Results

Third Point Reinsurance Ltd.

11/05/2019 | Press release | Distributed by Public on 11/05/2019 16:25

Third Point Re Announces Third Quarter 2019 Earnings Results and Appointment of Joseph L. Dowling to the Board of Directors


Net loss of $15.1 million, or $0.16 per diluted common share, for the third quarter of 2019Net income of $170.9 million, or $1.84 per diluted common share, for the nine month period of 2019Return on beginning shareholders' equity of 14.2% for the nine month period of 2019

HAMILTON, Bermuda, Nov. 5, 2019 /PRNewswire/ -- Third Point Reinsurance Ltd. ('Third Point Re' or the 'Company') (NYSE:TPRE) today announced results for its third quarter ended September 30, 2019.

Earnings Summary

Third Point Re reported a net loss attributable to common shareholders of $15.1 million, or $0.16 per diluted common share, for the three months ended September 30, 2019, compared to a net loss attributable to common shareholders of $13.3 million, or $0.14 per diluted common share, for the three months ended September 30, 2018. For the nine months ended September 30, 2019, Third Point Re reported net income available to common shareholders of $170.9 million, or $1.84 per diluted common share, compared to a net loss available to common shareholders of $19.7 million, or $0.20 per diluted common share, for the nine months ended September 30, 2018.

'We are very pleased with the continued progress we are making in deploying underwriting capacity into higher margin lines of business. We remain on track to achieve our goal of underwriting profitability in 2020, subject to catastrophe events,' commented Dan Malloy, Chief Executive Officer. 'Our quarter to date return on equity was negative 1.1%, slightly reducing our year to date return to 14.2% and our diluted book value per share at the end of the period was $14.76. Our combined ratio for the third quarter was 102.7%, of which 6.2 percentage points, or $12.7 million, was attributable to catastrophe events that occurred during the period, net of reinstatement premiums and profit commission adjustments. Although our investments returned a small loss during the quarter, our year to date investment return of 10.2% has contributed significantly to overall profits for the year. With both underlying and reinsurance market conditions improving across many of the lines of business that we write, we believe we are well positioned to deliver increasingly attractive returns to shareholders.'

Appointment of Joseph L. Dowling to the Board of Directors

The Company also announced the appointment of Joseph L. Dowling to the Company's Board of Directors. Mr. Dowling has served since July 2018 as the Chief Executive Officer of the Brown University Investment Office and from June 2013 to July 2018 served as the Chief Investment Officer of Brown University, where he was responsible for the University's endowment. Mr. Dowling, 55 years old, brings extensive investment experience to the Board and will serve on the Company's Investment and Finance Committee.

Josh Targoff, Chairman of the Board of Directors commented, 'I am pleased to welcome Joe to the Board. Joe brings essential expertise in capital allocation, asset management and portfolio construction through his role as CEO of Brown University's Investment Office. The Board will benefit from his many years of investing in public markets and specifically his expertise in alternative assets as the Company continues to evolve and adapt to market conditions.'

Additional Information on Financial Results

The following table shows certain key financial metrics for the three and nine months ended September 30, 2019 and 2018:

Three months ended

Nine months ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

($ in millions, except for per share data and ratios)

Gross premiums written

$

95.4

$

30.1

$

497.6

$

458.2

Net premiums earned

$

203.2

$

128.0

$

501.8

$

412.0

Net underwriting loss (1)

$

(5.5)

$

(6.3)

$

(12.9)

$

(17.7)

Combined ratio (1)

102.7

%

104.9

%

102.6

%

104.3

%

Net investment return on investments managed by Third Point
LLC

(0.2)

%

(0.2)

%

10.2

%

0.6

%

Net investment income (loss)

$

(3.1)

$

(3.6)

$

220.9

$

25.4

Net income (loss) available to Third Point Re common
shareholders

$

(15.1)

$

(13.3)

$

170.9

$

(19.7)

Diluted earnings (loss) per share available to Third Point Re
common shareholders

$

(0.16)

$

(0.14)

$

1.84

$

(0.20)

Change in diluted book value per share (2)

(0.8)

%

(0.4)

%

13.7

%

0.4

%

Return on beginning shareholders' equity attributable to Third
Point Re common shareholders (2)

(1.1)

%

(0.8)

%

14.2

%

(1.2)

%

Net investments managed by Third Point LLC (3)

$

2,469.2

$

2,134.1

$

2,469.2

$

2,134.1

(1)

See the accompanying Segment Reporting for a calculation of net underwriting loss and combined ratio.

(2)

Change in diluted book value per share and return on beginning shareholders' equity attributable to Third Point Re common shareholders are
non-GAAP financial measures. There are no comparable GAAP measures. In the third quarter of 2019, we changed our method for calculating
the impact of options and warrants on diluted book value per share to the treasury stock method. See the accompanying Reconciliation of
Non-GAAP Measures and Key Performance Indicators for an explanation and calculation of diluted book value per share and return on
beginning shareholders' equity attributable to Third Point Re common shareholders.

(3)

Prior year comparatives represent amounts as of December 31, 2018.

Property and Casualty Reinsurance Segment

Gross premiums written

Gross premiums written increased by $65.3 million, or 217.3%, to $95.4 million for the three months ended September 30, 2019 from $30.1 million for the three months ended September 30, 2018. The increase in gross premiums written was primarily due to $58.7 million related to one retroactive reinsurance contract written in the period.

Gross premiums written increased by $39.4 million, or 8.6%, to $497.6 million for the nine months ended September 30, 2019 from $458.2 million for the nine months ended September 30, 2018. The increase in gross premiums written was primarily due to $63.5 million of property catastrophe business and $58.7 million related to one retroactive reinsurance contract written in the period. This increase was partially offset by contracts that we did not renew in the current year as well as the net impact of contract extensions, cancellations and contracts renewed with no comparable premium in the comparable period.

Net premiums earned

The increase in net premiums earned in the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 was primarily due to one retroactive reinsurance contract that was written and earned in the current year period as well as a higher in-force underwriting portfolio.

Net underwriting results

For the three and nine months ended September 30, 2019, we incurred net catastrophe losses of $12.7 million, net of reinstatement premiums and profit commission adjustments, related to Hurricane Dorian and Typhoon Faxai compared to no catastrophe losses in the prior year periods. This resulted in an increase in the combined ratio of 6.2 and 2.5 percentage points for the three and nine months ended September 30, 2019, respectively.

For the three and nine months ended September 30, 2019, we recorded a net $3.8 million and $4.3 million improvement in the net underwriting results, respectively, related to favorable development of prior years' loss reserves net of the related impact of acquisition costs.

The improvement in the net underwriting results for the three and nine months ended September 30, 2019 compared to prior year periods, after giving effect to catastrophe losses and reserve development, was primarily due to a shift in the mix of business, including earnings on new property catastrophe and specialty business.

For the three and nine months ended September 30, 2018, we recorded a net $2.0 million and $4.8 million improvement in the net underwriting results, respectively, related to favorable development of prior years' loss reserves net of the related impact of acquisition costs.

Investments

The following is a summary of the net investment return for our total net investments managed by Third Point LLC for the three and nine months ended September 30, 2019 and 2018:

Three months ended

Nine months ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

Net investment return from separate account investment structure

-

%

(0.2)

%

-

%

0.7

%

TP Fund

(0.7)

%

(0.1)

%

16.9

%

(0.1)

%

Collateral and other investments

0.2

%

0.2

%

1.2

%

0.2

%

Net investment return on investments managed by Third Point
LLC (1)

(0.2)

%

(0.2)

%

10.2

%

0.6

%

(1) Refer to 'Non-GAAP Financial Measures and Other Financial Metrics' for a description of the net investment return on investments managed by
Third Point LLC.

The following is a summary of the net investment income (loss) for our total net investments managed by Third Point LLC for the three and nine months ended September 30, 2019 and 2018:

Three months ended

Nine months ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

($ in thousands)

Net investment income (loss) from separate account investment
structure

$

-

$

(3,009)

$

-

$

25,971

TP Fund

(5,751)

(1,926)

207,597

(1,926)

Collateral and other investments

2,289

1,347

12,452

1,347

Net investment income (loss) on investments managed by Third
Point LLC (1)

$

(3,462)

$

(3,588)

$

220,049

$

25,392

(1) Refer to 'Non-GAAP Financial Measures and Other Financial Metrics' for a description of the net investment return on investments managed by
Third Point LLC.

The following is a summary of the net investment return by investment strategy on total net investments managed by Third Point LLC for the three and nine months ended September 30, 2019 and 2018:

Three months ended

September 30, 2019

September 30, 2018

Long

Short

Net

Long

Short

Net

Equity

1.4

%

(0.7)

%

0.7

%

1.9

%

(1.1)

%

0.8

%

Credit

(0.7)

%

-

%

(0.7)

%

0.2

%

-

%

0.2

%

Other

(0.1)

%

(0.1)

%

(0.2)

%

(1.2)

%

-

%

(1.2)

%

Net investment return on investments managed by
Third Point LLC

0.6

%

(0.8)

%

(0.2)

%

0.9

%

(1.1)

%

(0.2)

%

Nine months ended

September 30, 2019

September 30, 2018

Long

Short

Net

Long

Short

Net

Equity

13.3

%

(4.1)

%

9.2

%

4.5

%

(3.1)

%

1.4

%

Credit

0.9

%

(0.5)

%

0.4

%

0.9

%

(0.2)

%

0.7

%

Other

1.0

%

(0.4)

%

0.6

%

(2.0)

%

0.5

%

(1.5)

%

Net investment return on investments managed by
Third Point LLC

15.2

%

(5.0)

%

10.2

%

3.4

%

(2.8)

%

0.6

%

For the three months ended September 30, 2019, the investment portfolio was slightly negative overall. Within equities, strong performance from our core long equity activist positions was offset by losses from short equity positions and hedges. Within credit, modest gains in structured credit were more than offset by losses in the sovereign credit portfolio. Currency hedges also contributed modest losses for the quarter.

For the nine months ended September 30, 2019, gains were driven primarily by the long equity portfolio although the fund generated profits across all strategies. Within equities, core long equity activist positions were the main contributors to results and gains on the long book were partially countered by losses in hedges and short equity positions. In credit, losses from one sovereign credit investment more than offset profits in structured and corporate credit. In the other portfolio, gains were driven by private investments and several merger arbitrage positions.

Conference Call Details

The Company will hold a conference call to discuss its third quarter 2019 results at 8:30 a.m. Eastern Time on November 6, 2019. The call will be webcast live over the Internet from the Company's website at www.thirdpointre.bm under the 'Investors' section. Participants should follow the instructions provided on the website to download and install any necessary audio applications. The conference call will also be available by dialing 1-877-407-0789 (domestic) or 1-201-689-8562 (international). Participants should ask for the Third Point Reinsurance Ltd. third quarter earnings conference call.

A replay of the live conference call will be available approximately three hours after the call. The replay will be available on the Company's website or by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay passcode 13694124. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on November 13, 2019.

Safe Harbor Statement Regarding Forward-Looking Statements

This press release includes 'forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond the Company's control. The Company cautions you that the forward-looking information presented in this press release is not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as 'may,' 'plan,' 'seek,' 'comfortable with,' 'will,' 'expect,' 'intend,' 'estimate,' 'anticipate,' 'believe' or 'continue' or the negative thereof or variations thereon or similar terminology. Actual events, results and outcomes may differ materially from the Company's expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following: results of operations fluctuate and may not be indicative of our prospects; more established competitors; losses exceeding reserves; highly cyclical property and casualty reinsurance industry; losses from catastrophe exposure; downgrade, withdrawal of ratings or change in rating outlook by rating agencies; significant decrease in our capital or surplus; dependence on key executives; dependence on letter of credit facilities that may not be available on commercially acceptable terms; inability to service our indebtedness; limited cash flow and liquidity due to our indebtedness; inability to raise necessary funds to pay principal or interest on debt; potential lack of availability of capital in the future; credit risk associated with the use of reinsurance brokers; future strategic transactions such as acquisitions, dispositions, mergers or joint ventures; technology breaches or failures, including cyber-attacks; lack of control over Third Point Enhanced LP ('TP Fund'); lack of control over the allocation and performance of TP Fund's investment portfolio; dependence on Third Point LLC to implement TP Fund's investment strategy; limited ability to withdraw our capital accounts from TP Fund; decline in revenue due to poor performance of TP Fund's investment portfolio; TP Fund's investment strategy involves risks that are greater than those faced by competitors; termination by Third Point LLC of our or TP Fund's investment management agreements; potential conflicts of interest with Third Point LLC; losses resulting from significant investment positions; credit risk associated with the default on obligations of counterparties; ineffective investment risk management systems; fluctuations in the market value of TP Fund's investment portfolio; trading restrictions being placed on TP Fund's investments; limited termination provisions in our investment management agreements; limited liquidity and lack of valuation data on certain TP Fund's investments; U.S. and global economic downturns; specific characteristics of investments in mortgage-backed securities and other asset-backed securities, in securities of issues based outside the U.S., and in special situation or distressed companies; loss of key employees at Third Point LLC; Third Point LLC's compensation arrangements may incentivize investments that are risky or speculative; increased regulation or scrutiny of alternative investment advisers affecting our reputation; suspension or revocation of our reinsurance licenses; potentially being deemed an investment company under U.S. federal securities law; failure of reinsurance subsidiaries to meet minimum capital and surplus requirements; changes in Bermuda or other law and regulation that may have an adverse impact on our operations; Third Point Re and/or Third Point Re BDA potentially becoming subject to U.S. federal income taxation; potential characterization of Third Point Re and/or Third Point Re BDA as a passive foreign investment company; subjection of our affiliates to the base erosion and anti-abuse tax; potentially becoming subject to U.S. withholding and information reporting requirements under the Foreign Account Tax Compliance Act; and other risks and factors listed under 'Risk Factors' in the Company's most recent Annual Report on Form 10-K and other periodic and current disclosures filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the date made and the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures and Other Financial Metrics

In presenting Third Point Re's results, management has included financial measures that are not calculated under standards or rules that comprise accounting principles generally accepted in the United States (GAAP). Such measures, including basic and diluted book value per share and return on beginning shareholders' equity attributable to Third Point Re common shareholders, are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. Management believes these measures allow for a more complete understanding of the underlying business. These measures are used to monitor our results and should not be viewed as a substitute for those determined in accordance with GAAP. Reconciliations of such measures to the most comparable GAAP figures are included in the attached financial information in accordance with Regulation G.

About the Company

The Company is a public company listed on the New York Stock Exchange which, through its wholly-owned subsidiaries Third Point Re BDA and Third Point Reinsurance (USA) Ltd. ('Third Point Re USA'), writes property and casualty reinsurance business. Third Point Re BDA and Third Point Re USA each have an 'A-' (Excellent) financial strength rating from A.M. Best Company, Inc.

Contact

Third Point Reinsurance Ltd.
Christopher S. Coleman - Chief Financial Officer
[email protected]
+1 441-542-3333

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2019 and December 31, 2018

(expressed in thousands of U.S. dollars, except per share and share amounts)

(Unaudited)

(Audited)

September 30,
2019

December 31,
2018

Assets

Investment in related party investment fund, at fair value (cost - $891,850; 2018 - $1,564,850)

$

818,600

$

1,284,004

Debt securities, trading, at fair value (cost - $226,295; 2018 - $252,362)

220,045

239,640

Other investments, at fair value

3,500

84

Total investments

1,042,145

1,523,728

Cash and cash equivalents

693,105

104,183

Restricted cash and cash equivalents

816,519

609,154

Due from brokers

-

1,411

Interest and dividends receivable

2,932

1,316

Reinsurance balances receivable

680,630

602,448

Deferred acquisition costs, net

166,968

203,842

Unearned premiums ceded

14,370

17,552

Loss and loss adjustment expenses recoverable

4,270

2,031

Other assets

17,808

20,569

Total assets

$

3,438,747

$

3,086,234

Liabilities

Accounts payable and accrued expenses

$

14,607

$

7,261

Reinsurance balances payable

98,766

69,701

Deposit liabilities

174,405

145,342

Unearned premium reserves

592,319

602,936

Loss and loss adjustment expense reserves

1,060,000

937,157

Participation agreement with related party investment fund

-

2,297

Interest and dividends payable

1,026

3,055

Senior notes payable, net of deferred costs

114,044

113,911

Total liabilities

2,055,167

1,881,660

Commitments and contingent liabilities

Shareholders' equity

Preference shares (par value $0.10; authorized, 30,000,000; none issued)

-

-

Common shares (issued and outstanding: 94,220,567; 2018 - 93,639,610)

9,422

9,364

Additional paid-in capital

926,949

918,882

Retained earnings

447,209

276,328

Shareholders' equity attributable to Third Point Re common shareholders

1,383,580

1,204,574

Total liabilities and shareholders' equity

$

3,438,747

$

3,086,234

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

For the three and nine months ended September 30, 2019 and 2018

(expressed in thousands of U.S. dollars, except per share and share amounts)

Three months ended

Nine months ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

Revenues

Gross premiums written

$

95,388

$

30,064

$

497,616

$

458,189

Gross premiums ceded

(1,116)

-

(3,301)

(18,125)

Net premiums written

94,272

30,064

494,315

440,064

Change in net unearned premium reserves

108,976

97,929

7,435

(28,092)

Net premiums earned

203,248

127,993

501,750

411,972

Net investment income (loss) from investment in related party
investment fund

(5,751)

(1,926)

207,597

(1,926)

Net investment income before management and performance fees
to related parties

2,613

3,641

13,349

57,148

Management and performance fees to related parties (1)

-

(5,305)

-

(29,845)

Net investment income (loss)

(3,138)

(3,590)

220,946

25,377

Total revenues

200,110

124,403

722,696

437,349

Expenses

Loss and loss adjustment expenses incurred, net

85,703

88,706

263,105

265,326

Acquisition costs, net

118,271

40,841

233,775

149,830

General and administrative expenses

9,237

9,511

41,019

28,688

Other (income) expense

5,058

(1,362)

12,994

6,616

Interest expense

2,074

2,074

6,154

6,154

Foreign exchange gains

(4,921)

(1,979)

(6,663)

(4,215)

Total expenses

215,422

137,791

550,384

452,399

Income (loss) before income tax (expense) benefit

(15,312)

(13,388)

172,312

(15,050)

Income tax (expense) benefit

213

111

(1,431)

(4,407)

Net income (loss)

(15,099)

(13,277)

170,881

(19,457)

Net income attributable to noncontrolling interests in related party

-

(4)

-

(223)

Net income (loss) available to Third Point Re common
shareholders

$

(15,099)

$

(13,281)

$

170,881

$

(19,680)

Earnings (loss) per share available to Third Point Re common
shareholders

Basic earnings (loss) per share available to Third Point Re common
shareholders

$

(0.16)

$

(0.14)

$

1.86

$

(0.20)

Diluted earnings (loss) per share available to Third Point Re
common shareholders

$

(0.16)

$

(0.14)

$

1.84

$

(0.20)

Weighted average number of common shares used in the
determination of earnings (loss) per share

Basic

91,903,556

95,671,385

91,784,268

98,768,442

Diluted

91,903,556

95,671,385

92,709,421

98,768,442

(1) Effective August 31, 2018, Third Point Reinsurance Ltd., Third Point Reinsurance Company Ltd. ('Third Point Re BDA') and Third Point Reinsurance (USA) Ltd. ('Third Point Re USA') and together with Third Point Re BDA, the 'TPRE Limited Partners', entered into a Limited Partnership Agreement (the '2018 LPA') to invest in Third Point Enhanced LP ('TP Fund'), a related party investment fund. As a result, the management and performance fees are presented within net investment income from investment in related party investment fund from the effective date of the 2018 LPA. Management and performance fees incurred prior to the effective date of the 2018 LPA are reflected in management and performance fees to related parties.

THIRD POINT REINSURANCE LTD.

SEGMENT REPORTING

Three months ended September 30, 2019

Three months ended September 30, 2018

Property and
Casualty
Reinsurance

Total

Property and
Casualty
Reinsurance

Total

Revenues

($ in thousands)

($ in thousands)

Gross premiums written

$

95,388

$

95,388

$

30,064

$

30,064

Gross premiums ceded

(1,116)

(1,116)

-

-

Net premiums written

94,272

94,272

30,064

30,064

Change in net unearned premium reserves

108,976

108,976

97,929

97,929

Net premiums earned

203,248

203,248

127,993

127,993

Expenses

Loss and loss adjustment expenses incurred, net

85,703

85,703

88,706

88,706

Acquisition costs, net

118,271

118,271

40,841

40,841

General and administrative expenses

4,769

4,769

4,763

4,763

Total expenses

208,743

208,743

134,310

134,310

Net underwriting loss

$

(5,495)

(5,495)

$

(6,317)

(6,317)

Net investment loss

(3,138)

(3,590)

Corporate expenses

(4,468)

(4,748)

Other income (expense)

(5,058)

1,362

Interest expense

(2,074)

(2,074)

Foreign exchange gains

4,921

1,979

Income tax benefit

213

111

Net income attributable to noncontrolling interests in related party

-

(4)

Net loss attributable to Third Point Re common shareholders

$

(15,099)

$

(13,281)

Property and Casualty Reinsurance - Underwriting Ratios (1):

Loss ratio

42.2

%

69.3

%

Acquisition cost ratio

58.2

%

31.9

%

Composite ratio

100.4

%

101.2

%

General and administrative expense ratio

2.3

%

3.7

%

Combined ratio

102.7

%

104.9

%

Nine months ended September 30, 2019

Nine months ended September 30, 2018

Property and
Casualty
Reinsurance

Total

Property and
Casualty
Reinsurance

Total

Revenues

($ in thousands)

($ in thousands)

Gross premiums written

$

497,616

$

497,616

$

458,189

$

458,189

Gross premiums ceded

(3,301)

(3,301)

(18,125)

(18,125)

Net premiums written

494,315

494,315

440,064

440,064

Change in net unearned premium reserves

7,435

7,435

(28,092)

(28,092)

Net premiums earned

501,750

501,750

411,972

411,972

Expenses

Loss and loss adjustment expenses incurred, net

263,105

263,105

265,326

265,326

Acquisition costs, net

233,775

233,775

149,830

149,830

General and administrative expenses

17,762

17,762

14,550

14,550

Total expenses

514,642

514,642

429,706

429,706

Net underwriting loss

$

(12,892)

(12,892)

$

(17,734)

(17,734)

Net investment income

220,946

25,377

Corporate expenses

(23,257)

(14,138)

Other expenses

(12,994)

(6,616)

Interest expense

(6,154)

(6,154)

Foreign exchange gains

6,663

4,215

Income tax expense

(1,431)

(4,407)

Net income attributable to noncontrolling interests in related party

-

(223)

Net income (loss) available to Third Point Re common shareholders

$

170,881

$

(19,680)

Property and Casualty Reinsurance - Underwriting Ratios (1):

Loss ratio

52.4

%

64.4

%

Acquisition cost ratio

46.6

%

36.4

%

Composite ratio

99.0

%

100.8

%

General and administrative expense ratio

3.6

%

3.5

%

Combined ratio

102.6

%

104.3

%

(1) Underwriting ratios are calculated by dividing the related expense by net premiums earned.

THIRD POINT REINSURANCE LTD.
NON-GAAP MEASURES AND RECONCILIATIONS & KEY PERFORMANCE INDICATORS

Non-GAAP Measures

Basic Book Value per Share and Diluted Book Value per Share

In the third quarter of 2019, the Company changed the method used for calculating diluted book value per share ('DBVPS') to the treasury stock method. Under the treasury stock method, the Company computes the number of new shares that can potentially be created by unexercised in-the-money warrants and options. The Company then assumes that the proceeds received from the exercise of in-the-money warrant and/or option are used to repurchase outstanding common shares in the market. The number of additional shares that are added back to the basic book value per share denominator is equal to the difference between (i) the number of new shares potentially created by unexercised in-the-money warrants and options and (ii) the number of shares that could be repurchased in the market. The previous method used did not contemplate repurchasing shares in the market, which the Company believes overstated the impact of dilution. This change had no impact on basic book value per share. The following table shows the revised DBVPS compared to the DBVPS as previously presented:

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

DBVPS

$

14.88

$

14.25

$

12.98

$

15.78

$

15.84

$

15.48

DBVPS, as previously presented

14.51

13.95

12.98

15.60

15.63

15.39

Difference

$

0.37

$

0.30

$

-

$

0.18

$

0.21

$

0.09

Basic book value per share and diluted book value per share are non-GAAP financial measures and there are no comparable GAAP measures. Basic book value per share, as presented, is a non-GAAP financial measure and is calculated by dividing shareholders' equity attributable to Third Point Re common shareholders by the number of common shares outstanding, excluding the total number of unvested restricted shares, at period end. Diluted book value per share, as presented, is a non-GAAP financial measure and is calculated using the treasury stock method. Under the treasury stock method, we assume that proceeds received from in-the-money options and/or warrants exercised are used to repurchase common shares in the market. For unvested restricted shares with a performance condition, we include the unvested restricted shares for which we consider vesting to be probable. Change in basic book value per share is calculated by taking the difference in basic book value per share for the periods presented divided by the beginning of period book value per share. Change in diluted book value per share is calculated by taking the difference in diluted book value per share for the periods presented divided by the beginning of period diluted book value per share. We believe that long-term growth in diluted book value per share is the most important measure of our financial performance because it allows our management and investors to track over time the value created by the retention of earnings. In addition, we believe this metric is used by investors because it provides a basis for comparison with other companies in our industry that also report a similar measure.

September 30,
2019

December 31,
2018

Basic and diluted book value per share numerator:

($ in thousands, except share and per
share amounts)

Shareholders' equity attributable to Third Point Re common shareholders

$

1,383,580

$

1,204,574

Basic and diluted book value per share denominator:

Common shares outstanding

94,220,567

93,639,610

Unvested restricted shares

(2,240,410)

(2,025,113)

Basic book value per share denominator:

91,980,157

91,614,497

Effect of dilutive warrants issued to founders and an advisor (1)

-

-

Effect of dilutive stock options issued to directors and employees (1)

-

-

Effect of dilutive restricted shares issued to directors and employees

1,731,384

1,209,285

Diluted book value per share denominator

93,711,541

92,823,782

Basic book value per share

$

15.04

$

13.15

Diluted book value per share

$

14.76

$

12.98

(1) As of September 30, 2019 and December 31, 2018, there was no dilution a result of the Company's share price being
under the lowest exercise price for warrants and options.

Return on Beginning Shareholders' Equity Attributable to Third Point Re Common Shareholders

Return on beginning shareholders' equity attributable to Third Point Re common shareholders, as presented, is a non-GAAP financial measure. Return on beginning shareholders' equity attributable to Third Point Re common shareholders is calculated by dividing net income (loss) available to Third Point Re common shareholders by the beginning shareholders' equity attributable to Third Point Re common shareholders. We believe that return on beginning shareholders' equity attributable to Third Point Re common shareholders is an important measure because it assists our management and investors in evaluating the Company's profitability. When we repurchase our common shares, we also adjust the beginning shareholders' equity attributable to Third Point Re common shareholders for the impact of the shares repurchased on a weighted average basis. For a period where there was a loss, this adjustment decreased the stated returns on beginning shareholders' equity and for a period where there was a gain, this adjustment increased the stated returns on beginning shareholders' equity.

Three months ended

Nine months ended

September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

($ in thousands)

Net income (loss) available to Third Point Re common shareholders

$

(15,099)

$

(13,281)

$

170,881

$

(19,680)

Shareholders' equity attributable to Third Point Re common
shareholders - beginning of period

1,395,898

1,591,754

1,204,574

1,656,089

Impact of weighting related to shareholders' equity from shares
repurchased

-

(24,447)

-

(41,526)

Adjusted shareholders' equity attributable to Third Point Re
common shareholders - beginning of period

$

1,395,898

$

1,567,307

$

1,204,574

$

1,614,563

Return on beginning shareholders' equity attributable to Third
Point Re common shareholders

(1.1)

%

(0.8)

%

14.2

%

(1.2)

%

Key Performance Indicator

Net Investment Return on Investments Managed by Third Point LLC

Net investment return represents the return on our net investments managed by Third Point LLC, net of fees. The net investment return on net investments managed by Third Point LLC is the percentage change in value of a dollar invested over the reporting period on our net investment assets managed by Third Point LLC. Effective August 31, 2018, we transitioned from our separately managed account structure to investing in TP Fund. In addition, collateral assets and certain other investment assets are managed by Third Point LLC. The net investment return reflects the combined results of investments managed on behalf of Third Point Re BDA and Third Point Re USA prior to the transition date of August 31, 2018 and the investments in TP Fund, collateral assets and certain other investment assets subsequent to the date of transition. Prior to the transition date of August 31, 2018, the stated return was net of noncontrolling interests and net of withholding taxes, which were presented as a component of income tax expense in our condensed consolidated statements of income. Net investment return is the key indicator by which we measure the performance of Third Point LLC, TP Fund's investment manager.

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SOURCE Third Point Reinsurance Ltd.