Watford Holdings Ltd, the parent company of Bermudian reinsurer Watford Re, has reported an underwriting loss of $6.0 million for the first quarter of 2019.
This compares with a loss of $1.3 million for the same period in 2018, with the decline in performance attributable to a 4.2% increase in Watford’s loss ratio, which stood at 75.9% in Q1 2019.
As a result, Watford’s combined ratio was pushed up by 3.1 points to 104.1% in Q1 2019.
The company said the change to its Q1 loss ratio was partly due to changes in mix of business, as the loss ratio for other specialty reinsurance and insurance programs is slightly higher than the loss ratio for casualty reinsurance, with a correspondingly lower acquisition cost ratio.
The loss ratio was also impacted by a $1.2 million facultative property per risk loss, as well as $0.8 million of net reserve increases for prior year property catastrophe events driven by Typhoon Jebi.
Across all lines, however, net loss reserve development was slightly favourable and had a negligible impact on the 2019 first quarter loss ratio.
Overall gross premiums written (GPW) by Watford decreased by 12.7% to $186.7 million, with casualty reinsurance premiums decreasing by 12.1% to $75.6 million and other specialty reinsurance premiums by 62.3% to $24.3 million.
In contrast, GPW for property catastrophe reinsurance increased by 57.9% to $6.0 million, while GWP for insurance programs and coinsurance rose by 35.6% to $80.8 million.
In terms of net premiums earned, Watford reported a 6.9% increase to $146.1 million in the first quarter of 2019, with casualty reinsurance decreasing 6.5% to $63.3 million, other specialty increasing 18.0% to $44.6 million, property cat up 15.4% to $3.0 million, and insurance programs and coinsurance up 23.1% to $35.2 million.
Watford’s net investment income for the quarter totalled $58.4 million with a 2.8% return on average net assets, compared with $19.5 million and a 1.0% return on assets for the same period in 2018.
The company also generated net interest income of $30.4 million with a 1.5% yield on average net assets for Q1 2019, compared with net interest income of $24.1 million and a 1.2% yield for Q1 2018.
“We are pleased to be issuing our first earnings release as a public company, marking a major milestone in the evolution of our company,” said John Rathgeber, CEO of Watford Holdings.
“Our first quarter results were quite strong and speak to both the resilience of our business model and our ongoing earnings potential: the annualized return on average equity exceeded 20% and the quarterly growth in book value per share was just under 6.0%.”
Rathgeber continued: “We continue to expand our insurance writings while trimming some of our casualty reinsurance, which has important ramifications for both our forward-looking combined ratio and our free cash flow. There are signs of improved market conditions in many areas, which should further enhance our prospects going forward.”
“While a good portion of the positive result was due to unrealized investment gains, it is important to note that our net interest income was up 26% from the first quarter of 2018,” he explained.
“Price movements creating unrealized gains and losses in investments may influence our income on a quarterly basis, but net interest income will be the major driver of our long-term book value growth.”
