Third Point Re Reports Third Quarter 2014 Earnings Results

2014 / 11 / 06

Net Loss of $6.0 million, or $(0.06) Per Diluted Common Share
Combined ratio for the Property and Casualty segment improved to 101.7%

HAMILTON, Bermuda, Nov. 6, 2014 /PRNewswire/ -- Third Point Reinsurance Ltd. ("Third Point Re" or the "Company") (NYSE: TPRE) today announced results for its fiscal third quarter ended September 30, 2014.

Third Point Re reported a net loss of $6.0 million, or $(0.06) per diluted common share, for the third quarter of 2014, compared with net income of $46.6 million, or $0.51 per diluted common share, for the third quarter of 2013, a decrease of 112.9%.  For the nine months ended September 30, 2014, Third Point Re reported net income of $65.1 million, or $0.61 per diluted common share, compared with $147.2 million, or $1.75 per diluted common share, for the nine months ended September 30, 2013, a decrease of 55.8%.

For the three months ended September 30, 2014, diluted book value per share decreased by $0.04 per share, or (0.3)%, to $13.68 per share from $13.72 per share as of June 30, 2014.  For the nine months ended September 30, 2014, diluted book value per share increased by $0.56 per share, or 4.3%, to $13.68 per share from $13.12 per share as of December 31, 2013.

"While the overall result for the quarter is disappointing, I am pleased with the high volume of opportunities we are seeing and the continued improvement in our combined ratio," commented John Berger, Chairman, Chief Executive Officer and Chief Underwriting Officer. "Our combined ratio dropped to 101.7% in the quarter from 107.9% in the prior year's third quarter as our earned premium grew and our general and administrative expense ratio continued to decline. The return on our investment portfolio managed by Third Point LLC was flat for the quarter, consistent with the performance of the broader markets."

The following table shows certain key financial metrics for the three and nine months ended September 30, 2014 and 2013:

 



For the three months ended


For the nine months ended



September 30, 2014


September 30, 2013


September 30, 2014


September 30, 2013



(In millions, except for per share data and ratios)

Gross premiums written


$

126.4



$

45.4



$

359.5



$

239.7


Net premiums earned


$

108.9



$

66.3



$

261.0



$

162.2


Net underwriting loss (1) (2)


$

(1.8)



$

(4.9)



$

(9.0)



$

(12.1)


Combined ratio (1) (2)



101.7

%


107.9

%


103.6

%


107.7

%














Net investment return on investments managed by Third Point LLC


(0.04)

%


4.3

%


5.5

%


16.9

%

Net investment income (3)


$

1.6



$

54.6



$

92.1



$

168.8


Net investment income (loss) on float (4)


$

(0.1)



$

7.1



$

13.5



$

15.1















Net income (loss)


$

(6.0)



$

46.6



$

65.1



$

147.2


Diluted earnings per share


$

(0.06)



$

0.51



$

0.61



$

1.75


Growth in diluted book value per share (4)


(0.3)

%


2.3

%


4.3

%


13.4

%

Return on beginning shareholders' equity (4)


(0.4)

%


4.2

%


4.7

%


16.1

%

Net investments managed by Third Point LLC (5)


$

1,711.8



$

1,559.4



$

1,711.8



$

1,559.4















(1)     Property and Casualty Reinsurance segment only.

(2)     Net underwriting loss and combined ratio are Non-GAAP financial measures. See the accompanying Segment Reporting for an explanation and calculation of net underwriting loss and combined ratio.

(3)     Prior to 2014, changes in estimated fair value of embedded derivatives were recorded in net investment income.  As these embedded derivatives have become more prominent, the presentation has been modified and changes in the estimated fair value of embedded derivatives are now recorded in other expenses in the condensed consolidated statements of income (loss).  As a result, investment expenses of $1.2 million and $2.7 million, that were previously reported in net investment income for the three and nine months ended September 30, 2013, respectively, are now being reported in other expenses to conform to the current year's presentation.

(4)     Net investment income on float, diluted book value per share and return on beginning shareholders' equity are non-GAAP financial measures. See the accompanying Reconciliation of Non-GAAP Measures for an explanation and calculation of net investment income on float, diluted book value per share and return on beginning shareholders' equity.

(5)     Prior year comparative represents amounts as of December 31, 2013.

Segment Highlights

Property and Casualty Reinsurance Segment

Gross premiums written increased by $81.2 million, or 185.8%, to $124.9 million for the three months ended September 30, 2014 from $43.7 million for the three months ended September 30, 2013.  Gross premiums written increased by $116.3 million, or 50.3%, to $347.5 million for the nine months ended September 30, 2014 from $231.2 million for the nine months ended September 30, 2013. The increase was primarily due to new business written and a contract that was canceled and rewritten during the third quarter partially offset by business not renewed. Since Third Point Re is a developing company and focuses on large transactions, which in some cases will not renew, period over period comparisons may not be meaningful.

Net premiums earned for the three months ended September 30, 2014 increased $39.7 million, or 64.3%, to $101.5 million and increased $95.4 million, or 61.2%, to $251.3 million for the nine months ended September 30, 2014.  The three and nine months ended September 30, 2014 reflects net premiums earned on a larger in-force underwriting portfolio compared to the three and nine months ended September 30, 2013.

The net underwriting loss from the Property and Casualty Reinsurance segment was $1.8 million and $9.0 million for the three and nine months ended September 30, 2014, respectively.  These results compare to a net underwriting loss of $4.9 million and $12.1 million for the three and nine month periods ended September 30, 2013, respectively.

Catastrophe Risk Management

The Catastrophe Risk Management segment includes the combined results of Third Point Reinsurance Opportunities Fund Ltd. (the "Catastrophe Fund"), Third Point Reinsurance Investment Management Ltd., and Third Point Re Cat Ltd. (the "Catastrophe Reinsurer").  After attributing income to non-controlling interests, net income from the Catastrophe Risk Management segment was $3.6 million and $3.8 million for the three and nine months ended September 30, 2014, respectively, compared to net income of $2.7 million and $2.6 million for the three and nine months ended September 30, 2013, respectively.  Net assets under management for the Catastrophe Fund were $117.9 million as of September 30, 2014 (December 31, 2013 - $104.0 million).

Investments

For the three months ended September 30, 2014, Third Point Re recorded net investment income of $1.6 million, compared to $54.6 million for the three months ended September 30, 2013. The return on investments managed by the Company's investment manager, Third Point LLC, was (0.04)% for the three months ended September 30, 2014 compared to 4.3% for the three months ended September 30, 2013.

For the nine months ended September 30, 2014, Third Point Re recorded net investment income of $92.1 million, compared to $168.8 million for the nine months ended September 30, 2013. The return on investments managed by the Company's investment manager, Third Point LLC, was 5.5% for the nine months ended September 30, 2014 compared to 16.9% for the nine months ended September 30, 2013.

The net investment results for the three months ended September 30, 2014 reflect modest gains in our equities and asset-backed securities offset by losses in corporate credit primarily from a single investment. Performance in the investment portfolio for the nine month period was driven primarily by positive returns in equities as well as both the corporate and structured credit portfolios.  Net investment income for nine months ended September 30, 2014 also benefited from higher average investments managed by Third Point LLC compared to the prior year periods due to the net proceeds generated by Third Point Re's IPO and float contributed by its reinsurance operations and net investment income.  We mark to market our entire investment portfolio managed by Third Point LLC and, therefore, our investment results can vary significantly from period to period.

Conference Call Details

The Company will hold a conference call to discuss its third quarter 2014 results at 8:30 a.m. Eastern Time on November 7, 2014. The call will be webcast live over the Internet from the Company's website at www.thirdpointre.bm under "Investors". Participants should follow the instructions provided on the website to download and install any necessary audio applications. The conference call is also available by dialing 1-855-327-6837 (domestic) or 1-631-982-4565 (international).  Participants should ask for the Third Point Reinsurance Ltd. third quarter earnings conference call.

A replay of the live conference call will be available approximately three hours after the call. The replay will be available on the Company's website or by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the replay passcode 11062014. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on November 14, 2014.

Safe Harbor Statement Regarding Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond the Company's control. The Company cautions you that the forward-looking information presented in this press release is not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek," "comfortable with," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following: (i) limited historical information about the Company; (ii) operational structure currently is being developed; (iii) fluctuation in results of operations; (iv) more established competitors; (v) losses exceeding reserves; (vi) downgrades or withdrawal of ratings by rating agencies; (vii) dependence on key executives; (viii) dependence on letter of credit facilities that may not be available on commercially acceptable terms; (ix) potential inability to pay dividends; (x) unavailability of capital in the future; (xi) dependence on clients' evaluations of risks associated with such clients' insurance underwriting; (xii) suspension or revocation of reinsurance license; (xiii) potentially being deemed an investment company under United States federal securities law; (xiv) potential characterization of Third Point Re and/or Third Point Reinsurance Company Ltd. as a passive foreign investment company; (xv) dependence on Third Point LLC to implement the Company's investment strategy; (xvi) termination by Third Point LLC of the investment management agreement; (xvii) risks associated with the Company's investment strategy being greater than those faced by competitors; (xviii) increased regulation or scrutiny of alternative investment advisors affecting the Company's reputation; (xix) potentially becoming subject to United States federal income taxation; (xx) potentially becoming subject to United States withholding and information reporting requirements under the FATCA provisions; and (xxi) other risks and factors listed under "Risk Factors" in our most recent Annual Report on Form 10-K and other periodic disclosures filed with the U.S. Securities and Exchange Commission. All forward-looking statements speak only as of the date made and the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

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

About the Company

The Company is a public company listed on the New York Stock Exchange which, through its wholly-owned subsidiary Third Point Reinsurance Company Ltd., writes property and casualty reinsurance business.  Third Point Reinsurance Company Ltd. was incorporated in October 2011 and commenced underwriting business on January 1, 2012 with an "A-"(Excellent) financial strength rating from A.M. Best Company, Inc.

Contact

Third Point Reinsurance Ltd.
Rob Bredahl
investorrelations@thirdpointre.bm
+1 441-542-3333

 

 

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

As of September 30, 2014 and December 31, 2013

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








September 30,
 2014


December 31,
2013

Assets







Equity securities, trading, at fair value (cost - $875,503; 2013 - $824,723)


$

956,604



$

954,111


Debt securities, trading, at fair value (cost - $615,576; 2013 - $408,754)


660,677



441,424


Other investments, at fair value


97,765



65,329


Total investments in securities and commodities


1,715,046



1,460,864


Cash and cash equivalents


32,693



31,625


Restricted cash and cash equivalents


261,966



193,577


Due from brokers


182,927



98,386


Securities purchased under an agreement to sell


19,897



38,147


Derivative assets, at fair value


37,260



39,045


Interest and dividends receivable


5,032



2,615


Reinsurance balances receivable


269,747



191,763


Deferred acquisition costs, net


124,373



91,193


Unearned premiums ceded


91




Loss and loss adjustment expenses recoverable


1,412



9,277


Other assets


3,701



3,398


Total assets


$

2,654,145



$

2,159,890


Liabilities and shareholders' equity







Liabilities







Accounts payable and accrued expenses


$

7,521



$

9,456


Reinsurance balances payable


21,651



9,081


Deposit liabilities


142,990



120,946


Unearned premium reserves


363,666



265,187


Loss and loss adjustment expense reserves


187,313



134,331


Securities sold, not yet purchased, at fair value


45,667



56,056


Due to brokers


306,927



44,870


Derivative liabilities, at fair value


12,346



8,819


Performance fee payable to related party


21,837




Interest and dividends payable


589



748


Total liabilities


1,110,507



649,494


Commitments and contingent liabilities







Shareholders' equity







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





Common shares (par value $0.10; authorized, 300,000,000; issued and outstanding, 104,031,456 (2013: 103,888,916))


10,403



10,389


Additional paid-in capital


1,063,254



1,055,690


Retained earnings


390,656



325,582


Shareholders' equity attributable to shareholders


1,464,313



1,391,661


Non-controlling interests


79,325



118,735


Total shareholders' equity


1,543,638



1,510,396


Total liabilities and shareholders' equity


$

2,654,145



$

2,159,890


 

 

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

For the three and nine months ended September 30, 2014 and 2013

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

 






For the three months ended


For the nine months ended


September 30,
2014


September 30,
2013


September 30,
2014


September 30,
2013

Revenues












Gross premiums written

$

126,403



$

45,425



$

359,498



$

239,660


Gross premiums ceded

(150)





(150)



(9,975)


Net premiums written

126,253



45,425



359,348



229,685


Change in net unearned premium reserves

(17,305)



20,904



(98,388)



(67,528)


Net premiums earned

108,948



66,329



260,960



162,157


Net investment income

1,552



54,617



92,072



168,804


Total revenues

110,500



120,946



353,032



330,961


Expenses












Loss and loss adjustment expenses incurred, net

60,115



39,349



150,783



103,679


Acquisition costs, net

38,317



21,117



93,331



49,111


General and administrative expenses

10,124



9,846



29,698



24,071


Other expenses

2,982



1,246



4,789



2,675


Total expenses

111,538



71,558



278,601



179,536


Income (loss) before income tax expense

(1,038)



49,388



74,431



151,425


Income tax expense

(1,542)





(3,917)




Income (loss) including non-controlling interests

(2,580)



49,388



70,514



151,425


Income (loss) attributable to non-controlling interests

(3,417)



(2,818)



(5,440)



(4,202)


Net income (loss)

$

(5,997)



$

46,570



$

65,074



$

147,223


Earnings (loss) per share












Basic

$

(0.06)



$

0.52



$

0.63



$

1.77


Diluted

$

(0.06)



$

0.51



$

0.61



$

1.75


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












Basic

103,295,920



89,620,394



103,275,204



82,630,430


Diluted

103,295,920



90,915,805



106,454,775



83,453,835














 

 

THIRD POINT REINSURANCE LTD.

SEGMENT REPORTING




Three months ended September 30, 2014


Property and Casualty Reinsurance (6)


Catastrophe Risk Management


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

124,931



$

1,472



$



$

126,403


Gross premiums ceded

(150)







(150)


Net premiums written

124,781



1,472





126,253


Change in net unearned premium reserves

(23,294)



5,989





(17,305)


Net premiums earned

101,487



7,461





108,948


Expenses












Loss and loss adjustment expenses incurred, net

60,121



(6)





60,115


Acquisition costs, net

37,571



746





38,317


General and administrative expenses

5,556



648



3,920



10,124


Total expenses

103,248



1,388



3,920



108,556


Net underwriting loss

(1,761)



 n/a


 n/a


 n/a

Net investment income (loss)

(137)



881



808



1,552


Other expenses

(2,982)







(2,982)


Income tax expense





(1,542)



(1,542)


Segment income (loss) including non-controlling interests

(4,880)



6,954



(4,654)



(2,580)


Segment income attributable to non-controlling interests



(3,325)



(92)



(3,417)


Segment income (loss)

$

(4,880)



$

3,629



$

(4,746)



$

(5,997)


Property and Casualty Reinsurance -
Underwriting Ratios:










Loss ratio (1)

59.2

%










Acquisition cost ratio (2)

37.0

%










Composite ratio (3)

96.2

%










General and administrative expense ratio (4)

5.5

%










Combined ratio (5)

101.7

%






















 

 


Nine months ended September 30, 2014


Property and Casualty Reinsurance (6)


Catastrophe Risk Management


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

347,495



$

12,003



$



$

359,498


Gross premiums ceded

(150)







(150)


Net premiums written

347,345



12,003





359,348


Change in net unearned premium reserves

(96,069)



(2,319)





(98,388)


Net premiums earned

251,276



9,684





260,960


Expenses












Loss and loss adjustment expenses incurred, net

150,789



(6)





150,783


Acquisition costs, net

92,477



854





93,331


General and administrative expenses

17,020



2,160



10,518



29,698


Total expenses

260,286



3,008



10,518



273,812


Net underwriting loss

(9,010)



 n/a


 n/a


 n/a

Net investment income

13,458



943



77,671



92,072


Other expenses

(4,789)







(4,789)


Income tax expense





(3,917)



(3,917)


Segment income (loss) including non-controlling interests

(341)



7,619



63,236



70,514


Segment income attributable to non-controlling interests



(3,854)



(1,586)



(5,440)


Segment income (loss)

$

(341)



$

3,765



$

61,650



$

65,074


Property and Casualty Reinsurance
- Underwriting Ratios:










Loss ratio (1)

60.0

%










Acquisition cost ratio (2)

36.8

%










Composite ratio (3)

96.8

%










General and administrative expense ratio (4)

6.8

%










Combined ratio (5)

103.6

%






















 

 


Three months ended September 30, 2013


Property and Casualty Reinsurance (6)


Catastrophe Risk Management


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

43,714



$

1,711



$



$

45,425


Gross premiums ceded








Net premiums written

43,714



1,711





45,425


Change in net unearned premium reserves

18,051



2,853





20,904


Net premiums earned

61,765



4,564





66,329


Expenses












Loss and loss adjustment expenses incurred, net

39,349







39,349


Acquisition costs, net

20,541



576





21,117


General and administrative expenses

6,739



949



2,158



9,846


Total expenses

66,629



1,525



2,158



70,312


Net underwriting loss

(4,864)



  n/a


  n/a


  n/a

Net investment income

7,072



2,089



45,456



54,617


Other expenses

(1,246)







(1,246)


Income tax expense








Segment income including non-controlling interests

962



5,128



43,298



49,388


Segment income attributable to non-controlling interests



(2,432)



(386)



(2,818)


Segment income

$

962



$

2,696



$

42,912



$

46,570


Property and Casualty Reinsurance
- Underwriting ratios:










Loss ratio (1)

63.7

%










Acquisition cost ratio (2)

33.3

%










Composite ratio (3)

97.0

%










General and administrative expense ratio (4)

10.9

%










Combined ratio (5)

107.9

%






















 

 


Nine months ended September 30, 2013


Property and Casualty Reinsurance (6)


Catastrophe Risk Management


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

231,229



$

8,431



$



$

239,660


Gross premiums ceded

(9,975)







(9,975)


Net premiums written

221,254



8,431





229,685


Change in net unearned premium reserves

(65,408)



(2,120)





(67,528)


Net premiums earned

155,846



6,311





162,157


Expenses












Loss and loss adjustment expenses incurred, net

103,291



388





103,679


Acquisition costs, net

48,353



758





49,111


General and administrative expenses

16,265



2,721



5,085



24,071


Total expenses

167,909



3,867



5,085



176,861


Net underwriting loss

(12,063)



 n/a


 n/a


 n/a

Net investment income

15,128



3,210



150,466



168,804


Other expenses

(2,675)







(2,675)


Income tax expense








Segment income including non-controlling interests

390



5,654



145,381



151,425


Segment income attributable to non-controlling interests



(3,027)



(1,175)



(4,202)


Segment income

$

390



$

2,627



$

144,206



$

147,223


Property and Casualty Reinsurance
- Underwriting ratios:










Loss ratio (1)

66.3

%










Acquisition cost ratio (2)

31.0

%










Composite ratio (3)

97.3

%










General and administrative expense ratio (4)

10.4

%










Combined ratio (5)

107.7

%










(1)       Loss ratio is calculated by dividing loss and loss adjustment expenses incurred, net by net premiums earned.

(2)       Acquisition cost ratio is calculated by dividing acquisition costs, net by net premiums earned.

(3)       Composite ratio is calculated by dividing the sum of loss and loss adjustment expenses incurred, net and 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)       Effective January 1, 2014, the Company modified the presentation of its operating segments to allocate net investment income from float to the Property and Casualty Reinsurance segment.  Prior period segment results have been adjusted to conform to this presentation.

 

 

THIRD POINT REINSURANCE LTD.

RECONCILIATION OF NON-GAAP MEASURES






September 30,
 2014


December 31,
2013

Basic and diluted book value per share numerator:

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

Total shareholders' equity

$

1,543,638



$

1,510,396


Less:  non-controlling interests

(79,325)



(118,735)


Shareholders' equity attributable to shareholders

1,464,313



1,391,661


Effect of dilutive warrants issued to founders and an advisor

46,512



46,512


Effect of dilutive stock options issued to directors and employees

65,473



101,274


Diluted book value per share numerator

$

1,576,298



$

1,539,447


Basic and diluted book value per share denominator:


Issued and outstanding shares

103,324,616



103,264,616


Effect of dilutive warrants issued to founders and an advisor

4,651,163



4,651,163


Effect of dilutive stock options issued to directors and employees

6,528,647



8,784,861


Effect of dilutive restricted shares issued to directors and employees

706,840



657,156


Diluted book value per share denominator

115,211,266



117,357,796








Basic book value per share

$

14.17



$

13.48


Diluted book value per share

$

13.68



$

13.12


 

 


For the three months ended


For the nine months ended


September 30,
2014


September 30,
2013


September 30,
2014


September 30,
2013


($ in thousands)

Net investment income (loss) on float

$

(138)



$

7,072



$

13,457



$

15,128


Net investment income on capital

808



45,455



77,671



150,465


Net investment income on investments managed by TP LLC

670



52,527



91,128



165,593


Investment income on cash collateral held by the Catastrophe Reinsurer

27



28



84



44


Net gain on reinsurance contract derivatives written by the Catastrophe Reinsurer

780



2,062



780



3,167


Net gain on catastrophe bond held by the Catastrophe Reinsurer

75





80





$

1,552



$

54,617



$

92,072



$

168,804














 


For the three months ended


For the nine months ended


September 30, 2014


September 30, 2013


September 30, 2014


September 30, 2013


($ in thousands)

Net income (loss)

$

(5,997)



$

46,570



$

65,074



$

147,223














Shareholders' equity attributable to shareholders - beginning of period

1,467,229



972,665



1,391,661



868,544


Impact of weighting related to shareholders' equity from IPO



128,860





43,111


Adjusted shareholders' equity attributable to shareholders - beginning of period

1,467,229



1,101,525



1,391,661



911,655














Return on beginning shareholders' equity

(0.4)%



4.2

%


4.7

%


16.1

%

 

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 non-controlling interests. In addition, diluted book value per share is 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.

Net Investment Income on Float

Net investment income on float is an important aspect of our property and casualty reinsurance operation. In an insurance or reinsurance operation, float arises because premiums from reinsurance contracts and proceeds from deposit accounted contracts are collected before losses are paid. In some instances, the interval between receipts and 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.

Net Investment Return on Investments Managed by Third Point LLC

The net investment return on investments managed by Third Point LLC is the percentage change in value of a dollar invested over the reporting period on our investment assets managed by Third Point LLC, net of non-controlling interest. The stated return is net of withholding taxes, which are presented as a component of income tax expense in our condensed consolidated statements of income (loss).  Net investment return is the key indicator by which we measure the performance of Third Point LLC, our investment manager.

Return on Beginning Shareholders' Equity

Return on beginning shareholders' equity as presented is a non-GAAP financial measure. Return on beginning shareholders' equity is calculated by dividing net income (loss) by the beginning shareholders' equity attributable to shareholders and is a commonly used calculation to measure profitability.  For the three and nine months ended September 30, 2013, we have also adjusted the beginning shareholders' equity for the impact of the issuance of shares in our IPO on a weighted average basis. These adjustments lower the stated returns on beginning shareholders' equity.

 

SOURCE Third Point Reinsurance Ltd.