WTRE Watford Holdings Ltd

WATFORD HOLDINGS LTD. (“Watford” or the “Company”) (NASDAQ: WTRE) today reported net income of $188.8 million, after $1.1 million of preference dividends, for the three months ended June 30, 2020, compared to net income of $13.8 million, after payment of $4.9 million of preference dividends, for the same period in 2019. Book value per diluted common share was $38.82 at June 30, 2020, an increase of 37.6% from March 31, 2020. The quarterly results include:

• Net income available to common shareholders of $188.8 million, or $9.51 per diluted common share, or a 28.2% return on average equity, compared to net income of $13.8 million, or $0.61 per diluted common share, or a 1.5% return on average equity for the 2019 second quarter;
• Combined ratio of 108.0%, comprised of a 79.7% loss ratio, a 22.4% acquisition expense ratio and a 5.9% general and administrative expense ratio, compared to a combined ratio of 103.5% for the prior year second quarter, comprised of a 73.6% loss ratio, a 23.4% acquisition expense ratio and a 6.5% general and administrative expense ratio;
• Net interest income of $27.4 million, a 1.4% yield on average net assets, for the 2020 second quarter, compared to net interest income of $26.4 million and a 1.2% yield on average net assets for the 2019 second quarter; and
• Net investment income of $199.5 million, a 10.0% return on average net assets for the 2020 second quarter, compared to net investment income of $23.8 million and a 1.1% return on average net assets for the 2019 second quarter.

Following the first quarter of 2020, the novel coronavirus (COVID-19) pandemic has continued to cause unprecedented economic volatility and disruption globally.

At this time, there continues to be significant uncertainties surrounding the ultimate number of insurance claims and scope of damage resulting from this pandemic. The Company’s estimates across its insurance and reinsurance lines of business are based on currently available information derived from modeling techniques, preliminary claims information obtained from the Company’s clients and brokers, a review of relevant in-force contracts with potential exposure to the pandemic and estimates of reinsurance recoverables. These estimates include losses only related to claims incurred as of June 30, 2020. Actual losses from these events may vary materially from the estimates due to several factors, including the inherent uncertainties in making such determinations and the evolving nature of this pandemic.

Commenting on the 2020 second quarter financial results, Jon Levy, CEO of Watford, said:

“First, we would like to express our sympathy to all those affected by the COVID-19 global pandemic, as well as our appreciation for those who continue to provide support and care to the individuals who need it most. I’d also like to again thank the Watford employees and broader Watford team who have continued to deliver in this challenging environment.

Despite the backdrop of significant turmoil created by the pandemic, Watford demonstrated its resilience and delivered a strong financial performance. Our net income of $188.8 million for the quarter was driven by $199.5 million of net investment income. Our net interest income remained steady at $27.4 million, representing a quarterly yield on average net assets of 1.4%. Realized and unrealized gains for the quarter totaled $172.1 million, with an additional $23.0 million in other comprehensive income. In aggregate, our book value per diluted common share increased $10.61, or 37.6% from March 31, 2020.

Our combined ratio for the quarter was 108.0%, and 104.7% when adjusted for other underwriting income and certain corporate expenses. The COVID-19 global pandemic has created significant uncertainty for the property and casualty industry, though we believe our mix of business is less exposed to classes likely to be materially affected. Watford recognized a COVID-19 loss provision of $5.2 million, or 4.0 loss ratio points, for the second quarter, almost exclusively arising from business interruption coverage in our property catastrophe reinsurance line of business.

Insurance and reinsurance conditions continue to improve. We believe our insurance and reinsurance platforms are well positioned in the hardening marketplace.”

Underwriting

The following table summarizes the Company’s underwriting results on a consolidated basis:

	Three Months Ended June 30,											Six Months Ended June 30,
	2020				2019				% Change			2020				2019				% Change
	($ in thousands)
Gross premiums written	$	157,927			$	161,978			(2.5	)%		$	392,829			$	348,667			12.7	%
Net premiums written		105,856				119,370			(11.3	)%			292,556				264,757			10.5	%
Net premiums earned		131,535				151,318			(13.1	)%			271,574				297,412			(8.7	)%
Underwriting income (loss) (1)		(10,578	)			(5,266	)		(100.9	)%			(16,721	)			(11,236	)		(48.8	)%
									% PointChange											% PointChange
Loss ratio		79.7	%			73.6	%		6.1	%			79.3	%			74.7	%		4.6	%
Acquisition expense ratio		22.4	%			23.4	%		(1.0	)%			21.3	%			23.3	%		(2.0	)%
General & administrative expense ratio		5.9	%			6.5	%		(0.6	)%			5.6	%			5.8	%		(0.2	)%
Combined ratio		108.0	%			103.5	%		4.5	%			106.2	%			103.8	%		2.4	%
Adjusted combined ratio (2)		104.7	%			99.9	%		4.8	%			103.4	%			101.1	%		2.3	%

(1) Underwriting income (loss) is a non-U.S. GAAP financial measure and is calculated as net premiums earned, less loss and loss adjustment expenses, acquisition expenses and general and administrative expenses. See “Comments on Regulation G” for further discussion, including a reconciliation of underwriting income (loss) to net income (loss) available to common shareholders.

(2) Adjusted combined ratio is a non-U.S. GAAP financial measure and is calculated by dividing the sum of loss and loss adjustment expenses, acquisition expenses and general and administrative expenses, less certain corporate expenses, by the sum of net premiums earned and other underwriting income (loss). See “Comments on Regulation G” for further discussion, including a reconciliation of our adjusted combined ratio to our combined ratio.

The following table provides summary information regarding premiums written and earned by line of business:

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
	($ in thousands)
Gross premiums written:
Casualty reinsurance	$	25,125			$	32,557			$	108,943			$	108,158
Other specialty reinsurance		21,080				37,836				57,960				62,134
Property catastrophe reinsurance		11,253				5,929				21,085				11,921
Insurance programs and coinsurance		100,469				85,656				204,841				166,454
Total	$	157,927			$	161,978			$	392,829			$	348,667
Net premiums written:
Casualty reinsurance	$	24,774			$	32,077			$	108,441			$	107,142
Other specialty reinsurance		19,843				36,523				55,327				59,705
Property catastrophe reinsurance		10,506				5,621				20,338				11,603
Insurance programs and coinsurance		50,733				45,149				108,450				86,307
Total	$	105,856			$	119,370			$	292,556			$	264,757
Net premiums earned:
Casualty reinsurance	$	48,146			$	67,506			$	100,911			$	130,819
Other specialty reinsurance		29,876				42,635				65,240				87,196
Property catastrophe reinsurance		5,824				3,119				10,708				6,090
Insurance programs and coinsurance		47,689				38,058				94,715				73,307
Total	$	131,535			$	151,318			$	271,574			$	297,412

The following table shows the components of our loss and loss adjustment expenses for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,														Six Months Ended June 30,
	2020							2019							2020							2019
	Loss and LossAdjustmentExpenses				% of EarnedPremiums			Loss and LossAdjustmentExpenses				% of EarnedPremiums			Loss and LossAdjustmentExpenses				% of EarnedPremiums			Loss and LossAdjustmentExpenses				% of EarnedPremiums
	($ in thousands)
Current year	$	104,993			79.9	%		$	111,494			73.7	%		$	215,849			79.5	%		$	222,395			74.8	%
Prior year development (favorable)/adverse		(207	)		(0.2	)%			(78	)		(0.1	)%			(387	)		(0.2	)%			(129	)		(0.1	)%
Loss and loss adjustment expenses	$	104,786			79.7	%		$	111,416			73.6	%		$	215,462			79.3	%		$	222,266			74.7	%

Results for the three months ended June 30, 2020 versus 2019:

Gross and net premiums written in the 2020 second quarter were 2.5% and 11.3% lower, respectively, than the 2019 second quarter. The decrease in gross and net premiums written reflected a decrease in casualty reinsurance and other specialty reinsurance premiums written, offset in part by an increase in insurance programs and coinsurance and property catastrophe reinsurance in the 2020 second quarter. In addition, a higher portion of insurance programs and coinsurance premiums written were ceded in the 2020 second quarter compared to the 2019 second quarter.

Net premiums earned in the 2020 second quarter were 13.1% lower than the 2019 second quarter. The decrease in earned premiums reflected reduced participations and non-renewals for certain casualty reinsurance deals. In addition, the decrease in other specialty reinsurance premiums was driven by a contract written and earned with no comparable premium this quarter, as well as a reduction in our exposure to U.S. mortgage risk. These decreases were partially offset by increased writings in insurance programs and coinsurance, and, to a lesser extent, greater assumed property catastrophe reinsurance.

The loss ratio was 79.7% in the 2020 second quarter compared to 73.6% in the 2019 second quarter.  In the 2020 second quarter, the increase in loss ratio was primarily driven by COVID-19 related losses of $5.2 million, or 4.0 points, which mainly impacted property catastrophe reinsurance business. The prior year loss reserve development for both the 2020 and 2019 second quarters was essentially flat. The acquisition expense ratio was 22.4% in the 2020 second quarter, compared to 23.4% in the 2019 second quarter. These ratio movements also reflect changes in mix and the type of business.

The general and administrative expense ratio was 5.9% in the 2020 second quarter, compared to 6.5% in the 2019 second quarter. The 0.6 point decrease versus the prior year second quarter was primarily attributable to a one-time accelerated long term incentive expense recognized in the 2019 second quarter. Removing certain corporate expenses, our adjusted general and administrative expense ratio was 3.3% in the 2020 second quarter consistent with 3.3% in the 2019 second quarter.

Investments

The following table summarizes the Company’s key investment returns on a consolidated basis:

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
	($ in thousands)
Interest income	$	36,453			$	38,596			$	74,277			$	81,737
Investment management fees - related parties		(4,262	)			(4,570	)			(8,614	)			(8,979	)
Borrowing and miscellaneous other investment expenses		(4,763	)			(7,611	)			(10,432	)			(15,909	)
Net interest income		27,428				26,415				55,231				56,849
Realized gains (losses) on investments		(6,001	)			789				(11,047	)			2,071
Unrealized gains (losses) on investments		178,064				(1,725	)			(107,392	)			30,713
Investment performance fees - related parties		—				(1,692	)			—				(7,492	)
Net investment income (loss)	$	199,491			$	23,787			$	(63,208	)		$	82,141
Unrealized gains on investments (balance sheet)	$	59,123			$	35,228			$	59,123			$	35,228
Unrealized losses on investments (balance sheet)		(244,474	)			(113,937	)			(244,474	)			(113,937	)
Net unrealized gains (losses) on investments (balance sheet)	$	(185,351	)		$	(78,709	)		$	(185,351	)		$	(78,709	)
Net interest income yield on average net assets (1)		1.4	%			1.2	%			2.7	%			2.7	%
Non-investment grade portfolio (1)		1.8	%			1.6	%			3.5	%			3.5	%
Investment grade portfolio (1)		0.4	%			0.6	%			1.0	%			1.2	%
Net investment income return on average net assets (1)		10.0	%			1.1	%			(3.1	)%			3.9	%
Non-investment grade portfolio (1)		13.1	%			1.2	%			(5.2	)%			4.6	%
Investment grade portfolio (1)		1.6	%			1.0	%			2.4	%			2.1	%
Net investment income return on average total investments (excluding accrued investment income) (2)		7.7	%			0.8	%			(2.4	)%			2.9	%
Non-investment grade portfolio (2)		10.6	%			1.0	%			(4.3	)%			3.7	%
Investment grade portfolio (2)		1.6	%			1.0	%			2.4	%			2.1	%

(1) Net interest income yield on average net assets and net investment income return on average net assets are calculated by dividing net interest income, and net investment income (loss), respectively, by average net assets. Net assets is calculated as the sum of total investments, accrued investment income and receivables for securities sold, less revolving credit agreement borrowings, payable for securities purchased and payable for securities sold short. For the three- and six-month periods, average net assets is calculated using the averages of each quarterly period. However, for the investment grade portfolio component of these returns, revolving credit agreement borrowings are not subtracted from the net assets calculation. The separate components of these returns (non-investment grade portfolio and investment grade portfolio) are non-U.S. GAAP financial measures. See “Comments on Regulation G” for further discussion, including a reconciliation of these components of our net interest income yield on average net assets and net investment income return on average net assets.

(2) Net investment income return on average total investments (excluding accrued investment income) is calculated by dividing net investment income by average total investments. For the three- and six-month periods, average total investments is calculated using the averages of each quarterly period. The separate components of these returns (non-investment grade portfolio and investment grade portfolio) are non-U.S. GAAP financial measures. See “Comments on Regulation G” for further discussion, including a reconciliation of these components of our net investment income return on average total investments (excluding accrued investment income).

Results for the three months ended June 30, 2020 versus 2019:

Net investment income was $199.5 million for the three months ended June 30, 2020 compared to net investment income of $23.8 million for the three months ended June 30, 2019, an increase of $175.7 million. The 2020 second quarter net investment income return on average net assets was 10.0% as compared to 1.1% for the prior year period.

The 2020 second quarter net investment income return was driven by net unrealized gains of $178.1 million as the credit markets partially recovered through the quarter. Net interest income increased to $27.4 million from $26.4 million, an increase of 3.8% quarter over quarter.

The 2020 second quarter non-investment grade portfolio net interest income yield was 1.8%, compared with 1.6% in the second quarter of 2019. The net realized and unrealized gains reported in the 2020 second quarter were $163.1 million, reflective of the credit market recovery discussed above.

The 2020 second quarter investment grade portfolio net interest income yield was 0.4%, a decrease from 0.6% in the prior year period. In addition, the investment grade portfolio recognized $8.9 million of net realized and unrealized gains in the quarter as compared to gains of $3.8 million in the second quarter of 2019.

The following tables summarize the composition of the Company's non-investment grade and investment grade portfolios by sector as of June 30, 2020 and March 31, 2020:

	June 30, 2020
	Total			Financials			Health Care			Technology			Consumer Services			Industrials			Consumer Goods			Oil & Gas			All Other (1)
	($ in thousands)
Non-Investment Grade Portfolio:
Term loan investments	$	875,560		$	188,970		$	170,442		$	186,367		$	113,733		$	90,250		$	36,455		$	29,573		$	59,770
Corporate bonds		378,183			44,898			26,626			16,720			105,543			33,870			68,314			29,516			52,696
Equities - sector specific		93,872			62,350			22,577			7,266			—			641			—			264			774
Short-term investments - sector specific		2,184			—			—			1,682			—			—			502			—			—
Subtotal		1,349,799			296,218			219,645			212,035			219,276			124,761			105,271			59,353			113,240
Equities - non-sector specific		27,470
Short-term investments - non-sector specific		267,904
Asset-backed securities		157,925
Other investments		34,142
Mortgage-backed securities		9,164
Total Non-Investment Grade Portfolio	$	1,846,404		$	296,218		$	219,645		$	212,035		$	219,276		$	124,761		$	105,271		$	59,353		$	113,240
Investment Grade Portfolio:
Corporate bonds	$	169,918		$	51,327		$	10,834		$	18,688		$	22,738		$	11,942		$	35,818		$	11,388		$	7,183
Short-term investments		99,978
U.S. government and government agency bonds		217,459
Non-U.S. government and government agency bonds		151,124
Asset-backed securities		130,327
Mortgage-backed securities		22,018
Municipal government and government agency bonds		2,117
Total Investment Grade Portfolio	$	792,941		$	51,327		$	10,834		$	18,688		$	22,738		$	11,942		$	35,818		$	11,388		$	7,183
Total Investments	$	2,639,345		$	347,545		$	230,479		$	230,723		$	242,014		$	136,703		$	141,089		$	70,741		$	120,423

(1) Includes telecommunications, utilities and basic materials.

	March 31, 2020
	Total			Financials			Health Care			Technology			Consumer Services			Industrials			Consumer Goods			Oil & Gas			All Other (1)
	($ in thousands)
Non-Investment Grade Portfolio:
Term loan investments	$	906,999		$	190,535		$	195,084		$	199,837		$	98,518		$	89,778		$	40,415		$	32,049		$	60,783
Corporate bonds		240,570			24,927			43,028			15,702			49,761			27,585			19,947			18,522			41,098
Equities - sector specific		95,112			59,714			27,174			5,868			—			1,026			—			242			1,088
Short-term investments - sector specific		47,703			7,703			—			—			—			—			—			40,000			—
Subtotal		1,290,384			282,879			265,286			221,407			148,279			118,389			60,362			90,813			102,969
Equities - non-sector specific		26,148
Short-term investments - non-sector specific		222,065
Asset-backed securities		140,613
Other investments		30,682
Mortgage-backed securities		8,529
Total Non-Investment Grade Portfolio	$	1,718,421		$	282,879		$	265,286		$	221,407		$	148,279		$	118,389		$	60,362		$	90,813		$	102,969
Investment Grade Portfolio:
Corporate bonds	$	167,570		$	62,046		$	13,752		$	12,135		$	15,481		$	14,133		$	34,718		$	7,346		$	7,959
Short-term investments		74,093
U.S. government and government agency bonds		265,423
Non-U.S. government and government agency bonds		149,858
Asset-backed securities		113,583
Mortgage-backed securities		21,785
Municipal government and government agency bonds		2,073
Total Investment Grade Portfolio	$	794,385		$	62,046		$	13,752		$	12,135		$	15,481		$	14,133		$	34,718		$	7,346		$	7,959
Total Investments	$	2,512,806		$	344,925		$	279,038		$	233,542		$	163,760		$	132,522		$	95,080		$	98,159		$	110,928

(1) Includes telecommunications, utilities and basic materials.

The table below summarizes the credit quality of the Company's non-investment grade and investment grade portfolios as of June 30, 2020 and March 31, 2020, as rated by Standard & Poor’s Financial Services, LLC, or Standard & Poor’s, Moody’s Investors Service, or Moody’s, Fitch Ratings Inc., or Fitch, Kroll Bond Rating Agency, or KBRA, or DBRS Morningstar, or DBRS, as applicable:

	Credit Rating (1)
June 30, 2020	Fair Value			AAA			AA			A			BBB			BB			B			CCC			CC			C			D			Not Rated
	($ in thousands)
Non-Investment Grade Portfolio:
Term loan investments	$	875,560		$	—		$	—		$	—		$	—		$	23,218		$	530,118		$	247,478		$	15,191		$	2,192			28046		$	29,317
Corporate bonds		378,183			—			—			—			37373			50,125			152,648			113,723			6268			5585			3956			8,505
Asset-backed securities		157,925			—			—			3,854			98,827			23,136			8,767			1663			—			—			—			21,678
Mortgage-backed securities		9,164			—			—			—			—			1292			—			—			—			—			3,224			4,648
Short-term investments		270,088			34859			172,166			60,880			—			502			—			—			—			—			—			1,681
Total fixed income instruments and short-term investments		1,690,920			34859			172,166			64,734			136,200			98,273			691,533			362,864			21,459			7,777			35,226			65,829
Other Investments		34,142
Equities		121,342
Total Non-Investment Grade Portfolio	$	1,846,404			34859		$	172,166		$	64,734		$	136,200		$	98,273		$	691,533		$	362,864		$	21,459		$	7,777		$	35,226		$	65,829
Investment Grade Portfolio:
Corporate bonds	$	169,918		$	—		$	16,032		$	90,087		$	58,858			4941		$	—		$	—		$	—		$	—		$	—		$	—
U.S. government and government agency bonds		217,459			—			217,459			—			—			—			—			—			—			—			—			—
Asset-backed securities		130,327			1,377			—			19,621			108,790			539			—			—			—			—			—			—
Mortgage-backed securities		22,018			—			602			4,794			16,622			—			—			—			—			—			—			—
Non-U.S. government and government agency bonds		151,124			—			151,124			—			—			—			—			—			—			—			—			—
Municipal government and government agency bonds		2,117			1,039			586			492			—			—			—			—			—			—			—			—
Short-term investments		99,978			3,448			22,656			0			73,874			—			—			—			—			—			—			—
Total Investment Grade Portfolio	$	792,941		$	5,864		$	408,459		$	114,994		$	258,144			5480		$	—		$	—		$	—		$	—		$	—		$	—
Total	$	2,639,345		$	40,723		$	580,625		$	179,728		$	394,344		$	103,753		$	691,533		$	362,864		$	21,459		$	7,777		$	35,226		$	65,829

(1) For individual fixed maturity investments, Standard & Poor’s ratings are used. In the absence of a Standard & Poor’s rating, ratings from Moody’s are used, followed by ratings from Fitch, followed by ratings from KBRA, followed by ratings from DBRS.

	Credit Rating (1)
March 31, 2020	Fair Value			AAA			AA			A			BBB			BB			B			CCC			CC			C			D			Not Rated
	($ in thousands)
Non-Investment Grade Portfolio:
Term loan investments	$	906,999		$	—		$	—		$	—		$	—		$	10,277		$	650,028		$	161,307		$	2,823		$	1,314		$	1,590		$	79,660
Corporate bonds		240,570			—			—			—			5,933			14,447			84,955			118,847			1,872			—			3,699			10,817
Asset-backed securities		140,613			—			—			3,339			85,572			19,727			7,395			1,418			—			—			—			23,162
Mortgage-backed securities		8,529			—			—			—			—			1,190			—			—			—			—			2,552			4,787
Short-term investments		269,768			26,024			133,548			402			62,091			—			40,000			—			—			—			—			7,703
Total fixed income instruments and short-term investments		1,566,479			26,024			133,548			3,741			153,596			45,641			782,378			281,572			4,695			1,314			7,841			126,129
Other Investments		30,682
Equities		121,260
Total Non-Investment Grade Portfolio	$	1,718,421		$	26,024		$	133,548		$	3,741		$	153,596		$	45,641		$	782,378		$	281,572		$	4,695		$	1,314		$	7,841		$	126,129
Investment Grade Portfolio:
Corporate bonds	$	167,570		$	—		$	34,647		$	76,063		$	52,085		$	4,775		$	—		$	—		$	—		$	—		$	—		$	—
U.S. government and government agency bonds		265,423			—			265,423			—			—			—			—			—			—			—			—			—
Asset-backed securities		113,583			1,628			—			15,980			95,975			—			—			—			—			—			—			—
Mortgage-backed securities		21,785			—			—			4,600			17,185			—			—			—			—			—			—			—
Non-U.S. government and government agency bonds		149,858			—			149,858			—			—			—			—			—			—			—			—			—
Municipal government and government agency bonds		2,073			1,023			570			480			—			—			—			—			—			—			—			—
Short-term investments		74,093			4,150			21,239			—			48,704			—			—			—			—			—			—			—
Total Investment Grade Portfolio	$	794,385		$	6,801		$	471,737		$	97,123		$	213,949		$	4,775		$	—		$	—		$	—		$	—		$	—		$	—
Total	$	2,512,806		$	32,825		$	605,285		$	100,864		$	367,545		$	50,416		$	782,378		$	281,572		$	4,695		$	1,314		$	7,841		$	126,129

(1) For individual fixed maturity investments, Standard & Poor’s ratings are used. In the absence of a Standard & Poor’s rating, ratings from Moody’s are used, followed by ratings from Fitch, followed by ratings from KBRA, followed by ratings from DBRS.

Corporate Function

The Company has a corporate function that includes general and administrative expenses related to corporate activities, interest expense, net foreign exchange gains (losses), income tax expense and items related to the Company’s contingently redeemable preference shares.

The Company incurred an interest expense of $2.9 million for the three months ended June 30, 2020, in relation to the Company’s 6.5% senior notes issued on July 2, 2019. Interest is paid semi-annually in arrears on January 2 and July 2.

Preference dividends were $1.1 million and $4.9 million for the three months ended June 30, 2020 and 2019, respectively.

There were no share repurchases during the 2020 second quarter. As of June 30, 2020, approximately $47.1 million of share repurchases were available under the Company’s previously announced $50 million share repurchase program.

Conference Call

The Company will hold a conference call on Thursday, July 30, 2020 at 1:00 p.m. Eastern time to discuss its 2020 second quarter results. A live webcast of this call will be available via the Investors section of the Company’s website at http://investors.watfordre.com. A replay of the conference call will also be available via the Investors section of the Company’s website beginning on July 31, 2020.

About Watford Holdings Ltd.

Watford Holdings Ltd. is a global property and casualty insurance and reinsurance company with approximately $1.0 billion in capital as of June 30, 2020, comprised of: $172.6 million of senior notes, $52.4 million of contingently redeemable preference shares and $776.2 million of common shareholders’ equity, with operations in Bermuda, the United States and Europe. Its operating subsidiaries have been assigned financial strength ratings of “A-” (Excellent) from A.M. Best and “A” from Kroll Bond Rating Agency.  On May 1, 2020, A.M. Best announced that it had placed under review with negative implications the financial strength ratings of our operating subsidiaries. In addition, on June 17, 2020, Kroll Bond Rating Agency reaffirmed the “A” insurance financial strength ratings of our operating subsidiaries, and revised the outlook for all of the ratings to negative.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	(Unaudited)
	June 30,				December 31,
	2020				2019
Assets	($ in thousands, except share data)
Investments:
Term loans, fair value option (Amortized cost: $991,130 and $1,113,212)	$	875,560			$	1,061,934
Fixed maturities, fair value option (Amortized cost: $611,265 and $432,576)		548,010				416,594
Short-term investments, fair value option (Cost: $370,976 and $325,542)		370,066				329,303
Equity securities, fair value option		58,898				59,799
Other investments, fair value option		34,142				30,461
Investments, fair value option		1,886,676				1,898,091
Fixed maturities, available for sale (Amortized cost: $698,897 and $739,456)		690,225				745,708
Equity securities, fair value through net income		62,444				65,338
Total investments		2,639,345				2,709,137
Cash and cash equivalents		107,653				102,437
Accrued investment income		14,364				14,025
Premiums receivable		258,178				273,657
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses		229,746				170,974
Prepaid reinsurance premiums		131,919				132,577
Deferred acquisition costs, net		64,149				64,044
Receivable for securities sold		31,314				16,288
Intangible assets		7,650				7,650
Funds held by reinsurers		41,112				42,505
Other assets		22,328				17,562
Total assets	$	3,547,758			$	3,550,856
Liabilities
Reserve for losses and loss adjustment expenses	$	1,353,049			$	1,263,628
Unearned premiums		456,170				438,907
Losses payable		58,292				61,314
Reinsurance balances payable		72,776				77,066
Payable for securities purchased		67,272				18,180
Payable for securities sold short		29,289				66,257
Revolving credit agreement borrowings		472,361				484,287
Senior notes		172,554				172,418
Amounts due to affiliates		4,542				4,467
Investment management and performance fees payable		5,511				17,762
Other liabilities		27,440				21,912
Total liabilities	$	2,719,256			$	2,626,198
Commitments and contingencies
Contingently redeemable preference shares		52,351				52,305
Shareholders’ equity
Common shares ($0.01 par; shares authorized: 120 million; shares issued: 22,804,128 and 22,692,300)		227				227
Additional paid-in capital		898,935				898,083
Retained earnings (deficit)		(35,909	)			43,470
Accumulated other comprehensive income (loss)		(9,179	)			5,629
Common shares held in treasury, at cost (shares: 2,917,149 and 2,789,405)		(77,923	)			(75,056	)
Total shareholders’ equity		776,151				872,353
Total liabilities, contingently redeemable preference shares and shareholders’ equity	$	3,547,758			$	3,550,856

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	(Unaudited)								(Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Revenues	($ in thousands except share and per share data)
Gross premiums written	$	157,927			$	161,978			$	392,829			$	348,667
Gross premiums ceded		(52,071	)			(42,608	)			(100,273	)			(83,910	)
Net premiums written		105,856				119,370				292,556				264,757
Change in unearned premiums		25,679				31,948				(20,982	)			32,655
Net premiums earned		131,535				151,318				271,574				297,412
Other underwriting income (loss)		868				673				1,001				1,265
Interest income		36,453				38,596				74,277				81,737
Investment management fees - related parties		(4,262	)			(4,570	)			(8,614	)			(8,979	)
Borrowing and miscellaneous other investment expenses		(4,763	)			(7,611	)			(10,432	)			(15,909	)
Net interest income		27,428				26,415				55,231				56,849
Realized and unrealized gains (losses) on investments		172,063				(936	)			(118,439	)			32,784
Investment performance fees - related parties		—				(1,692	)			—				(7,492	)
Net investment income (loss)		199,491				23,787				(63,208	)			82,141
Total revenues		331,894				175,778				209,367				380,818
Expenses
Loss and loss adjustment expenses		(104,786	)			(111,416	)			(215,462	)			(222,266	)
Acquisition expenses		(29,486	)			(35,417	)			(57,853	)			(69,391	)
General and administrative expenses		(7,841	)			(9,751	)			(14,980	)			(16,991	)
Interest expense		(2,911	)			—				(5,823	)			—
Net foreign exchange gains (losses)		2,665				(441	)			7,678				(878	)
Total expenses		(142,359	)			(157,025	)			(286,440	)			(309,526	)
Income (loss) before income taxes		189,535				18,753				(77,073	)			71,292
Income tax expense		402				(20	)			402				(20	)
Net income (loss) before preference dividends		189,937				18,733				(76,671	)			71,272
Preference dividends		(1,109	)			(4,908	)			(2,280	)			(9,815	)
Net income (loss) available to common shareholders	$	188,828			$	13,825			$	(78,951	)		$	61,457
Other comprehensive income (loss) net of income tax:
Available-for-sale investments:
Unrealized holding gains (losses) arising during the period	$	31,240			$	6,532			$	2,809			$	10,613
Unrealized foreign currency gains (losses) arising during the period		279				(1,678	)			(7,420	)			(548	)
Credit loss recognized in net income (loss)		(212	)			—				351				—
Reclassification of net realized (gains) losses, net of income taxes, included in net income (loss)		(8,331	)			(1,816	)			(10,736	)			(2,211	)
Unrealized holding gains (losses) of available for sale investments		22,976				3,038				(14,996	)			7,854
Foreign currency translation adjustments		51				212				188				47
Other comprehensive income (loss) net of income tax		23,027				3,250				(14,808	)			7,901
Comprehensive income (loss)	$	211,855			$	17,075			$	(93,759	)		$	69,358
Earnings (loss) per share:
Basic and diluted	$	9.51			$	0.61			$	(3.97	)		$	2.71
Weighted average number of ordinary shares used in the determination of earnings (loss) per share:
Basic		19,863,048				22,740,762				19,907,490				22,711,833
Diluted		19,863,048				22,747,033				19,907,490				22,714,969

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Numerator:	($ in thousands except share and per share data)
Net income (loss) before preference dividends	$	189,937			$	18,733			$	(76,671	)		$	71,272
Preference dividends		(1,109	)			(4,908	)			(2,280	)			(9,815	)
Net income (loss) available to common shareholders	$	188,828			$	13,825			$	(78,951	)		$	61,457
Denominator:
Weighted average common shares outstanding - basic		19,863,048				22,740,762				19,907,490				22,711,833
Effect of dilutive common share equivalents:
Weighted average non-vested restricted share units (1)		—				6,271				—				3,136
Weighted average common shares outstanding - diluted		19,863,048				22,747,033				19,907,490				22,714,969
Earnings (loss) per common share:
Basic and diluted	$	9.51			$	0.61			$	(3.97	)		$	2.71

(1) The weighted average non-vested restricted share units are excluded from the calculation of diluted weighted average common shares outstanding for the six months ended June 30, 2020, due to a net loss reported.

	June 30,			March 31,			December 31,			September 30,			June 30,
	2020 (1)			2020 (2)				2019			2019		2019 (3)
Numerator:	($ in thousands except share and per share data)
Total shareholders’ equity	$	776,151		$	564,054		$	872,353		$	960,773		$	961,296
Denominator:
Common shares outstanding - basic (1)(2)(3)		19,890,784			19,863,328			19,976,397			22,765,802			22,765,802
Effect of dilutive common share equivalents:
Non-vested restricted share units (2)(3)		103,820			131,277			82,360			82,360			82,360
Common shares outstanding - diluted		19,994,604			19,994,605			20,058,757			22,848,162			22,848,162
Book value per common share	$	39.02		$	28.40		$	43.67		$	42.20		$	42.23
Book value per diluted common share	$	38.82		$	28.21		$	43.49		$	42.05		$	42.07

(1) During the second quarter of 2020, the Company issued 100,958 common shares, related to the restricted share units granted to certain employees and directors in the second quarter of 2019. Of these shares, 27,456 common shares vested in the second quarter of 2020.

(2) During the first quarter of 2020, the Company granted 63,591 restricted share units and common shares to certain employees and directors, 48,916 of which are non-vested as of June 30, 2020.

(3) During the second quarter of 2019, the Company granted 165,287 restricted share units and common shares to certain employees and directors, 54,904 of which are non-vested as of June 30, 2020.

Comments on Regulation G

Throughout this release, the Company presents its operations in the way it believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use the Company’s financial information in evaluating the performance of the Company and that investors and such other persons benefit from having a consistent basis for comparison between quarters and for comparison with other companies within the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on these non-U.S. GAAP financial measures in assessing the Company’s overall financial performance.

This presentation includes the use of “underwriting income (loss)” (which is defined as net premiums earned less loss and loss adjustment expenses, acquisition expenses and general and administrative expenses), “adjusted underwriting income (loss)” (which is defined as underwriting income (loss) plus other underwriting income (loss) less certain corporate expenses), and “adjusted combined ratio” (which is calculated by dividing the sum of loss and loss adjustment expenses, acquisition expenses and general and administrative expenses, less certain corporate expenses, by the sum of net premiums earned and other underwriting income (loss)).  Certain corporate expenses are generally comprised of costs associated with the ongoing operations of the holding company, such as compensation of certain executives and costs associated with the initial setup of subsidiaries.

The presentation of underwriting income (loss), adjusted underwriting income (loss) and the adjusted combined ratio are non-U.S. GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income (loss) available to common shareholders (the most directly comparable U.S. GAAP financial measure) in accordance with Regulation G is included on the following pages of this release.

Underwriting income (loss) is useful in evaluating our underwriting performance, without regard to other underwriting income (losses), net investment income (losses), net foreign exchange gains (losses), interest expense, income tax expenses and preference dividends, and adjusted underwriting income (loss) is useful in evaluating our underwriting performance, without regard to net investment income (losses), net foreign exchange gains (losses), interest expense, income tax expenses, preference dividends and certain corporate expenses, and the adjusted combined ratio is a key indicator of our profitability, without regard to certain corporate expenses.  The Company believes that preference dividends, income tax expense, foreign exchange gains (losses), interest expense, net investment income (loss), other underwriting income (loss) and certain corporate expenses in any particular period are not indicative of the performance of, or trends in, the Company’s underwriting performance. Although preference dividends, income tax expense, foreign exchange gains (losses), interest expense, net investment income (loss) and other underwriting income (loss) are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses, and the recognition of foreign exchange gains or losses are independent of the underwriting process and result, in large part, from general economic and financial market conditions. Furthermore, certain users of the Company’s financial information believe that, for many companies, the timing of the realization of investment gains or losses is largely opportunistic. The Company believes that certain corporate expenses are not indicative of the performance of, or trends in, the Company’s business performance. Due to these reasons, the Company excludes preference dividends, income tax expense, foreign exchange gains (losses), interest expense, net investment income (loss), other underwriting income (loss) from the calculation of underwriting income (loss), and excludes preference dividends, income tax expense, foreign exchange gains (losses), interest expense, net investment income (loss) and certain corporate expenses from the calculation of adjusted underwriting income (loss) and the adjusted combined ratio.

The Company believes that showing underwriting income (loss), adjusted underwriting income (loss) and the adjusted combined ratio exclusive of the items referred to above reflects the underlying fundamentals of the Company’s business since the Company evaluates the performance of its business using underwriting income (loss), adjusted underwriting income (loss) and the adjusted combined ratio. The Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies, which follow the Company and the insurance industry as a whole generally exclude these items from their analysis for the same reasons.

This presentation also includes the non-investment grade portfolio and investment grade portfolio components of our investment returns: “net interest income yield on average net assets” (calculated as net interest income divided by average net assets), “net investment income return on average total investments (excluding accrued investment income)” (calculated as net investment income divided by average total investments), and “net investment income return on average net assets” (calculated as net investment income divided by average net assets). Net assets is calculated as the sum of total investments, accrued investment income and receivables for securities sold, less revolving credit agreement borrowings, payable for securities purchased and payables for securities sold short. For the three- and six-month periods, average net assets is calculated using the averages of each quarterly period. However, for the investment grade portfolio component of these returns, the impact of the revolving credit agreement borrowings is not subtracted from net interest income, net investment income (loss) or the net assets calculation.

The presentation of the separate components of our investment returns (non-investment grade portfolio and investment grade portfolio) are non-U.S. GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net interest income and net investment income (loss), the most directly comparable U.S. GAAP financial measures, in accordance with Regulation G is included on the following pages of this release.

The non-investment grade portfolio and investment grade portfolio components of our investment returns (net interest income yield on average net assets, net investment income return on average net assets and on average total investments (excluding accrued investment income), respectively) are useful in evaluating our investment performance. The non-investment grade portfolio components of these investment returns reflect the performance of our investment strategy under HPS Investment Partners, LLC (“HPS”), which includes the use of leverage. The investment grade portfolio component of these returns reflects the performance of the investment portfolios that predominantly support our underwriting collateral.

The following tables present a reconciliation of underwriting income (loss) to net income (loss) available to common shareholders, and a reconciliation of adjusted underwriting income (loss) to underwriting income (loss):

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
	($ in thousands)
Net income (loss) available to common shareholders	$	188,828			$	13,825			$	(78,951	)		$	61,457
Preference dividends		1,109				4,908				2,280				9,815
Net income (loss) before dividends		189,937				18,733				(76,671	)			71,272
Income tax expense		(402	)			20				(402	)			20
Interest expense		2,911				—				5,823				—
Net foreign exchange (gains) losses		(2,665	)			441				(7,678	)			878
Net investment (income) loss		(199,491	)			(23,787	)			63,208				(82,141	)
Other underwriting (income) loss		(868	)			(673	)			(1,001	)			(1,265	)
Underwriting income (loss)		(10,578	)			(5,266	)			(16,721	)			(11,236	)
Certain corporate expenses		3,443				4,795				6,439				6,758
Other underwriting income (loss)		868				673				1,001				1,265
Adjusted underwriting income (loss)	$	(6,267	)		$	202			$	(9,281	)		$	(3,213	)

The adjusted combined ratio reconciles to the combined ratio for the three and six months ended June 30, 2020 and 2019 as follows:

	Three Months Ended June 30,
	2020												2019
	Amount				Adjustment				As Adjusted				Amount				Adjustment				As Adjusted
	($ in thousands)
Losses and loss adjustment expenses	$	104,786			$	—			$	104,786			$	111,416			$	—			$	111,416
Acquisition expenses		29,486				—				29,486				35,417				—				35,417
General & administrative expenses (1)		7,841				(3,443	)			4,398				9,751				(4,795	)			4,956
Net premiums earned (1)		131,535				868				132,403				151,318				673				151,991
Loss ratio		79.7	%											73.6	%
Acquisition expense ratio		22.4	%											23.4	%
General & administrative expense ratio (1)		5.9	%											6.5	%
Combined ratio		108.0	%											103.5	%
Adjusted loss ratio										79.1	%											73.3	%
Adjusted acquisition expense ratio										22.3	%											23.3	%
Adjusted general & administrative expense ratio										3.3	%											3.3	%
Adjusted combined ratio										104.7	%											99.9	%

(1) Adjustments include certain corporate expenses, which are deducted from general and administrative expenses, and other underwriting income (loss), which is added to net premiums earned.

	Six Months Ended June 30,
	2020												2019
	Amount				Adjustment				As Adjusted				Amount				Adjustment				As Adjusted
	($ in thousands)
Losses and loss adjustment expenses	$	215,462			$	—			$	215,462			$	222,266			$	—			$	222,266
Acquisition expenses		57,853				—				57,853				69,391				—				69,391
General & administrative expenses (1)		14,980				(6,439	)			8,541				16,991				(6,758	)			10,233
Net premiums earned (1)		271,574				1,001				272,575				297,412				1,265				298,677
Loss ratio		79.3	%											74.7	%
Acquisition expense ratio		21.3	%											23.3	%
General & administrative expense ratio (1)		5.6	%											5.8	%
Combined ratio		106.2	%											103.8	%
Adjusted loss ratio										79.0	%											74.4	%
Adjusted acquisition expense ratio										21.2	%											23.2	%
Adjusted general & administrative expense ratio										3.2	%											3.5	%
Adjusted combined ratio										103.4	%											101.1	%

(1) Adjustments include certain corporate expenses, which are deducted from general and administrative expenses, and other underwriting income (loss), which is added to net premiums earned.

The following tables summarize the components of our total investment return for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30, 2020																Three Months Ended June 30, 2019
	Non-InvestmentGrade				InvestmentGrade				Cost of U/WCollateral (4)				Total				Non-InvestmentGrade				InvestmentGrade				Cost of U/WCollateral (4)				Total
	($ in thousands)
Interest income	$	32,410			$	4,043			$	—			$	36,453			$	32,492			$	6,104			$	—			$	38,596
Investment management fees - related parties		(3,943	)			(319	)			—				(4,262	)			(4,171	)			(399	)			—				(4,570	)
Borrowing and miscellaneous other investment expenses		(2,741	)			(212	)			(1,810	)			(4,763	)			(3,809	)			(238	)			(3,564	)			(7,611	)
Net interest income		25,726				3,512				(1,810	)			27,428				24,512				5,467				(3,564	)			26,415
Net realized gains (losses) on investments		(14,912	)			8,911				—				(6,001	)			(177	)			966				—				789
Net unrealized gains (losses) on investments (1)		178,050				14				—				178,064				(4,511	)			2,786				—				(1,725	)
Investment performance fees - related parties		—				—				—				—				(1,692	)			—				—				(1,692	)
Net investment income (loss)	$	188,864			$	12,437			$	(1,810	)		$	199,491			$	18,132			$	9,219			$	(3,564	)		$	23,787
Average total investments (2)	$	1,782,413			$	793,663			$	0			$	2,576,076			$	1,871,286			$	928,850			$	—			$	2,800,136
Average net assets (3)	$	1,446,900			$	800,175			$	(246,250	)		$	2,000,825			$	1,548,237			$	924,948			$	(327,619	)		$	2,145,566
Net interest income yield on average net assets (3)		1.8	%			0.4	%							1.4	%			1.6	%			0.6	%							1.2	%
Net investment income return on average total investments (excluding accrued investment income) (2)		10.6	%			1.6	%							7.7	%			1.0	%			1.0	%							0.8	%
Net investment income return on average net assets (3)		13.1	%			1.6	%			(0.7	)%			10.0	%			1.2	%			1.0	%			(1.1	)%			1.1	%

(1) Net unrealized gains (losses) on investments excludes unrealized gains and losses from the available for sale portfolios, which are recorded in other comprehensive income.

(2) Net investment income return on average total investments (excluding accrued investment income) is calculated by dividing net investment income by average total investments. For the three-month period, average total investments is calculated using the average of the beginning and ending balance of each quarterly period. However, for the investment grade portfolio component of these returns, the impact of revolving credit agreement borrowings is not subtracted from net investment income.

(3) Net interest income yield on average net assets and net investment income return on average net assets are calculated by dividing net interest income, and net investment income (loss), respectively, by average net assets. For the non-investment grade component of investment returns and total investment returns, net assets is calculated as the sum of total investments, accrued investment income and receivables for securities sold, less total revolving credit agreement borrowings, payable for securities purchased and payable for securities sold short.  However, for the investment grade portfolio component of these returns, the impact of the revolving credit agreement borrowings is not subtracted from net interest income, net investment income (loss), or the net assets calculation.

(4) The cost of underwriting collateral is calculated as the revolving credit agreement expenses for the investment grade portfolios divided by the average total revolving credit agreement borrowings for the investment grade portfolios during the period.

	Six Months Ended June 30, 2020																Six Months Ended June 30, 2019
	Non-InvestmentGrade				InvestmentGrade				Cost of U/WCollateral (4)				Total				Non-InvestmentGrade				InvestmentGrade				Cost of U/WCollateral (4)				Total
	($ in thousands)
Interest income	$	65,174			$	9,103			$	—			$	74,277			$	69,831			$	11,906			$	—			$	81,737
Investment management fees - related parties		(7,916	)			(698	)			—				(8,614	)			(8,242	)			(737	)			—				(8,979	)
Borrowing and miscellaneous other investment expenses		(5,332	)			(437	)			(4,663	)			(10,432	)			(8,667	)			(442	)			(6,800	)			(15,909	)
Net interest income		51,926				7,968				(4,663	)			55,231				52,922				10,727				(6,800	)			56,849
Net realized gains (losses) on investments		(22,137	)			11,090				—				(11,047	)			1,142				929				—				2,071
Net unrealized gains (losses) on investments (1)		(107,443	)			51				—				(107,392	)			23,114				7,599				—				30,713
Investment performance fees - related parties		—				—				—				—				(7,492	)			—				—				(7,492	)
Net investment income (loss)	$	(77,654	)		$	19,109			$	(4,663	)		$	(63,208	)		$	69,686			$	19,255			$	(6,800	)		$	82,141
Average total investments (2)	$	1,786,375			$	807,149			$	—			$	2,593,524			$	1,883,565			$	908,637			$	—			$	2,792,202
Average net assets (3)	$	1,488,863			$	813,118			$	(287,500	)		$	2,014,481			$	1,527,241			$	905,937			$	(322,303	)		$	2,110,875
Net interest income yield on average net assets (3)		3.5	%			1.0	%							2.7	%			3.5	%			1.2	%							2.7	%
Net investment income return on average total investments (excluding accrued investment income) (2)		(4.3	)%			2.4	%							(2.4	)%			3.7	%			2.1	%							2.9	%
Net investment income return on average net assets (3)		(5.2	)%			2.4	%			(1.6	)%			(3.1	)%			4.6	%			2.1	%			(2.1	)%			3.9	%

(1) Net unrealized gains (losses) on investments excludes unrealized gains and losses from the available for sale portfolios, which are recorded in other comprehensive income.

(2) Net investment income return on average total investments (excluding accrued investment income) is calculated by dividing net investment income by average total investments. For the six-month period, average total investments is calculated using the average of the beginning and ending balance of each quarterly period. However, for the investment grade portfolio component of these returns, the impact of revolving credit agreement borrowings is not subtracted from net investment income.

(3) Net interest income yield on average net assets and net investment income return on average net assets are calculated by dividing net interest income, and net investment income (loss), respectively, by average net assets. For the non-investment grade component of investment returns and total investment returns, net assets is calculated as the sum of total investments, accrued investment income and receivables for securities sold, less total revolving credit agreement borrowings, payable for securities purchased and payable for securities sold short.  However, for the investment grade portfolio component of these returns, the impact of the revolving credit agreement borrowings is not subtracted from net interest income, net investment income (loss), or the net assets calculation.

(4) The cost of underwriting collateral is calculated as the revolving credit agreement expenses for the investment grade portfolios divided by the average total revolving credit agreement borrowings for the investment grade portfolios during the period.

	As of June 30, 2020																As of June 30, 2019
	Non-InvestmentGrade				InvestmentGrade				Borrowingsfor U/WCollateral				Total				Non-InvestmentGrade				InvestmentGrade				Borrowingsfor U/WCollateral				Total
	($ in thousands)
Average total investments - QTD	$	1,782,413			$	793,663			$	—			$	2,576,076			$	1,871,286			$	928,850			$	—			$	2,800,136
Average total investments - YTD	$	1,786,375			$	807,149				—			$	2,593,524			$	1,883,565			$	908,637				—			$	2,792,202
Average net assets - QTD		1,446,900				800,175				(246,250	)			2,000,825				1,548,237				924,948				(327,619	)			2,145,566
Average net assets - YTD		1,488,863				813,118				(287,500	)			2,014,481				1,527,241				905,937				(322,303	)			2,110,875
Total investments	$	1,846,404			$	792,941			$	—			$	2,639,345			$	1,833,476			$	936,629			$	—			$	2,770,105
Accrued Investment Income		10,853				3,511				—				14,364				11,834				5,082				—				16,916
Receivable for Securities Sold		28,298				3016				—				31,314				29,367				58				—				29,425
Less: Payable for Securities Purchased		67,272				—				—				67,272				46,412				4,804				—				51,216
Less: Payable for Securities Sold Short		29,289				—				—				29,289				48,823				—				—				48,823
Less: Revolving credit agreement borrowings		308,611				—				163,750				472,361				229,546				—				328,751				558,297
Net assets	$	1,480,383			$	799,468			$	(163,750	)		$	2,116,101			$	1,549,896			$	936,965			$	(328,751	)		$	2,158,110
Non-investment grade borrowing ratio (1)		20.80	%															14.80	%
Unrealized gains on investments	$	44,845			$	14,278			$	—			$	59,123			$	27,068			$	8,160			$	—			$	35,228
Unrealized losses on investments		(221,353	)			(23,121	)			—				(244,474	)			(109,200	)			(4,737	)			—				(113,937	)
Net unrealized gains (losses) on investments	$	(176,508	)		$	(8,843	)		$	—			$	(185,351	)		$	(82,132	)		$	3,423			$	—			$	(78,709	)

(1) The non-investment grade borrowing ratio is calculated as revolving credit agreement borrowings divided by net assets.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “PSLRA”) provides a “safe harbor” for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements. Forward-looking statements, for purposes of the PSLRA or otherwise, can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” and similar statements of a future or forward-looking nature or their negative or variations or similar terminology. These forward-looking statements include statements regarding the Company’s return on equity potential and prospects for further book value growth.

Forward-looking statements involve the Company’s current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this release and in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”), and include:

• our limited operating history;
• fluctuations in the results of our operations;
• our ability to compete successfully with more established competitors;
• our losses exceeding our reserves;
• downgrades, potential downgrades or other negative actions by rating agencies, including A.M. Best’s recent announcement that it has placed under review with negative implications the financial strength and credit ratings of our operating subsidiaries;
• our dependence on key executives and inability to attract qualified personnel, or the potential loss of Bermudian personnel as a result of Bermuda employment restrictions;
• our dependence on letter of credit facilities that may not be available on commercially acceptable terms;
• our potential inability to pay dividends or distributions;
• our potential need for additional capital in the future and the potential unavailability of such capital to us on favorable terms or at all;
• our dependence on clients’ evaluations of risks associated with such clients’ insurance underwriting;
• the suspension or revocation of our subsidiaries’ insurance licenses;
• Watford Holdings potentially being deemed an investment company under U.S. federal securities law;
• the potential characterization of us and/or any of our subsidiaries as a passive foreign investment company (“PFIC”);
• our dependence on certain subsidiaries of Arch Capital Group Ltd. (“Arch”) for services critical to our underwriting operations;
• changes to our strategic relationship with Arch or the termination by Arch of any of our services agreements or quota share agreements;
• our dependence on HPS and Arch Investment Management Ltd. (“AIM”) to implement our investment strategy;
• the termination by HPS or AIM of any of our investment management agreements;
• risks associated with our investment strategy being greater than those faced by competitors;
• changes in the regulatory environment;
• our potentially becoming subject to U.S. federal income taxation;
• our potentially becoming subject to U.S. withholding and information reporting requirements under the U.S. Foreign Account Tax Compliance Act (“FATCA”) provisions;
• our ability to complete acquisitions and integrate businesses successfully;
• adverse general, societal, economic and market conditions, including those caused by pandemics, including COVID-19, and government actions in response thereto; and
• the other matters set forth under Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other sections of the Company’s Annual Report on Form 10-K, as well as the other factors set forth in the Company’s other documents on file with the SEC, and management’s response to any of the aforementioned factors.

All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Contact

Robert L. Hawley: (441) 278-3456

rhawley@watfordre.com