We provide reinsurance products to insurance and reinsurance companies, government entities, and other risk bearing vehicles. Contracts can be written on an excess of loss basis or quota share basis, although the majority of contracts written to date have been on a quota share basis. In addition, we write contracts on both a prospective basis and a retroactive basis. Prospective reinsurance contracts cover losses incurred as a result of future insurable events. Retroactive reinsurance contracts cover the potential for changes in estimates of loss and loss adjustment expense reserves related to loss events that have occurred in the past. Retroactive reinsurance contracts can be an attractive type of contract for us as they can generate an underwriting profit should the ultimate loss and loss adjustment expenses settle for less than the initial estimate of reserves, and the premiums received at the inception of the contract generate insurance float. The product lines that we currently underwrite for this operating segment are: property, casualty and specialty. We assume a minimal amount of property catastrophe risk and we anticipate that our property catastrophe exposures will consistently remain low when compared to many other reinsurers with whom we compete.
The change in foreign exchange gains (losses) was primarily due to the revaluation of foreign currency loss and loss adjustment expense reserves denominated in British pounds into the United States dollar, and the related foreign exchange rate movements in the respective periods. For these contracts, non-U.S. dollar reinsurance assets, or balances held in trust accounts securing reinsurance liabilities generally offset reinsurance liabilities in the same non-U.S. dollar currencies resulting in minimal net exposure. As a result, the foreign exchange losses on loss and loss adjustment expense reserves in the period are offset by corresponding foreign exchange gains included in net investment income (loss) resulting from the revaluation of foreign currency reinsurance collateral held in trust accounts.
The change in net income for the year ended December 31, 2016 compared to the year ended December 31, 2015 was primarily due to the following:
We wrote one large credit and financial lines quota share, covering primarily mortgage business, whereby the ceding company significantly increased their writings, which resulted in a $46.9 million premium estimate increase during the year on this contract;
$4.6 million of net adverse underwriting loss development relating to non-standard auto contracts, primarily due to the inability of cedents to promptly react to increasing frequency and severity trends, resulting in underpriced business and adverse selection.
For the year ended December 31, 2016, we incurred $10.5 million of net adverse prior years’ reserve development as a result of re-estimation of loss reserves. The $10.5 million of net adverse prior years’ reserve development for the year ended December 31, 2016 was accompanied by net increases of $2.0 million in acquisition costs, resulting in a net adverse development of $12.5 million in net underwriting results, or 2.1 percentage points. The net underwriting results impact of the adverse loss development was due to:
The decrease in acquisition costs, net, and the related acquisition cost ratio for the year ended December 31, 2017 was primarily due to a retroactive reinsurance contracts with a low acquisition cost ratio in the year ended December 31, 2017 compared to no retroactive reinsurance contracts in the year ended December 31, 2016. Also impacting the difference is lower earned premiums in the current year period resulting in a lower acquisition cost expense amount.
Basic book value per share and diluted book value per share are non-GAAP financial measures and there are no comparable GAAP measures. Basic book value per share, as presented, is a non-GAAP financial measure and is calculated by dividing shareholders’ equity attributable to Third Point Re common shareholders by the number of common shares outstanding shares, excluding the total number of unvested restricted shares, at period end. Diluted book value per share, as presented, is a non-GAAP financial measure and represents basic 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 basic book value per share is calculated by taking the change in basic 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
As of December 31, 2017, the effect of dilutive restricted shares issued to directors and employees was comprised of 18,209 restricted shares with a service condition only and 887,203 restricted shares with a service and performance condition that were considered probable of vesting.
The decrease in float generated in the year ended December 31, 2017 compared to the year ended December 31, 2016 was primarily due to the timing of cash flows on our reinsurance contracts including the non-renewal of one large quota share contract in the current year period for which premium was received up front in the prior year period, partially offset by the premium received on new retroactive reinsurance contracts in 2017 compared to none written in 2016.
In February 2015, we completed a public offering of Notes issued by TPRUSA and guaranteed by Third Point Re. pursuant to a registration statement on Form S-3, from which we received net proceeds of approximately $113.2 million,
As of December 31, 2017, $250.5 million (December 31, 2016 - $231.8 million) of letters of credit, representing 58.9% of the total available facilities, had been issued (December 31, 2016 - 44.2% (based on total available facilities of $525.0 million)).
We have no obligations, assets or liabilities, other than those derivatives in our investment portfolio and disclosed in the notes to our consolidated financial statements, which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often