Watford Reports 2019 Fourth Quarter Results
Watford Holdings Ltd. reported a net loss of $16.9 million, after $1.2 million of preference dividends, for the three months ended December 31, 2019, compared to a net loss of $95.3 million, after payment of $4.9 million of preference dividends, in the same period in 2018.
Book value per diluted common share was $43.49 at December 31, 2019, an increase of 10.9% from December 31, 2018.
The quarterly results included:
- Net loss available to common shareholders of $16.9 million, or $[0.79] per diluted common share, compared to a net loss of $95.3 million, or $[4.20] per diluted common share, for the 2018 fourth quarter;
- Combined ratio of 128.3%, comprised of a 100.9% loss ratio, a 22.3% acquisition expense ratio and a 5.1% general and administrative expense ratio, compared to a combined ratio of 115.4% for the prior year fourth quarter, comprised of a 87.9% loss ratio, a 23.4% acquisition expense ratio and a 4.1% general and administrative expense ratio;
- Net interest income of $29.8 million, a 1.4% yield on average net assets, for the 2019 fourth quarter, compared to net interest income of $30.0 million and a 1.5% yield on average net assets for the 2018 fourth quarter;
- Net investment income of $32.1 million, a 1.5% return on average net assets, for the 2019 fourth quarter, compared to a net investment loss of $61.1 million and a [3.0]% return on average net assets for the 2018 fourth quarter;
- The Company repurchased 2,789,405 common shares at an average price of $26.89 per share, fully utilizing the Company’s previously announced $75 million share repurchase program.
- In addition, the Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to $50 million of its outstanding common shares from time to time on the open market or in privately negotiated transactions.
Commenting on the 2019 fourth quarter financial results, John Rathgeber, CEO of Watford, said: “As reported in our press release of January 28, 2020, our results for the 2019 fourth quarter were negatively impacted by prior year loss reserve strengthening of $24 million and current accident year loss reserve strengthening of approximately $4 million. The reserve increase primarily relates to two large casualty reinsurance contracts, one of which is in run-off, and one of which has been renewed at progressively smaller participations over the past several years.
“While painful in the short term, this was the prudent and responsible course of action based on the level of ceding company reported losses compared to actuarial projections. Our response to the data was decisive and we feel confident about the overall level of our net loss reserves, which stand at $1.1 billion.
“Our investment income was quite strong, both for the quarter and the year. The net investment income return on net invested assets was 1.5% for the 2019 fourth quarter and 6.0% for the full year. The ratio of net invested assets to equity was 2.5:1 as of December 31, 2019, which points to the return on equity potential of the business going forward.
“We fully utilized our $75 million share repurchase program during the 2019 fourth quarter. The Board has authorized a new share repurchase program for up to $50 million. The exact timing and magnitude of further share repurchases is dependent on a number of factors, but will likely be deployed at a slower pace than our prior program in order to pursue opportunities in an improving insurance market.
“Our ultimate objective is to steadily grow book value per share over time. By this measure, we are pleased to report 3.4% quarterly growth in book value per diluted common share, which stands at $43.49 as of December 31, 2019. For the 2019 full year, the increase in book value per diluted common share was 10.9%.
“As we enter the new year, we are optimistic about the prospects for further book value growth due to the overall positive insurance rate environment, the composition of our in-force insurance and reinsurance portfolio, the strength of our balance sheet, the earnings power of our fixed-income investment portfolio, and the potential material accretive benefit of our new share repurchase program.”
