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Third Point Re Reports First Quarter 2014 Earnings Results

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SOURCE Third Point Reinsurance Ltd.

Net Income of $39.8 million, or $0.37 Per Diluted Common Share

HAMILTON, Bermuda, May 8, 2014 /PRNewswire/ -- Third Point Reinsurance Ltd. ("Third Point Re" or the "Company") (NYSE: TPRE) today announced results for its first quarter ended March 31, 2014.

Third Point Re reported net income of $39.8 million, or $0.37 per diluted common share, for the first quarter of 2014, compared with $74.4 million, or $0.93 per diluted common share, for the first quarter of 2013, a decrease of 46.6%.

For the three months ended March 31, 2014, diluted book value per share increased by $0.31 per share, or 2.4%, to $13.43 per share from $13.12 per share as of December 31, 2013.

"We continue to develop our business according to plan," commented John Berger, Chairman, Chief Executive Officer and Chief Underwriting Officer. "In the first quarter of 2014, our 'Total Return' approach generated growth in diluted book value per share of 2.4%. Investment returns remained solid and our combined ratio improved to 107.1% from 111.6% in the previous year's first quarter.  Reinsurance market conditions remain challenging, particularly with new capital entering the market, but we remain pleased with the number of attractive opportunities we are seeing."

The following table shows certain key financial metrics for the three months ended March 31, 2014 and 2013:



2014


2013



(In millions, except for per share data and ratios)

Gross premiums written


$

87.6



$

96.0


Net premiums earned


$

73.3



$

33.5


Underwriting income (loss) (1) (2)


$

(5.2)



$

(3.8)


Combined ratio (1) (2)


107.1 %



111.6 %









Net investment return on investments managed by Third Point LLC


3.1 %



8.7 %


Net investment income (3)


$

50.0



$

81.4


Net investment income on float (4)


$

7.3



$

5.5









Net income


$

39.8



$

74.4


Diluted earnings per share


$

0.37



$

0.93


Growth in diluted book value per share (4)


2.4 %



8.0 %


Return on beginning shareholders' equity (4)

2.9 %



8.6 %


Net investments managed by Third Point LLC (5)


$

1,628.6



$

1,559.4









(1)  Property and Casualty Reinsurance segment only.




(2)  Underwriting loss and combined ratio are Non-GAAP financial measures. See the accompanying Segment Reporting for an

       explanation and calculation of underwriting loss and combined ratio.

(3)  Prior to 2014, changes in estimated fair value of embedded derivatives were recorded in net investment income.  As these

       embedded derivatives have become more prominent, the presentation has been modified and changes in the estimated fair value of

       embedded derivatives are now recorded in other expenses in the condensed consolidated statements of income.  As a result, investment

       expense of $0.7 million, that was previously reported in net investment income for the three months ended March 31, 2013, is now

       being reported in other expenses to conform to the current year presentation.

(4)  Net investment income on float, diluted book value per share and return on beginning shareholders' equity are non-GAAP financial 

       measures. See the accompanying Reconciliation of Non-GAAP Measures for an explanation and calculation of net investment income

       on float, diluted book value per share and return on beginning shareholders' equity.

(5)  Prior year comparative represents amounts as of December 31, 2013.

Segment Highlights

Property and Casualty Reinsurance Segment

Gross premiums written decreased by $10.7 million, or 11.6%, to $82.1 million for the three months ended March 31, 2014 from $92.9 million for the three months ended March 31, 2013.  The decrease was due to the non-renewal of three existing contracts partially offset by growth from new business written in the quarter. The largest contract not renewed was our crop contract. The non-renewal was a result of our decision to exit this line of business given current market conditions.  Since Third Point Re is a developing company and focuses on large transactions, that in some cases will not renew, period over period comparisons may not be meaningful.

Net premiums earned for the three months ended March 31, 2014 increased $39.7 million, or 121.5%, to $72.3 million. The three months ended March 31, 2014 reflects net premiums earned on a larger in-force underwriting portfolio compared to the three months ended March 31, 2013.

The underwriting loss from the Property and Casualty Reinsurance segment for the three months ended March 31, 2014 was $5.2 million compared to an underwriting loss of $3.8 million for the three months ended March 31, 2013.  The underwriting loss for the three months ended March 31, 2014 included adverse development of $2.5 million related to one crop reinsurance contract.

Catastrophe Risk Management

The Catastrophe Risk Management segment includes the combined results of Third Point Reinsurance Opportunities Fund Ltd. (the "Catastrophe Fund"), Third Point Reinsurance Investment Management Ltd., and Third Point Re Cat Ltd. (the "Catastrophe Reinsurer").  After attributing income to non-controlling interests, net loss from the Catastrophe Risk Management segment was $0.1 million for the three months ended March 31, 2014 compared to net income of $0.2 million for the three months ended March 31, 2013.  Net assets under management for the Catastrophe Fund were $106.7 million as of March 31, 2014.

Investments

For the three months ended March 31, 2014, Third Point Re recorded net investment income of $50.0 million, compared to $81.4 million for the three months ended March 31, 2013. The return on investments managed by the Company's investment manager, Third Point LLC, was 3.1% for the three months ended March 31, 2014 compared to 8.7% for the three months ended March 31, 2013.

The returns for the three months ended March 31, 2014 were driven primarily by asset-backed securities and to a lesser extent by gains in equity positions and corporate credit.  Net investment income for the three months ended March 31, 2014 also benefited from higher average investments managed by Third Point LLC compared to the prior year period due to the net proceeds generated by Third Point Re's IPO and float contributed by its reinsurance operations and net investment income.

Conference Call Details

The Company will hold a conference call to discuss its first quarter 2014 results at 8:30 a.m. Eastern Time on May 9, 2014. The call will be webcast live over the internet from the Company's website at www.thirdpointre.bm under "Investors". Participants should follow the instructions provided on the website to download and install any necessary audio applications. The conference call is also available by dialing 1-877-407-0789 (domestic) or 1-201-689-8562 (international) and entering passcode 13580744. Participants should ask for the Third Point Reinsurance Ltd. first quarter earnings conference call.

A replay of the live conference call will be available approximately one hour after the call. The replay will be available on the Company's website or by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the replay passcode 13580744. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on May 16, 2014.

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 our 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: (i) limited historical information about the Company; (ii) operational structure currently is being developed; (iii) fluctuation in results of operations; (iv) more established competitors; (v) losses exceeding reserves; (vi) downgrades or withdrawal of ratings by rating agencies; (vii) dependence on key executives; (viii) dependence on letter of credit facilities that may not be available on commercially acceptable terms; (ix) potential inability to pay dividends; (x) unavailability of capital in the future; (xi) dependence on clients' evaluations of risks associated with such clients' insurance underwriting; (xii) suspension or revocation of reinsurance license; (xiii) potentially being deemed an investment company under United States federal securities law; (xiv) potential characterization of Third Point Re and/or Third Point Reinsurance Company Ltd. as a PFIC; (xv) dependence on Third Point LLC to implement the Company's investment strategy; (xvi) termination by Third Point LLC of the investment management agreement; (xvii) risks associated with the Company's investment strategy being greater than those faced by competitors; (xviii) increased regulation or scrutiny of alternative investment advisors affecting the Company's reputation; (xix) potentially becoming subject to United States federal income taxation; (xx) potentially becoming subject to United States withholding and information reporting requirements under the FATCA provisions; and (xxi) other risks and factors listed under "Risk Factors" in our most recent Annual Report on Form 10-K and other periodic disclosures filed with the U.S. 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

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 underwriting loss, combined ratio, net investment income on float, diluted book value per share and return on beginning shareholders' equity 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 subsidiary Third Point Reinsurance Company Ltd., writes property and casualty reinsurance business.  Third Point Reinsurance Company Ltd. was incorporated in October 2011 and commenced underwriting business on January 1, 2012 with an "A-"(Excellent) financial strength rating from A.M. Best Company, Inc.

Contact
Third Point Reinsurance Ltd.
Rob Bredahl
Chief Financial Officer and Chief Operating Officer
investorrelations@thirdpointre.bm
+1 441-542-3333

 

THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As of March 31, 2014 and December 31, 2013
(expressed in thousands of U.S. dollars, except per share and share amounts)








March 31,
2014


December 31, 2013

Assets







Equity securities, trading, at fair value (cost - $1,004,245; 2013 - $824,723)


$

1,116,554



$

954,111


Debt securities, trading, at fair value (cost - $508,286; 2013 - $408,754)


558,648



441,424


Other investments, at fair value


77,387



65,329


Total investments in securities and commodities


1,752,589



1,460,864


Cash and cash equivalents


33,938



31,625


Restricted cash and cash equivalents


221,044



193,577


Due from brokers


101,819



98,386


Securities purchased under an agreement to sell


36,778



38,147


Derivative assets, at fair value


28,134



39,045


Interest and dividends receivable


5,214



2,615


Reinsurance balances receivable


221,541



191,763


Deferred acquisition costs, net


93,283



91,193


Loss and loss adjustment expenses recoverable


10,277



9,277


Other assets


2,950



3,398


Total assets


$

2,507,567



$

2,159,890


Liabilities and shareholders' equity







Liabilities







Accounts payable and accrued expenses


$

3,739



$

9,456


Reinsurance balances payable


25,647



9,081


Deposit liabilities


121,374



120,946


Unearned premium reserves


279,512



265,187


Loss and loss adjustment expense reserves


164,624



134,331


Securities sold, not yet purchased, at fair value


53,958



56,056


Due to brokers


333,478



44,870


Derivative liabilities, at fair value


7,569



8,819


Performance fee payable to related party


12,295



-


Interest and dividends payable


800



748


Total liabilities


1,002,996



649,494


Commitments and contingent liabilities


-



-


Shareholders' equity







Preference shares (par value $0.10; authorized, 30,000,000; none issued)


-



-


Common shares (par value $0.10; authorized, 300,000,000; issued and outstanding, 103,924,897 (2013: 103,888,916))


10,392



10,389


Additional paid-in capital


1,057,939



1,055,690


Retained earnings


365,361



325,582


Shareholders' equity attributable to shareholders


1,433,692



1,391,661


Non-controlling interests


70,879



118,735


Total shareholders' equity


1,504,571



1,510,396


Total liabilities and shareholders' equity


$

2,507,567



$

2,159,890


 

 

THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months ended March 31, 2014 and 2013
(expressed in thousands of U.S. dollars, except per share and share amounts)








2014



2013


Revenues






Gross premiums written

$

87,587



$

96,020


Gross premiums ceded

-



(9,975)


Net premiums written

87,587



86,045


Change in net unearned premium reserves

(14,325)



(52,504)


Net premiums earned

73,262



33,541


Net investment income

50,035



81,361


Total revenues

123,297



114,902


Expenses






Loss and loss adjustment expenses incurred, net

46,259



18,638


Acquisition costs, net

25,431



13,073


General and administrative expenses

10,025



7,008


Other expenses

787



670


Total expenses

82,502



39,389


Income including non-controlling interests

40,795



75,513


Income attributable to non-controlling interests

(1,016)



(1,083)


Net income

$

39,779



$

74,430


Earnings per share






Basic

$

0.38



$

0.94


Diluted

$

0.37



$

0.93


Weighted average number of common shares used in the determination of earnings per share






Basic

103,264,616



78,432,132


Diluted

106,413,580



79,083,675








 

 

 

THIRD POINT REINSURANCE LTD.
SEGMENT REPORTING




Three Months Ended March 31, 2014


Property and

Casualty

Reinsurance (6)



Catastrophe Risk

Management


Corporate


Total






($ in thousands)







Gross premiums written

$

82,142



$

5,445


$

-


$

87,587

Gross premiums ceded

-



-


-


-

Net premiums written

82,142



5,445


-


87,587

Change in net unearned premium reserves

(9,841)



(4,484)


-


(14,325)

Net premiums earned

72,301



961


-


73,262

Expenses









Loss and loss adjustment expenses incurred, net

46,259



-


-


46,259

Acquisition costs, net

25,399



32


-


25,431

General and administrative expenses

5,809



834


3,382


10,025

Total expenses

77,467



866


3,382


81,715

Underwriting loss

(5,166)



  n/a


  n/a


  n/a

Net investment income

7,313



29


42,693


50,035

Other expenses

(787)



-


-


(787)

Segment income including non-controlling interests

1,360



124


39,311


40,795

Segment income attributable to non-controlling interests

-



(191)


(825)


(1,016)

Segment income (loss)

$

1,360



$

(67)


$

38,486


$

39,779

Property and Casualty Reinsurance - Underwriting Ratios:










Loss ratio (1)

64.0

%







Acquisition cost ratio (2)

35.1

%







Composite ratio (3)

99.1

%







General and administrative expense ratio (4)

8.0

%







Combined ratio (5)

107.1

%
















 


Three Months Ended March 31, 2013


Property and

Casualty

Reinsurance (6)



Catastrophe Risk

Management


Corporate


Total






($ in thousands)







Gross premiums written

$

92,871



$

3,149


$

-


$

96,020

Gross premiums ceded

(9,975)



-


-


(9,975)

Net premiums written

82,896



3,149


-


86,045

Change in net unearned premium reserves

(50,253)



(2,251)


-


(52,504)

Net premiums earned

32,643



898


-


33,541

Expenses






-



Loss and loss adjustment expenses incurred, net

18,638



-


-


18,638

Acquisition costs, net

12,991



82


-


13,073

General and administrative expenses

4,816



785


1,407


7,008

Total expenses

36,445



867


1,407


38,719

Underwriting loss

(3,802)



  n/a


  n/a


  n/a

Net investment income

5,526



767


75,068


81,361

Other expenses

(670)



-


-


(670)

Segment income including non-controlling interests

1,054



798


73,661


75,513

Segment income attributable to non-controlling interests

-



(579)


(504)


(1,083)

Segment income

$

1,054



$

219


$

73,157


$

74,430

Property and Casualty Reinsurance - Underwriting ratios:









Loss ratio (1)

57.1

%







Acquisition cost ratio (2)

39.8

%







Composite ratio (3)

96.9

%







General and administrative expense ratio (4)

14.7

%







Combined ratio (5)

111.6

%

















(1)

Loss ratio is calculated by dividing loss and loss adjustment expenses incurred, net by net premiums earned.    

(2)

Acquisition cost ratio is calculated by dividing acquisition costs, net by net premiums earned.

(3)

Composite ratio is calculated by dividing the sum of loss and loss adjustment expenses incurred, net and acquisition costs, net by net premiums earned.

(4)

General and administrative expense ratio is calculated by dividing general and administrative expenses related to underwriting activities by net premiums earned.

(5)

Combined ratio is calculated by dividing the sum of loss and loss adjustment expenses incurred, net, acquisition costs, net and general and administrative expenses related to underwriting activities by net premiums earned.

(6)

Effective January 1, 2014, the Company modified the presentation of its operating segments to allocate net investment income from float to the Property and Casualty Reinsurance segment. Prior period segment results have been adjusted to conform to this presentation.

 

THIRD POINT REINSURANCE LTD.
RECONCILIATION OF NON-GAAP MEASURES




March 31,
2014


December 31,
2013

Basic and diluted book value per share numerator:

($ in thousands, except share and per share amounts)

Total shareholders' equity

$

1,504,571


$

1,510,396

Less:  non-controlling interests

(70,879)


(118,735)

Shareholders' equity attributable to shareholders

1,433,692


1,391,661

Effect of dilutive warrants issued to founders and an advisor

46,512


46,512

Effect of dilutive stock options issued to directors and employees

69,223


101,274

Diluted book value per share numerator

$

1,549,427


$

1,539,447

Basic and diluted book value per share denominator:





Issued and outstanding shares

103,264,616


103,264,616

Effect of dilutive warrants issued to founders and an advisor

4,651,163


4,651,163

Effect of dilutive stock options issued to directors and employees

6,797,949


8,784,861

Effect of dilutive restricted shares issued to directors and employees

660,281


657,156

Diluted book value per share denominator

115,374,009


117,357,796






Basic book value per share

$

13.88


$

13.48

Diluted book value per share

$

13.43


$

13.12














For the three months ended


March 31,
2014


March 31,
2013


($ in thousands)

Net investment income on float

$

7,313


$

5,526

Net investment income on capital

42,693


75,068

Net investment income on investments managed by Third Point LLC

50,006


80,594

Investment income on cash held by the Catastrophe Reinsurer and Catastrophe
Fund

29


4

Net gain on reinsurance contract derivatives written by the Catastrophe
Reinsurer

-


763


$

50,035


$

81,361









 


For the three months ended


March 31, 2014


March 31, 2013


($ in thousands)










Net income

$

39,779



$

74,430


Shareholders' equity attributable to shareholders - beginning of period

1,391,661



868,544


Return on beginning shareholders' equity

2.9

%


8.6

%







 

Book Value per Share

Book value per share as used by our management is a non-GAAP measure, as it is calculated after deducting the impact of non-controlling interests. In addition, diluted book value per share is a non-GAAP measure and represents book value per share combined with the impact from dilution of all in-the-money share options issued, warrants and unvested restricted shares outstanding as of any period end. We believe that long-term growth in diluted book value per share is the most important measure of our financial performance because it allows our management and investors to track over time the value created by the retention of earnings. In addition, we believe this metric is used by investors because it provides a basis for comparison with other companies in our industry that also report a similar measure.

Net Investment Income on Float

Insurance float is an important aspect of our property and casualty reinsurance operation. In an insurance or reinsurance operation, float arises because premiums from reinsurance contracts and proceeds from deposit accounted contracts are collected before losses are paid. In some instances, the interval between receipts and payments can extend over many years. During this time interval, insurance and reinsurance companies invest the premiums received and generate investment returns. Although float can be calculated using numbers determined under U.S. GAAP, float is a non-GAAP financial measure and, therefore, there is no comparable U.S. GAAP measure.

Return on Beginning Shareholders' Equity

Return on beginning shareholders' equity as presented is a non-GAAP financial measure. Return on beginning shareholders' equity is calculated by dividing net income by the beginning shareholders' equity attributable to shareholders and is a commonly used calculation to measure profitability.

 

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