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): July 29, 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 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
Exhibit


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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:
 
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
 %
(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 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