Q1 2020 Earnings Call

Greetings and welcome to the third point reinsurance first quarter 2020 earnings conference. At this time all participants are in listen only mode. A question answer session will follow the formal presentation to like a question you May press star one on your telephone keypad, depending which require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it does sound my pleasure to introduce your host Mr., Chris Coleman Chief Financial Officer. Thank you Sir you may begin.

Thank you operator welcome to the third point reinsurance limited earnings call for the first quarter of 2020.

Last night, we issued an earnings press release and financial supplement which is available on our website Www Dot third point readout Yep.

Leading today's call will be Danville White, Chief Executive Officer.

Before I turn the call over to Dan how we'd like to remind you that many of the remarks today will contain forward looking statements based on current expectations.

Actual results may differ materially from those projected as a result of certain risks and uncertainties.

Please refer to <unk> earnings press release, and the company's other public filings, where you will find risk factors that could cause actual results to differ materially from these forward looking statements.

In addition management will refer to certain non-GAAP measures, which management believes a lot for a more complete understanding of the Companys financial results.

Reconciliation of these measures to the most comparable GAAP measure is presented in the Companys earnings press release.

At this time I will turn the call over to dandelion.

Good morning, and thank you for joining our first quarter Twentytwenty earnings call.

Today I'll provide the highlights of our financial results followed by an overview of the underwriting and market conditions that we are experiencing.

Chris will then cover our financial results in more detail.

We'll finish with concluding remarks, and we'll then open the call for questions.

We are living in very uncertain times, and our Hearts go out all those affected by the co. Good 19 global pandemic.

I would also like to take a moment to thank our employees for their hard work during this especially challenging environment.

Our entire team has moved to remote working while continuing to run the business and creatively addressing our clients' needs.

I've been enormously proud to see how the individuals in our company have responded.

Turning to our results.

Third point re generated a loss of $184 million and our return on equity was a negative 13% for the first quarter of Twentytwenty.

Our first quarter result was driven by negative investment return of 7.3%.

Merrily due to the equity market volatility, resulting from the cobot 19 pandemic.

Our diluted book value per share at the ended the first quarter was $13.05.

Representing a decrease of 13.2% since yearend 2019.

Generating approximately $85 million net investment income for the month.

Oh combined ratio for the first quarter was 97%, which included our current estimate of Cobot 19 losses of $9.5 million were 6.5 percentage points, our combined ratio.

We reported a small benefit from favorable reserve development of the quarter.

This is now our 15th quarter in a row with no prior year adverse reserve development.

The cobot 19 underwriting losses that we recorded in the first quarter were driven primarily by contingency exposures were a bit cancellation.

Well, it's certain casualty specialty multi line quota share contracts.

We will record our best estimate of losses related to cope with 19 as their incurred bioscience and expect to continued effect in future quarters.

That being said.

The largest source of our estimated losses related to code at night.

He said our current estimate.

Cancellation.

For which the majority of our expected losses for this line of business were recognized in quarter one.

It is important to note the insurance industries loss as well as our own related to cope with 19 are subject to a high degree of uncertainty given the unknown duration and severity the pandemic.

Despite all the overall loss.

Capital position remains very strong and I'm pleased to report our first quarter of underwriting profitability third point re history, which is a testament to our talented underwriters.

Our expansion into property cat and other higher margin business.

And reducing our writings in light of business, they no longer fit with our revised underwriting strategy.

Now, let me turn to an update on underwriting and current market conditions.

The build out of our property catastrophe portfolio continues according to plan.

And we have added a number of new clients so far twentytwenty.

As a result of improvements in market pricing.

And the repositioning of our portfolio.

We expect to increase our expected margins from this line of business without increasing risk.

There's a lot market discussion and significant uncertainty as how cold good night.

Well flow through the property insurance and reinsurance markets.

In particular potential for losses, resulting for business interruption from commercial property insurance.

While we are not entirely immune to this issue our property catastrophe portfolio has focused on clients writing personal lines, meaning we have less exposure to commercial property insurance.

Oh, not catastrophe business, we still represents the majority of our reinsurance premium.

Continues to show underwriting improvement.

Since most of our business is pro rata, we're benefiting for both primary pricing trends and from an improvement in specific reinsurance contract terms and conditions.

However, the pro rata nature of our business also result in contract by contract premium volume volatility, resulting from the impact Kobin 19 on many of our clients businesses.

We continue to reposition the non cat portfolio away from float generating low margin contracts toward business, which offers increased profitability improving market segments and this shift in strategy is a driver in the reduction in premium in the first quarter.

However, as we've stated many times we have several large contracts in some cases may not renew or may not when they renew at noncomparable periods, and thus would not try and extrapolate premium movements in any given quarter.

Within our specialty business, we expect to see a significant reduction in credit risk expose lines of business in particular mortgage reinsurance in the short term.

The practical implications of the Lockdowns in place in many countries make your origination of new mortgage loans difficult.

Well the effect of these actions will likely cause material drop and new business production in the short term.

It may provide opportunities for increased volumes of business.

An improved terms once the Kobin 19 crisis has abated.

In other specialty lines, we write many of which our specialty catastrophe focused.

We expect to see significant market impacts from Kobin 19.

At potential new opportunities significant rate increases and improvements in terms and conditions.

Lastly, an area of our business that I'm excited about as our selective focus on strategic transactions, where we can combine our responsiveness.

Reinsurance capital and in some cases investment capital great long term partnerships with rights to profitable future reinsurance premium.

We have closed several transactions to date and believe our assertion operating model combined with our skill sets in both reinsurance and capital markets is a differentiating factor in our successful origination and execution of these transactions.

Which we expect will represent a growing proportion of our premium overtime.

We believe that up to 10% of our volume for the Twentytwenty underwriting year could come from these initiatives.

I'll now hand, the call Liberty, Chris who will discuss our financial results in more detail.

Thanks, Dan.

So the first quarter, we generated a net loss of $184 million or $1.99 cents per diluted share.

Which translates into a return on beginning equity for the quarter of negative 13%.

We generated $4.4 million of debt underwriting income for the first quarter and our combined ratio was 97%.

Compared to one or 3.8% in the prior year first quarter.

The improvement reflects a shift in our underwriting strategy and business mix towards higher margin business.

Our gross premiums written for the first quarter was $204 million, which compares to $320 million in the prior year quarter.

The decrease in gross premiums written was primarily due to certain contracts that we did not renew including one multi line contract for $103 million, which no longer fit our underwriting criteria as part of our shift in underwriting strategy to improve underwriting margins.

This decrease was partially offset by new contracts found in the current year period.

Including new property catastrophe and specialty contracts that were more in line with their underwriting focus.

Net investment loss for the quarter was 185 million.

Which reflects a loss of 201 million from our investment in the third point enhanced fund, partially offset by net investment income a $15 million from collateral and other investments.

The first quarter of 2020 presented one of the most challenging investing environment, So 2008 financial crisis.

As the pandemic unfolded our investment in the third point enhanced fund was exposed to the sharp market decline.

Certainly after the sell off began third point LLC reposition the funds portfolio helped by reducing the equity exposures.

Third point LLC also meaningfully shifted investments within the fund the structured and corporate credit Securities.

In addition, we purchased a further $220 million in credit position outside of the third point enhanced fun.

Which third point LLC also manage on our behalf.

They saw opportunities to invest in credit.

These additional investments consistent corporate debt from liquid high quality issuers as well as a portfolio of Noninvestment grade structured credit securities primarily in residential mortgage backed securities and consumer loans.

Our April consolidated net investment return was 3.5%.

Which included a 10% net return on our investment in the third point enhanced fine.

Significant gains from the new credit portfolio.

Bringing our consolidated year to date investment returns through April to negative 4%.

As of March 31st 2020.

Our investment in the third point enhanced fun of $660 million represented approximately 28% of our total investments of 2.4 billion.

The new credit purchases, just mentioned represent approximately $240 million after a $20 million gain in March or approximately 10% of total investments with the remaining balance of approximately 62% invested in U.S. treasuries are equivalents.

Or money market instruments, which also includes our collateral assets.

Total general and administrative expenses were $10 million for the first quarter 2020, compared to $12 million for the prior year period.

The decrease was primarily the result of lower annual incentive plan accruals for 2020 and lower credit facilities.

Our incentive plan accrual was lower in 2020 compared to 2019, reflecting performance in their respective periods against target metrics.

Foreign exchange gains represent FX gains on our net reinsurance liabilities have held in foreign currencies.

As a reminder, they these were offset by FX losses on balances held in trust accounts in generally similar amounts which are recorded as part of net investment losses.

We retain very little net FX exposure on our reinsurance contracts as a result of keeping natural hedges between loss reserves and collateral and other assets held in the same currency.

Now, let me turn the call back to Dan for concluding remarks.

Thank you Chris.

It is undoubtedly been a usual corridor with the social and economic impact of the coded 19 pandemic being felt across the globe.

We believe we're conservatively position and our approaches remain prudent focused and technical.

As a result, we're prepared to withstand continued market volatility.

Importantly, we are committed to looking at new opportunities, that's trading conditions improve and as always.

Aiming to support our customers and brokers with innovative reinsurance coverages.

We remain confident in our ability to address new industry developments and capture business opportunities to create attractive shareholder returns.

We also remain committed to establishing a more balanced and diversified business through a prudent mix of underwriting and investment risk.

As we execute and deliver more consistent results overtime.

We expect to close the persistent discount that our shares trade to book value and are traded evaluation level more consistent with our peer group.

We thank you for your time and we'll now open the call for questions.

Operator.

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Thanks again for listening into our first quarter 2020 call.

We look forward to talking to your next quarter and in the meantime, Ah stay safe and healthy. Thank you.

Ladies and gentlemen, thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

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