Third Point Re posts increased Q2 profit despite combined ratio spike

05-08-2016

Rebounding investment returns resulted in Third Point Reinsurance, a Bermuda-based reinsurer, reporting increased profits in the second quarter of 2016, but this disguised worrying losses on the underwriting side of the business, with the company releasing a combined ratio of 119.2 percent in the quarter.

The reinsurer reported a net income of $53.4 million in the second quarter of 2016, an increase on the $15.7 million it reported for the same quarter of 2015.

This also partially made up for a poorer performance in the first quarter, when it made a net loss of $51 million. For the first half ended in June 30, 2016, it reported a net income of just $2.2 million, compared with a net income of $66.1 million for the six months ended June 30, 2015.

The second quarter profits were largely generated by investment returns. The firm made a net investment income of $86.3 million in the second quarter, compared with $38.6 million for the three months ended June 30, 2015.

The return on investments managed by the company’s investment manager, Third Point LLC, was 4 percent for the three months ended June 30, 2016, compared with 1.7 percent for the three months ended June 30, 2015.

The company said the improvement was primarily a result of Third Point LLC’s credit portfolio where it enjoyed a positive performance in its sovereign, structured, and corporate portfolios.

It also enjoyed significant gains in equities especially in the healthcare and industrials sectors though these were partially offset by losses in hedges and the technology, media and telecommunications sector.

The underwriting side of the business was a less rosy picture, The company’s premiums written grew by 6.9 percent to $196.9 million in the quarter but the profitability of the book was poor, its combined ration reaching 119.2 percent.

The poor figures included increases in its net underwriting loss of $12.9 million related to changes in estimates of prior years' loss reserves and the related impact of acquisition costs compared to $2 million and $3.0 million increases in the net underwriting loss in the same period a year earlier.

The company said the net impact of the adverse loss development was primarily due to $4.4 million of net adverse underwriting loss development relating to one multi-line contract written since 2014; a $4.3 million of net adverse underwriting loss development relating to a workers' compensation contract written in 2012, 2013, and 2014; some $2.7 million of net adverse underwriting loss development relating to Florida homeowners' reinsurance contracts primarily as a result of higher than anticipated water damage claims; and $1.9 million of net adverse underwriting loss development relating to non-standard auto contracts during the period, primarily due to the inability of cedents to promptly react to increasing frequency and severity trends, resulting in underpriced business and adverse selection.

“During the second quarter, we generated premiums written of $196.9 million, an increase of 6.9 per compared to the prior year's second quarter,” said John Berger, Third Point Re’s chairman and chief executive officer.

“Our combined ratio for the quarter was 119.2 percent, which was disappointing and reflects adverse development on several contracts in the quarter.

“Market conditions in the lines of business that we focus on continue to present challenges in finding profitable underwriting opportunities.”

Third Point, Bermuda, John Berger, Reinsurance, Results

Bermuda Re