Watford Reports 2020 Second Quarter Results
PEMBROKE,
- Net income available to common shareholders of
$188.8 million , or$9.51 per diluted common share, or a 28.2% return on average equity, compared to net income of$13.8 million , or$0.61 per diluted common share, or a 1.5% return on average equity for the 2019 second quarter; - Combined ratio of 108.0%, comprised of a 79.7% loss ratio, a 22.4% acquisition expense ratio and a 5.9% general and administrative expense ratio, compared to a combined ratio of 103.5% for the prior year second quarter, comprised of a 73.6% loss ratio, a 23.4% acquisition expense ratio and a 6.5% general and administrative expense ratio;
- Net interest income of
$27.4 million , a 1.4% yield on average net assets, for the 2020 second quarter, compared to net interest income of$26.4 million and a 1.2% yield on average net assets for the 2019 second quarter; and - Net investment income of
$199.5 million , a 10.0% return on average net assets for the 2020 second quarter, compared to net investment income of$23.8 million and a 1.1% return on average net assets for the 2019 second quarter.
Following the first quarter of 2020, the novel coronavirus (COVID-19) pandemic has continued to cause unprecedented economic volatility and disruption globally.
At this time, there continues to be significant uncertainties surrounding the ultimate number of insurance claims and scope of damage resulting from this pandemic. The Company’s estimates across its insurance and reinsurance lines of business are based on currently available information derived from modeling techniques, preliminary claims information obtained from the Company’s clients and brokers, a review of relevant in-force contracts with potential exposure to the pandemic and estimates of reinsurance recoverables. These estimates include losses only related to claims incurred as of
Commenting on the 2020 second quarter financial results,
“First, we would like to express our sympathy to all those affected by the COVID-19 global pandemic, as well as our appreciation for those who continue to provide support and care to the individuals who need it most. I’d also like to again thank the Watford employees and broader Watford team who have continued to deliver in this challenging environment.
Despite the backdrop of significant turmoil created by the pandemic, Watford demonstrated its resilience and delivered a strong financial performance. Our net income of
Our combined ratio for the quarter was 108.0%, and 104.7% when adjusted for other underwriting income and certain corporate expenses. The COVID-19 global pandemic has created significant uncertainty for the property and casualty industry, though we believe our mix of business is less exposed to classes likely to be materially affected. Watford recognized a COVID-19 loss provision of
Insurance and reinsurance conditions continue to improve. We believe our insurance and reinsurance platforms are well positioned in the hardening marketplace.”
Underwriting
The following table summarizes the Company’s underwriting results on a consolidated basis:
Three Months Ended |
Six Months Ended |
||||||||||||||||||||
2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||
($ in thousands) | |||||||||||||||||||||
Gross premiums written | $ | 157,927 | $ | 161,978 | (2.5 | )% | $ | 392,829 | $ | 348,667 | 12.7 | % | |||||||||
Net premiums written | 105,856 | 119,370 | (11.3 | )% | 292,556 | 264,757 | 10.5 | % | |||||||||||||
Net premiums earned | 131,535 | 151,318 | (13.1 | )% | 271,574 | 297,412 | (8.7 | )% | |||||||||||||
Underwriting income (loss) (1) | (10,578 | ) | (5,266 | ) | (100.9 | )% | (16,721 | ) | (11,236 | ) | (48.8 | )% | |||||||||
% Point Change |
% Point Change |
||||||||||||||||||||
Loss ratio | 79.7 | % | 73.6 | % | 6.1 | % | 79.3 | % | 74.7 | % | 4.6 | % | |||||||||
Acquisition expense ratio | 22.4 | % | 23.4 | % | (1.0 | )% | 21.3 | % | 23.3 | % | (2.0 | )% | |||||||||
General & administrative expense ratio | 5.9 | % | 6.5 | % | (0.6 | )% | 5.6 | % | 5.8 | % | (0.2 | )% | |||||||||
Combined ratio | 108.0 | % | 103.5 | % | 4.5 | % | 106.2 | % | 103.8 | % | 2.4 | % | |||||||||
Adjusted combined ratio (2) | 104.7 | % | 99.9 | % | 4.8 | % | 103.4 | % | 101.1 | % | 2.3 | % |
(1) Underwriting income (loss) is a non-
(2) Adjusted combined ratio is a non-
The following table provides summary information regarding premiums written and earned by line of business:
Three Months Ended |
Six Months Ended |
||||||||||||||
2020 |
2019 |
2020 |
2019 | ||||||||||||
($ in thousands) | |||||||||||||||
Gross premiums written: | |||||||||||||||
Casualty reinsurance | $ | 25,125 | $ | 32,557 | $ | 108,943 | $ | 108,158 | |||||||
Other specialty reinsurance | 21,080 | 37,836 | 57,960 | 62,134 | |||||||||||
Property catastrophe reinsurance | 11,253 | 5,929 | 21,085 | 11,921 | |||||||||||
Insurance programs and coinsurance | 100,469 | 85,656 | 204,841 | 166,454 | |||||||||||
Total | $ | 157,927 | $ | 161,978 | $ | 392,829 | $ | 348,667 | |||||||
Net premiums written: | |||||||||||||||
Casualty reinsurance | $ | 24,774 | $ | 32,077 | $ | 108,441 | $ | 107,142 | |||||||
Other specialty reinsurance | 19,843 | 36,523 | 55,327 | 59,705 | |||||||||||
Property catastrophe reinsurance | 10,506 | 5,621 | 20,338 | 11,603 | |||||||||||
Insurance programs and coinsurance | 50,733 | 45,149 | 108,450 | 86,307 | |||||||||||
Total | $ | 105,856 | $ | 119,370 | $ | 292,556 | $ | 264,757 | |||||||
Net premiums earned: | |||||||||||||||
Casualty reinsurance | $ | 48,146 | $ | 67,506 | $ | 100,911 | $ | 130,819 | |||||||
Other specialty reinsurance | 29,876 | 42,635 | 65,240 | 87,196 | |||||||||||
Property catastrophe reinsurance | 5,824 | 3,119 | 10,708 | 6,090 | |||||||||||
Insurance programs and coinsurance | 47,689 | 38,058 | 94,715 | 73,307 | |||||||||||
Total | $ | 131,535 | $ | 151,318 | $ | 271,574 | $ | 297,412 |
The following table shows the components of our loss and loss adjustment expenses for the three and six months ended
Three Months Ended |
Six Months Ended |
||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||
Loss and Loss Adjustment Expenses |
% 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 | $ | 104,993 | 79.9 | % | $ | 111,494 | 73.7 | % | $ | 215,849 | 79.5 | % | $ | 222,395 | 74.8 | % | |||||||||||
Prior year development (favorable)/adverse | (207 | ) | (0.2 | )% | (78 | ) | (0.1 | )% | (387 | ) | (0.2 | )% | (129 | ) | (0.1 | )% | |||||||||||
Loss and loss adjustment expenses | $ | 104,786 | 79.7 | % | $ | 111,416 | 73.6 | % | $ | 215,462 | 79.3 | % | $ | 222,266 | 74.7 | % |
Results for the three months ended
Gross and net premiums written in the 2020 second quarter were 2.5% and 11.3% lower, respectively, than the 2019 second quarter. The decrease in gross and net premiums written reflected a decrease in casualty reinsurance and other specialty reinsurance premiums written, offset in part by an increase in insurance programs and coinsurance and property catastrophe reinsurance in the 2020 second quarter. In addition, a higher portion of insurance programs and coinsurance premiums written were ceded in the 2020 second quarter compared to the 2019 second quarter.
Net premiums earned in the 2020 second quarter were 13.1% lower than the 2019 second quarter. The decrease in earned premiums reflected reduced participations and non-renewals for certain casualty reinsurance deals. In addition, the decrease in other specialty reinsurance premiums was driven by a contract written and earned with no comparable premium this quarter, as well as a reduction in our exposure to
The loss ratio was 79.7% in the 2020 second quarter compared to 73.6% in the 2019 second quarter. In the 2020 second quarter, the increase in loss ratio was primarily driven by COVID-19 related losses of
The general and administrative expense ratio was 5.9% in the 2020 second quarter, compared to 6.5% in the 2019 second quarter. The 0.6 point decrease versus the prior year second quarter was primarily attributable to a one-time accelerated long term incentive expense recognized in the 2019 second quarter. Removing certain corporate expenses, our adjusted general and administrative expense ratio was 3.3% in the 2020 second quarter consistent with 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 |
Six Months Ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
($ in thousands) | |||||||||||||||
Interest income | $ | 36,453 | $ | 38,596 | $ | 74,277 | $ | 81,737 | |||||||
Investment management fees - related parties | (4,262 | ) | (4,570 | ) | (8,614 | ) | (8,979 | ) | |||||||
Borrowing and miscellaneous other investment expenses | (4,763 | ) | (7,611 | ) | (10,432 | ) | (15,909 | ) | |||||||
Net interest income | 27,428 | 26,415 | 55,231 | 56,849 | |||||||||||
Realized gains (losses) on investments | (6,001 | ) | 789 | (11,047 | ) | 2,071 | |||||||||
Unrealized gains (losses) on investments | 178,064 | (1,725 | ) | (107,392 | ) | 30,713 | |||||||||
Investment performance fees - related parties | — | (1,692 | ) | — | (7,492 | ) | |||||||||
Net investment income (loss) | $ | 199,491 | $ | 23,787 | $ | (63,208 | ) | $ | 82,141 | ||||||
Unrealized gains on investments (balance sheet) | $ | 59,123 | $ | 35,228 | $ | 59,123 | $ | 35,228 | |||||||
Unrealized losses on investments (balance sheet) | (244,474 | ) | (113,937 | ) | (244,474 | ) | (113,937 | ) | |||||||
Net unrealized gains (losses) on investments (balance sheet) | $ | (185,351 | ) | $ | (78,709 | ) | $ | (185,351 | ) | $ | (78,709 | ) | |||
Net interest income yield on average net assets (1) | 1.4 | % | 1.2 | % | 2.7 | % | 2.7 | % | |||||||
Non-investment grade portfolio (1) | 1.8 | % | 1.6 | % | 3.5 | % | 3.5 | % | |||||||
Investment grade portfolio (1) | 0.4 | % | 0.6 | % | 1.0 | % | 1.2 | % | |||||||
Net investment income return on average net assets (1) | 10.0 | % | 1.1 | % | (3.1 | )% | 3.9 | % | |||||||
Non-investment grade portfolio (1) | 13.1 | % | 1.2 | % | (5.2 | )% | 4.6 | % | |||||||
Investment grade portfolio (1) | 1.6 | % | 1.0 | % | 2.4 | % | 2.1 | % | |||||||
Net investment income return on average total investments (excluding accrued investment income) (2) | 7.7 | % | 0.8 | % | (2.4 | )% | 2.9 | % | |||||||
Non-investment grade portfolio (2) | 10.6 | % | 1.0 | % | (4.3 | )% | 3.7 | % | |||||||
Investment grade portfolio (2) | 1.6 | % | 1.0 | % | 2.4 | % | 2.1 | % |
(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 six-month periods, 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-
(2) Net investment income return on average total investments (excluding accrued investment income) is calculated by dividing net investment income by average total investments. For the three- and six-month periods, 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-
Results for the three months ended
Net investment income was
The 2020 second quarter net investment income return was driven by net unrealized gains of
The 2020 second quarter non-investment grade portfolio net interest income yield was 1.8%, compared with 1.6% in the second quarter of 2019. The net realized and unrealized gains reported in the 2020 second quarter were
The 2020 second quarter investment grade portfolio net interest income yield was 0.4%, a decrease from 0.6% in the prior year period. In addition, the investment grade portfolio recognized
The following tables summarize the composition of the Company's non-investment grade and investment grade portfolios by sector as of
Total | Financials | Health Care | Technology | Consumer Services | Industrials | Consumer Goods | Oil & Gas | All Other (1) | ||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||
Non-Investment Grade Portfolio: | ||||||||||||||||||||||||||
Term loan investments | $ | 875,560 | $ | 188,970 | $ | 170,442 | $ | 186,367 | $ | 113,733 | $ | 90,250 | $ | 36,455 | $ | 29,573 | $ | 59,770 | ||||||||
Corporate bonds | 378,183 | 44,898 | 26,626 | 16,720 | 105,543 | 33,870 | 68,314 | 29,516 | 52,696 | |||||||||||||||||
Equities - sector specific | 93,872 | 62,350 | 22,577 | 7,266 | — | 641 | — | 264 | 774 | |||||||||||||||||
Short-term investments - sector specific | 2,184 | — | — | 1,682 | — | — | 502 | — | — | |||||||||||||||||
Subtotal | 1,349,799 | 296,218 | 219,645 | 212,035 | 219,276 | 124,761 | 105,271 | 59,353 | 113,240 | |||||||||||||||||
Equities - non-sector specific | 27,470 | |||||||||||||||||||||||||
Short-term investments - non-sector specific | 267,904 | |||||||||||||||||||||||||
Asset-backed securities | 157,925 | |||||||||||||||||||||||||
Other investments | 34,142 | |||||||||||||||||||||||||
Mortgage-backed securities | 9,164 | |||||||||||||||||||||||||
Total Non-Investment Grade Portfolio | $ | 1,846,404 | $ | 296,218 | $ | 219,645 | $ | 212,035 | $ | 219,276 | $ | 124,761 | $ | 105,271 | $ | 59,353 | $ | 113,240 | ||||||||
Investment Grade Portfolio: | ||||||||||||||||||||||||||
Corporate bonds | $ | 169,918 | $ | 51,327 | $ | 10,834 | $ | 18,688 | $ | 22,738 | $ | 11,942 | $ | 35,818 | $ | 11,388 | $ | 7,183 | ||||||||
Short-term investments | 99,978 | |||||||||||||||||||||||||
217,459 | ||||||||||||||||||||||||||
Non- |
151,124 | |||||||||||||||||||||||||
Asset-backed securities | 130,327 | |||||||||||||||||||||||||
Mortgage-backed securities | 22,018 | |||||||||||||||||||||||||
Municipal government and government agency bonds | 2,117 | |||||||||||||||||||||||||
Total Investment Grade Portfolio | $ | 792,941 | $ | 51,327 | $ | 10,834 | $ | 18,688 | $ | 22,738 | $ | 11,942 | $ | 35,818 | $ | 11,388 | $ | 7,183 | ||||||||
Total Investments | $ | 2,639,345 | $ | 347,545 | $ | 230,479 | $ | 230,723 | $ | 242,014 | $ | 136,703 | $ | 141,089 | $ | 70,741 | $ | 120,423 |
(1) Includes telecommunications, utilities and basic materials.
Total | Financials | Health Care | Technology | Consumer Services | Industrials | Consumer Goods | Oil & Gas | All Other (1) | ||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||
Non-Investment Grade Portfolio: | ||||||||||||||||||||||||||
Term loan investments | $ | 906,999 | $ | 190,535 | $ | 195,084 | $ | 199,837 | $ | 98,518 | $ | 89,778 | $ | 40,415 | $ | 32,049 | $ | 60,783 | ||||||||
Corporate bonds | 240,570 | 24,927 | 43,028 | 15,702 | 49,761 | 27,585 | 19,947 | 18,522 | 41,098 | |||||||||||||||||
Equities - sector specific | 95,112 | 59,714 | 27,174 | 5,868 | — | 1,026 | — | 242 | 1,088 | |||||||||||||||||
Short-term investments - sector specific | 47,703 | 7,703 | — | — | — | — | — | 40,000 | — | |||||||||||||||||
Subtotal | 1,290,384 | 282,879 | 265,286 | 221,407 | 148,279 | 118,389 | 60,362 | 90,813 | 102,969 | |||||||||||||||||
Equities - non-sector specific | 26,148 | |||||||||||||||||||||||||
Short-term investments - non-sector specific | 222,065 | |||||||||||||||||||||||||
Asset-backed securities | 140,613 | |||||||||||||||||||||||||
Other investments | 30,682 | |||||||||||||||||||||||||
Mortgage-backed securities | 8,529 | |||||||||||||||||||||||||
Total Non-Investment Grade Portfolio | $ | 1,718,421 | $ | 282,879 | $ | 265,286 | $ | 221,407 | $ | 148,279 | $ | 118,389 | $ | 60,362 | $ | 90,813 | $ | 102,969 | ||||||||
Investment Grade Portfolio: | ||||||||||||||||||||||||||
Corporate bonds | $ | 167,570 | $ | 62,046 | $ | 13,752 | $ | 12,135 | $ | 15,481 | $ | 14,133 | $ | 34,718 | $ | 7,346 | $ | 7,959 | ||||||||
Short-term investments | 74,093 | |||||||||||||||||||||||||
265,423 | ||||||||||||||||||||||||||
Non- |
149,858 | |||||||||||||||||||||||||
Asset-backed securities | 113,583 | |||||||||||||||||||||||||
Mortgage-backed securities | 21,785 | |||||||||||||||||||||||||
Municipal government and government agency bonds | 2,073 | |||||||||||||||||||||||||
Total Investment Grade Portfolio | $ | 794,385 | $ | 62,046 | $ | 13,752 | $ | 12,135 | $ | 15,481 | $ | 14,133 | $ | 34,718 | $ | 7,346 | $ | 7,959 | ||||||||
Total Investments | $ | 2,512,806 | $ | 344,925 | $ | 279,038 | $ | 233,542 | $ | 163,760 | $ | 132,522 | $ | 95,080 | $ | 98,159 | $ | 110,928 |
(1) Includes telecommunications, utilities and basic materials.
The table below summarizes the credit quality of the Company's non-investment grade and investment grade portfolios as of
Credit Rating (1) | |||||||||||||||||||||||||||||||||||
Fair Value | AA | A | BBB | BB | B | CCC | CC | C | D | Not Rated | |||||||||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||||||||||||||
Non-Investment Grade Portfolio: | |||||||||||||||||||||||||||||||||||
Term loan investments | $ | 875,560 | $ | — | $ | — | $ | — | $ | — | $ | 23,218 | $ | 530,118 | $ | 247,478 | $ | 15,191 | $ | 2,192 | 28046 | $ | 29,317 | ||||||||||||
Corporate bonds | 378,183 | — | — | — | 37373 | 50,125 | 152,648 | 113,723 | 6268 | 5585 | 3956 | 8,505 | |||||||||||||||||||||||
Asset-backed securities | 157,925 | — | — | 3,854 | 98,827 | 23,136 | 8,767 | 1663 | — | — | — | 21,678 | |||||||||||||||||||||||
Mortgage-backed securities | 9,164 | — | — | — | — | 1292 | — | — | — | — | 3,224 | 4,648 | |||||||||||||||||||||||
Short-term investments | 270,088 | 34859 | 172,166 | 60,880 | — | 502 | — | — | — | — | — | 1,681 | |||||||||||||||||||||||
Total fixed income instruments and short-term investments | 1,690,920 | 34859 | 172,166 | 64,734 | 136,200 | 98,273 | 691,533 | 362,864 | 21,459 | 7,777 | 35,226 | 65,829 | |||||||||||||||||||||||
Other Investments | 34,142 | ||||||||||||||||||||||||||||||||||
Equities | 121,342 | ||||||||||||||||||||||||||||||||||
Total Non-Investment Grade Portfolio | $ | 1,846,404 | 34859 | $ | 172,166 | $ | 64,734 | $ | 136,200 | $ | 98,273 | $ | 691,533 | $ | 362,864 | $ | 21,459 | $ | 7,777 | $ | 35,226 | $ | 65,829 | ||||||||||||
Investment Grade Portfolio: | |||||||||||||||||||||||||||||||||||
Corporate bonds | $ | 169,918 | $ | — | $ | 16,032 | $ | 90,087 | $ | 58,858 | 4941 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
217,459 | — | 217,459 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Asset-backed securities | 130,327 | 1,377 | — | 19,621 | 108,790 | 539 | — | — | — | — | — | — | |||||||||||||||||||||||
Mortgage-backed securities | 22,018 | — | 602 | 4,794 | 16,622 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Non- |
151,124 | — | 151,124 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Municipal government and government agency bonds | 2,117 | 1,039 | 586 | 492 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Short-term investments | 99,978 | 3,448 | 22,656 | 0 | 73,874 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Total Investment Grade Portfolio | $ | 792,941 | $ | 5,864 | $ | 408,459 | $ | 114,994 | $ | 258,144 | 5480 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Total | $ | 2,639,345 | $ | 40,723 | $ | 580,625 | $ | 179,728 | $ | 394,344 | $ | 103,753 | $ | 691,533 | $ | 362,864 | $ | 21,459 | $ | 7,777 | $ | 35,226 | $ | 65,829 |
(1) For individual fixed maturity investments, Standard & Poor’s ratings are used. In the absence of a Standard & Poor’s rating, ratings from Moody’s are used, followed by ratings from Fitch, followed by ratings from KBRA, followed by ratings from DBRS.
Credit Rating (1) | |||||||||||||||||||||||||||||||||||
Fair Value | AA | A | BBB | BB | B | CCC | CC | C | D | Not Rated | |||||||||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||||||||||||||
Non-Investment Grade Portfolio: | |||||||||||||||||||||||||||||||||||
Term loan investments | $ | 906,999 | $ | — | $ | — | $ | — | $ | — | $ | 10,277 | $ | 650,028 | $ | 161,307 | $ | 2,823 | $ | 1,314 | $ | 1,590 | $ | 79,660 | |||||||||||
Corporate bonds | 240,570 | — | — | — | 5,933 | 14,447 | 84,955 | 118,847 | 1,872 | — | 3,699 | 10,817 | |||||||||||||||||||||||
Asset-backed securities | 140,613 | — | — | 3,339 | 85,572 | 19,727 | 7,395 | 1,418 | — | — | — | 23,162 | |||||||||||||||||||||||
Mortgage-backed securities | 8,529 | — | — | — | — | 1,190 | — | — | — | — | 2,552 | 4,787 | |||||||||||||||||||||||
Short-term investments | 269,768 | 26,024 | 133,548 | 402 | 62,091 | — | 40,000 | — | — | — | — | 7,703 | |||||||||||||||||||||||
Total fixed income instruments and short-term investments | 1,566,479 | 26,024 | 133,548 | 3,741 | 153,596 | 45,641 | 782,378 | 281,572 | 4,695 | 1,314 | 7,841 | 126,129 | |||||||||||||||||||||||
Other Investments | 30,682 | ||||||||||||||||||||||||||||||||||
Equities | 121,260 | ||||||||||||||||||||||||||||||||||
Total Non-Investment Grade Portfolio | $ | 1,718,421 | $ | 26,024 | $ | 133,548 | $ | 3,741 | $ | 153,596 | $ | 45,641 | $ | 782,378 | $ | 281,572 | $ | 4,695 | $ | 1,314 | $ | 7,841 | $ | 126,129 | |||||||||||
Investment Grade Portfolio: | |||||||||||||||||||||||||||||||||||
Corporate bonds | $ | 167,570 | $ | — | $ | 34,647 | $ | 76,063 | $ | 52,085 | $ | 4,775 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
265,423 | — | 265,423 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Asset-backed securities | 113,583 | 1,628 | — | 15,980 | 95,975 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Mortgage-backed securities | 21,785 | — | — | 4,600 | 17,185 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Non- |
149,858 | — | 149,858 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Municipal government and government agency bonds | 2,073 | 1,023 | 570 | 480 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Short-term investments | 74,093 | 4,150 | 21,239 | — | 48,704 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Total Investment Grade Portfolio | $ | 794,385 | $ | 6,801 | $ | 471,737 | $ | 97,123 | $ | 213,949 | $ | 4,775 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Total | $ | 2,512,806 | $ | 32,825 | $ | 605,285 | $ | 100,864 | $ | 367,545 | $ | 50,416 | $ | 782,378 | $ | 281,572 | $ | 4,695 | $ | 1,314 | $ | 7,841 | $ | 126,129 |
(1) For individual fixed maturity investments, Standard & Poor’s ratings are used. In the absence of a Standard & Poor’s rating, ratings from Moody’s are used, followed by ratings from Fitch, followed by ratings from KBRA, followed by ratings from DBRS.
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
Preference dividends were
There were no share repurchases during the 2020 second quarter. As of
Conference Call
The Company will hold a conference call on
About
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Unaudited) | |||||||
2020 | 2019 | ||||||
Assets | ($ in thousands, except share data) | ||||||
Investments: | |||||||
Term loans, fair value option (Amortized cost: |
$ | 875,560 | $ | 1,061,934 | |||
Fixed maturities, fair value option (Amortized cost: |
548,010 | 416,594 | |||||
Short-term investments, fair value option (Cost: |
370,066 | 329,303 | |||||
Equity securities, fair value option | 58,898 | 59,799 | |||||
Other investments, fair value option | 34,142 | 30,461 | |||||
Investments, fair value option | 1,886,676 | 1,898,091 | |||||
Fixed maturities, available for sale (Amortized cost: |
690,225 | 745,708 | |||||
Equity securities, fair value through net income | 62,444 | 65,338 | |||||
Total investments | 2,639,345 | 2,709,137 | |||||
Cash and cash equivalents | 107,653 | 102,437 | |||||
Accrued investment income | 14,364 | 14,025 | |||||
Premiums receivable | 258,178 | 273,657 | |||||
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses | 229,746 | 170,974 | |||||
Prepaid reinsurance premiums | 131,919 | 132,577 | |||||
Deferred acquisition costs, net | 64,149 | 64,044 | |||||
Receivable for securities sold | 31,314 | 16,288 | |||||
Intangible assets | 7,650 | 7,650 | |||||
Funds held by reinsurers | 41,112 | 42,505 | |||||
Other assets | 22,328 | 17,562 | |||||
Total assets | $ | 3,547,758 | $ | 3,550,856 | |||
Liabilities | |||||||
Reserve for losses and loss adjustment expenses | $ | 1,353,049 | $ | 1,263,628 | |||
Unearned premiums | 456,170 | 438,907 | |||||
Losses payable | 58,292 | 61,314 | |||||
Reinsurance balances payable | 72,776 | 77,066 | |||||
Payable for securities purchased | 67,272 | 18,180 | |||||
Payable for securities sold short | 29,289 | 66,257 | |||||
Revolving credit agreement borrowings | 472,361 | 484,287 | |||||
Senior notes | 172,554 | 172,418 | |||||
Amounts due to affiliates | 4,542 | 4,467 | |||||
Investment management and performance fees payable | 5,511 | 17,762 | |||||
Other liabilities | 27,440 | 21,912 | |||||
Total liabilities | $ | 2,719,256 | $ | 2,626,198 | |||
Commitments and contingencies | |||||||
Contingently redeemable preference shares | 52,351 | 52,305 | |||||
Shareholders’ equity | |||||||
Common shares ( |
227 | 227 | |||||
Additional paid-in capital | 898,935 | 898,083 | |||||
Retained earnings (deficit) | (35,909 | ) | 43,470 | ||||
Accumulated other comprehensive income (loss) | (9,179 | ) | 5,629 | ||||
Common shares held in treasury, at cost (shares: 2,917,149 and 2,789,405) | (77,923 | ) | (75,056 | ) | |||
Total shareholders’ equity | 776,151 | 872,353 | |||||
Total liabilities, contingently redeemable preference shares and shareholders’ equity | $ | 3,547,758 | $ | 3,550,856 | |||
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenues | ($ in thousands except share and per share data) | ||||||||||||||
Gross premiums written | $ | 157,927 | $ | 161,978 | $ | 392,829 | $ | 348,667 | |||||||
Gross premiums ceded | (52,071 | ) | (42,608 | ) | (100,273 | ) | (83,910 | ) | |||||||
Net premiums written | 105,856 | 119,370 | 292,556 | 264,757 | |||||||||||
Change in unearned premiums | 25,679 | 31,948 | (20,982 | ) | 32,655 | ||||||||||
Net premiums earned | 131,535 | 151,318 | 271,574 | 297,412 | |||||||||||
Other underwriting income (loss) | 868 | 673 | 1,001 | 1,265 | |||||||||||
Interest income | 36,453 | 38,596 | 74,277 | 81,737 | |||||||||||
Investment management fees - related parties | (4,262 | ) | (4,570 | ) | (8,614 | ) | (8,979 | ) | |||||||
Borrowing and miscellaneous other investment expenses | (4,763 | ) | (7,611 | ) | (10,432 | ) | (15,909 | ) | |||||||
Net interest income | 27,428 | 26,415 | 55,231 | 56,849 | |||||||||||
Realized and unrealized gains (losses) on investments | 172,063 | (936 | ) | (118,439 | ) | 32,784 | |||||||||
Investment performance fees - related parties | — | (1,692 | ) | — | (7,492 | ) | |||||||||
Net investment income (loss) | 199,491 | 23,787 | (63,208 | ) | 82,141 | ||||||||||
Total revenues | 331,894 | 175,778 | 209,367 | 380,818 | |||||||||||
Expenses | |||||||||||||||
Loss and loss adjustment expenses | (104,786 | ) | (111,416 | ) | (215,462 | ) | (222,266 | ) | |||||||
Acquisition expenses | (29,486 | ) | (35,417 | ) | (57,853 | ) | (69,391 | ) | |||||||
General and administrative expenses | (7,841 | ) | (9,751 | ) | (14,980 | ) | (16,991 | ) | |||||||
Interest expense | (2,911 | ) | — | (5,823 | ) | — | |||||||||
Net foreign exchange gains (losses) | 2,665 | (441 | ) | 7,678 | (878 | ) | |||||||||
Total expenses | (142,359 | ) | (157,025 | ) | (286,440 | ) | (309,526 | ) | |||||||
Income (loss) before income taxes | 189,535 | 18,753 | (77,073 | ) | 71,292 | ||||||||||
Income tax expense | 402 | (20 | ) | 402 | (20 | ) | |||||||||
Net income (loss) before preference dividends | 189,937 | 18,733 | (76,671 | ) | 71,272 | ||||||||||
Preference dividends | (1,109 | ) | (4,908 | ) | (2,280 | ) | (9,815 | ) | |||||||
Net income (loss) available to common shareholders | $ | 188,828 | $ | 13,825 | $ | (78,951 | ) | $ | 61,457 | ||||||
Other comprehensive income (loss) net of income tax: | |||||||||||||||
Available-for-sale investments: | |||||||||||||||
Unrealized holding gains (losses) arising during the period | $ | 31,240 | $ | 6,532 | $ | 2,809 | $ | 10,613 | |||||||
Unrealized foreign currency gains (losses) arising during the period | 279 | (1,678 | ) | (7,420 | ) | (548 | ) | ||||||||
Credit loss recognized in net income (loss) | (212 | ) | — | 351 | — | ||||||||||
Reclassification of net realized (gains) losses, net of income taxes, included in net income (loss) | (8,331 | ) | (1,816 | ) | (10,736 | ) | (2,211 | ) | |||||||
Unrealized holding gains (losses) of available for sale investments | 22,976 | 3,038 | (14,996 | ) | 7,854 | ||||||||||
Foreign currency translation adjustments | 51 | 212 | 188 | 47 | |||||||||||
Other comprehensive income (loss) net of income tax | 23,027 | 3,250 | (14,808 | ) | 7,901 | ||||||||||
Comprehensive income (loss) | $ | 211,855 | $ | 17,075 | $ | (93,759 | ) | $ | 69,358 | ||||||
Earnings (loss) per share: | |||||||||||||||
Basic and diluted | $ | 9.51 | $ | 0.61 | $ | (3.97 | ) | $ | 2.71 | ||||||
Weighted average number of ordinary shares used in the determination of earnings (loss) per share: | |||||||||||||||
Basic | 19,863,048 | 22,740,762 | 19,907,490 | 22,711,833 | |||||||||||
Diluted | 19,863,048 | 22,747,033 | 19,907,490 | 22,714,969 | |||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Numerator: | ($ in thousands except share and per share data) | ||||||||||||||
Net income (loss) before preference dividends | $ | 189,937 | $ | 18,733 | $ | (76,671 | ) | $ | 71,272 | ||||||
Preference dividends | (1,109 | ) | (4,908 | ) | (2,280 | ) | (9,815 | ) | |||||||
Net income (loss) available to common shareholders | $ | 188,828 | $ | 13,825 | $ | (78,951 | ) | $ | 61,457 | ||||||
Denominator: | |||||||||||||||
Weighted average common shares outstanding - basic | 19,863,048 | 22,740,762 | 19,907,490 | 22,711,833 | |||||||||||
Effect of dilutive common share equivalents: | |||||||||||||||
Weighted average non-vested restricted share units (1) | — | 6,271 | — | 3,136 | |||||||||||
Weighted average common shares outstanding - diluted | 19,863,048 | 22,747,033 | 19,907,490 | 22,714,969 | |||||||||||
Earnings (loss) per common share: | |||||||||||||||
Basic and diluted | $ | 9.51 | $ | 0.61 | $ | (3.97 | ) | $ | 2.71 |
(1) The weighted average non-vested restricted share units are excluded from the calculation of diluted weighted average common shares outstanding for the six months ended
2020 (1) | 2020 (2) | 2019 | 2019 | 2019 (3) | ||||||||||
Numerator: | ($ in thousands except share and per share data) | |||||||||||||
Total shareholders’ equity | $ | 776,151 | $ | 564,054 | $ | 872,353 | $ | 960,773 | $ | 961,296 | ||||
Denominator: | ||||||||||||||
Common shares outstanding - basic (1)(2)(3) | 19,890,784 | 19,863,328 | 19,976,397 | 22,765,802 | 22,765,802 | |||||||||
Effect of dilutive common share equivalents: | ||||||||||||||
Non-vested restricted share units (2)(3) | 103,820 | 131,277 | 82,360 | 82,360 | 82,360 | |||||||||
Common shares outstanding - diluted | 19,994,604 | 19,994,605 | 20,058,757 | 22,848,162 | 22,848,162 | |||||||||
Book value per common share | $ | 39.02 | $ | 28.40 | $ | 43.67 | $ | 42.20 | $ | 42.23 | ||||
Book value per diluted common share | $ | 38.82 | $ | 28.21 | $ | 43.49 | $ | 42.05 | $ | 42.07 |
(1) During the second quarter of 2020, the Company issued 100,958 common shares, related to the restricted share units granted to certain employees and directors in the second quarter of 2019. Of these shares, 27,456 common shares vested in the second quarter of 2020.
(2) During the first quarter of 2020, the Company granted 63,591 restricted share units and common shares to certain employees and directors, 48,916 of which are non-vested as of
(3) During the second quarter of 2019, the Company granted 165,287 restricted share units and common shares to certain employees and directors, 54,904 of which are non-vested as of
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-
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 costs associated with the ongoing operations of the holding company, such as compensation of certain executives and costs associated with the initial setup of subsidiaries.
The presentation of underwriting income (loss), adjusted underwriting income (loss) and the adjusted combined ratio are non-
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 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 (excluding accrued investment income)” (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 six-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-
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 (excluding accrued investment income), 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
The following tables present 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 |
Six Months Ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
($ in thousands) | |||||||||||||||
Net income (loss) available to common shareholders | $ | 188,828 | $ | 13,825 | $ | (78,951 | ) | $ | 61,457 | ||||||
Preference dividends | 1,109 | 4,908 | 2,280 | 9,815 | |||||||||||
Net income (loss) before dividends | 189,937 | 18,733 | (76,671 | ) | 71,272 | ||||||||||
Income tax expense | (402 | ) | 20 | (402 | ) | 20 | |||||||||
Interest expense | 2,911 | — | 5,823 | — | |||||||||||
Net foreign exchange (gains) losses | (2,665 | ) | 441 | (7,678 | ) | 878 | |||||||||
Net investment (income) loss | (199,491 | ) | (23,787 | ) | 63,208 | (82,141 | ) | ||||||||
Other underwriting (income) loss | (868 | ) | (673 | ) | (1,001 | ) | (1,265 | ) | |||||||
Underwriting income (loss) | (10,578 | ) | (5,266 | ) | (16,721 | ) | (11,236 | ) | |||||||
Certain corporate expenses | 3,443 | 4,795 | 6,439 | 6,758 | |||||||||||
Other underwriting income (loss) | 868 | 673 | 1,001 | 1,265 | |||||||||||
Adjusted underwriting income (loss) | $ | (6,267 | ) | $ | 202 | $ | (9,281 | ) | $ | (3,213 | ) |
The adjusted combined ratio reconciles to the combined ratio for the three and six months ended
Three Months Ended |
|||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||
Amount | Adjustment | As Adjusted | Amount | Adjustment | As Adjusted | ||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||
Losses and loss adjustment expenses | $ | 104,786 | $ | — | $ | 104,786 | $ | 111,416 | $ | — | $ | 111,416 | |||||||||||
Acquisition expenses | 29,486 | — | 29,486 | 35,417 | — | 35,417 | |||||||||||||||||
General & administrative expenses (1) | 7,841 | (3,443 | ) | 4,398 | 9,751 | (4,795 | ) | 4,956 | |||||||||||||||
Net premiums earned (1) | 131,535 | 868 | 132,403 | 151,318 | 673 | 151,991 | |||||||||||||||||
Loss ratio | 79.7 | % | 73.6 | % | |||||||||||||||||||
Acquisition expense ratio | 22.4 | % | 23.4 | % | |||||||||||||||||||
General & administrative expense ratio (1) | 5.9 | % | 6.5 | % | |||||||||||||||||||
Combined ratio | 108.0 | % | 103.5 | % | |||||||||||||||||||
Adjusted loss ratio | 79.1 | % | 73.3 | % | |||||||||||||||||||
Adjusted acquisition expense ratio | 22.3 | % | 23.3 | % | |||||||||||||||||||
Adjusted general & administrative expense ratio | 3.3 | % | 3.3 | % | |||||||||||||||||||
Adjusted combined ratio | 104.7 | % | 99.9 | % |
(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.
Six Months Ended |
|||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||
Amount | Adjustment | As Adjusted | Amount | Adjustment | As Adjusted | ||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||
Losses and loss adjustment expenses | $ | 215,462 | $ | — | $ | 215,462 | $ | 222,266 | $ | — | $ | 222,266 | |||||||||||
Acquisition expenses | 57,853 | — | 57,853 | 69,391 | — | 69,391 | |||||||||||||||||
General & administrative expenses (1) | 14,980 | (6,439 | ) | 8,541 | 16,991 | (6,758 | ) | 10,233 | |||||||||||||||
Net premiums earned (1) | 271,574 | 1,001 | 272,575 | 297,412 | 1,265 | 298,677 | |||||||||||||||||
Loss ratio | 79.3 | % | 74.7 | % | |||||||||||||||||||
Acquisition expense ratio | 21.3 | % | 23.3 | % | |||||||||||||||||||
General & administrative expense ratio (1) | 5.6 | % | 5.8 | % | |||||||||||||||||||
Combined ratio | 106.2 | % | 103.8 | % | |||||||||||||||||||
Adjusted loss ratio | 79.0 | % | 74.4 | % | |||||||||||||||||||
Adjusted acquisition expense ratio | 21.2 | % | 23.2 | % | |||||||||||||||||||
Adjusted general & administrative expense ratio | 3.2 | % | 3.5 | % | |||||||||||||||||||
Adjusted combined ratio | 103.4 | % | 101.1 | % |
(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 six months ended
Three Months Ended |
Three Months Ended |
||||||||||||||||||||||||||||||
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 | $ | 32,410 | $ | 4,043 | $ | — | $ | 36,453 | $ | 32,492 | $ | 6,104 | $ | — | $ | 38,596 | |||||||||||||||
Investment management fees - related parties | (3,943 | ) | (319 | ) | — | (4,262 | ) | (4,171 | ) | (399 | ) | — | (4,570 | ) | |||||||||||||||||
Borrowing and miscellaneous other investment expenses | (2,741 | ) | (212 | ) | (1,810 | ) | (4,763 | ) | (3,809 | ) | (238 | ) | (3,564 | ) | (7,611 | ) | |||||||||||||||
Net interest income | 25,726 | 3,512 | (1,810 | ) | 27,428 | 24,512 | 5,467 | (3,564 | ) | 26,415 | |||||||||||||||||||||
Net realized gains (losses) on investments | (14,912 | ) | 8,911 | — | (6,001 | ) | (177 | ) | 966 | — | 789 | ||||||||||||||||||||
Net unrealized gains (losses) on investments (1) | 178,050 | 14 | — | 178,064 | (4,511 | ) | 2,786 | — | (1,725 | ) | |||||||||||||||||||||
Investment performance fees - related parties | — | — | — | — | (1,692 | ) | — | — | (1,692 | ) | |||||||||||||||||||||
Net investment income (loss) | $ | 188,864 | $ | 12,437 | $ | (1,810 | ) | $ | 199,491 | $ | 18,132 | $ | 9,219 | $ | (3,564 | ) | $ | 23,787 | |||||||||||||
Average total investments (2) | $ | 1,782,413 | $ | 793,663 | $ | 0 | $ | 2,576,076 | $ | 1,871,286 | $ | 928,850 | $ | — | $ | 2,800,136 | |||||||||||||||
Average net assets (3) | $ | 1,446,900 | $ | 800,175 | $ | (246,250 | ) | $ | 2,000,825 | $ | 1,548,237 | $ | 924,948 | $ | (327,619 | ) | $ | 2,145,566 | |||||||||||||
Net interest income yield on average net assets (3) | 1.8 | % | 0.4 | % | 1.4 | % | 1.6 | % | 0.6 | % | 1.2 | % | |||||||||||||||||||
Net investment income return on average total investments (excluding accrued investment income) (2) | 10.6 | % | 1.6 | % | 7.7 | % | 1.0 | % | 1.0 | % | 0.8 | % | |||||||||||||||||||
Net investment income return on average net assets (3) | 13.1 | % | 1.6 | % | (0.7 | )% | 10.0 | % | 1.2 | % | 1.0 | % | (1.1 | )% | 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 (excluding accrued investment income) 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.
Six Months Ended |
Six Months Ended |
||||||||||||||||||||||||||||||
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 | $ | 65,174 | $ | 9,103 | $ | — | $ | 74,277 | $ | 69,831 | $ | 11,906 | $ | — | $ | 81,737 | |||||||||||||||
Investment management fees - related parties | (7,916 | ) | (698 | ) | — | (8,614 | ) | (8,242 | ) | (737 | ) | — | (8,979 | ) | |||||||||||||||||
Borrowing and miscellaneous other investment expenses | (5,332 | ) | (437 | ) | (4,663 | ) | (10,432 | ) | (8,667 | ) | (442 | ) | (6,800 | ) | (15,909 | ) | |||||||||||||||
Net interest income | 51,926 | 7,968 | (4,663 | ) | 55,231 | 52,922 | 10,727 | (6,800 | ) | 56,849 | |||||||||||||||||||||
Net realized gains (losses) on investments | (22,137 | ) | 11,090 | — | (11,047 | ) | 1,142 | 929 | — | 2,071 | |||||||||||||||||||||
Net unrealized gains (losses) on investments (1) | (107,443 | ) | 51 | — | (107,392 | ) | 23,114 | 7,599 | — | 30,713 | |||||||||||||||||||||
Investment performance fees - related parties | — | — | — | — | (7,492 | ) | — | — | (7,492 | ) | |||||||||||||||||||||
Net investment income (loss) | $ | (77,654 | ) | $ | 19,109 | $ | (4,663 | ) | $ | (63,208 | ) | $ | 69,686 | $ | 19,255 | $ | (6,800 | ) | $ | 82,141 | |||||||||||
Average total investments (2) | $ | 1,786,375 | $ | 807,149 | $ | — | $ | 2,593,524 | $ | 1,883,565 | $ | 908,637 | $ | — | $ | 2,792,202 | |||||||||||||||
Average net assets (3) | $ | 1,488,863 | $ | 813,118 | $ | (287,500 | ) | $ | 2,014,481 | $ | 1,527,241 | $ | 905,937 | $ | (322,303 | ) | $ | 2,110,875 | |||||||||||||
Net interest income yield on average net assets (3) | 3.5 | % | 1.0 | % | 2.7 | % | 3.5 | % | 1.2 | % | 2.7 | % | |||||||||||||||||||
Net investment income return on average total investments (excluding accrued investment income) (2) | (4.3 | )% | 2.4 | % | (2.4 | )% | 3.7 | % | 2.1 | % | 2.9 | % | |||||||||||||||||||
Net investment income return on average net assets (3) | (5.2 | )% | 2.4 | % | (1.6 | )% | (3.1 | )% | 4.6 | % | 2.1 | % | (2.1 | )% | 3.9 | % |
(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 (excluding accrued investment income) is calculated by dividing net investment income by average total investments. For the six-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 |
As of |
||||||||||||||||||||||||||||||
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 | $ | 1,782,413 | $ | 793,663 | $ | — | $ | 2,576,076 | $ | 1,871,286 | $ | 928,850 | $ | — | $ | 2,800,136 | |||||||||||||||
Average total investments - YTD | $ | 1,786,375 | $ | 807,149 | — | $ | 2,593,524 | $ | 1,883,565 | $ | 908,637 | — | $ | 2,792,202 | |||||||||||||||||
Average net assets - QTD | 1,446,900 | 800,175 | (246,250 | ) | 2,000,825 | 1,548,237 | 924,948 | (327,619 | ) | 2,145,566 | |||||||||||||||||||||
Average net assets - YTD | 1,488,863 | 813,118 | (287,500 | ) | 2,014,481 | 1,527,241 | 905,937 | (322,303 | ) | 2,110,875 | |||||||||||||||||||||
Total investments | $ | 1,846,404 | $ | 792,941 | $ | — | $ | 2,639,345 | $ | 1,833,476 | $ | 936,629 | $ | — | $ | 2,770,105 | |||||||||||||||
Accrued Investment Income | 10,853 | 3,511 | — | 14,364 | 11,834 | 5,082 | — | 16,916 | |||||||||||||||||||||||
Receivable for Securities Sold | 28,298 | 3016 | — | 31,314 | 29,367 | 58 | — | 29,425 | |||||||||||||||||||||||
Less: Payable for Securities Purchased | 67,272 | — | — | 67,272 | 46,412 | 4,804 | — | 51,216 | |||||||||||||||||||||||
Less: Payable for Securities Sold Short | 29,289 | — | — | 29,289 | 48,823 | — | — | 48,823 | |||||||||||||||||||||||
Less: Revolving credit agreement borrowings | 308,611 | — | 163,750 | 472,361 | 229,546 | — | 328,751 | 558,297 | |||||||||||||||||||||||
Net assets | $ | 1,480,383 | $ | 799,468 | $ | (163,750 | ) | $ | 2,116,101 | $ | 1,549,896 | $ | 936,965 | $ | (328,751 | ) | $ | 2,158,110 | |||||||||||||
Non-investment grade borrowing ratio (1) | 20.80 | % | 14.80 | % | |||||||||||||||||||||||||||
Unrealized gains on investments | $ | 44,845 | $ | 14,278 | $ | — | $ | 59,123 | $ | 27,068 | $ | 8,160 | $ | — | $ | 35,228 | |||||||||||||||
Unrealized losses on investments | (221,353 | ) | (23,121 | ) | — | (244,474 | ) | (109,200 | ) | (4,737 | ) | — | (113,937 | ) | |||||||||||||||||
Net unrealized gains (losses) on investments | $ | (176,508 | ) | $ | (8,843 | ) | $ | — | $ | (185,351 | ) | $ | (82,132 | ) | $ | 3,423 | $ | — | $ | (78,709 | ) |
(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. These forward-looking statements include statements regarding the Company’s return on equity potential and prospects for further book value growth.
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 and in the Company’s periodic reports filed with the
- 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, including A.M. Best’s recent announcement that it has placed under review with negative implications the financial strength and credit ratings of our operating subsidiaries;
- 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 underU.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 theU.S. Foreign Account Tax Compliance Act (“FATCA”) provisions; - our ability to complete acquisitions and integrate businesses successfully;
- adverse general, societal, economic and market conditions, including those caused by pandemics, including COVID-19, and government actions in response thereto; and
- the other matters set forth under Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other sections of the Company’s Annual Report on Form 10-K, 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.
Contact
Source: Watford Holdings Ltd.