Watford Q3 2019 income battered by losses

30-10-2019

Watford Holdings has reported third quarter 2019 net income of $0.2 million, a fall of 99 percent from the $18.8 million it made in the same period of 2018.

The company, which owns Watfiord Re, said that the net income figures came after $2.6 million of preference dividends and $4.2 million of accelerated amortization costs related to the redemption of preference shares. It added that the Q3 2018 figure included a payment of $4.9 million of preference dividends.

Gross premiums written for the third quarter of 2019 came to $145 million, an increase from the $80.3 million it wrote over the same period of 2018. Gross premiums written for the first nine months of 2019 came to $253.3 million, again up on the $222.6 million it wrote over the same period of 2018.

The company reported a combined ratio of 104 percent, comprised of a 76.5 percent loss ratio, a 21.9 percent acquisition expense ratio and a 5.6 percent general and administrative expense ratio, compared to a combined ratio of 100.7 percent for the prior year third quarter, comprised of a 71.5 percent loss ratio, a 24.9 percent acquisition expense ratio and a 4.3 percent general and administrative expense ratio;

Net interest income of $29.5 million, a 1.4 percent yield on average net assets for the 2019 third quarter, compared to net interest income of $27.4 million and a 1.3 percent yield on average net assets for the 2018 third quarter;

Net investment income of $14.0 million, a 0.6 percent return on average net assets for the 2019 third quarter, compared to net investment income of $21.4 million and a 1.1 percent return on average net assets for the 2018 third quarter.

On July 2, 2019, the company completed an offering of $175.0 million of 6.5 percent senior notes, with a maturity date of July 2, 2029. The company said that the net proceeds from the offering were used to redeem 76.34 percent of the Company’s 8½ percent cumulative redeemable preference shares.  In addition to the accelerated amortization noted above, the redeemed preference shares were paid dividends totalling $1.3 million.

Commenting on the 2019 third quarter financial results, John Rathgeber, CEO of Watford, said: “Our results for the 2019 third quarter, while essentially break even from a net income standpoint, contained many positives and are stronger than a cursory reading of our financials might first reveal.

“Due to the refinancing of a sizable portion of our preference shares, this quarter’s results were impacted by charges totalling $5.5 million for accelerated amortization and other one-time payments related to the redemption.

“The third quarter results were also impacted by approximately $15 million of net unrealized investment losses in the quarter, which was largely in line with the slight spread widening experienced by the high yield market overall.

“Net interest income, at $29.5 million, was up approximately 8 percent from the 2018 third quarter despite the more recent declining interest rate environment.

“The combined ratio was 104.0 percent and, when adjusted for certain corporate expenses and other underwriting income, the adjusted combined ratio was 101.8 percent. Given our mix of business and the sizable industry catastrophe events during the quarter, most notably Hurricane Dorian and Typhoon Faxai, we are pleased with the third quarter underwriting results. Our loss reserves for prior accident years continued to hold up well, with slight net favorable development in the quarter.

“Insurance and reinsurance market conditions in most lines of business continue to trend more favorably than we have seen in several years, which we believe should translate into even stronger underwriting results in future quarters.

“We were also pleased to implement, in connection with our previously announced share repurchase program, a Rule 10b5-1 share repurchase plan, which took effect on September 30, 2019.  As the plan incepted at the end of the third quarter, and there is a short settlement lag following trades, the reduction in share count will not be reflected in our financial results until the fourth quarter.

“Through nine months, our total book value has increased 8.0 percent from year-end 2018 and we remain optimistic about continued strong book value growth.”

Watford Holdings, annual results, Q3, profit, fall, dividends, payments

Bermuda Re