Watford posts 2019 profit despite Q4 reserve strengthening

Bermuda-headquartered specialty re/insurer Watford Holdings made a profit in 2019, a big improvement on the year before, but its Q4 results in particular bore the brunt of recent reserve strengthening.

The company’s gross premiums written were $754 million, up 2.7 percent from $735 million in 2018. Its net profit was $45 million, compared to a loss of $54.5 million in 2018, while its adjusted combined ratio was 107 percent compared to 103 percent in 2018.

Following a $75 million share repurchase programme during the 2019 fourth quarter, the board has also authorised a new share repurchase program for up to $50 million. The company said that this would contribute to growth in the coming year.

For the fourth quarter alone, it made a net loss of $16.9 million, an improvement on the $95.3 million it lost in Q4 2018. John Rathgeber, CEO of Watford, said the loss was due to prior year loss reserve strengthening and current accident year loss reserve strengthening.

"As reported in our press release of January 28, 2020, our results for the 2019 fourth quarter were negatively impacted by prior year loss reserve strengthening of $24 million and current accident year loss reserve strengthening of approximately $4 million. The reserve increase primarily relates 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. 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.

“Our investment income was quite strong, both for the quarter and the year. The net investment income return on net invested assets was 1.5 percent for the 2019 fourth quarter and 6.0 percent for the full year. The ratio of net invested assets to equity was 2.5:1 as of December 31, 2019, which points to the return on equity potential of the business going forward.

“We fully utilised our $75 million share repurchase program during the 2019 fourth quarter. The board has authorised a new share repurchase program for up to $50 million. The exact timing and magnitude of further share repurchases is dependent on a number of factors, but will likely be deployed at a slower pace than our prior program in order to pursue opportunities in an improving insurance market.

“Our ultimate objective is to steadily grow book value per share over time. By this measure, we are pleased to report 3.4 percent quarterly growth in book value per diluted common share, which stands at $43.49 as of December 31, 2019. For the 2019 full year, the increase in book value per diluted common share was 10.9 percent.

“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.”

Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

​​​Profits at Arch jump to $1.6bn as reinsurance unit grows
Reinsurance unit drives solid growth at MAPFRE as earnings spike
Fidelis raises $300m for growth
Metromile and Tokio Marine expand partnership to streamline claims
Oxbow Partners appoints head of market intelligence
Life & Pensions insurers mired in legacy must leverage BPaaS—Everest Group
DARAG completes dual acquisitions in UK expansion

Don't miss our insurtech email newsletter - sign up today