Third Point Re Reports Fourth Quarter 2018 Earnings Results

HAMILTON, Bermuda, Feb. 27, 2019 /PRNewswire/ -- Third Point Reinsurance Ltd. ("Third Point Re" or the "Company") (NYSE: TPRE) today announced results for its fourth quarter ended December 31, 2018.

Third Point Re reported a net loss available to common shareholders of $298.0 million, or $3.24 per diluted common share, for the three months ended December 31, 2018, compared to net income available to common shareholders of $44.3 million, or $0.42 per diluted common share, for the three months ended December 31, 2017. For the year ended December 31, 2018, Third Point Re reported a net loss available to common shareholders of $317.7 million, or $3.27 per diluted common share, compared to net income available to common shareholders of $277.8 million, or $2.64 per diluted common share, for the year ended December 31, 2017.

For the three months ended December 31, 2018, diluted book value per share decreased by $2.62 per share, or 16.8%, to $12.98 per share as of December 31, 2018, from $15.60 per share as of September 30, 2018. For the year ended December 31, 2018, diluted book value per share decreased by $2.67 per share, or 17.1%, to $12.98 per share from $15.65 per share as of December 31, 2017.

"The fourth quarter of 2018 was a difficult quarter for us.  Poor investment performance combined with modest catastrophe losses led to a significant net loss for the quarter and year.  Equity market weakness during the fourth quarter of 2018 led to an investment return of negative 11.4% in the quarter and negative 10.8% for the year. We remain committed to Third Point LLC given their long-term track record and their ability to navigate challenging investment conditions. During the fourth quarter, we recorded $18.5 million of catastrophe losses related to the California wildfire and other catastrophe events.  Our combined ratio for the fourth quarter was 111.6%, bringing our year to date combined ratio to 106.8%," commented Rob Bredahl, President and Chief Executive Officer. "Consistent with our previously announced plans, we began writing a modest amount of property catastrophe business in the first quarter of 2019.  We are pleased with the portfolio that we have constructed at the important January 1 renewal date, which benefited from some modest improvements in pricing, and we continue to expect our combined ratio to trend to below 100% as we earn in the catastrophe premium and continue to expand our underwriting platform into other higher margin types of reinsurance and lines of business."

The following table shows certain key financial metrics for the three and twelve months ended December 31, 2018 and 2017:

Property and Casualty Reinsurance Segment

Gross premiums written

Gross premiums written decreased by $44.1 million, or 26.9%, to $120.1 million for the three months ended December 31, 2018 from $164.2 million for the three months ended December 31, 2017. The decrease in gross premiums written was primarily due to certain contracts written in the prior year period on a multi year basis with no comparable premium in the current year period. This decrease was partially offset by new contracts bound in the current year period.

Gross premiums written decreased by $63.3 million, or 9.9%, to $578.3 million for the year ended December 31, 2018 from $641.6 million for the year ended December 31, 2017. The decrease in gross premiums written was primarily due to the net impact of contract extensions, cancellations and contracts renewed with no comparable premium in the comparable period, as well as, contracts that we did not renew in the current year. This decrease was partially offset by new contracts in the current year period.

Net premiums earned

The increase in net premiums earned in the three months ended December 31, 2018 compared to the three months ended December 31, 2017 was primarily due to retroactive exposures in reinsurance contracts that were written and fully earned in the current year period of $69.9 million compared to $nil in the prior year period.

The increase in net premiums earned in the twelve months ended December 31, 2018 compared to the twelve months ended December 31, 2017 was primarily due to a higher in-force underwriting portfolio, partially offset by retroactive exposures in reinsurance contracts that were written and fully earned in the prior year period of $109.4 million compared to $74.2 million for the year ended December 31, 2018.

Net underwriting results

For the three months ended December 31, 2018, we recorded $18.5 million of catastrophe losses, or 8.8 percentage points on the combined ratio, related to the California wildfires and other catastrophe events compared to no catastrophe losses in the prior year period. In the year ended December 31, 2018, we incurred $18.5 million of catastrophe losses, or 3.0 percentage points on the combined ratio, related to the California wildfires and other catastrophe events compared to $5.3 million in the year ended December 31, 2017, or 1.0 percentage point, relating to the 2017 catastrophe events. Although we have not specifically written property catastrophe contracts in 2018 or in prior years, we were exposed to California wildfire losses through liability reinsurance of the utilities in California during 2018. As a result, we recorded $11.3 million of losses relating to the liability exposure from the California utilities. The remainder of the $18.5 million in total catastrophe losses related to incidental exposure that we had to catastrophic events on two Florida homeowners contracts (Hurricane Michael) and on two whole account reinsurance contracts.

For the three and twelve months ended December 31, 2018, we recorded a net $0.3 million and $5.2 million improvement in the net underwriting results, respectively, related to favorable development of prior years' loss reserves net of the related impact of acquisition costs.

We recorded a net $2.5 million improvement in the net underwriting results for the three and twelve months ended December 31, 2017, related to favorable development of prior years' loss reserves and the related impact of acquisition costs.

Investments

The net investment return on net investments managed by Third Point LLC, as defined in Key Performance Indicators below, by investment strategy for the three and twelve months ended December 31, 2018 and 2017, was as follows:

For the three months ended December 31, 2018, significant investment losses were incurred in long equity positions across all sectors and sub-strategies against a backdrop in which the S&P 500 Total Return Index returned (13.5)% for the same period. Several of the core long equity positions within the industrials, healthcare and technology, media and telecommunications sectors were notable contributors to the long equity losses. Equity losses were partially offset by gains in single name short equity positions and market hedges. The credit strategy posted a loss due to performance in corporate credit and the asset-backed securities portfolio was flat for the quarter. Losses across the credit strategy were modestly reduced by gains in the sovereign credit portfolio.

For the year ended December 31, 2018, the net investment results were primarily attributable to losses generated by long equity investments, a merger arbitrage position, and exposure to cyclical sectors negatively impacted by slowing global growth.  Short selling generated positive returns and mitigated further losses in equities.  The credit portfolio produced a modest overall loss.  The asset-backed securities portfolio's gains were reduced by losses in corporate credit.

Second Amended and Restated Limited Partnership Agreement

On July 31, 2018, Third Point Re, Third Point Re BDA and Third Point Re USA entered into the Amended and Restated Exempted Limited Partnership Agreement ("LPA") of Third Point Enhanced LP ("TP Fund") with Third Point Advisors LLC ("TP GP") and others, effective August 31, 2018. We expect to enter into a Second Amended and Restated Exempted Limited Partnership Agreement ("Amended LPA"), which will revise the management fee rate from 1.50% per annum to 1.25% per annum, with expected effect from January 1, 2019.  We expect that the Amended LPA will also adjust the loss carryforward terms of the LPA, which relate to the calculation of TP GP's performance compensation under the LPA, to preserve the loss carryforward attributable to our investment in TP Fund when contributions to TP Fund are made within nine months of certain types of withdrawals from TP Fund.  In addition, we expect the Amended LPA to provide us with the right to withdraw up to $250 million in 2019 and a separate $250 million during the period from January 1, 2020 through December 31, 2021 for the purpose of investing such amounts in certain other investment vehicles formed by Third Point LLC.  Although we have substantially agreed upon these terms of the Amended LPA, they are subject to continued discussion and finalization.

Share Repurchase Program

During the three months ended December 31, 2018, the Company repurchased 525,785 of its common shares in the open market for $5.3 million at a weighted average cost of $10.13 per share. During the twelve months ended December 31, 2018, the Company repurchased 10,311,123 of its common shares in the open market for $138.7 million at a weighted average cost of $13.45 per share.

As of December 31, 2018, the Company was authorized to repurchase up to an aggregate of $61.3 million of additional common shares under its share repurchase program.

Conference Call Details

The Company will hold a conference call to discuss its fourth quarter 2018 results at 8:30 a.m. Eastern Time on February 28, 2019. The call will be webcast live over the Internet from the Company's website at www.thirdpointre.bm under the "Investors" section. Participants should follow the instructions provided on the website to download and install any necessary audio applications. The conference call will also be available by dialing 1-877-407-0789 (domestic) or 1-201-689-8562 (international). Participants should ask for the Third Point Reinsurance Ltd. fourth quarter earnings conference call.

A replay of the live conference call will be available approximately three hours after the call. The replay will be available on the Company's website or by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay passcode 13686252. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on March 7, 2019.

Safe Harbor Statement Regarding Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond the Company's control. The Company cautions you that the forward-looking information presented in this press release is not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek," "comfortable with," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Actual events, results and outcomes may differ materially from the Company's expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following: results of operations fluctuate and may not be indicative of our prospects; more established competitors; losses exceeding reserves; highly cyclical property and casualty reinsurance industry; downgrade or withdrawal of ratings by rating agencies; significant decrease in our capital or surplus; dependence on key executives; dependence on letter of credit facilities that may not be available on commercially acceptable terms; inability to service our indebtedness; limited cash flow and liquidity due to our indebtedness; inability to raise necessary funds to pay principal or interest on debt; potential lack of availability of capital in the future; credit risk associated with the use of reinsurance brokers; future strategic transactions such as acquisitions, dispositions, mergers or joint ventures; dependence on Third Point LLC to implement TP Fund's investment strategy; decline in revenue due to poor performance of TP Fund's investment portfolio; risks associated with TP Fund's investment strategy being greater than those faced by competitors; termination by Third Point LLC of TP Fund's investment management agreements; potential conflicts of interest with Third Point LLC; losses resulting from significant investment positions; credit risk associated with the default on obligations of counterparties; ineffective investment risk management systems; fluctuations in the market value of TP Fund's investment portfolio; trading restrictions being placed on TP Fund's investments; limited termination provisions in TP Fund's investment management agreements; limited liquidity and lack of valuation data on TP Fund's investments; U.S. and global economic downturns; specific characteristics of investments in mortgage-backed securities and other asset-backed securities, in securities of issues based outside the U.S., and in special situation or distressed companies; loss of key employees at Third Point LLC; Third Point LLC's compensation arrangements may incentivize investments that are risky or speculative; increased regulation or scrutiny of alternative investment advisers affecting our reputation; suspension or revocation of our reinsurance licenses; potentially being deemed an investment company under U.S. federal securities law; failure of reinsurance subsidiaries to meet minimum capital and surplus requirements; changes in Bermuda or other law and regulation that may have an adverse impact on our operations; Third Point Re and/or Third Point Re BDA potentially becoming subject to U.S. federal income taxation; potential characterization of Third Point Re and/or Third Point Re BDA as a passive foreign investment company; subjection of our affiliates to the base erosion and anti-abuse tax; potentially becoming subject to U.S. withholding and information reporting requirements under the Foreign Account Tax Compliance Act; risks associated with the change in our investment management structure; and other risks and factors listed under "Risk Factors" in the Company's most recent Annual Report on Form 10-K, as updated by our Quarterly Reports on Form 10-Q for the periods ended June 30, 2018 and September 30, 2018, and other periodic and current disclosures filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the date made and the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures and Other Financial Metrics

In presenting Third Point Re's results, management has included financial measures that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (GAAP). Such measures, including basic and diluted book value per share and return on beginning shareholders' equity attributable to Third Point Re common shareholders, are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. Management believes these measures allow for a more complete understanding of the underlying business. These measures are used to monitor our results and should not be viewed as a substitute for those determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included in the attached financial information in accordance with Regulation G.

About the Company

The Company is a public company listed on the New York Stock Exchange which, through its wholly-owned subsidiaries Third Point Re BDA and Third Point Reinsurance (USA) Ltd. ("Third Point Re USA"), writes property and casualty reinsurance business. Third Point Re BDA and Third Point Re USA each have an "A-" (Excellent) financial strength rating from A.M. Best Company, Inc.

Contact

Third Point Reinsurance Ltd.
Manoj Gupta - Head of Investor Relations and President, Third Point Reinsurance (USA) Ltd.
investorrelations@thirdpointre.bm
+1 441-542-3333

Return on Beginning Shareholders' Equity Attributable to Third Point Re Common Shareholders

Return on beginning shareholders' equity attributable to Third Point Re common shareholders, as presented, is a non-GAAP financial measure. Return on beginning shareholders' equity attributable to Third Point Re common shareholders is calculated by dividing net income (loss) available to Third Point Re common shareholders by the beginning shareholders' equity attributable to Third Point Re common shareholders. We believe that return on beginning shareholders' equity attributable to Third Point Re common shareholders is an important measure because it assists our management and investors in evaluating the Company's profitability. For the three and twelve months ended December 31, 2018, we have also adjusted the beginning shareholders' equity attributable to Third Point Re common shareholders for the impact of the shares repurchased on a weighted average basis. For a period where there was a loss, this adjustment decreased the stated returns on beginning shareholders' equity and for a period where there was a gain, this adjustment increased the stated returns on beginning shareholders' equity.

Key Performance Indicators

Net Investment Return on Investments Managed by Third Point LLC

Net investment return represents the return on our net investments managed by Third Point LLC, net of fees. The net investment return on net investments managed by Third Point LLC is the percentage change in value of a dollar invested over the reporting period on our net investment assets managed by Third Point LLC.  Effective August 31, 2018, we transitioned from our separately managed account structure to investing in the TP Fund, managed by Third Point LLC.  In addition, certain collateral assets supporting reinsurance contracts held by Third Point Re BDA and Third Point Re USA (the "Collateral Assets") are managed by Third Point LLC from the effective date. The net investment return reflects the combined results of investments managed on behalf of Third Point Re BDA and Third Point Re USA prior to the transition date of August 31, 2018 and the investment in the TP Fund and Collateral Assets from the date of transition.  Prior to the transition date of August 31, 2018, the stated return was net of noncontrolling interests and net of withholding taxes, which were presented as a component of income tax expense in our condensed consolidated statements of income. Net investment return is the key indicator by which we measure the performance of Third Point LLC, our investment manager.

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SOURCE Third Point Reinsurance Ltd.