PEMBROKE, Bermuda--(BUSINESS WIRE)--WATFORD HOLDINGS LTD. (“Watford” or the “Company”) (NASDAQ: WTRE) today reported net income of $61.4 million, after $1.1 million of preference dividends, for the three months ended December 31, 2020, compared to net loss of $16.9 million, after $1.2 million of preference dividends for the same period in 2019. Book value per diluted common share was $47.08 at December 31, 2020, an increase of 8.3% from December 31, 2019. The quarterly results include:

The 2020 fourth quarter net income available to common shareholders was $61.4 million, or $3.08 per diluted common share, a 6.8% return on average equity, compared to net loss of $16.9 million, or $(0.79) per diluted common share, for the 2019 fourth quarter;
The 2020 full year net income available to common shareholders was $60.5 million, or $3.04 per diluted common share, a 7.8% return on average equity, compared to net income of $44.7 million, or $2.00 per diluted common share, a 4.8% return on average equity, for the 2019 full year;
Combined ratio of 106.3%, comprised of a 76.5% loss ratio, a 25.6% acquisition expense ratio and a 4.2% general and administrative expense ratio for the 2020 fourth quarter, compared to a combined ratio of 128.3%, comprised of a 100.9% loss ratio, a 22.3% acquisition expense ratio and a 5.1% general and administrative expense ratio for the 2019 fourth quarter;
Net interest income of $24.6 million, a 1.1% yield on average net assets for the 2020 fourth quarter, compared to net interest income of $29.8 million and a 1.4% yield on average net assets for the 2019 fourth quarter; and
Net investment income of $84.4 million, a 3.8% return on average net assets for the 2020 fourth quarter, compared to net investment income of $32.1 million and a 1.5% return on average net assets for the 2019 fourth quarter.

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

“Watford's fourth quarter results continue to demonstrate the durability in our business model with another strong financial performance. Our net income for the quarter was $61.4 million, a 6.8% return on average equity for the quarter.

We are also pleased to report solid book value growth in 2020. Our ultimate objective is to grow book value per share over time, and despite a tumultuous and challenging environment for underwriting and investments, we have grown our book value per diluted common share by 8.3% in the year.

The quarter's results were driven by strong investment income, which totaled $84.4 million for the last three months of the year. This was achieved while we simultaneously decreased our total invested assets in our non-investment grade portfolio, continuing our efforts to reduce our capital's exposure to mark-to-market volatility.

Our combined ratio for the quarter was 106.3%, and 104.5% when adjusted for other underwriting income and certain corporate expenses.

Market conditions improved further in the quarter, with rates moving positively particularly in our insurance platforms.”

Underwriting

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

	Three Months Ended December 31,								Year Ended December 31,
	2020			2019			% Change		2020			2019			% Change
	($ in thousands)
Gross premiums written	$	138,237		$	156,254		(11.5)	%	$	728,546		$	754,881		(3.5)	%
Net premiums written	97,717			112,353			(13.0)	%	537,589			532,862			0.9	%
Net premiums earned	142,746			133,446			7.0	%	560,351			556,690			0.7	%
Underwriting income (loss) (1)	(9,054)			(37,819)			76.1	%	(34,013)			(54,076)			37.1	%

							% Point Change								% Point Change
Loss ratio	76.5		%	100.9		%	(24.4)	%	78.6		%	81.4		%	(2.8)	%
Acquisition expense ratio	25.6		%	22.3		%	3.3	%	22.4		%	22.8		%	(0.4)	%
General & administrative expense ratio	4.2		%	5.1		%	(0.9)	%	5.1		%	5.5		%	(0.4)	%
Combined ratio	106.3		%	128.3		%	(22.0)	%	106.1		%	109.7		%	(3.6)	%
Adjusted combined ratio (2)	104.5		%	126.4		%	(21.9)	%	103.7		%	107.3		%	(3.6)	%

(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 December 31,				Year Ended December 31,
	2020		2019		2020		2019
	($ in thousands)
Gross premiums written:
Casualty reinsurance	$	14,239	$	26,680	$	188,042	$	279,967
Other specialty reinsurance	27,668		34,931		117,177		119,518
Property catastrophe reinsurance	1,569		844		27,334		16,226
Insurance programs and coinsurance	94,761		93,799		395,993		339,170
Total	$	138,237	$	156,254	$	728,546	$	754,881

Net premiums written:
Casualty reinsurance	$	14,280	$	26,532	$	185,968	$	225,758
Other specialty reinsurance	26,091		33,078		111,575		114,876
Property catastrophe reinsurance	1,569		874		26,587		15,517
Insurance programs and coinsurance	55,777		51,869		213,459		176,711
Total	$	97,717	$	112,353	$	537,589	$	532,862

Net premiums earned:
Casualty reinsurance	$	49,715	$	55,352	$	205,192	$	238,437
Other specialty reinsurance	33,800		30,929		131,873		149,688
Property catastrophe reinsurance	5,740		3,692		23,037		13,399
Insurance programs and coinsurance	53,491		43,473		200,249		155,166
Total	$	142,746	$	133,446	$	560,351	$	556,690

The following table shows the components of our loss and loss adjustment expenses for the three months and years ended December 31, 2020 and 2019:

	Three Months Ended December 31,								Year Ended December 31,
	2020				2019				2020				2019
	Loss and Loss Adjustment Expenses		% of Earned Premiums		Loss and Loss Adjustment Expenses		% of Earned Premiums		Loss and Loss Adjustment Expenses		% of Earned Premiums		Loss and Loss Adjustment Expenses		% of Earned Premiums
	($ in thousands)
Current year	$	109,314	76.6	%	$	110,510	82.8	%	$	441,175	78.7	%	$	429,322	77.1	%
Prior year development (favorable)/adverse	(107)		(0.1)	%	24,145		18.1	%	(693)		(0.1)	%	23,813		4.3	%
Loss and loss adjustment expenses	$	109,207	76.5	%	$	134,655	100.9	%	$	440,482	78.6	%	$	453,135	81.4	%

Results for the three months ended December 31, 2020 versus 2019:

Gross premiums written in the 2020 fourth quarter were 11.5% lower than the 2019 fourth quarter. The decrease in gross 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 fourth quarter.

Casualty reinsurance gross premiums decreased $12.4 million, or 46.6%, to $14.2 million, over the prior year quarter. The decrease was driven by non-renewals of certain professional liability, workers' compensation and medical malpractice treaties.

Other specialty gross premiums decreased $7.3 million, or 20.8%, to $27.7 million, over the prior year quarter. The decrease was driven by a reduction in mortgage premiums as well as reduced writings in certain motor reinsurance cessions.

Net premiums written in the 2020 fourth quarter decreased $14.6 million, or 13.0%, to $97.7 million, over the prior year quarter. The drivers of the decrease in net premiums written for casualty and other specialty reinsurance were the same as those impacting gross premiums written, as discussed above. The insurance programs and coinsurance net premiums written increased $3.9 million as a result of an increased net retention on our U.K. motor insurance portfolio.

Net premiums earned in the 2020 fourth quarter increased $9.3 million, or 7.0%, to $142.7 million, over the prior year quarter. The increase in earned premiums primarily reflected increased writings in the U.S. insurance programs and coinsurance, increased European motor writings within other specialty reinsurance and, to a lesser extent, greater assumed property catastrophe reinsurance. This increase was offset in part by decreases in casualty reinsurance driven by reduced professional liability premium, as described above.

The loss ratio was 76.5% in the 2020 fourth quarter compared to 100.9% in the 2019 fourth quarter. In the 2020 fourth quarter, we had losses totaling $1.3 million, or 0.9 points for catastrophe events which occurred during the quarter. The 2019 fourth quarter loss ratio included 18.1 points of prior year and 2.9 points of current year loss strengthening, primarily in the casualty reinsurance line of business. Casualty reinsurance prior year loss reserves were strengthened in the 2019 fourth quarter by $24.0 million, primarily due to a higher than anticipated level of reported losses on one professional lines quota share treaty program and one non-renewed multi-line quota share treaty. In addition, the 2019 fourth quarter experienced $5.0 million, or 3.7 points, of catastrophe losses, primarily due to Typhoon Hagibis in Japan.

The acquisition expense ratio was 25.6% in the 2020 fourth quarter, compared to 22.3% in the 2019 fourth quarter. These ratio movements reflected changes in mix and the type of business.

The general and administrative expense ratio was 4.2% in the 2020 fourth quarter, compared to 5.1% in the 2019 fourth quarter. The 0.9 point decrease versus the prior year quarter was attributable to a reduction in professional fees. Removing certain corporate expenses, our adjusted general and administrative expense ratio was 2.8% in the 2020 fourth quarter, compared to 3.7% in the 2019 fourth quarter.

Investments

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

	Three Months Ended December 31,						Year Ended December 31,
	2020			2019			2020			2019
	($ in thousands)
Interest income	$	31,560		$	40,775		$	140,390		$	163,888
Investment management fees - related parties	(4,199)			(4,807)			(17,193)			(18,392)
Borrowing and miscellaneous other investment expenses	(2,718)			(6,142)			(16,807)			(29,285)
Net interest income	24,643			29,826			106,390			116,211
Realized gains (losses) on investments	9,839			(10,664)			12,217			(7,948)
Unrealized gains (losses) on investments	60,234			16,769			7,412			32,191
Investment performance fees - related parties	(10,279)			(3,849)			(12,037)			(12,191)
Net investment income (loss)	$	84,437		$	32,082		$	113,982		$	128,263

Unrealized gains on investments (balance sheet)	$	81,653		$	47,203		$	81,653		$	47,203
Unrealized losses on investments (balance sheet)	(125,495)			(110,448)			(125,495)			(110,448)
Net unrealized gains (losses) on investments (balance sheet)	$	(43,842)		$	(63,245)		$	(43,842)		$	(63,245)

Net interest income yield on average net assets (1)	1.1		%	1.4		%	5.1		%	5.4		%
Non-investment grade portfolio (1)	1.5		%	1.7		%	6.7		%	6.8		%
Investment grade portfolio (1)	0.3		%	0.6		%	1.6		%	2.5		%
Net investment income return on average net assets (1)	3.8		%	1.5		%	5.4		%	6.0		%
Non-investment grade portfolio (1)	5.5		%	1.7		%	6.5		%	6.8		%
Investment grade portfolio (1)	0.4		%	0.9		%	3.0		%	3.9		%
Net investment income return on average total investments (excluding accrued investment income) (2)	3.3		%	1.2		%	4.4		%	4.6		%
Non-investment grade portfolio (2)	4.5		%	1.4		%	5.3		%	5.7		%
Investment grade portfolio (2)	0.4		%	0.9		%	3.0		%	3.9		%

(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 twelve-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 twelve-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 December 31, 2020 versus 2019:

Net investment income was $84.4 million for the three months ended December 31, 2020 compared to net investment income of $32.1 million for the three months ended December 31, 2019, an increase of $52.3 million. The 2020 fourth quarter net investment income return on average net assets was 3.8% as compared to 1.5% for the prior year period.

The 2020 fourth quarter net investment income return was driven by net unrealized gains of $60.2 million and net realized gains of $9.8 million, as the non-investment grade credit spreads continued to tighten through the quarter. Net interest income decreased to $24.6 million from $29.8 million, a decrease of 17.4% compared to the prior year quarter.

The 2020 fourth quarter non-investment grade portfolio net interest income yield on average net assets was 1.5%, a decrease from 1.7% in the fourth quarter of 2019. The reduced yield for the 2020 fourth quarter reflected a portfolio shift to higher rated investments and a decrease in LIBOR. The net realized and unrealized gains reported in the 2020 fourth quarter were $69.4 million, reflective of the credit spread recovery discussed above.

The 2020 fourth quarter investment grade portfolio net interest income yield on average net assets was 0.3%, a decrease from 0.6% in the fourth quarter of 2019. The reduced yield for the 2020 fourth quarter reflected a reduction in interest rates. In addition, the investment grade portfolio recognized $0.6 million of net realized and unrealized gains in the quarter, as compared to net realized and unrealized gains of $2.4 million in the fourth quarter of 2019.

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

	December 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	$	851,539	$	191,608	$	162,255	$	159,747	$	79,477	$	131,820	$	24,079	$	29,679	$	72,874
Corporate bonds	312,620		26,565		23,929		53,493		81,990		21,899		18,759		34,955		51,030
Equities - sector specific	101,464		71,574		22,463		2,724		—		2,822		—		479		1,402
Short-term investments - sector specific	12,637		—		490		—		8,961		—		—		—		3,186
Subtotal	1,278,260		289,747		209,137		215,964		170,428		156,541		42,838		65,113		128,492
Equities - non-sector specific	16,737
Short-term investments - non-sector specific	288,753
Asset-backed securities	140,508
Total Non-Investment Grade Portfolio	$	1,724,258	$	289,747	$	209,137	$	215,964	$	170,428	$	156,541	$	42,838	$	65,113	$	128,492

Investment Grade Portfolio:
Corporate bonds	$	197,247	$	55,430	$	11,190	$	17,863	$	28,002	$	13,989	$	41,543	$	14,473	$	14,757
Short-term investments	117,300
U.S. government and government agency bonds	202,488
Non-U.S. government and government agency bonds	158,839
Asset-backed securities	80,258
Mortgage-backed securities	16,663
Municipal government and government agency bonds	1,788
Total Investment Grade Portfolio	$	774,583	$	55,430	$	11,190	$	17,863	$	28,002	$	13,989	$	41,543	$	14,473	$	14,757
Total Investments	$	2,498,841	$	345,177	$	220,327	$	233,827	$	198,430	$	170,530	$	84,381	$	79,586	$	143,249

(1) Includes telecommunications, utilities and basic materials.

	September 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	$	893,030	$	188,791	$	155,104	$	154,834	$	136,778	$	121,996	$	27,779	$	29,779	$	77,969
Corporate bonds	456,655		44,767		50,186		32,676		95,102		41,723		66,282		36,173		89,746
Equities - sector specific	96,641		63,740		21,812		7,168		—		2,437		—		311		1,173
Short-term investments - sector specific	2,265		—		443		1,822		—		—		—		—		—
Subtotal	1,448,591		297,298		227,545		196,500		231,880		166,156		94,061		66,263		168,888
Equities - non-sector specific	17,139
Short-term investments - non-sector specific	250,636
Asset-backed securities	164,990
Mortgage-backed securities	8,600
Total Non-Investment Grade Portfolio	$	1,889,956	$	297,298	$	227,545	$	196,500	$	231,880	$	166,156	$	94,061	$	66,263	$	168,888

Investment Grade Portfolio:
Corporate bonds	$	193,357	$	52,606	$	10,390	$	18,844	$	24,440	$	14,713	$	42,506	$	15,221	$	14,637
Short-term investments	97,490
U.S. government and government agency bonds	203,452
Non-U.S. government and government agency bonds	150,782
Asset-backed securities	84,701
Mortgage-backed securities	18,115
Municipal government and government agency bonds	1,793
Total Investment Grade Portfolio	$	749,690	$	52,606	$	10,390	$	18,844	$	24,440	$	14,713	$	42,506	$	15,221	$	14,637
Total Investments	$	2,639,646	$	349,904	$	237,935	$	215,344	$	256,320	$	180,869	$	136,567	$	81,484	$	183,525

(1) Includes telecommunications, utilities and basic materials.

The tables below summarize the credit quality of the Company's non-investment grade and investment grade portfolios as of December 31, 2020 and September 30, 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)
December 31, 2020	Fair Value		AAA		AA		A		BBB		BB		B		CCC		CC		C		Not Rated
	($ in thousands)
Non-Investment Grade Portfolio:
Term loan investments	$	851,539	$	—	$	—	$	—	$	11,352	$	19,486	$	588,215	$	185,221	$	7,406	$	2,727	$	37,132
Corporate bonds	312,620		—		—		—		—		31,089		194,418		59,421		8,280		1,894		17,518
Asset-backed securities	140,508		—		—		—		73,911		26,799		8,385		8,262		837		—		22,314
Short-term investments	301,390		83,308		124,830		89,577		—		—		3,186		489		—		—		—
Total fixed income instruments and short-term investments	1,606,057		83,308		124,830		89,577		85,263		77,374		794,204		253,393		16,523		4,621		76,964
Equities	118,201
Total Non-Investment Grade Portfolio	$	1,724,258	$	83,308	$	124,830	$	89,577	$	85,263	$	77,374	$	794,204	$	253,393	$	16,523	$	4,621	$	76,964

Investment Grade Portfolio:
Corporate bonds	$	197,247	$	—	$	19,812	$	82,379	$	87,913	$	7,143	$	—	$	—	$	—	$	—	$	—
U.S. government and government agency bonds	202,488		—		202,488		—		—		—		—		—		—		—		—
Asset-backed securities	80,258		—		—		15,675		59,560		5,023		—		—		—		—		—
Mortgage-backed securities	16,663		—		—		2,092		14,571		—		—		—		—		—		—
Non-U.S. government and government agency bonds	158,839		—		158,839		—		—		—		—		—		—		—		—
Municipal government and government agency bonds	1,788		783		592		413		—		—		—		—		—		—		—
Short-term investments	117,300		6,211		43,870		19,328		47,891		—		—		—		—		—		—
Total Investment Grade Portfolio	$	774,583	$	6,994	$	425,601	$	119,887	$	209,935	$	12,166	$	—	$	—	$	—	$	—	$	—
Total	$	2,498,841	$	90,302	$	550,431	$	209,464	$	295,198	$	89,540	$	794,204	$	253,393	$	16,523	$	4,621	$	76,964

(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)
September 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	$	893,030	$	—	$	—	$	—	$	11,074	$	27,214	$	533,876	$	233,186	$	8,970	$	4,469	$	13,325	$	60,916
Corporate bonds	456,655		—		—		—		14,037		68,968		207,670		126,388		6,070		1,171		14,415		17,936
Asset-backed securities	164,990		—		—		5,989		88,704		28,452		9,277		8,667		842		—		—		23,059
Mortgage-backed securities	8,600		—		—		—		—		1,182		—		—		—		—		3,149		4,269
Short-term investments	252,901		54,458		132,306		63,871		—		—		—		443		—		—		—		1,823
Total fixed income instruments and short-term investments	1,776,176		54,458		132,306		69,860		113,815		125,816		750,823		368,684		15,882		5,640		30,889		108,003
Other Investments	—
Equities	113,780
Total Non-Investment Grade Portfolio	$	1,889,956	$	54,458	$	132,306	$	69,860	$	113,815	$	125,816	$	750,823	$	368,684	$	15,882	$	5,640	$	30,889	$	108,003

Investment Grade Portfolio:
Corporate bonds	$	193,357	$	—	$	20,016	$	87,672	$	80,678	$	4,991	$	—	$	—	$	—	$	—	$	—	$	—
U.S. government and government agency bonds	203,452		—		203,452		—		—		—		—		—		—		—		—		—
Asset-backed securities	84,701		—		—		16,757		63,216		4,728		—		—		—		—		—		—
Mortgage-backed securities	18,115		—		—		1,733		16,382		—		—		—		—		—		—		—
Non-U.S. government and government agency bonds	150,782		—		150,782		—		—		—		—		—		—		—		—		—
Municipal government and government agency bonds	1,793		784		595		414		—		—		—		—		—		—		—		—
Short-term investments	97,490		5,116		43,889		—		48,485		—		—		—		—		—		—		—
Total Investment Grade Portfolio	$	749,690	$	5,900	$	418,734	$	106,576	$	208,761	$	9,719	$	—	$	—	$	—	$	—	$	—	$	—
Total	$	2,639,646	$	60,358	$	551,040	$	176,436	$	322,576	$	135,535	$	750,823	$	368,684	$	15,882	$	5,640	$	30,889	$	108,003

Corporate Function

The Company has a corporate function that includes general and administrative expenses related to corporate activities, interest expense, transaction costs and other, 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 and $3.0 million for the three months ended December 31, 2020 and 2019, respectively, 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 $1.2 million for the three months ended December 31, 2020 and 2019, respectively.

During the 2020 fourth quarter, the Company incurred $4.0 million of transaction costs, which included various legal, advisory and other consulting costs associated with the previously announced Merger Agreement between the Company and Arch Capital Group Ltd. (“Arch”).

There were no common share repurchases during the 2020 fourth quarter. As of December 31, 2020, approximately $47.1 million of share repurchases were available under the Company’s previously announced $50 million share repurchase program. The Company does not anticipate making any further repurchases under its current share repurchase program due to its pending acquisition by Greysbridge Holdings Ltd. (“HoldCo”), a newly-formed company organized by Arch.

Conference Call

The Company will not hold a conference call to discuss its 2020 fourth quarter results due to the previously announced Merger Agreement between the Company and Arch.

About Watford Holdings Ltd.

Watford Holdings Ltd. is a global property and casualty insurance and reinsurance company with approximately $1.2 billion in capital as of December 31, 2020, comprised of: $172.7 million of senior notes, $52.4 million of contingently redeemable preference shares and $941.3 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” with an Outlook of Negative from KBRA. On November 19, 2020, A.M. Best announced that it has maintained its “under review with negative implications” status for the financial strength ratings of our operating subsidiaries.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	(Unaudited)
	December 31,		December 31,
	2020		2019
Assets	($ in thousands)
Investments:
Term loans, fair value option (Amortized cost: $890,996 and $1,113,212)	$	851,539	$	1,061,934
Fixed maturities, fair value option (Amortized cost: $477,548 and $432,576)	455,162		416,594
Short-term investments, fair value option (Cost: $412,762 and $325,542)	418,690		329,303
Equity securities, fair value option	64,994		59,799
Other investments, fair value option	—		30,461
Investments, fair value option	1,790,385		1,898,091
Fixed maturities, available for sale (Amortized cost: $638,075 and $739,456)	655,249		745,708
Equity securities, fair value through net income	53,207		65,338
Total investments	2,498,841		2,709,137
Cash and cash equivalents	211,451		102,437
Accrued investment income	14,679		14,025
Premiums receivable	224,377		273,657
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	286,590		170,974
Prepaid reinsurance premiums	122,339		132,577
Deferred acquisition costs, net	53,705		64,044
Receivable for securities sold	37,423		16,288
Intangible assets	7,650		7,650
Funds held by reinsurers	45,989		42,505
Other assets	29,016		17,562
Total assets	$	3,532,060	$	3,550,856
Liabilities
Reserve for losses and loss adjustment expenses	$	1,519,583	$	1,263,628
Unearned premiums	407,714		438,907
Losses payable	59,397		61,314
Reinsurance balances payable	63,269		77,066
Payable for securities purchased	16,916		18,180
Payable for securities sold short	21,975		66,257
Revolving credit agreement borrowings	211,640		484,287
Senior notes	172,689		172,418
Amounts due to affiliates	7,708		4,467
Investment management and performance fees payable	21,641		17,762
Other liabilities	35,786		21,912
Total liabilities	$	2,538,318	$	2,626,198
Commitments and contingencies
Contingently redeemable preference shares	52,398		52,305
Shareholders’ equity
Common shares ($0.01 par; shares authorized: 120 million; shares issued: 22,804,128 and 22,692,300)	228		227
Additional paid-in capital	899,491		898,083
Retained earnings (deficit)	103,554		43,470
Accumulated other comprehensive income (loss)	15,994		5,629
Common shares held in treasury, at cost (shares: 2,917,149 and 2,789,405)	(77,923)		(75,056)
Total shareholders’ equity	941,344		872,353
Total liabilities, contingently redeemable preference shares and shareholders’ equity	$	3,532,060	$	3,550,856

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

	(Unaudited)				(Unaudited)
	Three Months Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
Revenues	($ in thousands except share and per share data)
Gross premiums written	$	138,237	$	156,254	$	728,546	$	754,881
Gross premiums ceded	(40,520)		(43,901)		(190,957)		(222,019)
Net premiums written	97,717		112,353		537,589		532,862
Change in unearned premiums	45,029		21,093		22,762		23,828
Net premiums earned	142,746		133,446		560,351		556,690
Other underwriting income (loss)	498		568		2,045		2,412
Interest income	31,560		40,775		140,390		163,888
Investment management fees - related parties	(4,199)		(4,807)		(17,193)		(18,392)
Borrowing and miscellaneous other investment expenses	(2,718)		(6,142)		(16,807)		(29,285)
Net interest income	24,643		29,826		106,390		116,211
Realized and unrealized gains (losses) on investments	70,073		6,105		19,629		24,243
Investment performance fees - related parties	(10,279)		(3,849)		(12,037)		(12,191)
Net investment income (loss)	84,437		32,082		113,982		128,263
Total revenues	227,681		166,096		676,378		687,365
Expenses
Loss and loss adjustment expenses	(109,207)		(134,655)		(440,482)		(453,135)
Acquisition expenses	(36,578)		(29,785)		(125,541)		(126,788)
General and administrative expenses	(6,015)		(6,825)		(28,341)		(30,843)
Interest expense	(2,912)		(2,950)		(11,647)		(5,791)
Net foreign exchange gains (losses)	(6,139)		(7,536)		(1,387)		(8,247)
Transaction costs and other	(4,040)		—		(4,040)		—
Total expenses	(164,891)		(181,751)		(611,438)		(624,804)
Income (loss) before income taxes	62,790		(15,655)		64,940		62,561
Income tax expense	(359)		—		(26)		(20)
Net income (loss) before preference dividends and redemption costs	62,431		(15,655)		64,914		62,541
Preference dividends	(1,061)		(1,209)		(4,402)		(13,632)
Accelerated amortization of costs related to the redemption of preference shares	—		—		—		(4,164)
Net income (loss) available to common shareholders	$	61,370	$	(16,864)	$	60,512	$	44,745
Other comprehensive income (loss) net of income tax:
Available-for-sale investments:
Unrealized holding gains (losses) arising during the period	$	7,255	$	(1,749)	$	16,695	$	12,649
Unrealized foreign currency gains (losses) arising during the period	7,051		7,596		5,360		3,372
Credit loss recognized in net income (loss)	(213)		—		197		—
Reclassification of net realized (gains) losses, net of income taxes, included in net income (loss)	(765)		(2,146)		(11,133)		(5,611)
Unrealized holding gains (losses) of available for sale investments	13,328		3,701		11,119		10,410
Foreign currency translation adjustments	(531)		(384)		(754)		(51)
Other comprehensive income (loss) net of income tax	12,797		3,317		10,365		10,359
Comprehensive income (loss)	$	74,167	$	(13,547)	$	70,877	$	55,104
Earnings (loss) per share:
Basic	$	3.09	$	(0.79)	$	3.04	$	2.00
Diluted	$	3.08	$	(0.79)	$	3.04	$	2.00
Weighted average number of ordinary shares used in the determination of earnings (loss) per share:
Basic	19,890,784		21,277,287		19,899,137		22,366,682
Diluted	19,952,166		21,277,287		19,921,231		22,373,968

	Three Months Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
Numerator:	($ in thousands except share and per share data)
Net income (loss) before preference dividends and redemption costs	$	62,431	$	(15,655)	$	64,914	$	62,541
Preference dividends	(1,061)		(1,209)		(4,402)		(13,632)
Accelerated amortization of costs related to the redemption of preference shares	—		—		—		(4,164)
Net income (loss) available to common shareholders	$	61,370	$	(16,864)	$	60,512	$	44,745
Denominator:
Weighted average common shares outstanding - basic	19,890,784		21,277,287		19,899,137		22,366,682
Effect of dilutive common share equivalents:
Weighted average non-vested restricted share units (1)	61,382		—		22,094		7,286
Weighted average common shares outstanding - diluted	19,952,166		21,277,287		19,921,231		22,373,968
Earnings (loss) per common share:
Basic	$	3.09	$	(0.79)

Watford Reports 2020 Fourth Quarter Results