In a recent letter, the principal of investment firm Capital Returns Management, Ronald Bobman, has called for Bermuda-based reinsurer Watford Holdings Ltd to consider selling itself, potentially to a runoff specialist.
A letter that was sent on Friday highlighting unprofitable underwriting returns and poor investment results at the company, called for the Board to “immediately engage financial advisors and conduct a strategic review.”
After pre-warning of sizeable investment losses as a result of COVID-19-induced financial market volatility, Watford announced a Q1 2020 loss of almost $267 million. As well as the investment hit, the Bermuda domiciled reinsurer also suffered another underwriting loss, with performance on this side of the balance sheet deteriorating year-on-year.
In his letter to Watford’s board, Bobman said that the reinsurer has no “inherent strengths or core competencies”, and stressed that in his mind, the most suitable course of action “is for the company to be sold, possibly to a runoff specialist, or alternatively, to forgo its ratings and self administer its runoff.”
Ultimately, Bobman feels that the reinsurer has “fallen horribly short of expectations” since its establishment in 2014, underpinned by the fact the company’s stock has lost 53% of its value since January, while the average among peers is a loss of 29.1%.
According to reports, Bobman has invested in insurers for some 25 years and as at the end of Q1 2020, owned 1.67% of Watford. In his letter, he also highlighted the fact that Watford currently trades at 40% of tangible book value, while Third Point Re and Greenlight Re both trade at 55%.
Following its results announcement, A.M. Best placed the credit ratings of Watford Re Ltd. and its subsidiaries under review with negative implications.