Third Point Re Reports Second Quarter 2017 Earnings Results

2017 / 08 / 02

Net Income of $74.6 million
Diluted Earnings per Common Share of $0.71

HAMILTON, Bermuda, Aug. 2, 2017 /PRNewswire/ -- Third Point Reinsurance Ltd. ("Third Point Re" or the "Company") (NYSE: TPRE) today announced results for its second quarter ended June 30, 2017.

Third Point Re reported net income of $74.6 million, or $0.71 per diluted common share, for the second quarter of 2017, compared to net income of $53.4 million, or $0.51 per diluted common share, for the second quarter of 2016. For the six months ended June 30, 2017, Third Point Re reported net income of $178.8 million, or $1.70 per diluted common share, compared to net income of $2.2 million, or $0.02 per diluted common share, for the six months ended June 30, 2016.

For the three months ended June 30, 2017, diluted book value per share increased by $0.70 per share, or 5.0%, to $14.74 per share as of June 30, 2017, from $14.04 per share as of March 31, 2017. For the six months ended June 30, 2017, diluted book value per share increased by $1.58 per share, or 12.0%, to $14.74 per share from $13.16 per share as of December 31, 2016.

"Our strong performance for 2017 continued through the second quarter with a return on beginning shareholders' equity of 5.0%, bringing our six month return to 12.8%," commented Rob Bredahl, President and Chief Executive Officer.  "Our investment manager, Third Point LLC continues to have a great year and has generated an investment return of 10.6% through six months and 11.7% through July 2017. Although difficult reinsurance market conditions persist, we have successfully generated stable, long-term float and our asset leverage is within our target range of 1.50 to 1.75.  This allows us to remain selective in our underwriting without diminishing our earnings potential.  We took advantage of attractive share price levels during the quarter and repurchased 1,767,281 shares at an average price of $12.44 per share and have $51.7 million remaining under our existing share repurchase plan."

The following table shows certain key financial metrics for the three and six months ended June 30, 2017 and 2016:


Three months ended


Six months ended


June 30,
 2017


June 30,
 2016


June 30,
 2017


June 30,
 2016


($ in millions, except for per share data and ratios)

Gross premiums written

$

156.6


$

196.9


$

302.9


$

394.0

Net premiums earned

$

173.6


$

133.1


$

311.6


$

269.9

Net underwriting loss (1)

$

(12.1)


$

(25.6)


$

(20.8)


$

(32.2)

Combined ratio (1)

107.0%


119.2%


106.6%


111.9%

Net investment return on investments managed by Third Point LLC


4.5%



4.0%



10.6%


1.9%

Net investment income

$

107.3


$

86.3


$

235.8


$

46.2

Net investment income on float (2)

$

31.2


$

19.1


$

67.3


$

10.8

Net income

$

74.6


$

53.4


$

178.8


$

2.2

Diluted earnings per common share

$

0.71


$

0.51


$

1.70


$

0.02

Change in diluted book value per share (2)

5.0%


4.1%


12.0%


0.2%

Return on beginning shareholders' equity (2)

5.0%


4.0%


12.8%


0.2%

Net investments managed by Third Point LLC (3)

$

2,385.5


$

2,191.6


$

2,385.5


$

2,191.6

Invested asset leverage (3)

1.53


1.55


1.53


1.55



(1)

See the accompanying Segment Reporting for a calculation of net underwriting loss and combined ratio.

(2)

Net investment income on float, change in diluted book value per share and return on beginning shareholders' equity are
non-GAAP financial measures. There are no comparable GAAP measures. See the accompanying Reconciliation of Non-GAAP
Measures and Key Performance Indicators for an explanation and calculation of net investment income on float, diluted book
value per share and return on beginning shareholders' equity.

(3)

Prior year comparatives represent amounts as of December 31, 2016.

Segment Highlights

Property and Casualty Reinsurance Segment

Gross premiums written decreased by $40.3 million, or 20.5%, to $156.6 million for the three months ended June 30, 2017 from $196.9 million for the three months ended June 30, 2016. Gross premiums written decreased by $91.1 million, or 23.1%, to $302.9 million for the six months ended June 30, 2017 from $394.0 million for the six months ended June 30, 2016.

The decrease in the three and six months ended June 30, 2017 compared to the prior year periods was primarily due to contracts that we did not renew as a result of underlying terms and conditions, lower premium adjustments in the current year periods and other timing differences partially offset by new premium.

The increase in net premiums earned was primarily due to the addition of $83.9 million of new retroactive exposures in reinsurance contracts included in net premiums earned in the three and six months ended June 30, 2017, partially offset by a lower in-force underwriting portfolio.  We did not write any retroactive reinsurance contracts in the three and six months ended June 30, 2016.

The net underwriting loss and combined ratio for the three and six months ended June 30, 2017 included an insignificant amount related to changes in estimates of prior years' loss reserves net of the related impact of acquisition costs.

The net underwriting loss and combined ratio for the three and six months ended June 30, 2016 included increases (adverse development) in the net underwriting loss of $12.9 million and $12.5 million, respectively, related to changes in estimates of prior years' loss reserves net of the related impact of acquisition costs.

Investments

The return on investments managed by Third Point LLC by strategy for the three and six months ended June 30, 2017 and 2016 was as follows:


Three months ended


June 30, 2017


June 30, 2016


Long


Short


Net


Long


Short


Net

Equity

6.5%


(1.1)%


5.4%


0.6%


(0.3)%


0.3%

Credit

(0.3)%


(0.3)%


(0.6)%


4.0%


(0.2)%


3.8%

Other

0.2%


(0.5)%


(0.3)%


(0.1)%


—%


(0.1)%

Net investment return on investments
managed by Third Point LLC

6.4%


(1.9)%


4.5%


4.5%


(0.5)%


4.0%


























Six months ended


June 30, 2017


June 30, 2016


Long


Short


Net


Long


Short


Net

Equity

13.0%


(2.2)%


10.8%


—%


(0.7)%


(0.7)%

Credit

0.1%


(0.4)%


(0.3)%


4.1%


(0.4)%


3.7%

Other

1.0%


(0.9)%


0.1%


(0.2)%


(0.9)%


(1.1)%

Net investment return on investments
managed by Third Point LLC

14.1%


(3.5)%


10.6%


3.9%


(2.0)%


1.9%













For the three months ended June 30, 2017, the long equity strategy was the primary driver of returns.  Within equities, we saw positive attribution across every sector with large long investments in the healthcare and industrials portfolios contributing the majority of positive returns.  Gains in our long equity strategy were partially offset by losses in market hedges and short equity positions.  Modest losses in the credit strategy were primarily driven by both long and short performing credit investments. Losses from macroeconomic hedges were partially offset by gains in currency, private and risk arbitrage investments in the other strategy. 

For the six months ended June 30, 2017, the net investment results were led by strong gains in the long equity strategy, outpacing the S&P 500 for the same period with significantly less exposure at risk.  The strategy saw positive attribution from every sector in which the portfolio is invested.  The long equity portfolio performance was partially offset by negative performance from short equity positions, including market hedges.  The credit strategy detracted modestly with flat or negative performance from each sub-strategy.  In the other strategy, losses from macroeconomic hedges were offset by positive contribution from risk arbitrage, private and currency investments.

Share Repurchase Program

During the three months ended June 30, 2017, we repurchased 1,767,281 of our common shares in the open market for an aggregate cost of $22.0 million at a weighted average cost, including commissions, of $12.44 per share.  During the six months ended June 30, 2017, we repurchased 3,300,152 of our common shares in the open market for an aggregate cost of $40.9 million at a weighted average cost, including commissions, of $12.38 per share. Common shares repurchased by the Company were not canceled and are classified as treasury shares.

As of June 30, 2017, the Company may repurchase up to an aggregate of $51.7 million of additional common shares under its share repurchase program.

Conference Call Details

The Company will hold a conference call to discuss its second quarter 2017 results at 8:30 a.m. Eastern Time on August 3, 2017. 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 1-877-407-0789 (domestic) or 1-201-689-8562 (international). Participants should ask for the Third Point Reinsurance Ltd. second 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 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the replay passcode 13665530. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on August 10, 2017.

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 the Company's 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) fluctuation in results of operations; (ii) more established competitors; (iii) losses exceeding reserves; (iv) downgrades or withdrawal of ratings by rating agencies; (v) dependence on key executives; (vi) dependence on letter of credit facilities that may not be available on commercially acceptable terms; (vii) dependence on financing available through our investment accounts to secure letters of credit and collateral for reinsurance contracts; (viii) potential inability to pay dividends; (ix) inability to service our indebtedness; (x) limited cash flow and liquidity due to our indebtedness; (xi) unavailability of capital in the future; (xii) fluctuations in market price of our common shares; (xiii) dependence on clients' evaluations of risks associated with such clients' insurance underwriting; (xiv) suspension or revocation of our  reinsurance licenses; (xv) potentially being deemed an investment company under U.S. federal securities law; (xvi) potential characterization of Third Point Reinsurance Ltd. and/or Third Point Re as a passive foreign investment company; (xvii) future strategic transactions such as acquisitions, dispositions, merger or joint ventures; (xviii) dependence on Third Point LLC to implement our investment strategy; (xix) termination by Third Point LLC of our investment management agreements; (xx) risks associated with our investment strategy being greater than those faced by competitors; (xxi) increased regulation or scrutiny of alternative investment advisers affecting our reputation; (xxii) Third Point Reinsurance Ltd. and/or Third Point Re potentially becoming subject to U.S. federal income taxation; (xxiii) potentially becoming subject to U.S. withholding and information reporting requirements under the Foreign Account Tax Compliance Act; (xxiv) changes in Bermuda or other law and regulation that may have an adverse impact on our operations; and (xxv) other risks and factors listed under "Risk Factors" in our most recent Annual Report on Form 10-K and other periodic and current disclosures filed with the 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 and Other Financial Metrics

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 net investment income on float, book value per share, 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 subsidiaries Third Point Reinsurance Company Ltd. and Third Point Reinsurance (USA) Ltd., writes property and casualty reinsurance business.  Third Point Reinsurance Company Ltd. and Third Point Reinsurance (USA) Ltd. each have an "A-" (Excellent) financial strength rating from A.M. Best Company, Inc.

Contact

Third Point Reinsurance Ltd.
Manoj Gupta - Head of Investor Relations and Business Development
investorrelations@thirdpointre.bm
+1 441-542-3333

 

 

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of June 30, 2017 and December 31, 2016

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





June 30,
 2017


December 31,
 2016

Assets





Equity securities, trading, at fair value (cost - $1,654,011; 2016 - $1,385,866)


$

1,941,170



$

1,506,854


Debt securities, trading, at fair value (cost - $736,060; 2016 - $1,036,716)


702,515



1,057,957


Other investments, at fair value


29,091



82,701


Total investments in securities


2,672,776



2,647,512


Cash and cash equivalents


8,255



9,951


Restricted cash and cash equivalents


372,068



298,940


Due from brokers


424,163



284,591


Derivative assets, at fair value


45,110



27,432


Interest and dividends receivable


3,947



6,505


Reinsurance balances receivable


472,570



381,951


Deferred acquisition costs, net


203,193



221,618


Other assets


14,648



17,144


Total assets


$

4,216,730



$

3,895,644


Liabilities and shareholders' equity





Liabilities





Accounts payable and accrued expenses


$

17,929



$

10,321


Reinsurance balances payable


65,456



43,171


Deposit liabilities


105,208



104,905


Unearned premium reserves


547,815



557,076


Loss and loss adjustment expense reserves


678,459



605,129


Securities sold, not yet purchased, at fair value


265,667



92,668


Due to brokers


777,179



899,601


Derivative liabilities, at fair value


11,949



16,050


Performance fee payable to related party


53,455




Interest and dividends payable


3,838



3,443


Senior notes payable, net of deferred costs


113,643



113,555


Total liabilities


2,640,598



2,445,919


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, 107,332,603 (2016 - 106,501,299))


10,733



10,650


Treasury shares (3,944,920 shares (2016 - 644,768 shares))


(48,253)



(7,389)


Additional paid-in capital


1,098,857



1,094,568


Retained earnings


494,986



316,222


Shareholders' equity attributable to shareholders


1,556,323



1,414,051


Non-controlling interests


19,809



35,674


Total shareholders' equity


1,576,132



1,449,725


Total liabilities and shareholders' equity


$

4,216,730



$

3,895,644


 

 

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the three and six months ended June 30, 2017 and 2016

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




Three months ended


Six months ended


June 30,
 2017


June 30,
 2016


June 30,
 2017


June 30,
 2016

Revenues








Gross premiums written

$

156,564



$

196,866



$

302,918



$

394,022


Gross premiums ceded

(1,425)



(1,425)



(2,550)



(1,425)


Net premiums written

155,139



195,441



300,368



392,597


Change in net unearned premium reserves

18,419



(62,319)



11,199



(122,673)


Net premiums earned

173,558



133,122



311,567



269,924


Net investment income

107,325



86,346



235,835



46,236


Total revenues

280,883



219,468



547,402



316,160


Expenses








Loss and loss adjustment expenses incurred, net

107,379



104,131



193,274



188,807


Acquisition costs, net

68,641



48,482



123,093



100,169


General and administrative expenses

15,014



10,243



25,586



21,531


Other expenses

2,105



3,173



5,006



5,879


Interest expense

2,051



2,046



4,077



4,094


Foreign exchange (gains) losses

4,781



(8,068)



4,796



(10,454)


Total expenses

199,971



160,007



355,832



310,026


Income before income tax expense

80,912



59,461



191,570



6,134


Income tax expense

(5,307)



(5,310)



(10,605)



(3,381)


Income including non-controlling interests

75,605



54,151



180,965



2,753


Income attributable to non-controlling interests

(1,027)



(775)



(2,201)



(506)


Net income

$

74,578



$

53,376



$

178,764



$

2,247


Earnings per share








Basic

$

0.73



$

0.51



$

1.73



$

0.02


Diluted

$

0.71



$

0.51



$

1.70



$

0.02


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








Basic

102,283,844



104,132,797



103,144,078



104,195,336


Diluted

104,569,226



105,233,921



105,149,710



105,228,174


 

 

THIRD POINT REINSURANCE LTD.

SEGMENT REPORTING




Three months ended June 30, 2017


Property and
Casualty
Reinsurance


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

156,564


$


$

156,564

Gross premiums ceded

(1,425)



(1,425)

Net premiums written

155,139



155,139

Change in net unearned premium reserves

18,419



18,419

Net premiums earned

173,558



173,558

Expenses







Loss and loss adjustment expenses incurred, net

107,379




107,379

Acquisition costs, net

68,641



68,641

General and administrative expenses

9,649


5,365


15,014

Total expenses

185,669


5,365


191,034

Net underwriting loss

(12,111)


 n/a


 n/a

Net investment income

31,206


76,119


107,325

Other expenses

(2,105)



(2,105)

Interest expense


(2,051)


(2,051)

Foreign exchange losses



(4,781)


(4,781)

Income tax expense


(5,307)


(5,307)

Segment income including non-controlling interests

16,990


58,615


75,605

Segment income attributable to non-controlling interests


(1,027)


(1,027)

Segment income

$

16,990


$

57,588


$

74,578

Property and Casualty Reinsurance - Underwriting Ratios (1):





Loss ratio


61.9%





Acquisition cost ratio

39.5%





Composite ratio

101.4%





General and administrative expense ratio

5.6%





Combined ratio

107.0%












Six months ended June 30, 2017


Property and
Casualty
Reinsurance


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

302,918


$


$

302,918

Gross premiums ceded

(2,550)



(2,550)

Net premiums written

300,368



300,368

Change in net unearned premium reserves

11,199



11,199

Net premiums earned

311,567




311,567

Expenses






Loss and loss adjustment expenses incurred, net

193,274



193,274

Acquisition costs, net

123,093



123,093

General and administrative expenses

15,961


9,625


25,586

Total expenses

332,328


9,625


341,953

Net underwriting loss

(20,761)


 n/a


 n/a

Net investment income

67,326


168,509


235,835

Other expenses

(5,006)



(5,006)

Interest expense


(4,077)


(4,077)

Foreign exchange losses


(4,796)


(4,796)

Income tax expense


(10,605)


(10,605)

Segment income including non-controlling interests

41,559


139,406


180,965

Segment income attributable to non-controlling interests


(2,201)


(2,201)

Segment income

$

41,559


$

137,205


$

178,764

Property and Casualty Reinsurance - Underwriting Ratios (1):








Loss ratio


62.0%





Acquisition cost ratio

39.5%





Composite ratio

101.5%





General and administrative expense ratio

5.1%





Combined ratio

106.6%






(1)      Underwriting ratios are calculated by dividing the related expense by net premiums earned.

 

 

 


Three months ended June 30, 2016


Property and Casualty Reinsurance


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

196,866


$


$

196,866

Gross premiums ceded

(1,425)



(1,425)

Net premiums written

195,441



195,441

Change in net unearned premium reserves

(62,319)



(62,319)

Net premiums earned

133,122



133,122

Expenses






Loss and loss adjustment expenses incurred, net

104,131



104,131

Acquisition costs, net

48,482



48,482

General and administrative expenses

6,085


4,158


10,243

Total expenses

158,698


4,158


162,856

Net underwriting loss

(25,576)


 n/a


 n/a

Net investment income

19,098


67,248


86,346

Other expenses

(3,173)



(3,173)

Interest expense


(2,046)


(2,046)

Foreign exchange gains


8,068


8,068

Income tax expense


(5,310)


(5,310)

Segment income (loss) including non-controlling interests

(9,651)


63,802


54,151

Segment income attributable to non-controlling interests


(775)


(775)

Segment income (loss)

$

(9,651)


$

63,027


$

53,376

Property and Casualty Reinsurance - Underwriting Ratios (1):





Loss ratio

78.2%





Acquisition cost ratio

36.4%





Composite ratio

114.6%





General and administrative expense ratio

4.6%





Combined ratio

119.2%












Six months ended June 30, 2016


Property and Casualty Reinsurance


Corporate


Total

Revenues

($ in thousands)

Gross premiums written

$

394,022


$


$

394,022

Gross premiums ceded

(1,425)



(1,425)

Net premiums written

392,597



392,597

Change in net unearned premium reserves

(122,673)




(122,673)

Net premiums earned

269,924



269,924

Expenses






Loss and loss adjustment expenses incurred, net

188,807



188,807

Acquisition costs, net

100,169



100,169

General and administrative expenses

13,147


8,384


21,531

Total expenses

302,123


8,384


310,507

Net underwriting loss

(32,199)


 n/a


 n/a

Net investment income

10,837


35,399


46,236

Other expenses

(5,879)



(5,879)

Interest expense


(4,094)


(4,094)

Foreign exchange gains


10,454


10,454

Income tax expense


(3,381)


(3,381)

Segment income (loss) including non-controlling interests

(27,241)


29,994


2,753

Segment income attributable to non-controlling interests


(506)


(506)

Segment income (loss)

$

(27,241)


$

29,488


$

2,247

Property and Casualty Reinsurance - Underwriting Ratios (1):








Loss ratio

69.9%





Acquisition cost ratio

37.1%





Composite ratio

107.0%





General and administrative expense ratio

4.9%





Combined ratio

111.9%






(1)      Underwriting ratios are calculated by dividing the related expense by net premiums earned.

 

 

THIRD POINT REINSURANCE LTD.

RECONCILIATION OF NON-GAAP MEASURES AND KEY PERFORMANCE INDICATORS









June 30,
2017


December 31,
2016

Basic and diluted book value per share numerator:






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

Total shareholders' equity






$

1,576,132


$

1,449,725

Less: non-controlling interests






(19,809)


(35,674)

Shareholders' equity attributable to shareholders






1,556,323


1,414,051

Effect of dilutive warrants issued to founders and an advisor







46,512


46,512

Effect of dilutive stock options issued to directors and employees






51,930


52,930

Diluted book value per share numerator






$

1,654,765


$

1,513,493

Basic and diluted book value per share denominator:









Issued and outstanding shares, net of treasury shares






101,339,828


104,173,748

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






5,174,333


5,274,333

Effect of dilutive restricted shares issued to employees






1,127,928


878,529

Diluted book value per share denominator






112,293,252


114,977,773










Basic book value per share






$

15.36


$

13.57

Diluted book value per share






$

14.74


$

13.16

 


Three months ended


Six months ended


June 30,
 2017


June 30,
 2016


June 30,
 2017


June 30,
 2016


($ in thousands)

Net investment income on float

$

31,206


$

19,098


$

67,326


$

10,837

Net investment income on capital

75,926


67,014


168,049


34,918

Net investment income on investments managed by
Third Point LLC

107,132


86,112


235,375


45,755

Net gain on investment in Kiskadee Fund


193



234



460



481


$

107,325


$

86,346


$

235,835


$

46,236






Three months ended


Six months ended


June 30,
 2017


June 30,
 2016


June 30,
 2017


June 30,
 2016


($ in thousands)

Net income

$

74,578


$

53,376


$

178,764


$

2,247

Shareholders' equity attributable to shareholders -  beginning
of period

1,501,681


1,331,247


1,414,051



1,379,726

Impact of weighting related to shareholders' equity from shares
repurchased


(9,863)



(2,609)



(16,882)



(1,305)

Adjusted shareholders' equity attributable to shareholders -

beginning of period

$

1,491,818


$

1,328,638


$

1,397,169


$

1,378,421

Return on beginning shareholders' equity


5.0%



4.0%



12.8%



0.2%

 

Non-GAAP Financial Measures and Key Performance Indicators

Book Value per Share and Diluted Book Value per Share

Book value per share and diluted book value per share are non-GAAP financial measures and there are no comparable GAAP measures. Book value per share is calculated by dividing shareholders' equity attributable to shareholders by the number of issued and outstanding shares at period end, net of treasury shares. Diluted book value per share 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. For unvested restricted shares with a performance condition, we include the unvested restricted shares for which we consider vesting to be probable. Change in book value per share is calculated by taking the change in book value per share divided by the beginning of period book value per share. Change in diluted book value per share is calculated by taking the change in diluted book value per share divided by the beginning of period diluted book value per share. 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 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. Float is not a concept defined by U.S. GAAP and therefore, there are no comparable U.S. GAAP measures. Float, as a result, is considered to be a non-GAAP financial measure. We believe that net investment income generated on float is an important consideration in evaluating the overall contribution of our property and casualty reinsurance operation to our consolidated results. It is also explicitly considered as part of the evaluation of management's performance for purposes of long-term incentive compensation.

Net Investment Return on Investments Managed by Third Point LLC

Net investment return represents the return on our investments managed by Third Point LLC, net of fees. 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. 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. We believe that return on beginning shareholders' equity is an important measure because it assists our management and investors in evaluating the Company's profitability. For the six months ended June 30, 2017, we have also adjusted the beginning shareholders' equity for the impact of the shares repurchased on a weighted average basis. This adjustment increased the stated returns on beginning shareholders' equity.

Invested Asset Leverage

Invested asset leverage is a ratio calculated by dividing our net investments managed by Third Point LLC by shareholders' equity attributable to shareholders and is a key metric in assessing the amount of insurance float generated by our reinsurance operation that has been invested by our investment manager, Third Point LLC.  Given the sensitivity of our return on beginning shareholders' equity to our net investment return on investments managed by Third Point LLC, invested asset leverage is an important metric that management monitors.  It is also an important metric by which we evaluate our capital adequacy for rating agency and regulatory purposes.  Maintaining an appropriate invested asset leverage to optimize the return potential of the Company, while maintaining sufficient rating agency and regulatory capital is an important aspect of how we manage the Company.

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SOURCE Third Point Reinsurance Ltd.