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): July 29, 2020
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 July 29, 2020, Watford Holdings Ltd. issued a press release reporting its earnings for the quarter ended June 30, 2020. 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 July 29, 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: July 29, 2020
WATFORD HOLDINGS LTD. | |
By: | /s/ Robert L. Hawley |
Robert L. Hawley, Chief Financial Officer | |
3
WATFORD REPORTS 2020 SECOND QUARTER RESULTS
PEMBROKE, Bermuda, July 29, 2020 -- (GLOBE NEWSWIRE)-- WATFORD HOLDINGS LTD. (“Watford” or the “Company”) (NASDAQ: WTRE) today reported net income of $188.8 million, after $1.1 million of preference dividends, for the three months ended June 30, 2020, compared to net income of $13.8 million, after payment of $4.9 million of preference dividends, for the same period in 2019. Book value per diluted common share was $38.82 at June 30, 2020, an increase of 37.6% from March 31, 2020. The quarterly results include:
• | 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 June 30, 2020. Actual losses from these events may vary materially from the estimates due to several factors, including the inherent uncertainties in making such determinations and the evolving nature of this pandemic.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-1-
Commenting on the 2020 second quarter financial results, Jon Levy, CEO of Watford, said:
“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 $188.8 million for the quarter was driven by $199.5 million of net investment income. Our net interest income remained steady at $27.4 million, representing a quarterly yield on average net assets of 1.4%. Realized and unrealized gains for the quarter totaled $172.1 million, with an additional $23.0 million in other comprehensive income. In aggregate, our book value per diluted common share increased $10.61, or 37.6% from March 31, 2020.
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 $5.2 million, or 4.0 loss ratio points, for the second quarter, almost exclusively arising from business interruption coverage in our property catastrophe reinsurance line of business.
Insurance and reinsurance conditions continue to improve. We believe our insurance and reinsurance platforms are well positioned in the hardening marketplace.”
Underwriting
The following table summarizes the Company’s underwriting results on a consolidated basis:
(1) Underwriting income (loss) is a non-U.S. GAAP financial measure and is calculated as net premiums earned, less loss and loss adjustment expenses, acquisition expenses and general and administrative expenses. See “Comments on Regulation G” for further discussion, including a reconciliation of underwriting income (loss) to net income (loss) available to common shareholders.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||
($ 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 | % | |||||||||
(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 June 30, | Six Months Ended June 30, | ||||||||||||||
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 June 30, 2020 and 2019:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||
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 June 30, 2020 versus 2019:
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.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-3-
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 U.S. mortgage risk. These decreases were partially offset by increased writings in insurance programs and coinsurance, and, to a lesser extent, greater assumed property catastrophe reinsurance.
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 $5.2 million, or 4.0 points, which mainly impacted property catastrophe reinsurance business. The prior year loss reserve development for both the 2020 and 2019 second quarters was essentially flat. The acquisition expense ratio was 22.4% in the 2020 second quarter, compared to 23.4% in the 2019 second quarter. These ratio movements also reflect changes in mix and the type of business.
The general and administrative expense ratio was 5.9% in the 2020 second quarter, compared to 6.5% in the 2019 second quarter. The 0.6 point decrease versus the prior year second quarter was primarily attributable to a one-time accelerated long term incentive expense recognized in the 2019 second quarter. Removing certain corporate expenses, our adjusted general and administrative expense ratio was 3.3% in the 2020 second quarter consistent with 3.3% in the 2019 second quarter.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-4-
Investments
The following table summarizes the Company’s key investment returns on a consolidated basis:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
($ 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-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 (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-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 (excluding accrued investment income).
Results for the three months ended June 30, 2020 versus 2019:
Net investment income was $199.5 million for the three months ended June 30, 2020 compared to net investment income of $23.8 million for the three months ended June 30, 2019, an increase of $175.7 million. The 2020 second quarter net investment income return on average net assets was 10.0% as compared to 1.1% for the prior year period.
The 2020 second quarter net investment income return was driven by net unrealized gains of $178.1 million as the credit markets partially recovered through the quarter. Net interest income increased to $27.4 million from $26.4 million, an increase of 3.8% quarter over quarter.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-5-
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 $163.1 million, reflective of the credit market recovery discussed above.
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 $8.9 million of net realized and unrealized gains in the quarter as compared to gains of $3.8 million in the second quarter of 2019.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-6-
The following tables summarize the composition of the Company's non-investment grade and investment grade portfolios by sector as of June 30, 2020 and March 31, 2020:
June 30, 2020 | |||||||||||||||||||||||||||||||||||
Total | Financials | Health Care | Technology | Consumer Services | Industrials | Consumer Goods | Oil & Gas | All Other (1) | |||||||||||||||||||||||||||
($ 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 | ||||||||||||||||||||||||||||||||||
U.S. government and government agency bonds | 217,459 | ||||||||||||||||||||||||||||||||||
Non-U.S. government and government agency bonds | 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.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-7-
March 31, 2020 | |||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||
U.S. government and government agency bonds | 265,423 | ||||||||||||||||||||||||||||||||||
Non-U.S. government and government agency bonds | 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.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-8-
The table below summarizes the credit quality of the Company's non-investment grade and investment grade portfolios as of June 30, 2020 and March 31, 2020, as rated by Standard & Poor’s Financial Services, LLC, or Standard & Poor’s, Moody’s Investors Service, or Moody’s, Fitch Ratings Inc., or Fitch, Kroll Bond Rating Agency, or KBRA, or DBRS Morningstar, or DBRS, as applicable:
Credit Rating (1) | |||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | Fair Value | AAA | 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 | $ | 28,046 | $ | 29,317 | |||||||||||||||||||||||
Corporate bonds | 378,183 | — | — | — | 37,373 | 50,125 | 152,648 | 113,723 | 6,268 | 5,585 | 3,956 | 8,505 | |||||||||||||||||||||||||||||||||||
Asset-backed securities | 157,925 | — | — | 3,854 | 98,827 | 23,136 | 8,767 | 1,663 | — | — | — | 21,678 | |||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 9,164 | — | — | — | — | 1,292 | — | — | — | — | 3,224 | 4,648 | |||||||||||||||||||||||||||||||||||
Short-term investments | 270,088 | 34,859 | 172,166 | 60,880 | — | 502 | — | — | — | — | — | 1,681 | |||||||||||||||||||||||||||||||||||
Total fixed income instruments and short-term investments | 1,690,920 | 34,859 | 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 | $ | 34,859 | $ | 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 | $ | 4,941 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
U.S. government and government agency bonds | 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-U.S. government and government agency bonds | 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 | — | 73,874 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Total Investment Grade Portfolio | $ | 792,941 | $ | 5,864 | $ | 408,459 | $ | 114,994 | $ | 258,144 | $ | 5,480 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
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.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-9-
Credit Rating (1) | |||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2020 | Fair Value | AAA | 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 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
U.S. government and government agency bonds | 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-U.S. government and government agency bonds | 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.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-10-
Corporate Function
The Company has a corporate function that includes general and administrative expenses related to corporate activities, interest expense, net foreign exchange gains (losses), income tax expense and items related to the Company’s contingently redeemable preference shares.
The Company incurred an interest expense of $2.9 million for the three months ended June 30, 2020, in relation to the Company’s 6.5% senior notes issued on July 2, 2019. Interest is paid semi-annually in arrears on January 2 and July 2.
Preference dividends were $1.1 million and $4.9 million for the three months ended June 30, 2020 and 2019, respectively.
There were no share repurchases during the 2020 second quarter. As of June 30, 2020, approximately $47.1 million of share repurchases were available under the Company’s previously announced $50 million share repurchase program.
Conference Call
The Company will hold a conference call on Thursday, July 30, 2020 at 1:00 p.m. Eastern time to discuss its 2020 second 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 July 31, 2020.
About Watford Holdings Ltd.
Watford Holdings Ltd. is a global property and casualty insurance and reinsurance company with approximately $1.0 billion in capital as of June 30, 2020, comprised of: $172.6 million of senior notes, $52.4 million of contingently redeemable preference shares and $776.2 million of common shareholders’ equity, with operations in Bermuda, the United States and Europe. Its operating subsidiaries have been assigned financial strength ratings of “A-” (Excellent) from A.M. Best and “A” from Kroll Bond Rating Agency. On May 1, 2020, A.M. Best announced that it had placed under review with negative implications the financial strength ratings of our operating subsidiaries. In addition, on June 17, 2020, Kroll Bond Rating Agency reaffirmed the “A” insurance financial strength ratings of our operating subsidiaries, and revised the outlook for all of the ratings to negative.
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-11-
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Unaudited) | |||||||
June 30, | December 31, | ||||||
2020 | 2019 | ||||||
Assets | ($ in thousands) | ||||||
Investments: | |||||||
Term loans, fair value option (Amortized cost: $991,130 and $1,113,212) | $ | 875,560 | $ | 1,061,934 | |||
Fixed maturities, fair value option (Amortized cost: $611,265 and $432,576) | 548,010 | 416,594 | |||||
Short-term investments, fair value option (Cost: $370,976 and $325,542) | 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: $698,897 and $739,456) | 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 ($0.01 par; shares authorized: 120 million; shares issued: 22,804,128 and 22,692,300) | 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 | |||
Watford Holdings Ltd.
100 Pitts Bay Road, Pembroke HM08 Bermuda
Tel: 441-278-3454 www.watfordre.com
-12-
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
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 | ||||||||