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Investor Presentation

February 2014

Chesney House, 96 Pitts Bay Road | Pembroke HM 08, Bermuda | www.thirdpointre.bm
Forward‐Looking Statements and Non‐GAAP Measures
This presentation contains “forward-looking statements” that are based on...
Third Point Re: A Differentiated Equity Story

Profitable reinsurance underwriting with superior investment
management dri...
Investment Highlights
Total return business
model
Potential to perform in all
market cycles

Attractive
financial profile
...
Total Return Business Model Offers Upside In Varying Markets
Dynamic Business Model
Reinsurance:
World-class underwriting ...
Deeply Experienced and Highly Credentialed Management Team
CEO
Experience
John Berger
Chairman & CEO

•
•
•
•

CEO, Reinsu...
Disciplined and Opportunistic Reinsurance Strategy
Generating ROE from underwriting and positive asset leverage
•

Reinsur...
Strong Relationships with Diverse and Leading Reinsurance Brokers
Submissions

Key Success Factors

Submissions by broker ...
Growing and Diversified Reinsurance Portfolio
Strong Premium Growth ($ millions)
$239.7

Portfolio Construction
Expertise ...
Third Point Re’s Relationship With Third Point LLC
Third Point LLC manages Third Point Re’s assets under a long-term
inves...
Best‐in‐Class Investment Management
Illustrative Net Return1 Since Inception2,3,4

Third Point LLC Overview

$40,000

Thir...
Investment Management Strategy
•

Investment philosophy
–

–

Value unlocked by discrete events or “catalysts”

–
•

Value...
Attractive Financial Profile
• No debt
Strong Balance
Sheet

• Low premium leverage
• Liquid investment portfolio – 97% of...
Rigorous Risk Management

 Carefully defined risk appetite and controls
 Quarterly reporting to the Board of Directors
...
Key Financial Highlights
Highlights

Consolidated Income Statement ($000s)
3 months
ended 9/30/13

9 months
ended 9/30/13
...
Key Financial Highlights (Cont’d)
Selected Balance Sheet Data ($000s)

Total shareholders’ equity
Non-controlling interest...
Investment Highlights

Total return business
model

Attractive
financial profile

Aligned investor
sponsorship
Profitable ...
Non‐GAAP Measures
Book value per share
Book value per share as used by our management is a non-GAAP measure, as it is calc...
Non‐GAAP Measures (Cont’d)
Growth in diluted book value per share
Calculated by taking the change in diluted book value pe...
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Transcript of "Tpre investor presentation february 2014 v1 v001-v7uxei"

  1. 1. Investor Presentation February 2014 Chesney House, 96 Pitts Bay Road | Pembroke HM 08, Bermuda | www.thirdpointre.bm
  2. 2. Forward‐Looking Statements and Non‐GAAP Measures This presentation contains “forward-looking statements” that are based on management’s beliefs and assumptions and on information currently available to management. Most forward-looking statements contain words that identify them as forward-looking, such as “anticipates,” “believes,” “continues,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms that relate to future events. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Third Point Reinsurance Ltd. (“Third Point Re”) to be materially different from any projected results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent the beliefs and assumptions of Third Point Re only as of the date of this presentation and Third Point Re undertakes no obligation to update or revise publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. As such, Third Point Re’s future results may vary from any expectations or goals expressed in, or implied by, the forward-looking statements included in this presentation, possibly to a material degree. Third Point Re cannot assure you that the assumptions made in preparing any of the forward-looking statements will prove accurate or that any long-term financial or operational goals and targets will be realized. For a discussion of some of the important factors that could cause Third Point Re’s results to differ materially from those expressed in, or implied by, the forward-looking statements included in this presentation, investors should read the Risk Factors set forth in the registration statement on file with the SEC related to our initial public offering completely and with the understanding that our actual future results may be materially different from what we expect. Any forward‐looking statements made by us in this presentation speak only as of the date of this presentation. We undertake no obligation to publicly update any forward‐ looking statement, whether as a result of new information, future developments or otherwise. Note to Certain Operating and Financial Data In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), Third Point Re also discloses in this presentation certain non-GAAP financial information, including return on beginning shareholders’ equity, insurance float, book value per share, diluted book value per share and growth in diluted book value per share. These financial measures are not recognized measures under GAAP and are not intended to be, and should not be considered, in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Please see the definition and reconciliation to GAAP financials at the end of this presentation for further detail. In addition, this presentation contains various metrics and operating information that are based on internal company data. While management believes such information and data are reliable, they have not been verified by an independent source and there are inherent challenges and limitations involved in compiling data across various sources. This presentation includes certain non‐GAAP financial measures. See pages 17 and 18 for a definition of such non‐GAAP measures and a reconciliation of those measures to the most directly comparable GAAP measures. 1
  3. 3. Third Point Re: A Differentiated Equity Story Profitable reinsurance underwriting with superior investment management drives opportunity for equity returns Key Facts and Figures: Business • Specialty property and casualty reinsurance • Class 4 Bermuda-domiciled reinsurer Reinsurance Subsidiary • A- financial strength rating from A.M. Best • $1.31 billion of shareholders equity as of September 30, 2013 Investment Manager Return on Beginning Shareholders Equity* • Third Point LLC, an SEC-registered investment manager, manages Third Point Re’s investment portfolio under a long-term investment management agreement • Daniel S. Loeb, founder of Third Point LLC, and related personal investment vehicles provided 10.8% of founding capital ($85 million) in Third Point Re • Year end 2012: 13.0% • YTD through 9/30/13: 16.1%1 * Non-GAAP measure; Please see descriptions and reconciliations on slides 17 and 18. 1 Not annualized. 2
  4. 4. Investment Highlights Total return business model Potential to perform in all market cycles Attractive financial profile Successful first 21 months of operations: 2012: $190mm in GWP; 13.0% ROE*; YTD Q3 2013: $240mm in GWP; 16.1% ROE* Aligned investor sponsorship Profitable reinsurance underwriting with superior investment management designed to deliver attractive equity returns over time Best-in-class investment manager 21.1% net annualized returns since inception 1,2,3 With reinsurance investment experience Deeply experienced and credentialed management team Disciplined and opportunistic underwriting approach * Non-GAAP measure; please see descriptions and reconciliations on slides 17 and 18; 1 From formation of Third Point Partners L.P., Third Point LLC’s oldest fund, in June 1995 through January 31, 2014; 2 Past performance is not necessarily indicative of future results. All investments involve risk including the loss of principal; 3 The historical performance of Third Point Partners L.P. (i) for the years 2001 through January 31, 2014 reflects the total return after incentive allocation for each such year as included in the audited statement of financial condition of Third Point Partners L.P. for those years and (ii) for the years 1995 through 2000 reflects the total return after incentive allocation for each such year as reported by Third Point Partners L.P. Total return after incentive allocation for the years 2001 through December 31, 2012 is based on the net asset value for all limited partners of Third Point Partners L.P. taken as a whole, some of whom pay no incentive allocation or management fees, whereas total return after incentive allocation for the years 1995 through 2000 is based on the net asset value for only those limited partners of Third Point Partners L.P. that paid incentive allocation and management fees. In each case, results are presented net of management fees, brokerage commissions, administrative expenses, and accrued performance allocation, if any, and include the reinvestment of all dividends, interest, and capital gains. 3
  5. 5. Total Return Business Model Offers Upside In Varying Markets Dynamic Business Model Reinsurance: World-class underwriting team Investment Portfolio: World-class investment manager Potential for attractive ROEs across underwriting cycles “Hard” Reinsurance Market Robust underwriting margin Superior investment returns Asset leverage “Soft” Reinsurance Market Modest underwriting margin Superior investment returns Asset leverage 4
  6. 6. Deeply Experienced and Highly Credentialed Management Team CEO Experience John Berger Chairman & CEO • • • • CEO, Reinsurance, Vice Chairman of the Board, Alterra Capital Holdings Limited CEO & President, Harbor Point Re Limited (Chubb Re spin-out) CEO & President, Chubb Re, Inc. President, F&G Re  Robert Bredahl CFO & COO • • • • CEO, Aon Benfield Securities President, Aon Benfield Americas CEO, Benfield U.S. Inc. & CEO, Benfield Advisory Board Member, Benfield Group PLC  • • President & CEO, JRG Reinsurance Company, Ltd. Chief Underwriting Officer & Head of Reinsurance Operations, Endurance Reinsurance Corporation of America Executive Vice President & Chief Underwriting Officer, AXA Corporate Solutions Reinsurance Company  • • • Executive VP, Co Head of Specialty Lines, Aon Benfield President & CEO, Stockton Reinsurance Ltd. President, Center Re Bermuda  • • • Chief Actuary of Reinsurance, Alterra Capital Holdings Limited Managing Director & Chief Underwriting Officer, Gerling Global International Reinsurance Co. Ltd. Consulting Actuary and Profit Center Manager, Milliman, USA • • Lead Portfolio Manager, Catastrophe Reinsurance, Goldman Sachs Asset Management Leader of Alternative Capacity and Credit Risk Solutions, Benfield Tony Urban EVP, Underwriting Dan Malloy EVP, Underwriting Michael McKnight, Chief Actuary & Chief Risk Officer Manoj Gupta SVP, Underwriting • • General Counsel & Board Secretary, The Bank of N.T. Butterfield & Son Limited Tonya Marshall • Associate Attorney, Conyers Dill & Pearman EVP, General Counsel & Secretary 5
  7. 7. Disciplined and Opportunistic Reinsurance Strategy Generating ROE from underwriting and positive asset leverage • Reinsurance strategy – – Target sub-sectors and specific situations where capacity and alternatives may be constrained – Flexibility to adjust level of volatility according to market conditions and expected margins – • Identify profitable reinsurance opportunities that generate stable underwriting profits Current focus on quota share contracts Third Point Re’s approach is to position itself for the expected improvement in P&C pricing over the medium term – – • Management has a track record of entering new lines of business to capitalize on market opportunities and produce strong underwriting results Strong management relationships provide access to attractive underwriting opportunities Asset leverage is expected to grow over time and help drive ROE – The Company expects to capture net investment income generated by float* primarily from the time-lag between receipt of premiums and payment of claims Disciplined and Opportunistic Underwriting Positive Asset Leverage (i.e. Float)* Reinsurance Operations Contribution to ROE * Non-GAAP measure; please see descriptions and reconciliations on slides 17 and 18. 6
  8. 8. Strong Relationships with Diverse and Leading Reinsurance Brokers Submissions Key Success Factors Submissions by broker (January 2012 – September 2013): 347 submissions, 27 bound reinsurance contracts Long-standing relationships All others (44 brokers) 31% Aon Benfield 28% Multiple sources of submissions Towers Watson 5% BMS 6% Willis Re 8% Guy Carpenter 22% Access to desired types of business 7
  9. 9. Growing and Diversified Reinsurance Portfolio Strong Premium Growth ($ millions) $239.7 Portfolio Construction Expertise in writing all lines of property, casualty and specialty reinsurance $190.4 $162.5 Generate stable underwriting results over time FY 2012 YTD Q3 2012 YTD Q3 2013 Provide reinsurance where capacity/alternatives may be limited Business Mix – Inception Through 9/30/13 Specialty 32% Property 31% Casualty 37% Level of reinsurance portfolio volatility will be driven by market conditions Limited catastrophe exposure GWP: $430.1 million 8
  10. 10. Third Point Re’s Relationship With Third Point LLC Third Point LLC manages Third Point Re’s assets under a long-term investment management agreement • Third Point LLC manages virtually all of Third Point Re’s investable assets • Exclusive relationship for an initial contractual term through 2016, followed by successive three-year terms on renewal – – • The company pays a standard 2% management fee and 20% performance allocation Performance allocation is subject to a standard high water mark, loss carry-forward provision Third Point Re investments are held in a separate account and managed by Third Point LLC on substantially the same basis as its main hedge funds – The account is subject to certain additional investment guidelines and parameters not employed by the main funds (i.e. limitations on exposure, increased liquidity, etc.) • Third Point Re has full ownership of and access to the investment portfolio to provide liquidity to pay claims and expenses 9
  11. 11. Best‐in‐Class Investment Management Illustrative Net Return1 Since Inception2,3,4 Third Point LLC Overview $40,000 Third Point LLC owned and led by Daniel S. Loeb $35,000 $30,000 21.1% net annualized returns since inception in 19955 $25,000 $20,000 Risk-adjusted returns driven by superior security selection and lower volatility $15,000 $10,000 $5,000 Significant focus on risk management $0 Third Point Partners LP S&P 500 (TR) HFRI Event-Driven (Total) Index DJ CS Event Driven Index 70 employees including 25 investment professionals6 ¹ For Third Point Partners L.P. after fees, expenses and incentive allocation; ² Past performance is not necessarily indicative of future results; all investments involve risk including the loss of principal; ³ The historical performance of Third Point Partners L.P. (i) for the years 2001 through January 31, 2014 reflects the total return after incentive allocation for each such year as included in the audited statement of financial condition of Third Point Partners L.P. for those years and (ii) for the years 1995 through 2000 reflects the total return after incentive allocation for each such year as reported by Third Point Partners L.P. Total return after incentive allocation for the years 2001 through January 31, 2014 is based on the net asset value for all limited partners of Third Point Partners L.P. taken as a whole, some of whom pay no incentive allocation or management fees, whereas total return after incentive allocation for the years 1995 through 2000 is based on the net asset value for only those limited partners of Third Point Partners L.P. that paid incentive allocation and management fees. In each case, results are presented net of management fees, brokerage commissions, administrative expenses, and accrued performance allocation, if any, and include the reinvestment of all dividends, interest, and capital gains; 4 The illustrative return is calculated as a theoretical investment of $1,000 in Third Point Partners, L.P. at inception relative to the same theoretical investment in two hedge fund indices designed to track performance of certain “eventdriven” hedge funds over the same period of time. All references to the Dow Jones Credit Suisse HFI Event Driven Index (“DJ-CS HFI”) and HFRI Event-Driven Total Index (“HFRI”) reflect performance calculated through January 31, 2014. The DJ-CS HFI is an asset-weighted index and includes only funds, as opposed to separate accounts. The DJ-CS HFI uses the Dow Jones Credit Suisse database and consists only of event driven funds deemed to be “event-driven” by the index and that have a minimum of $50 million in assets under management, a minimum of a 12-month track record, and audited financial statements. The HFRI consists only of event driven funds with a minimum of $50 million in assets under management or a minimum of a 12-month track record. Both indices state that returns are reported net of all fees and expenses. Please see the glossary included in the prospectus beginning on page G-1 for a description of how these indices are calculated. While Third Point Partners L.P. has been compared here with the performance of well-known and widely recognized indices, the indices have not been selected to represent an appropriate benchmark for Third Point Partners L.P., whose holdings, performance and volatility may differ significantly from the securities that comprise the indices; 5 From formation of Third Point Partners L.P. in June 1995 through January 31, 2014; 6 As of January 31, 2014.. 10
  12. 12. Investment Management Strategy • Investment philosophy – – Value unlocked by discrete events or “catalysts” – • Value-oriented, event-driven approach to single security selection supplemented by a top-down view of portfolio construction and risk management Single portfolio composed of diversified investments Investment process – – • Fundamental, bottom-up analysis using proprietary framework Tactical considerations of entry points, position sizing and hedging ABS Investment areas of focus: 200% 180% 160% 140% Other Arb 120% ABS 100% Macro 80% Credit 60% 40% Long / Short Equity 20% 0% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 11
  13. 13. Attractive Financial Profile • No debt Strong Balance Sheet • Low premium leverage • Liquid investment portfolio – 97% of investments within FAS 157 Liquidity Levels 1 and 2 • Net investment income drops to the bottom line and is a key driver of Earnings Transparency/ Stability profitability • Limited legacy reserves mitigate risk of adverse reserve development • Catastrophe exposure largely limited to Third Point Re’s $50 million investment in our Cat Fund ROE Expansion Potential • Potential to expand ROE due to increasing asset leverage and a potentially improving reinsurance market 12
  14. 14. Rigorous Risk Management  Carefully defined risk appetite and controls  Quarterly reporting to the Board of Directors  Comprehensive internal capital model Underwriting  Rigorous procedures  Lead underwriter on most transactions  Robust controls Investment Management  Real time access to reports  Bi-annual operational review by independent investment advisory firm  Work closely with Third Point LLC risk management team 13
  15. 15. Key Financial Highlights Highlights Consolidated Income Statement ($000s) 3 months ended 9/30/13 9 months ended 9/30/13 Year ended 12/31/12 $45,425 0 66,329 53,371 $119,700 $239,660 (9,975) 162,157 166,129 $328,286 $190,374 0 96,481 136,422 $232,903 Loss and loss adjustment expenses incurred, net Acquisition costs, net General and administrative expenses Total expenses 39,349 21,117 9,846 $70,312 103,679 49,111 24,071 $176,861 80,306 24,604 27,376 $132,286 Income (loss) including non-controlling interests (Income) attributable to non-controlling interests Net income (loss) 49,388 (2,818) $46,570 151,425 (4,202) $147,223 100,617 (1,216) $99,401 Gross premiums written Gross premiums ceded Net premiums earned Net investment income Total revenues Selected Income Statement Ratios¹ 3 months ended 9/30/13 Loss ratio2 Acquisition cost ratio3 General and administrative expense ratio4 Combined ratio5 Net investment return6 9 months ended 9/30/13 Year ended 12/31/12 63.7% 33.3% 10.9% 107.9% 4.3% 63.3% 31.0% 10.4% 107.7% 16.9% 83.2% 25.5% 21.0% 129.7% 17.7%  Generated $190 million of gross premium in first year of operation  Gross premium increased by 8.9% to $45.4 million in Q3 2013 vs.Q3 2012  YTD combined ratio dropped to 107.7% through Q3 2013 as earned premium grew relative to general and administrative expenses  Strong investment returns from investments managed by Third Point LLC of 17.7% in 2012 and 16.9% through Q3 2013  2013 investment income was 23.9%. January 2014 investment income was –1.8% 1 Underwriting ratios are for the property and casualty reinsurance segment only; 2 Loss ratio is calculated by dividing loss and loss adjustment expenses incurred, net, by net premiums earned; 3 Acquisition cost ratio is calculated by dividing acquisition costs, net by net premiums earned; 4 General and administrative expense ratio is calculated by dividing general and administrative expenses related to underwriting activities by net premiums earned; 5 Combined ratio is calculated by dividing the sum of loss and loss adjustment expenses incurred, net, acquisition costs, net and general and administrative expenses related to underwriting activities by net premiums earned; 6 Net investment return represents the return on our investments managed by Third Point LLC, net of fees. 14
  16. 16. Key Financial Highlights (Cont’d) Selected Balance Sheet Data ($000s) Total shareholders’ equity Non-controlling interests Shareholders' equity attributable to shareholders As of 12/31/12 $1,402,017 473,696 $1,364,398 (55,014) $928,321 (59,777) $1,309,384 $868,544 As of 9/30/13 Total assets Total liabilities As of 9/30/13 $1,999,506 635,108 As of 12/31/12 $1,444,876 $925,453 Investments ($000s) Total investments managed by Third Point LLC Selected Balance Sheet Metrics 9 months ended 9/30/131 Year ended 12/31/12 Diluted book value per share* $12.35 $10.89 Growth in diluted book value per share* Return on beginning shareholders’ equity* 13.4% 16.1% 11.9% 13.0% * Non-GAAP measure; please see descriptions and reconciliations on slides 17 and 18. 1 Not annualized. 15
  17. 17. Investment Highlights Total return business model Attractive financial profile Aligned investor sponsorship Profitable reinsurance underwriting with superior investment management designed to deliver attractive equity returns over time Best-in-class investment manager Deeply experienced and credentialed management team 16
  18. 18. Non‐GAAP Measures Book value per share Book value per share as used by our management is a non-GAAP measure, as it is calculated after deducting the impact of noncontrolling interests. Diluted book value per share is also a non-GAAP measure and represents book value per share combined with the impact from dilution of all in-the-money share options issued, warrants and unvested restricted shares outstanding as of any period end. 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. The following table sets forth the computation of basic and diluted book value per share as of September 30, 2013 and December 31, 2012: ($000s, Except Share and Per Share Amounts) As of 9/30/13 As of 12/31/12 Basic and diluted book value per share numerator: Total shareholders’ equity Less: Non-controlling interests Shareholders’ equity attributable to shareholders Effect of dilutive warrants issued to founders and an advisor Effect of dilutive stock options issued to directors and employees Diluted book value per share numerator 1,364,398 55,014 $1,309,384 46,512 66,276 $1,422,172 $928,321 59,777 $868,544 36,480 51,670 $956,694 Basic and diluted book value per share denominator: Issued and outstanding shares Effect of dilutive warrants issued to founders and an advisor Effect of dilutive stock options issued to directors and employees Effect of dilutive restricted shares issued to employees Diluted book value per share numerator 103,264,616 4,651,163 6,608,987 624,300 115,149,066 78,432,132 3,648,006 5,167,045 619,300 87,866,483 Basic book value per share $12.68 $11.07 Diluted book value per share $12.35 $10.89 17
  19. 19. Non‐GAAP Measures (Cont’d) Growth in diluted book value per share Calculated by taking the change in diluted book value per share divided by the beginning of period diluted book value per share. Return on beginning shareholders’ equity Calculated by dividing net income by the beginning of year shareholders’ equity attributable to shareholders and is a commonly used calculation to measure profitability. For purposes of this calculation, we add back the impact of subscriptions receivable to shareholders’ equity attributable to shareholders as of December 31, 2011. Management believes this adjustment more fairly presents the return on equity over the period. Insurance float In an insurance or reinsurance operation, float arises because premiums and proceeds associated with deposit accounted reinsurance contracts are collected before losses are paid. In some instances, the interval between premium receipts and loss payments can extend over many years. During this time interval, insurance and reinsurance companies invest the premiums received and generate investment returns. Although float can be calculated using numbers determined under U.S. GAAP, float is a non-GAAP financial measure and, therefore, there is no comparable U.S. GAAP measure. 18
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