward-looking statements involve the Company’s current
assessment of risks and uncertainties. Actual events and results
may differ materially from those expressed or implied in these
statements. Important factors that could cause actual events or
results to differ materially from those indicated in such
statements are discussed below and elsewhere in this release, in
the Company’s Registration Statement on Form S-1 (File No.
333-230080) (as amended, the “Form S-1”) filed with the Securities
and Exchange Commission (the “SEC”), and in the Company’s periodic
reports filed with the SEC, and include:
- our limited operating history;
- fluctuations in the results of our operations;
- our ability to compete successfully with more established
competitors;
- our losses exceeding our reserves;
- downgrades, potential downgrades or other negative actions by
rating agencies;
- our dependence on key executives and inability to attract
qualified personnel, or the potential loss of Bermudian personnel
as a result of Bermuda employment restrictions;
- our dependence on letter of credit facilities that may not be
available on commercially acceptable terms;
- our potential inability to pay dividends or distributions;
- our potential need for additional capital in the future and the
potential unavailability of such capital to us on favorable terms
or at all;
- our dependence on clients’ evaluations of risks associated with
such clients’ insurance underwriting;
- the suspension or revocation of our subsidiaries’ insurance
licenses;
- Watford Holdings potentially being deemed an investment company
under U.S. federal securities law;
- the potential characterization of us and/or any of our
subsidiaries as a passive foreign investment company (“PFIC”);
- our dependence on certain subsidiaries of Arch Capital Group
Ltd. (“Arch”) for services critical to our underwriting
operations;
- changes to our strategic relationship with Arch or the
termination by Arch of any of our services agreements or quota
share agreements;
- our dependence on HPS and Arch Investment Management Ltd.
(“AIM”) to implement our investment strategy;
- the termination by HPS or AIM of any of our investment
management agreements;
- risks associated with our investment strategy being greater
than those faced by competitors;
- changes in the regulatory environment;
- our potentially becoming subject to U.S. federal income
taxation;
- our potentially becoming subject to U.S. withholding and
information reporting requirements under the U.S. Foreign Account
Tax Compliance Act (“FATCA”) provisions; and
- the other matters set forth under “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” “Business” and other sections of the Company’s Form
S-1, as well as the other factors set forth in the Company’s other
documents on file with the SEC, and management’s response to any of
the aforementioned factors.
All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary
statements. The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with
other cautionary statements that are included herein or elsewhere.
The Company undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events or otherwise.
Contacts
Robert L. Hawley: (441) 278-3456
rhawley@watfordre.com
Watford (NASDAQ:WTREP)
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