Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 11, 2020
 
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Watford Holdings Ltd.
(Exact Name of Registrant as Specified in its Charter)
Bermuda
(State or other jurisdiction
of incorporation or organization)
001-38788
(Commission File No.)
98-1155442
(I.R.S. Employer Identification Number)
Waterloo House, 1st Floor
100 Pitts Bay Road, Pembroke HM 08, Bermuda
(Address of principal executive offices)

(441) 278-3455
(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-(4)(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Shares
 
WTRE
 
Nasdaq Global Select Market
8½% Cumulative Redeemable Preference Shares
 
WTREP
 
Nasdaq Global Select Market









Item 2.02        Results of Operations and Financial Condition

On February 11, 2020, Watford Holdings Ltd. issued a press release reporting its earnings for the quarter ended December 31, 2019. The press release is attached hereto as Exhibit 99.1.

The information in this Current Report on Form 8-K, including the information set forth in Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01        Financial Statements and Exhibits

(d): The following exhibit is being filed herewith.

99.1        Press release dated February 11, 2020

Exhibit
Number
 
Description of Document
99.1
 

2




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 11, 2020

 
WATFORD HOLDINGS LTD.
 
 
By:
/s/ Robert L. Hawley
 
Robert L. Hawley, Chief Financial Officer


3
Exhibit


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WATFORD REPORTS 2019 FOURTH QUARTER RESULTS AND THE AUTHORIZATION OF A NEW $50 MILLION SHARE REPURCHASE PROGRAM
PEMBROKE, Bermuda, February 11, 2020 -- (GLOBE NEWSWIRE)-- WATFORD HOLDINGS LTD. (“Watford” or the “Company”) (NASDAQ: WTRE) today reported a net loss of $16.9 million, after $1.2 million of preference dividends, for the three months ended December 31, 2019, compared to a net loss of $95.3 million, after payment of $4.9 million of preference dividends, in the same period in 2018. Book value per diluted common share was $43.49 at December 31, 2019, an increase of 10.9% from December 31, 2018. The quarterly results included:
Net loss available to common shareholders of $16.9 million, or $(0.79) per diluted common share, compared to a net loss of $95.3 million, or $(4.20) per diluted common share, for the 2018 fourth quarter;
Combined ratio of 128.3%, comprised of a 100.9% loss ratio, a 22.3% acquisition expense ratio and a 5.1% general and administrative expense ratio, compared to a combined ratio of 115.4% for the prior year fourth quarter, comprised of a 87.9% loss ratio, a 23.4% acquisition expense ratio and a 4.1% general and administrative expense ratio;
Net interest income of $29.8 million, a 1.4% yield on average net assets, for the 2019 fourth quarter, compared to net interest income of $30.0 million and a 1.5% yield on average net assets for the 2018 fourth quarter;
Net investment income of $32.1 million, a 1.5% return on average net assets, for the 2019 fourth quarter, compared to a net investment loss of $61.1 million and a (3.0)% return on average net assets for the 2018 fourth quarter;
The Company repurchased 2,789,405 common shares at an average price of $26.89 per share, fully utilizing the Company's previously announced $75 million share repurchase program.
In addition, the Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to $50 million of its outstanding common shares from time to time on the open market or in privately negotiated transactions.
Commenting on the 2019 fourth quarter financial results, John Rathgeber, CEO of Watford, said:
"As reported in our press release of January 28, 2020, our results for the 2019 fourth quarter were negatively impacted by prior year loss reserve strengthening of $24 million and current accident year loss reserve strengthening of approximately $4 million. The reserve increase primarily relates to two large casualty reinsurance contracts, one of which is in run-off, and one of which has been renewed at progressively smaller participations over the past several years.
While painful in the short term, this was the prudent and responsible course of action based on the level of ceding company reported losses compared to actuarial projections. Our response to the data was decisive and we feel confident about the overall level of our net loss reserves, which stand at $1.1 billion.
Our investment income was quite strong, both for the quarter and the year. The net investment income return on net invested assets was 1.5% for the 2019 fourth quarter and 6.0% for the full year. The ratio of net invested assets to equity was 2.5:1 as of December 31, 2019, which points to the return on equity potential of the business going forward.

Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-1-



We fully utilized our $75 million share repurchase program during the 2019 fourth quarter. The Board has authorized a new share repurchase program for up to $50 million. The exact timing and magnitude of further share repurchases is dependent on a number of factors, but will likely be deployed at a slower pace than our prior program in order to pursue opportunities in an improving insurance market.
Our ultimate objective is to steadily grow book value per share over time. By this measure, we are pleased to report 3.4% quarterly growth in book value per diluted common share, which stands at $43.49 as of December 31, 2019. For the 2019 full year, the increase in book value per diluted common share was 10.9%.
As we enter the new year, we are optimistic about the prospects for further book value growth due to the overall positive insurance rate environment, the composition of our in-force insurance and reinsurance portfolio, the strength of our balance sheet, the earnings power of our fixed-income investment portfolio, and the potential material accretive benefit of our new share repurchase program.”
Underwriting
The following table summarizes the Company’s underwriting results on a consolidated basis:
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
 
($ in thousands)
Gross premiums written
$
156,254

 
$
160,937

 
(2.9
)%
 
$
754,881

 
$
735,015

 
2.7
 %
Net premiums written
112,353

 
132,360

 
(15.1
)%
 
532,862

 
604,175

 
(11.8
)%
Net premiums earned
133,446

 
146,973

 
(9.2
)%
 
556,690

 
578,862

 
(3.8
)%
Underwriting income (loss) (1)
(37,819
)
 
(22,660
)
 
(66.9
)%
 
(54,076
)
 
(25,840
)
 
(109.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% Point Change
 
 
 
 
 
% Point Change
Loss ratio
100.9
%
 
87.9
%
 
13.0
 %
 
81.4
%
 
76.2
%
 
5.2
 %
Acquisition expense ratio
22.3
%
 
23.4
%
 
(1.1
)%
 
22.8
%
 
24.4
%
 
(1.6
)%
General & administrative expense ratio
5.1
%
 
4.1
%
 
1.0
 %
 
5.5
%
 
3.9
%
 
1.6
 %
Combined ratio
128.3
%
 
115.4
%
 
12.9
 %
 
109.7
%
 
104.5
%
 
5.2
 %
Adjusted combined ratio (2)
126.4
%
 
114.2
%
 
12.2
 %
 
107.3
%
 
103.3
%
 
4.0
 %
(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.


Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-2-



The following table provides summary information regarding premiums written and earned by line of business:
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
($ in thousands)
Gross premiums written:
 
 
 
 
 
 
 
Casualty reinsurance
$
26,680

 
$
52,025

 
$
279,967

 
$
274,661

Other specialty reinsurance
34,931

 
45,087

 
119,518

 
196,170

Property catastrophe reinsurance
844

 
1,684

 
16,226

 
10,424

Insurance programs and coinsurance
93,799

 
62,141

 
339,170

 
253,760

Total
$
156,254

 
$
160,937

 
$
754,881

 
$
735,015

 
 
 
 
 
 
 
 
Net premiums written:
 
 
 
 
 
 
 
Casualty reinsurance
$
26,532

 
$
51,379

 
$
225,758

 
$
273,048

Other specialty reinsurance
33,078

 
42,837

 
114,876

 
181,096

Property catastrophe reinsurance
874

 
1,678

 
15,517

 
10,193

Insurance programs and coinsurance
51,869

 
36,466

 
176,711

 
139,838

Total
$
112,353

 
$
132,360

 
$
532,862

 
$
604,175

 
 
 
 
 
 
 
 
Net premiums earned:
 
 
 
 
 
 
 
Casualty reinsurance
$
55,352

 
$
72,124

 
$
238,437

 
$
278,656

Other specialty reinsurance
30,929

 
37,420

 
149,688

 
162,691

Property catastrophe reinsurance
3,692

 
3,555

 
13,399

 
10,998

Insurance programs and coinsurance
43,473

 
33,874

 
155,166

 
126,517

Total
$
133,446

 
$
146,973

 
$
556,690

 
$
578,862

The following table shows the components of our loss and loss adjustment expenses for the three months and years ended December 31, 2019 and 2018:
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
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
$
110,510

 
82.8
%
 
$
129,101

 
87.8
%
 
$
429,322

 
77.1
%
 
$
443,482

 
76.6
 %
Prior year development (favorable)/adverse
24,145

 
18.1
%
 
67

 
0.1
%
 
23,813

 
4.3
%
 
(2,227
)
 
(0.4
)%
Loss and loss adjustment expenses
$
134,655

 
100.9
%
 
$
129,168

 
87.9
%
 
$
453,135

 
81.4
%
 
$
441,255

 
76.2
 %
Results for the three months ended December 31, 2019 versus 2018:
Gross and net premiums written in the 2019 fourth quarter were 2.9% and 15.1% lower, respectively, than the 2018 fourth quarter. The decrease in premiums reflected a reduction in reinsurance premiums, offset in part by an increase of new and renewal business bound in insurance programs and coinsurance in the 2019 fourth quarter.

Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-3-



Net premiums earned in the 2019 fourth quarter were 9.2% lower than the 2018 fourth 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 100.9% in the 2019 fourth quarter compared to 87.9% in the 2018 fourth quarter. In the 2019 fourth quarter, we experienced $5.0 million in catastrophe losses, primarily due to Typhoon Hagibis in Japan. The increase in the loss ratio reflects 18.1 points of prior year and 2.9 points of current year loss reserve strengthening, primarily in the casualty reinsurance line of business. Casualty reinsurance prior year loss reserves were strengthened by $24.0 million, primarily due to a higher than anticipated level of reported losses on one professional lines quota share treaty program and one non-renewed multi-line quota share treaty. The loss reserve development in the prior year fourth quarter had essentially been flat.
The acquisition expense ratio was 22.3% in the 2019 fourth quarter, compared to 23.4% in the 2018 fourth quarter, reflecting changes in the mix and type of business.
The general and administrative expense ratio was 5.1% in the 2019 fourth quarter, compared to 4.1% in the 2018 fourth quarter. The 1.0 point increase versus the prior year fourth quarter was attributable to ongoing public company expenses. Removing certain corporate expenses, our adjusted general and administrative expense ratio was 3.7% in the 2019 fourth quarter compared to 3.4% in the 2018 fourth quarter.




















Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-4-



Investments
The following table summarizes the Company’s key investment returns on a consolidated basis:
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
($ in thousands)
Interest income
$
40,775

 
$
43,086

 
$
163,888

 
$
152,916

Investment management fees - related parties
(4,807
)
 
(4,390
)
 
(18,392
)
 
(17,006
)
Borrowing and miscellaneous other investment expenses
(6,142
)
 
(8,741
)
 
(29,285
)
 
(28,377
)
Net interest income
29,826

 
29,955

 
116,211

 
107,533

Realized gains (losses) on investments
(10,664
)
 
4,599

 
(7,948
)
 
(4,788
)
Unrealized gains (losses) on investments
16,769

 
(102,196
)
 
32,191

 
(109,046
)
Investment performance fees - related parties
(3,849
)
 
6,558

 
(12,191
)
 
(48
)
Net investment income (loss)
$
32,082

 
$
(61,084
)
 
$
128,263

 
$
(6,349
)
 
 
 
 
 
 
 
 
Unrealized gains on investments (balance sheet)
$
47,203

 
$
17,109

 
$
47,203

 
$
17,109

Unrealized losses on investments (balance sheet)
(110,448
)
 
(134,494
)
 
(110,448
)
 
(134,494
)
Net unrealized gains (losses) on investments (balance sheet)
$
(63,245
)
 
$
(117,385
)
 
$
(63,245
)
 
$
(117,385
)
 
 
 
 
 
 
 
 
Net interest income yield on average net assets (1)
1.4
%
 
1.5
 %
 
5.4
%
 
5.4
 %
Non-investment grade portfolio (1)
1.7
%
 
1.9
 %
 
6.8
%
 
7.0
 %
Investment grade portfolio (1)
0.6
%
 
0.5
 %
 
2.5
%
 
1.9
 %
Net investment income return on average net assets (1)
1.5
%
 
(3.0
)%
 
6.0
%
 
(0.3
)%
Non-investment grade portfolio (1)
1.7
%
 
(4.3
)%
 
6.8
%
 
(0.2
)%
Investment grade portfolio (1)
0.9
%
 
0.8
 %
 
3.9
%
 
0.9
 %
 
 
 
 
 
 
 
 
Net investment income return on average total investments (2)
1.2
%
 
(2.2
)%
 
4.6
%
 
(0.2
)%
Non-investment grade portfolio (2)
1.4
%
 
(3.4
)%
 
5.7
%
 
(0.1
)%
Investment grade portfolio (2)
0.9
%
 
0.8
 %
 
3.9
%
 
0.9
 %
(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 twelve-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 twelve-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.

Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-5-



The following chart shows the composition of our non-investment grade and investment grade portfolios as of December 31, 2019:
 
As of December 31, 2019
 
Non-Investment Grade
 
($ in millions)
Total non-investment grade investments
$
1,862.3

 
 
Portfolio allocation by asset class:
 
Term loans
57.1
%
Corporate bonds
11.5
%
Short-term investments
12.5
%
Asset-backed securities
10.2
%
Equities
6.7
%
Other investments
1.6
%
Mortgage-backed securities
0.4
%
Total
100.0
%
 
As of December 31, 2019
 
Investment Grade
 
($ in millions)
Total investment grade investments
$
846.9

 
 
Portfolio allocation by asset class:
 
U.S. government and government agency bonds
33.7
%
Corporate bonds
18.7
%
Asset-backed securities
17.2
%
Non-U.S. government and government agency bonds
15.8
%
Short-term investments
11.4
%
Mortgage-backed securities
2.9
%
Municipal government and government agency bonds
0.3
%
Total
100.0
%










Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-6-



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 $3.0 million for the three months ended December 31, 2019, in relation to the 6.5% senior notes issued on July 2, 2019. Interest is paid semi-annually in arrears on January 2 and July 2.
Net foreign exchange gains (losses), which relate to underwriting, fair value option investments, fair value through net income investments, cash and cash equivalents, revolving credit agreement borrowings and realized amounts for available-for-sale investments, are included in the consolidated statements of income (loss).
Unrealized net foreign exchange gains (losses), which relate to available-for-sale investments, are included in the statement of comprehensive income (loss) within "unrealized holding gains (losses) arising during the period".
The consolidated statements of income (loss) include net foreign exchange losses of $7.5 million for the 2019 fourth quarter, while the statement of comprehensive income (loss) includes unrealized net foreign exchange gains of $7.5 million for the 2019 fourth quarter.
Preference dividends were $1.2 million and $4.9 million for the three months ended December 31, 2019 and 2018, respectively.
The Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to $50 million of its outstanding common shares. Repurchases under the new $50 million authorization may be effected from time to time in open market or privately negotiated transactions. The timing and amount of the repurchase transactions under this program will depend on a variety of factors, including market conditions, the level of future earnings, and rating agency and regulatory considerations.
Conference Call
The Company will hold a conference call on Wednesday, February 12, 2020 at 1:00 p.m. Eastern time to discuss its 2019 fourth 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 February 13, 2020.
About Watford Holdings Ltd.
Watford Holdings Ltd. is a global property and casualty insurance and reinsurance company with approximately $1.1 billion in capital as of December 31, 2019, comprised of: $172.4 million of senior notes, $52.3 million of contingently redeemable preference shares and $872.4 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.

Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-7-



CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
(Unaudited)
 
 
 
December 31,
 
December 31,
 
2019
 
2018
Assets
($ in thousands)
Investments:
 
 
 
Term loans, fair value option (Amortized cost: $1,113,212 and $1,055,664)
$
1,061,934

 
$
1,000,652

Fixed maturities, fair value option (Amortized cost: $432,576 and $972,653)
416,594

 
922,819

Short-term investments, fair value option (Cost: $325,542 and $281,959)
329,303

 
282,132

Equity securities, fair value option
59,799

 
56,638

Other investments, fair value option
30,461

 
49,762

Investments, fair value option
1,898,091

 
2,312,003

Fixed maturities, available for sale (Amortized cost: $739,456 and $397,509)
745,708

 
393,351

Equity securities, fair value through net income
65,338

 
33,013

Total investments
2,709,137

 
2,738,367

Cash and cash equivalents
102,437

 
63,529

Accrued investment income
14,025

 
19,461

Premiums receivable
273,657

 
227,301

Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses
170,974

 
86,445

Prepaid reinsurance premiums
132,577

 
61,587

Deferred acquisition costs, net
64,044

 
80,858

Receivable for securities sold
16,288

 
24,507

Intangible assets
7,650

 
7,650

Funds held by reinsurers
42,505

 
44,830

Other assets
17,562

 
18,321

Total assets
$
3,550,856

 
$
3,372,856

Liabilities
 
 
 
Reserve for losses and loss adjustment expenses
$
1,263,628

 
$
1,032,760

Unearned premiums
438,907

 
390,114

Losses payable
61,314

 
24,750

Reinsurance balances payable
77,066

 
21,034

Payable for securities purchased
18,180

 
60,142

Payable for securities sold short
66,257

 
8,928

Revolving credit agreement borrowings
484,287

 
693,917

Senior notes
172,418

 

Amounts due to affiliates
4,467

 
5,888

Investment management and performance fees payable
17,762

 
3,807

Other liabilities
21,912

 
20,916

Total liabilities
$
2,626,198

 
$
2,262,256

Commitments and contingencies
 
 
 
Contingently redeemable preference shares
52,305

 
220,992

Shareholders’ equity

 
 
Common shares ($0.01 par; shares authorized: 120 million; shares issued: 22,692,300 and 22,682,875)
227

 
227

Additional paid-in capital
898,083

 
895,386

Retained earnings (deficit)
43,470

 
(1,275
)
Accumulated other comprehensive income (loss)
5,629

 
(4,730
)
Common shares held in treasury, at cost (shares: 2,789,405 and Nil)
(75,056
)
 

Total shareholders’ equity
872,353

 
889,608

Total liabilities, contingently redeemable preference shares and shareholders’ equity
$
3,550,856

 
$
3,372,856



Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-8-



CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
(Unaudited)
(Unaudited)
 
Three Months Ended December 31,
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
Revenues
($ in thousands except share and per share data)
Gross premiums written
$
156,254

 
$
160,937

 
$
754,881

 
$
735,015

Gross premiums ceded
(43,901
)
 
(28,577
)
 
(222,019
)
 
(130,840
)
Net premiums written
112,353

 
132,360

 
532,862

 
604,175

Change in unearned premiums
21,093

 
14,613

 
23,828

 
(25,313
)
Net premiums earned
133,446

 
146,973

 
556,690

 
578,862

Other underwriting income (loss)
568

 
630

 
2,412

 
2,722

Interest income
40,775

 
43,086

 
163,888

 
152,916

Investment management fees - related parties
(4,807
)
 
(4,390
)
 
(18,392
)
 
(17,006
)
Borrowing and miscellaneous other investment expenses
(6,142
)
 
(8,741
)
 
(29,285
)
 
(28,377
)
Net interest income
29,826

 
29,955

 
116,211

 
107,533

Realized and unrealized gains (losses) on investments
6,105

 
(97,597
)
 
24,243

 
(113,834
)
Investment performance fees - related parties
(3,849
)
 
6,558

 
(12,191
)
 
(48
)
Net investment income (loss)
32,082

 
(61,084
)
 
128,263

 
(6,349
)
Total revenues
166,096

 
86,519

 
687,365

 
575,235

Expenses
 
 
 
 
 
 
 
Loss and loss adjustment expenses
(134,655
)
 
(129,168
)
 
(453,135
)
 
(441,255
)
Acquisition expenses
(29,785
)
 
(34,428
)
 
(126,788
)
 
(141,136
)
General and administrative expenses
(6,825
)
 
(6,037
)
 
(30,843
)
 
(22,311
)
Interest expense
(2,950
)
 

 
(5,791
)
 

Net foreign exchange gains (losses)
(7,536
)
 
1,764

 
(8,247
)
 
3,611

Non-recurring direct listing expenses

 
(9,000
)
 

 
(9,000
)
Total expenses
(181,751
)
 
(176,869
)
 
(624,804
)
 
(610,091
)
Income (loss) before income taxes
(15,655
)
 
(90,350
)
 
62,561

 
(34,856
)
Income tax expense

 

 
(20
)
 
(27
)
Net income (loss) before preference dividends
(15,655
)
 
(90,350
)
 
62,541

 
(34,883
)
Preference dividends
(1,209
)
 
(4,909
)
 
(13,632
)
 
(19,633
)
Accelerated amortization of costs related to the redemption of preference shares

 

 
(4,164
)
 

Net income (loss) available to common shareholders
$
(16,864
)
 
$
(95,259
)
 
$
44,745

 
$
(54,516
)
Other comprehensive income (loss) net of income tax:
 
 
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period (1)
$
5,847

 
$
(1,010
)
 
$
16,021

 
$
(5,204
)
Reclassification of net realized (gains) losses, net of income taxes, included in net income
(2,146
)
 
362

 
(5,611
)
 
1,046

Foreign currency translation adjustments
(384
)
 
160

 
(51
)
 
400

Other comprehensive income (loss) net of income tax
3,317

 
(488
)
 
10,359

 
(3,758
)
Comprehensive income (loss)
$
(13,547
)
 
$
(95,747
)
 
$
55,104

 
$
(58,274
)
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.79
)
 
$
(4.20
)
 
$
2.00

 
$
(2.40
)
Diluted
$
(0.79
)
 
$
(4.20
)
 
$
2.00

 
$
(2.40
)
Weighted average number of ordinary shares used in the determination of earnings (loss) per share:
 
 
 
 
 
 
 
Basic
21,277,287

 
22,682,875

 
22,366,682

 
22,682,875

Diluted
21,277,287

 
22,682,875

 
22,373,968

 
22,682,875

(1) Includes $7.5 million and $(1.4) million unrealized net foreign exchange gains (losses) for the three months ended December 31, 2019 and 2018. Includes $3.4 million and $(2.7) million unrealized net foreign exchange gains (losses) for the years ended December 31, 2019 and 2018.


Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-9-



 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
Numerator:
($ in thousands except share and per share data)
Net income (loss) before preference dividends
$
(15,655
)
 
$
(90,350
)
 
$
62,541

 
$
(34,883
)
Preference dividends
(1,209
)
 
(4,909
)
 
(13,632
)
 
(19,633
)
Accelerated amortization of costs related to the redemption of preference shares

 

 
(4,164
)
 

Net income (loss) available to common shareholders
$
(16,864
)
 
$
(95,259
)
 
$
44,745

 
$
(54,516
)
Denominator:

 
 
 

 
 
Weighted average common shares outstanding - basic
21,277,287

 
22,682,875

 
22,366,682

 
22,682,875

Effect of dilutive common share equivalents:
 
 
 
 
 
 
 
Weighted average non-vested restricted share units (1)(2)

 

 
7,286

 

Weighted average common shares outstanding - diluted
21,277,287

 
22,682,875

 
22,373,968

 
22,682,875

Earnings (loss) per common share:
 
 
 
 
 
 
 
Basic
$
(0.79
)
 
$
(4.20
)
 
$
2.00

 
$
(2.40
)
Diluted
$
(0.79
)
 
$
(4.20
)
 
$
2.00

 
$
(2.40
)
(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 December 31, 2019.
(2) The weighted average non-vested restricted share units are excluded from the calculation of diluted weighted average common shares outstanding for the three months ended December 31, 2019, due to a net loss reported.
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December, 31, 2018
Numerator:
($ in thousands except share and per share data)
Total shareholders’ equity
$
872,353

 
$
960,773

 
$
961,296

 
$
941,891

 
$
889,608

Denominator:
 
 

 
 
 
 
 
 
Common shares outstanding - basic
19,976,397

 
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

 
82,360

 

 

Common shares outstanding - diluted
20,058,757

 
22,848,162

 
22,848,162

 
22,682,875

 
22,682,875

 
 
 
 
 
 
 
 
 
 
Book value per common share
$43.67
 
$42.20
 
$42.23
 
$41.52
 
$39.22
Book value per diluted common share
$43.49
 
$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 December 31, 2019.







Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-10-



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.

Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-11-



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 twelve-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.









Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-12-



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 December 31,
 
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
($ in thousands)
Net income (loss) available to common shareholders
$
(16,864
)
 
$
(95,259
)
 
$
44,745

 
$
(54,516
)
Preference dividends
1,209

 
4,909

 
13,632

 
19,633

Accelerated amortization of costs related to the redemption of preference shares

 

 
4,164

 

Net income (loss) before preference dividends
(15,655
)
 
(90,350
)
 
62,541

 
(34,883
)
Income tax expense

 

 
20

 
27

Interest expense
2,950

 

 
5,791

 

Net foreign exchange (gains) losses
7,536

 
(1,764
)
 
8,247

 
(3,611
)
Non-recurring direct listing expenses

 
9,000

 

 
9,000

Net investment (income) loss
(32,082
)
 
61,084

 
(128,263
)
 
6,349

Other underwriting (income) loss
(568
)
 
(630
)
 
(2,412
)
 
(2,722
)
Underwriting income (loss)
(37,819
)
 
(22,660
)
 
(54,076
)
 
(25,840
)
Certain corporate expenses
1,882

 
1,009

 
10,812

 
4,109

Other underwriting income (loss)
568

 
630

 
2,412

 
2,722

Adjusted underwriting income (loss)
$
(35,369
)
 
$
(21,021
)
 
$
(40,852
)
 
$
(19,009
)

Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-13-



The adjusted combined ratio reconciles to the combined ratio for the three months and years ended December 31, 2019 and 2018 as follows:
 
Three Months Ended December 31,
 
2019
 
2018
 
Amount
 
Adjustment
 
As Adjusted
 
Amount
 
Adjustment
 
As Adjusted
 
($ in thousands)
Losses and loss adjustment expenses
$
134,655

 
$

 
$
134,655

 
$
129,168

 
$

 
$
129,168

Acquisition expenses
29,785

 

 
29,785

 
34,428

 

 
34,428

General & administrative expenses (1)
6,825

 
(1,882
)
 
4,943

 
6,037

 
(1,009
)
 
5,028

Net premiums earned (1)
133,446

 
568

 
134,014

 
146,973

 
630

 
147,603

 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
100.9
%
 


 
 
 
87.9
%
 


 
 
Acquisition expense ratio
22.3
%
 


 
 
 
23.4
%
 


 
 
General & administrative expense ratio
5.1
%
 


 
 
 
4.1
%
 


 
 
Combined ratio
128.3
%
 


 


 
115.4
%
 





Adjusted loss ratio
 
 


 
100.5
%
 
 
 


 
87.5
%
Adjusted acquisition expense ratio
 
 


 
22.2
%
 
 
 


 
23.3
%
Adjusted general & administrative expense ratio
 
 


 
3.7
%
 
 
 


 
3.4
%
Adjusted combined ratio
 
 
 
 
126.4
%
 
 
 
 
 
114.2
%
(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.
 
Year Ended December 31,
 
2019
 
2018
 
Amount
 
Adjustment
 
As Adjusted
 
Amount
 
Adjustment
 
As Adjusted
 
($ in thousands)
Losses and loss adjustment expenses
$
453,135

 
$

 
$
453,135

 
$
441,255

 
$

 
$
441,255

Acquisition expenses
126,788

 

 
126,788

 
141,136

 

 
141,136

General & administrative expenses (1)
30,843

 
(10,812
)
 
20,031

 
22,311

 
(4,109
)
 
18,202

Net premiums earned (1)
556,690

 
2,412

 
559,102

 
578,862

 
2,722

 
581,584

 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
81.4
%
 


 
 
 
76.2
%
 


 
 
Acquisition expense ratio
22.8
%
 


 
 
 
24.4
%
 


 
 
General & administrative expense ratio
5.5
%
 


 
 
 
3.9
%
 


 
 
Combined ratio
109.7
%
 


 
 
 
104.5
%
 


 
 
Adjusted loss ratio
 
 


 
81.0
%
 
 
 


 
75.9
%
Adjusted acquisition expense ratio
 
 


 
22.7
%
 
 
 


 
24.3
%
Adjusted general & administrative expense ratio
 
 


 
3.6
%
 
 
 


 
3.1
%
Adjusted combined ratio
 
 
 
 
107.3
%
 
 
 
 
 
103.3
%
(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.



Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-14-



The following tables summarize the components of our total investment return for the three months and years ended December 31, 2019 and 2018:
 
Three Months Ended December 31, 2019
 
Three Months Ended December 31, 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
$
34,435

 
$
6,340

 
$

 
$
40,775

 
$
38,253

 
$
4,833

 
$

 
$
43,086

Investment management fees - related parties
(4,431
)
 
(376
)
 

 
(4,807
)
 
(4,090
)
 
(300
)
 

 
(4,390
)
Borrowing and miscellaneous other investment expenses
(2,807
)
 
(316
)
 
(3,019
)
 
(6,142
)
 
(5,419
)
 
(101
)
 
(3,221
)
 
(8,741
)
Net interest income
27,197

 
5,648

 
(3,019
)
 
29,826

 
28,744

 
4,432

 
(3,221
)
 
29,955

Net realized gains (losses) on investments
(13,539
)
 
2,875

 

 
(10,664
)
 
5,590

 
(991
)
 

 
4,599

Net unrealized gains (losses) on investments (1)
17,283

 
(514
)
 

 
16,769

 
(105,208
)
 
3,012

 

 
(102,196
)
Investment performance fees - related parties
(3,849
)
 

 

 
(3,849
)
 
6,558

 

 

 
6,558

Net investment income (loss)
$
27,092

 
$
8,009

 
$
(3,019
)
 
$
32,082

 
$
(64,316
)
 
$
6,453

 
$
(3,221
)
 
$
(61,084
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average total investments (2)
$
1,869,300

 
$
870,208

 
$

 
$
2,739,508

 
$
1,905,464

 
$
851,710

 
$

 
$
2,757,174

Average net assets (3)
$
1,635,302

 
$
872,771

 
$
(328,750
)
 
$
2,179,323

 
$
1,492,417

 
$
852,176

 
$
(304,487
)
 
$
2,040,106

 


 


 
 
 


 


 


 


 


Net interest income yield on average net assets (3)
1.7
%
 
0.6
%
 
 
 
1.4
%
 
1.9
 %
 
0.5
%
 
 
 
1.5
 %
Net investment income return on average total investments (2)
1.4
%
 
0.9
%
 
 
 
1.2
%
 
(3.4
)%
 
0.8
%
 
 
 
(2.2
)%
Net investment income return on average net assets (3)
1.7
%
 
0.9
%
 
(0.9
)%
 
1.5
%
 
(4.3
)%
 
0.8
%
 
(1.1
)%
 
(3.0
)%
(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.

Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-15-



 
Year Ended December 31, 2019
 
Year Ended December 31, 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
$
139,280

 
$
24,608

 
$

 
$
163,888

 
$
135,847

 
$
17,069

 
$

 
$
152,916

Investment management fees - related parties
(16,877
)
 
(1,515
)
 

 
(18,392
)
 
(15,818
)
 
(1,188
)
 

 
(17,006
)
Borrowing and miscellaneous other investment expenses
(15,047
)
 
(983
)
 
(13,255
)
 
(29,285
)
 
(16,994
)
 
(375
)
 
(11,008
)
 
(28,377
)
Net interest income
107,356

 
22,110

 
(13,255
)
 
116,211

 
103,035

 
15,506

 
(11,008
)
 
107,533

Net realized gains (losses) on investments
(13,147
)
 
5,199

 

 
(7,948
)
 
392

 
(5,180
)
 

 
(4,788
)
Net unrealized gains (losses) on investments (1)
24,729

 
7,462

 

 
32,191

 
(105,768
)
 
(3,278
)
 

 
(109,046
)
Investment performance fees - related parties
(12,191
)
 

 

 
(12,191
)
 
(48
)
 

 

 
(48
)
Net investment income (loss)
$
106,747

 
$
34,771

 
$
(13,255
)
 
$
128,263

 
$
(2,389
)
 
$
7,048

 
$
(11,008
)
 
$
(6,349
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average total investments (2)
$1,872,835
 
$900,641
 
$

 
$2,773,476
 
$1,851,650
 
$812,186
 
$

 
$2,663,836
Average net assets (3)
$1,568,980
 
$900,069
 
$(325,527)
 
$2,143,522
 
$1,472,297
 
$814,154
 
$(287,765)
 
$1,998,686
 


 


 


 


 


 


 


 


Net interest income yield on average net assets (3)
6.8
%
 
2.5
%
 
 
 
5.4
%
 
7.0
 %
 
1.9
%
 
 
 
5.4
 %
Net investment income return on average total investments (2)
5.7
%
 
3.9
%
 
 
 
4.6
%
 
(0.1
)%
 
0.9
%
 
 
 
(0.2
)%
Net investment income return on average net assets (3)
6.8
%
 
3.9
%
 
(4.1
)%
 
6.0
%
 
(0.2
)%
 
0.9
%
 
(3.8
)%
 
(0.3
)%
(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 twelve-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.


Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-16-



 
As of December 31, 2019
 
As of December 31, 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
$
1,869,300

 
$
870,208

 
$

 
$
2,739,508

 
$
1,905,464

 
$
851,710

 
$

 
$
2,757,174

Average total investments - YTD
1,872,835

 
900,641

 

 
2,773,476

 
1,851,650

 
812,186

 

 
2,663,836

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average net assets - QTD
1,635,302

 
872,771

 
(328,750
)
 
2,179,323

 
1,492,417

 
852,176

 
(304,487
)
 
2,040,106

Average net assets - YTD
1,568,980

 
900,069

 
(325,527
)
 
2,143,522

 
1,472,297

 
814,154

 
(287,765
)
 
1,998,686

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total investments
$
1,862,253

 
$
846,884

 
$

 
$
2,709,137

 
$
1,882,591

 
$
855,776

 
$

 
$
2,738,367

Accrued investment income
9,679

 
4,346

 

 
14,025

 
15,000

 
4,461

 

 
19,461

Receivable for securities sold
16,275