Bermuda domiciled insurance and reinsurance company Watford Holdings Ltd. has ended the year with an underwriting loss of $54.1 million, partly due to loss reserve strengthening in US casualty reinsurance in the fourth quarter.
Watford has now confirmed that it incurred a $37.8 million loss in Q4 after issuing a pre-emptive warning last month.
The results were impacted by a strengthening of net loss reserves of approximately $28 million across the current and prior year accident years.
Although the company’s performance this year was worse than in 2018, its underwriting results in the previous year were still negative, with a full-year loss of $25.8 million and a fourth quarter loss of $22.7 million.
The reserve increase this year was primarily related 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,” said Watford CEO John Rathgeber.
“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.”
Watford’s combined ratio deteriorated to 109.7% last year, compared with 104.5% in 2018.
For the fourth quarter, the combined ratio was 128.3%, comprising a 100.9% loss ratio, a 22.3% acquisition expense ratio and a 5.1% general and administrative expense ratio. This included $5.0 million in catastrophe losses, primarily relating to Typhoon Hagibis in Japan.
But net investment income was much stronger this year, at $128.3 million, compared to a loss of $6.3 million in 2018.
Rathgeber continued: “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.”
