Bermudian Watford Holdings Ltd. has reported a combined ratio of 103.5% for the second-quarter of 2019 and an underwriting loss of more than $5.2 million, compared with a combined ratio of 100.6% and an underwriting loss of roughly $1 million in the second-quarter of 2018.
Despite the underwriting loss, net income increased to $13.8 million in Q2 2019 compared with $9.1 million a year earlier, with both periods including a payment of $4.9 million of preferred dividends.
Q2 2019 net income was supported by an improved net interest income of $26.4 million and also a more significant investment return, of $23.8 million.
The firm recorded a 5.8% annualised return-on-equity (ROE) for the second-quarter, compared with an ROE of 3.8% in Q2 2018.
The combined ratio of 103.5% includes a 73.6% loss ratio, a 23.4% acquisition expense ratio and a 6.5% general and administrative expense ratio. This compares to a combined ratio of 100.6%, a loss ratio of 73.4%, a 23.8% acquisition expense ratio and a 3.4% general and administrative expense ratio, in Q2 2018.
Watford Holdings’ Chief Executive Officer (CEO), John Rathgeber, commented: “We are pleased with our results for the 2019 second quarter. The combined ratio of 103.5% when adjusted for other underwriting income and certain corporate and non-recurring expenses, was 99.9%. Our loss reserves for prior accident years continued to hold up well, with slight net favorable development in the quarter.”
Gross premiums written (GPW) declined in the quarter by 7.5% to $161.9 million, while net premiums written fell by 15.1% to $119 million and net earned premiums declined by 5.1% to $151 million.
Watford attributes the decline in premiums to a reduction in casualty reinsurance and other specialty reinsurance premiums written, although this was somewhat offset by growth in insurance premiums and coinsurance in the second-quarter of 2019.
“Through six months, our total shareholders’ equity has increased 8.1% from year-end 2018 and we continue to be optimistic about continued strong book value growth. Insurance and reinsurance market conditions are improving in most lines of business. There is a growing industry consensus that we have entered a new phase of the market cycle, with a noticeably more favorable pricing environment.
“During the quarter, the Company’s financial strength ratings of A- (Excellent) and A were reaffirmed by both A.M. Best and Kroll Bond Rating Agency, respectively. The Company also completed a $175.0 million 10-year senior note offering with a coupon of 6.5%.
“The net proceeds will be used to redeem approximately 75% of our 8.5% cumulative redeemable preference shares, which will result in substantial savings in interest and preferred dividend expense going forward,” said Rathgeber.
For the first-half of the year, Watford Holdings has reported net income of $61 million, compared with $21.9 million a year earlier. However, the firm’s underwriting performance declined year-on-year in H1, from a $2.3 million loss in H1 2018 to an underwriting loss of $11.2 million in H1 2019.
At 103.8%, the H1 2019 combined ratio weakened from the 100.7% recorded a year earlier, and includes a higher loss ratio of 74.7%, a reduced acquisition expense ratio of 23.3% and a higher general and administrative expense ratio of 5.8%.
