Greetings, and welcome to the Third Point Reinsurance Fourth Quarter And Full Year 2018 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Chris Coleman, Chief Financial Officer, for Third Point Reinsurance. You may begin.

Thank you, Operator. Welcome to the Third Point Reinsurance Ltd. earnings call for the fourth quarter of 2018. Last night, we issued an earnings press release and financial supplement, which is available on our website, www.thirdpointre.bm. Leading today's call will be Rob Bredahl, President and CEO. But before we begin, I would like to remind you that many of the remarks today will contain forward-looking statements based on current expectations. Actual results may differ materially from those projected as a result of certain risks and uncertainties. Please refer to the fourth quarter 2018 earnings press release and the company's other public filings, including the risk factors in the company's 10-K, where you will find factors that could cause actual results to differ materially from these forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company assumes no obligation to update or revise them in light of new information, future events or otherwise. In addition, management will refer to certain non-GAAP measures, which management believes allow for a more complete understanding of the company's financial results. A reconciliation of these measures to the most comparable GAAP measure is presented in the company's earnings press release. At this time, I will turn the call over to Rob Bredahl. Rob?

Thanks, Chris. This morning, I would like to briefly review our results for the fourth quarter and full year 2018, and then spend time discussing market conditions and honoring initiatives that we are implementing to improve profitability. Danny will then discuss our investment results and Chris will cover our financial results in more detail. We will then open the call up for questions. The fourth quarter of 2018 was a disappointing quarter. We generated a net loss of $298 million in the quarter, driven by a negative investment return of 11.4%, which resulted in net investment loss of $277 million. In addition, we incurred $18 million of cat losses related to the California wildfires and other fourth quarter events. For the full year, we generated a net loss of $318 million. Now moving to market conditions. Although the industry experienced significant losses in 2017 and 2018, there continues to be significant underwriting capacity available, and market conditions remained challenging. While many market participants were hopeful that the significant cat losses over the past few years would lead to more attractive cap raising, improvements have been modest. We believe that cap raising on loss-impacted programs has improved, while pricing and other non-loss impacted contracts has remained broadly flat. Outside of property cat reinsurance in housing lines and where capital relief reinsurance structures are employed, we are seeing some improvement. Most reinsurers have been living off of cap profits during a long string of benign cat years. When cap were fully resolved or reversed over the past few years, reinsurers have been pushing for improvements across their entire portfolio. And interestingly, they seem to be sticking more in the noncat areas versus the cat-related lines of business. As we talked about for several quarters, we continue to build out our underwriting platform…

Thanks, Rob, and good morning. The Third Point Reinsurance investment portfolio managed by Third Point LLC was down 11.4% for the fourth quarter of 2018, net of fees and expenses, bringing year-to-date returns to minus 10.8%. In comparison, the S&P 500 was down 13.5% and 4.4% over the same periods. The Third Point Reinsurance account represents approximately 16% of assets managed by Third Point. Performance for the year and quarter were just disappointing. This was the fourth time in 24 years that we lost more than 1% at calendar year and only the second time that we have lost double digits. We took the opportunity to learn from our mistakes and have made improvements to portfolio and risk management, optimize some of our processes and restated our competitive advantage as investors in today's markets. We have invested for long enough to know that years like '18 plant the seeds for innovation and new investment opportunities and are usually inflection points in this business. With 2018 behind us and the balanced portfolio of securities that we think have embedded catalyst-driven value, we expect to deliver better results. In 2018, too much exposure to unhedged, long cyclical equity investments, especially heading into the fourth quarter, and one large miss in merger arbitrage accounted for substantial portion of our negative returns. Given our domestically concentrated portfolio, we were perhaps too focused on the fed and U.S. data and missed signs of a potential turn in the business cycle prompted by weakness outside the U.S. In Q4, our equity book was down 18.8% on average exposure. Negative performance was driven by a sell-off in many core equity long positions. Our dedicated single-name short portfolio generated an ROA of 20% last year. The exposures were too modest to materially offset the declines in our long…

Thanks, Daniel. As a result of the net loss that Rob mentioned earlier, our diluted book value per share ended the year at $12.98, which was a decrease of $2.62 or 16.8% from September 30, 2018, and a decrease of $2.67 or 17.1% from December 31, 2017. The result of the net investment returns discussed by Daniel was an investment loss of $277 million for the fourth quarter and $251 million for the year. Our gross premiums written for the fourth quarter was $120 million, which was a decrease of $44 million from the prior year's fourth quarter. Gross written premium for the full year decreased by $63 million or 10% to $578 million from $642 million in 2017. The lower gross premiums in the fourth quarter primarily related to certain contracts written in the prior year period on a multiyear basis with no comparable premium in the current year period. This decrease was partially offset by new contracts bound in the current year period, including one reserve cover for $70 million that was written and earned in the fourth quarter. We generated a $24 million net underwriting loss for the fourth quarter, and our combined ratio was 111.6% compared to 107.1% in the prior year fourth quarter. We recorded $18.5 million of cat losses or 8.8 percentage points on the Q4 combined ratio related to the California wildfires and other catastrophe events compared to no catastrophe losses in the prior year period. Although we have not specifically written property catastrophe contracts in 2018 or in prior years, we were exposed to California wildfire losses through liability reinsurance of the utilities in California. Based on the information we have available, we recorded $11.3 million of losses related to the liability exposure from the California utilities, representing our full limits exposed…

[Operator Instructions]. Our first question comes from the line of Michael Phillips with Morgan Stanley.

Rob, just a quick first one for you. I think you said in the property cat business for 2019 around $45 million to $50 million, and this could be from running, but it sounds a little bit higher than what you said previously. Is that running? Or is that intentionally a little bit more than what you were thinking earlier?

Yes. I think we said $40 million to $50 million a couple of earnings calls ago. And so it's coming a little bit higher, but still within the range I indicated.

Okay. So nothing more aggressive there given your comments of the expected pricing going on there.

No, I wouldn't say that. Our access to the market was better than we expected. The deal flow was pretty good. And of course, some of that had to do with the losses in the fourth quarter. Also we heard often that companies are pushing back from the collateralized markets. They just prefer rated paper where they don't have to deal with collateral and collateral leases and dealing with tail risk. And so that was somewhat of a pleasant surprise.

Okay, okay. Given all the changes in kind of a mix with the excess of loss and the property cat and the specialty business that you're looking to get into throughout the year, what impact do you see on - I guess, going forward on your acquisition ratio?

Yes. Why don't you take that, Chris?

Yes. I mean, I think as we've talked about a couple of number of times in the past, we don't typically overly focus on the component parts of our composite ratio. And as we look at our business, it's really driven more from an aggregate composite ratio. And again, in the opening remarks, we made the point that, as the earnings from the new cat business and the other higher-margin business that we expect to begin writing in 2019, we expect our overall composite and combined ratio to come down on an underwriting year below 100. Having said that, certainly, the property cat XOL business that we expect to write will have a more typical 10, 11 point type acquisition cost ratio, so you may see, over time, the acquisition cost ratio component to drift down based on a mix of business with more XOL.

Yes. And Michael, so the quarter share contracts that we focused on primarily up until recently had ceding commissions that probably average 30% to 32%. Excess treaties are more like 10%. And so the acquisition cost should come down as we shift the portfolio away from quarter share and more to excess.

No. Great. I appreciate that. And I guess, lastly, if you - as you shift to - and try to write more of the excess of loss business, can you provide us a little bit more color on kind of maybe the type of warrants you're looking at there and what you're seeing from the primary focus and what they're doing what the pricing and loss trends are like on those lines you're focused on?

Sure. Maybe I'll start with the sort of lines we plan to write going forward. I've mentioned, well, I guess, in the earnings script as well as in our numbers release last night that we hired a specialty underwriting team in Bermuda. And they write a relatively eclectic portfolio. So it's workers comp cat, some cyber, some terrorism political risk, some class, some personal accident insurance. So we expect that group to write $20 million to $30 million of premium next year. Most of their business is January 1. And then I was looking through our recently completed deal list and work in process list, and we have all sorts of different forms of transaction liability. We wrote some title insurance, some RBI. We wrote some of our first surety treaties, very small. We're looking at commercial auto. There's been a big price adjustment in commercial auto. We're not sure if it's big enough yet, but we're looking at it. Some Marine. So it's a big list of true specialty lines and a lot of that is new, a lot of it is growing. And then you asked what are we seeing from our clients. Still, despite that long list, most of our business is still in the form of casualty treaties. And there's really two layers to my comments on pricing and terms and conditions. On the underlying business where the primary companies are writing, they're getting rate and you've seen that in the earnings release. They are getting rate. The question is, are they staying ahead of loss trends? They think so. We think maybe probably. But then, there's another layer of pricing and it's the reinsurance terms, which sit on top of that. And reinsurance ceding commissions, that's the price variable on quota share contracts, went up for many years in a row, but they've come down over the last couple of years. And so the combination of maybe some improvement on the underlying with an improvement in the closure terms, we believe, gives us improvement of 1 or 2 points on those closure deals.

[Operator Instructions]. Our next question comes from the line of Meyer Shields with KBW.

Rob, can you give us a sense as to your PM L as of January 1?

Yes. We're not going to be super specific in handing out PMLs. Our PML, as we benchmark against traditional companies and as we plan and projected, we believe, will come in to be about half of the average reinsurance company.

And that's as a percentage of tangible equity.

We're looking at it as a percentage of tangible equity. And the data that's out there is typically the 1 in 100 PML worldwide per occurrence, and that's what we're benchmarking against.

Okay. You talked a little bit - I think you might answered my question about ceding commissions. Was there another step-down at January 1?

Yes. We saw continued improvement. We saw a little bit of improvement last year. And I want to moderate my comments. A little improvement. I don't think we had a ceding commission go up on a renewal. I'm looking around the table at some of my senior underwriters. And so no ceding commissions went up. Some of them came down slightly.

Okay, so that's hobbled in the right direction. And then final question. Can you give us a sense as to the tail on the retro contract written in the fourth quarter of last year?

I mean, I think, in detail, in terms of the loss reserve kind of estimated duration of those reserves.

Yes.

I would say, on average, about five years, and that's probably pretty representative of the reserve covers that we've written in the past. They typically end up with an average liability duration of about five years.

[Operator Instructions]. Mr. Bredahl, there are no further questions at this time. I'll turn the floor back to you for any final comments.

Thanks, everybody, for your time. We look forward to talking to you next quarter. If there's any questions in meantime, please give us a call. Buh-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.