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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
