Edgar Filing: Third Point Reinsurance Ltd.

TPRE-2015.03.31-10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number 001-35039

THIRD POINT REINSURANCE LTD.

(Exact name of registrant as specified in its charter)



Bermuda		98-1039994
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

The Waterfront, Chesney House

96 Pitts Bay Road

Pembroke HM 08, Bermuda

+1 441 542-3300

(Address, including Zip Code and Telephone Number, including Area Code of Registrant’s Principal Executive Office)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The registrant’s common shares began trading on the New York Stock Exchange on August 15, 2013.

As of May 8, 2015, there were 105,164,957 common shares of the registrant’s common shares issued and outstanding, including 1,274,280 restricted shares.

Third Point Reinsurance Ltd.

INDEX



	Page
PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3. Quantitative and Qualitative Disclosures About Market Risk	73
Item 4. Controls and Procedures	76
PART II. OTHER INFORMATION	77
Item 1. Legal Proceedings	77
Item 1A. Risk Factors	77
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3. Defaults Upon Senior Securities	77
Item 4. Mine Safety Disclosures	77
Item 5. Other Information	77
Item 6. Exhibits	78

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

As of March 31, 2015 and December 31, 2014

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



	March 31, 2015		December 31, 2014
Assets
Equity securities, trading, at fair value (cost - $1,119,462; 2014 - $1,078,859)	$	1,239,988	$	1,177,796
Debt securities, trading, at fair value (cost - $709,599; 2014 - $546,933)	736,243		569,648
Other investments, at fair value	61,466		83,394
Total investments in securities and commodities	2,037,697		1,830,838
Cash and cash equivalents	12,348		28,734
Restricted cash and cash equivalents	583,474		417,307
Due from brokers	228,793		58,241
Securities purchased under an agreement to sell	17,630		29,852
Derivative assets, at fair value	25,223		21,130
Interest and dividends receivable	5,902		2,602
Reinsurance balances receivable	250,154		303,649
Deferred acquisition costs, net	164,096		155,901
Loss and loss adjustment expenses recoverable	408		814
Other assets	6,857		3,512
Total assets	$	3,332,582	$	2,852,580
Liabilities and shareholders’ equity
Liabilities
Accounts payable and accrued expenses	$	8,792	$	10,085
Reinsurance balances payable	53,798		27,040
Deposit liabilities	146,719		145,430
Unearned premium reserves	508,014		433,809
Loss and loss adjustment expense reserves	273,937		277,362
Securities sold, not yet purchased, at fair value	104,857		82,485
Securities sold under an agreement to repurchase	61,939		—
Due to brokers	465,558		312,609
Derivative liabilities, at fair value	17,020		11,015
Performance fee payable to related party	15,844		—
Interest and dividends payable	1,617		697
Senior notes payable, net of deferred costs	113,315		—
Total liabilities	1,771,410		1,300,532
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, 105,170,735 (2014: 104,473,402))	10,517		10,447
Additional paid-in capital	1,069,617		1,065,489
Retained earnings	426,447		375,977
Shareholders’ equity attributable to shareholders	1,506,581		1,451,913
Non-controlling interests	54,591		100,135
Total shareholders’ equity	1,561,172		1,552,048
Total liabilities and shareholders’ equity	$	3,332,582	$	2,852,580

The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of the Condensed Consolidated Financial Statements.

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

For the three months ended March 31, 2015 and 2014

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



	2015			2014
Revenues
Gross premiums written	$	213,334		$	87,587
Gross premiums ceded	(52		)	—
Net premiums written	213,282			87,587
Change in net unearned premium reserves	(74,207		)	(14,325		)
Net premiums earned	139,075			73,262
Net investment income	64,918			50,035
Total revenues	203,993			123,297
Expenses
Loss and loss adjustment expenses incurred, net	81,746			46,259
Acquisition costs, net	54,657			25,431
General and administrative expenses	11,708			10,025
Other expenses	2,701			787
Interest expense	1,036			—
Foreign exchange gains	(193		)	—
Total expenses	151,655			82,502
Income before income tax expense	52,338			40,795
Income tax expense	(1,305		)	—
Income including non-controlling interests	51,033			40,795
Income attributable to non-controlling interests	(563		)	(1,016		)
Net income	$	50,470		$	39,779
Earnings per share
Basic	$	0.48		$	0.38
Diluted	$	0.47		$	0.37
Weighted average number of common shares used in the determination of earnings per share
Basic	103,753,065			103,264,616
Diluted	106,144,183			106,413,580
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of the Condensed Consolidated Financial Statements.

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the three months ended March 31, 2015 and 2014

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



	2015			2014
Common shares
Balance, beginning of period	104,473,402			103,888,916
Issuance of common shares	697,333			35,981
Balance, end of period	105,170,735			103,924,897
Common shares
Balance, beginning of period	$	10,447		$	10,389
Issuance of common shares	70			3
Balance, end of period	10,517			10,392
Additional paid-in capital
Balance, beginning of period	1,065,489			1,055,690
Issuance of common shares, net	1,045			(3		)
Share compensation expense	3,083			2,252
Balance, end of period	1,069,617			1,057,939
Retained earnings
Balance, beginning of period	375,977			325,582
Income including non-controlling interests	51,033			40,795
Income attributable to non-controlling interests	(563		)	(1,016		)
Balance, end of period	426,447			365,361
Shareholders’ equity attributable to shareholders	1,506,581			1,433,692
Non-controlling interests
Balance, beginning of period	100,135			118,735
Non-controlling interest in investment affiliate, net	(24,999		)	(51,001		)
Non-controlling interest in Catastrophe Fund	(21,400		)	2,129
Non-controlling interest in Catastrophe Manager	292			—
Income attributable to non-controlling interests	563			1,016
Balance, end of period	54,591			70,879
Total shareholders’ equity	$	1,561,172		$	1,504,571

The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of the Condensed Consolidated Financial Statements.

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the three months ended March 31, 2015 and 2014

(expressed in thousands of U.S. dollars)



	2015			2014
Operating activities
Income including non-controlling interests	$	51,033		$	40,795
Adjustments to reconcile income including non-controlling interests to net cash provided by operating activities
Share compensation expense	3,083			2,252
Interest expense on deposit liabilities	631			448
Net unrealized (gain) loss on investments and derivatives	(36,340		)	16,334
Net realized gain on investments and derivatives	(53,283		)	(84,752		)
Foreign exchange gains included in income including non-controlling interests	(193		)	—
Amortization of premium and accretion of discount, net	1,673			364
Changes in assets and liabilities:
Reinsurance balances receivable	53,170			(29,778		)
Deferred acquisition costs, net	(8,195		)	(2,090		)
Loss and loss adjustment expenses recoverable	406			(1,000		)
Other assets	(3,345		)	448
Interest and dividends receivable, net	(2,380		)	(2,547		)
Unearned premium reserves	74,205			14,325
Loss and loss adjustment expense reserves	(2,907		)	30,293
Accounts payable and accrued expenses	(2,024		)	(5,717		)
Reinsurance balances payable	26,638			16,566
Performance fee payable to related party	15,844			12,295
Net cash provided by operating activities	118,016			8,236
Investing activities
Purchases of investments	(875,871		)	(797,308		)
Proceeds from sales of investments	747,492			574,482
Purchases of investments to cover short sales	(116,867		)	(67,779		)
Proceeds from short sales of investments	150,942			74,577
Change in due to/from brokers, net	(17,603		)	285,175
Decrease in securities purchased under an agreement to sell	12,222			1,369
Increase in securities sold under an agreement to repurchase	61,939			—
Change in restricted cash and cash equivalents	(166,167		)	(27,467		)
Net cash (used in) provided by investing activities	(203,913		)	43,049
Financing activities
Proceeds from issuance of common shares, net of costs	1,115			—
Proceeds from issuance of senior notes payable, net of costs	114,025			—
Increase (decrease) in deposit liabilities	478			(100		)
Non-controlling interest in investment affiliate, net	(24,999		)	(51,001		)
Non-controlling interest in Catastrophe Fund	(21,400		)	2,129
Non-controlling interest in Catastrophe Manager	292			—
Net cash provided by (used in) financing activities	69,511			(48,972		)
Net (decrease) increase in cash and cash equivalents	(16,386		)	2,313
Cash and cash equivalents at beginning of period	28,734			31,625
Cash and cash equivalents at end of period	$	12,348		$	33,938
Supplementary information
Interest paid in cash	$	979		$	928
Income taxes paid in cash	$	437		$	—

The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of the Condensed Consolidated Financial Statements.

Third Point Reinsurance Ltd.

Notes to the Condensed Consolidated Financial Statements

(UNAUDITED)

(Expressed in United States Dollars)

1. Organization

Third Point Reinsurance Ltd. (together with its wholly and majority owned subsidiaries, the “Company”) was incorporated under the laws of Bermuda on October 6, 2011. Through its reinsurance subsidiaries, the Company is a provider of global specialty property and casualty reinsurance products. The Company operates through two licensed reinsurance subsidiaries, Third Point Reinsurance Company Ltd. (“Third Point Re”), a Bermuda reinsurance company that commenced operations in January 2012, and Third Point Reinsurance (USA) Ltd. (“Third Point Re USA”).

Third Point Re USA is a Bermuda reinsurance company that was incorporated on November 21, 2014 and commenced operations in February 2015. Third Point Re USA made an election under Section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be taxed as a U.S. entity. Third Point Re USA will price and underwrite U.S. domiciled reinsurance business from an office in the United States. Third Point Re USA is a wholly owned subsidiary of Third Point Re (USA) Holdings, Inc. (“TPRUSA”), an intermediate holding company based in the U.S., which is a wholly owned subsidiary of Third Point Re (UK) Holdings Ltd. (“Third Point Re UK”), an intermediate holding company based in the United Kingdom. Third Point Re UK is a wholly owned subsidiary of Third Point Reinsurance Ltd.

On June 15, 2012, Third Point Reinsurance Opportunities Fund Ltd. (the “Catastrophe Fund”), Third Point Reinsurance Investment Management Ltd. (the “Catastrophe Fund Manager”), and Third Point Re Cat Ltd. (the “Catastrophe Reinsurer”) were incorporated in Bermuda. The Catastrophe Fund Manager, a Bermuda exempted company, is the investment manager of the Catastrophe Fund. In December 2014, the Company announced that it would no longer accept investments in the Catastrophe Fund, that no new business would be written in the Catastrophe Reinsurer and that the Company would be redeeming all existing investments in the Catastrophe Fund. The Catastrophe Fund Manager will continue to manage the run off of the remaining exposure in the Catastrophe Fund.

On August 2, 2012, the Company established a wholly-owned subsidiary in the United Kingdom, Third Point Re Marketing (UK) Limited (“TPRUK”). On May 20, 2013, TPRUK was licensed as an insurance intermediary by the UK Financial Conduct Authority.

On August 20, 2013, the Company completed an initial public offering (“IPO”) of 24,832,484 common shares at an offering price of $12.50 per share. The net proceeds of the offering were $286.0 million, after deducting offering costs. The Company’s common shares are listed on the New York Stock Exchange under the symbol “TPRE”.

These unaudited condensed consolidated financial statements include the results of the Company and its wholly and majority owned subsidiaries (together, the “Company”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 in Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. This Quarterly Report should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the U.S. Securities and Exchange Commission on February 27, 2015.

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. All significant intercompany accounts and transactions have been eliminated.

The results for the three months ended March 31, 2015 are not necessarily indicative of the results expected for the full calendar year.

2. Significant accounting policies

The following is a summary of the significant accounting and reporting policies adopted by the Company:

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The major estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, the loss and loss adjustment expense reserves, estimates of written and earned premiums and fair value of financial instruments.

Cash and restricted cash and cash equivalents

Cash and cash equivalents consist of cash held in banks and other short-term, highly liquid investments with original maturity dates of ninety days or less.

Premium revenue recognition

To the extent that the amount of written premium is estimable, the Company estimates the ultimate premiums for the entire contract period and records this estimate at the inception of the contract. For contracts where the full written premium is not estimable at inception, the Company records written premium for the portion of the contract period for which the amount is estimable. These estimates are based primarily on information in the underlying contracts as well as information provided by clients and/or brokers.

Changes in premium estimates are expected and may result in adjustments in any reporting period. These estimates change over time as additional information regarding the underlying business volume is obtained. Any subsequent adjustments arising on such estimates are recorded in the period in which they are determined.

Premiums written are earned over the exposure period in proportion to the period of risk covered. Unearned premiums represent the portion of premiums written that relate to the remaining term of the underlying policies in force.

Premiums for retroactive exposures in reinsurance contracts are earned at the inception of the contract, as all of the underlying loss events covered by these exposures occurred in the past. Any underwriting profit at inception related to retroactive exposures in a reinsurance contract is deferred and recognised over the estimated future payout of the loss and loss adjustment expense reserves. Any underwriting loss at inception related to retroactive exposures in a reinsurance contract is recognised immediately.

Reinsurance premiums ceded

From time to time the Company reduces the risk of losses on business written by reinsuring certain risks and exposures with other reinsurers. The Company remains liable to the extent that any retrocessionaire fails to meet its obligations and to the extent that the Company does not hold sufficient security for their unpaid obligations. Ceded premiums are written during the period in which the risks incept and are expensed over the contract period in proportion to the period of risk covered. Unearned premiums ceded consist of the unexpired portion of reinsurance ceded.

Deferred acquisition costs

Acquisition costs consist of commissions, brokerage and excise taxes that are related directly to the successful acquisition of new or renewal reinsurance contracts. These costs are deferred and amortized over the period in which the related premiums are earned. The Company evaluates the recoverability of deferred acquisition costs by determining if the sum of future earned premiums and anticipated investment income is greater than expected future loss and loss adjustment expenses and acquisition costs. If a loss is probable on the unexpired portion of contracts in force, a premium deficiency loss is recognized. As of March 31, 2015, deferred acquisition costs are considered to be fully recoverable and no premium deficiency has been recorded.

Acquisition costs also include profit commissions that are expensed when incurred. Profit commissions are calculated and accrued based on the expected loss experience for contracts and recorded when the current loss estimate indicates that a profit commission is probable under the contract terms.

Loss and loss adjustment expense reserves

The Company’s loss and loss adjustment expense reserves include case reserves, reserves for losses incurred but not yet reported (“IBNR reserves”) and deferred profit reserves for retroactive exposures in reinsurance contracts. Case reserves are established for losses that have been reported, but not yet paid. IBNR reserves represent the estimated loss and loss adjustment expenses that have been incurred by insureds and reinsureds but not yet reported to the insurer or reinsurer, including unknown future development on loss and loss adjustment expenses that are known to the insurer or reinsurer. IBNR reserves are established by management based on actuarially determined estimates of ultimate loss and loss adjustment expenses.

Inherent in the estimate of ultimate loss and loss adjustment expenses are expected trends in claim severity and frequency and other factors that may vary significantly as claims are settled. Accordingly, ultimate loss and loss adjustment expenses may differ materially from the amounts recorded in the condensed consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments, if any, are recorded in the condensed consolidated statements of income in the period in which they become known.

Deposit liabilities

Certain contracts do not transfer sufficient insurance risk to be deemed reinsurance contracts and are accounted for using the deposit method of accounting. Management exercises judgment in determining whether contracts transfer sufficient risk to be accounted for as reinsurance contracts. Using the deposit method of accounting, a deposit liability, rather than written premium, is initially recorded based upon the consideration received less any explicitly identified premiums or fees. In subsequent periods, the deposit liability is adjusted by calculating the effective yield on the deposit to reflect actual payments to date and future expected payments.

Fair value measurement

The Company determines the fair value of financial instruments in accordance with current accounting guidance, which defines fair value and establishes a three level fair value hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Fair value is defined as the price that the Company would receive to sell an asset or would pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Company determines the estimated fair value of each individual security utilizing the highest level inputs available.

The fair value of the Company’s assets and liabilities, which qualify as financial instruments, approximates the carrying amounts presented in the condensed consolidated balance sheets.

Investments

The Company’s investments are classified as “trading securities” and are carried at fair value with changes in fair value included in earnings in the condensed consolidated statements of income.

The fair value of the Company’s investments are based on quoted market prices, or when such prices are not available, by reference to broker or underwriter bid indications, industry recognized pricing vendors, and/or internal pricing valuation techniques. Investment transactions are recorded on a trade date basis with balances pending settlement included in due to/from brokers in the condensed consolidated balance sheets.

Realized gains and losses are determined using cost calculated on a specific identification basis. Dividends are recorded on the ex-dividend date. Income and expense are recorded on the accrual basis including interest and premiums amortized and discounts accreted.

Derivatives

Underwriting

The Catastrophe Reinsurer enters into certain contracts under which the potential loss payments are triggered exclusively by reference to a specified index, such as an industry loss. These contracts are considered derivatives. The Company records the fair value of these contracts in derivative liabilities, at fair value, in the condensed consolidated balance sheet. Changes in the fair value of these contracts are recorded in net investment income in the condensed consolidated statement of income.

Investments

Derivative instruments within our investment assets managed by our investment manager Third Point LLC, are recorded in the condensed consolidated balance sheets at fair value, with changes in fair values and realized gains and losses recognised in net investment income in the condensed consolidated statements of income.

Derivatives serve as a key component of the Company’s investment strategy and are utilized primarily to structure the portfolio, or individual investments, and to economically match the investment objectives of the Company. The Company’s derivatives do not qualify as hedges for financial reporting purposes and are recorded in the condensed consolidated balance sheets on a gross basis and not offset against any collateral pledged or received. Pursuant to the International Swaps and Derivatives Association (“ISDA”) master agreements, securities lending agreements and other derivatives agreements, the Company and its counterparties typically have the ability to net certain payments owed to each other in specified circumstances. In addition, in the event a party to one of the ISDA master agreements, securities lending agreements or other derivatives agreements defaults, or a transaction is otherwise subject to termination, the non-defaulting party generally has the right to set off against payments owed to the defaulting party or collateral held by the non defaulting party.

The Company enters into derivative contracts to manage credit risk, interest rate risk, currency exchange risk, and other exposure risks. The Company uses derivatives in connection with its risk-management activities to economically hedge certain risks and to gain exposure to certain investments. The utilization of derivative contracts also allows for an efficient means by which to trade certain asset classes.

Fair values of derivatives are determined by using quoted market prices, industry recognized pricing vendors, and counterparty quotes when available; otherwise fair values are based on pricing models that consider the time value of money, volatility, and the current market and contractual prices of underlying financial instruments.

Embedded derivatives

Certain of the Company’s deposit and reinsurance contracts contain interest crediting features that vary based on the net investment return on investments managed by Third Point LLC. These contractual features are considered embedded derivatives in accordance with U.S. GAAP. We include the estimated fair value of these embedded derivatives in the condensed consolidated balance sheets with the host contract in order to reflect the expected settlement of these features with the host contract.

Share-based compensation

The Company accounts for its share-based compensation transactions using the fair value of the award at the grant date. Determining the fair value of share purchase options at the grant date requires estimation and judgment. The Company uses an option-pricing model (Black-Scholes) to calculate the fair value of share purchase options.

For share purchase options or restricted share awards granted that contain both a service and performance condition, the Company recognizes share compensation expense only for the portion of the options or restricted share awards that are considered probable of vesting. Share compensation for share purchase options or restricted share awards considered probable of vesting is expensed over the service (vesting) period on a graded vesting basis. The probability of share purchase options or restricted share awards vesting is evaluated at each reporting period. When the share purchase options or restricted share awards are considered probable of vesting, the Company records a true up of share compensation expense from the grant date (service inception date) to the current reporting period end based on the fair value of the options or restricted share awards at the grant date.

The Company measures grant date fair value for restricted share awards, with a service condition only, based on the price of its common shares at the grant date and the expense is recognised on a straight-line basis over the vesting period.

Warrants

The Company accounts for warrant contracts issued to certain of its founding investors (“Founders”) in conjunction with the initial capitalization of the Company by using either the physical settlement or net-share settlement methods. The fair value of these warrants was recorded in equity as additional paid-in capital. The fair value of warrants issued are estimated on the grant date using the Black-Scholes option-pricing model.

The Company accounts for certain warrant contracts issued to an advisor, where services have been received by the Company, in part, in exchange for equity instruments, based on the fair value of such services. The associated cost of these warrants has been recorded as capital raise costs and is included in additional paid in capital in the condensed consolidated statements of shareholders’ equity.

Debt offering costs

Costs incurred in issuing debt, which includes underwriters’ fees, legal and accounting fees, printing and other fees are capitalized and presented as a direct deduction from the senior notes payable in the condensed consolidated balance sheets. These costs are amortized over the term of the debt and are included in interest expense in the condensed consolidated statements of income.

Foreign currency transactions

The Company’s functional currency is the U.S. dollar. Transactions involving monetary assets and liabilities denominated in foreign currencies have been converted into U.S. dollars at the exchange rate in effect on the balance sheet date, and the related revenues and expenses are converted using specific rates for the period, as appropriate. Net foreign currency transaction gains and losses arising from these activities are reported in the condensed consolidated statements of income in the period in which they arise.

The Company does not isolate the portion of the net investment income resulting from changes in foreign exchange rates on investments, dividends and interest from the fluctuations arising from changes in fair values of securities and derivatives held. Periodic payments received or paid on swap agreements are recorded as realized gain or loss on investment transactions. Such fluctuations are included within net investment income in the condensed consolidated statements of income.

Income taxes

We provide for income taxes for our operations in income tax paying jurisdictions. Our provision relies on estimates and interpretations of currently enacted tax laws. We recognize deferred tax assets and liabilities based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Such temporary differences are primarily due to tax basis discounts on loss and loss adjustment expense reserves and unearned premiums, deferred acquisition costs and investments. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized. Any adjustments to deferred income taxes are accounted for as changes in estimates and are reflected in the condensed consolidated statements of income in the period in which they are made. Any adjustments could be material and could significantly impact earnings in the period they are recorded.

Non-controlling interests

The Company consolidates the results of entities in which it has a controlling financial interest. The Company records the portion of shareholders’ equity attributable to non-controlling interests as a separate line within shareholders’ equity in the condensed consolidated balance sheets. The Company records the portion of income attributable to non-controlling interests as a separate line within the condensed consolidated statements of income.

Earnings per share

Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. The weighted average number of common shares excludes any dilutive effect of outstanding warrants, options and convertible securities such as unvested restricted shares. Diluted earnings per share is based on the weighted average number of common shares and share equivalents including any dilutive effects of warrants, options and other awards under share plans and are determined using the treasury stock method. U.S. GAAP requires that unvested share awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (referred to as “participating securities”), be included in the number of shares outstanding for both basic and diluted earnings per share calculations. The Company treats certain of its unvested restricted shares as participating securities. In the event of a net loss, the participating securities are excluded from the calculation of both basic and diluted loss per share.

Leases

Leases in which substantially all of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognised in the condensed consolidated statements of income on a straight-line basis over the term of the lease.

Comprehensive income

The Company has no comprehensive income other than net income disclosed in the condensed consolidated statements of income.

Segment information

Under U.S. GAAP, operating segments are based on the internal information that management uses for allocating resources and assessing performance of the Company. The Company reports two operating segments – Property and Casualty Reinsurance and Catastrophe Risk Management. The Company also has a corporate function that includes the Company’s investment income on capital, certain general and administrative expenses related to its corporate activities, interest expense and income tax expense.

Prior year changes in the presentation of condensed consolidated statements of cash flows

The Company had previously excluded income attributable to non-controlling interests from cash flows provided by operating activities and included these amounts in cash flows used in investing activities and provided by financing activities. The Company began including income from non-controlling interests in cash flows provided by operating

activities for the year ended December 31, 2014. In addition, cash flows related to the non-controlling interest in investment affiliate were previously included in net cash used in investing activities and is now being included in net cash provided by financing activities. Lastly, the Company now includes interest expense on deposit liabilities and the change in fair value of embedded derivatives in deposit liability contracts as non-cash adjustments in operating activities. These changes did not impact the condensed consolidated balance sheet or condensed consolidated statements of income for the prior periods. The Company modified the presentation of its condensed consolidated statements of cash flows for the three months ended March 31, 2014 to conform with the current year presentation.

Recently issued accounting standards

Issued and effective as of March 31, 2015

In April 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). ASU 2014-08 changes the requirements for reporting discontinued operations, such that a disposal of a component of the Company’s operations is required to be reported as discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on the Company’s operations and financial results. ASU 2014-08 is effective for all disposals that occur after January 1, 2015, with early adoption permitted. The Company does not expect this new pronouncement to have a material impact on the Company’s condensed consolidated financial statements.

Issued but not yet effective as of March 31, 2015

In February 2015, the FASB issued Accounting Standard Update 2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 requires management to evaluate whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities. ASU 2015-02 eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 also provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in ASU 2015-02 are effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest - Imputation of Interest (ASU 2015-03). ASU 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. The amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 31, 2015, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2015-03 effective with its debt issuance in February 2015.

3. Restricted cash and cash equivalents

Restricted cash and cash equivalents as of March 31, 2015 and December 31, 2014 consisted of the following:



	March 31, 2015		December 31, 2014
	($ in thousands)
Restricted cash securing collateralized reinsurance contracts written by the Catastrophe Reinsurer (1)	$	75,425	$	108,544
Restricted cash securing letter of credit facilities (2)	282,707		218,963
Restricted cash securing other reinsurance contracts (3)	225,342		89,800
	$	583,474	$	417,307


(1)	Restricted cash securing collateralized reinsurance contracts written by the Catastrophe Reinsurer cannot be released until the contract’s exposure has expired and the cedant agrees to release the collateral. All remaining exposures being collateralized by these amounts are expected to expire by July 2015, upon which, the restricted cash will be released.


(2)	Restricted cash securing letter of credit facilities pertain to letters of credit issued to clients and cash securing these obligations which the Company will not be released from until the underlying reserves have been settled. The time period for which the Company expects these letters of credit to be in place varies from contract to contract but, can last several years.

(3)

Restricted cash securing other reinsurance contracts pertain to trust accounts securing the Company’s contractual obligation under certain reinsurance contracts which the Company will not be released from until all underlying risks have expired or have been settled. The time period for which the Company expects these trust accounts to be in place varies from contract to contract but, can last several years.

4. Investments

The Company’s investments are managed by its investment manager, Third Point LLC (“Third Point LLC” or the “Investment Manager”), under long-term investment management contracts. The Company directly owns the investments that are held in separate accounts and managed by Third Point LLC. The following is a summary of the separate account managed by Third Point LLC:



	March 31, 2015		December 31, 2014
Assets	($ in thousands)
Total investments in securities and commodities	$	2,032,653	$	1,828,761
Cash and cash equivalents	29		3
Restricted cash and cash equivalents (1)	508,049		308,763
Due from brokers	228,793		58,241
Securities purchased under an agreement to sell	17,630		29,852
Derivative assets	25,223		21,130
Interest and dividends receivable	5,898		2,590
Other assets	—		325
Total assets	2,818,275		2,249,665
Liabilities and non-controlling interest
Accounts payable and accrued expenses	506		464
Securities sold, not yet purchased, at fair value	104,857		82,485
Securities sold under an agreement to repurchase	61,939		—
Due to brokers	465,558		312,609
Derivative liabilities	16,990		10,985
Performance fee payable to related party	15,844		—
Interest and dividends payable	602		697
Non-controlling interest	15,885		40,241
Total liabilities and non-controlling interest	682,181		447,481
Total net investments managed by Third Point LLC	$	2,136,094	$	1,802,184


(1)	Includes amounts advanced to Third Point Re to fund collateral held in trust accounts.

The Company’s Investment Manager has a formal valuation policy that sets forth the pricing methodology for investments to be used in determining the fair value of each security in the Company’s portfolio. The valuation policy is updated and approved at least on an annual basis by Third Point LLC’s valuation committee (the “Committee”), which is comprised of officers and employees who are senior business management personnel of Third Point LLC. The Committee meets monthly. The Committee’s role is to review and verify the propriety and consistency of the valuation methodology to determine the fair value of investments. The Committee also reviews any due diligence performed and approves any changes to current or potential external pricing vendors.

Investments are carried at fair value. The fair values of investments are estimated using prices obtained from either third-party pricing services or broker quotes. The methodology for valuation is generally determined based on the investment’s asset class per the Company’s Investment Manager’s valuation policy. For investments where fair values from pricing services or brokers are unavailable, fair values are estimated using information obtained from the Company’s Investment Manager.

Securities and commodities listed on a national securities or commodities exchange or quoted on NASDAQ are valued at their last sales price as of the last business day of the period. Listed securities with no reported sales on such date and over-the-counter (“OTC”) securities are valued at their last closing bid price if held long by the Company, and last closing ask price if held short by the Company. As of March 31, 2015, securities valued at $509.8 million (December 31, 2014 - $434.4 million), representing 24.8% (December 31, 2014 – 23.5%) of investments in securities and commodities and derivative assets, and $3.5 million (December 31, 2014 - $1.3 million), representing 2.9% (December 31, 2014 – 1.4%) of securities sold, not yet purchased and derivative liabilities, are valued based on broker quotes or other quoted market prices for similar securities.

Private securities are not registered for public sale and are carried at an estimated fair value at the end of the period. Valuation techniques used by the Company may include market approach, last transaction analysis, liquidation analysis and/or using discounted cash flow models where the significant inputs could include but are not limited to additional rounds of equity financing, financial metrics such as revenue multiples or price-earnings ratio, discount rates and other factors. In addition, third party valuation firms may be employed to conduct separate valuations of such private securities. The third party valuation firms provide written reports documenting their recommended valuation as of the determination date for the specified investments.

As of March 31, 2015, the Company had $10.3 million (December 31, 2014 - $2.3 million) of private securities fair valued by a third party valuation firm using information obtained from the Company’s Investment Manager. Private securities represented less than 1% of total investments in securities, commodities and derivative assets. The actual value at which these securities could actually be sold or settled with a willing buyer or seller may differ from the Company’s estimated fair values depending on a number of factors including, but not limited to, current and future economic conditions, the quantity sold or settled, the presence of an active market and the availability of a willing buyer or seller.

The Company’s free standing derivatives are recorded at fair value, and are included in the condensed consolidated balance sheets in derivative assets and derivative liabilities. The Company values exchange-traded derivatives at their last sales price on the exchange where it is primarily traded. OTC derivatives, which include swap, option, swaption, forward, future and contract for differences, are valued by third party sources when available; otherwise, fair values are obtained from broker quotes that are based on pricing models that consider the time value of money, volatility, and the current market and contractual prices of the underlying financial instruments.

As an extension of our underwriting activities, the Catastrophe Reinsurer has sold derivative instruments that provide reinsurance-like protection to third parties for specific loss events associated with certain lines of business. These derivatives are recorded in the condensed consolidated balance sheets at fair value, with changes in the fair value of these derivatives recorded in net investment income in the condensed consolidated statements of income. These contracts are valued on the basis of models developed by us, which approximates fair value.

The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of the embedded derivative reported in net investment income. The Company’s embedded derivatives relate to interest crediting features in certain reinsurance and deposit contracts that vary based on the returns on our investments managed by Third Point LLC. The Company determines the fair value of the embedded derivatives using models developed by the Company, which approximates fair value. See discussion of accounting policy for embedded derivatives in Note 2 for additional information.

The Company’s holdings in asset-backed securities (“ABS”) are substantially invested in residential mortgage-backed securities (“RMBS”). The balance of the ABS positions was held in commercial mortgage-backed securities, collateralized debt obligations and student loan asset-backed securities. These investments are valued using broker quotes or a recognised third-party pricing vendor. All of these classes of ABS are sensitive to changes in interest rates and any resulting change in the rate at which borrowers sell their properties, refinance, or otherwise pre-pay their loans.

As an investor in these classes of ABS, the Company may be exposed to the credit risk of underlying borrowers not being able to make timely payments on loans or the likelihood of borrowers defaulting on their loans. In addition, the Company may be exposed to significant market and liquidity risks.

The Company values its investments in limited partnerships at fair value, which is estimated based on the Company’s share of the net asset value of the limited partnerships as provided by the investment managers of the underlying investment funds. The resulting net gains or net losses are reflected in the condensed consolidated statements of income.

On December 18, 2014, we entered into a subscription agreement with the Kiskadee Diversified Fund Ltd. (“Kiskadee Fund”) to invest up to $25.0 million in Hiscox Insurance Company (Bermuda) Limited’s (“Hiscox”) separately managed insurance-linked securities platform, Kiskadee Re Ltd. The Kiskadee Fund is a fund vehicle managed by Hiscox. The Kiskadee Fund invests in property catastrophe exposures through collateralized reinsurance transactions and other insurance-linked investments. On January 2, 2015, we funded $5.0 million of this commitment. The remaining $20.0 million commitment is due to be funded on June 1, 2015. This Company has elected the fair value option for this investment which is recorded on the condensed consolidated balance sheet at fair value as a Level 3 asset. The fair value is estimated based on the Company’s share of the net asset value in the Kiskadee Fund, as provided by the investment manager. The resulting net gains or losses are reflected in the condensed consolidated statements of income.

The Company performs several processes to ascertain the reasonableness of the valuation of all of the Company’s investments comprising the Company’s investment portfolio, including securities that are categorized as Level 2 and Level 3 within the fair value hierarchy. These processes include i) obtaining and reviewing weekly and monthly investment portfolio reports from the Investment Manager, ii) obtaining and reviewing monthly Net Asset Value (“NAV”) and investment return reports received directly from the Company’s third-party fund administrator, which are compared to the reports noted in (i), and iii) monthly update discussions with the Company’s Investment Manager regarding the investment portfolio, including, their process for reviewing and validating pricing obtained from third party service providers.

For the three months ended March 31, 2015 and 2014, there were no changes in the valuation techniques as it relates to the above.

U.S. GAAP disclosure requirements establish a framework for measuring fair value, including a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-level hierarchy of inputs is summarized below:


•	Level 1 – Quoted prices available in active markets/exchanges for identical investments as of the reporting date.

•

Level 2 – Observable inputs to the valuation methodology other than unadjusted quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include, but are not limited to, prices quoted for similar assets or liabilities in active markets/exchanges, prices quoted for identical or similar assets or liabilities in markets that are not active and fair values determined through the use of models or other valuation methodologies.


•	Level 3 – Pricing inputs unobservable for the investment and include activities where there is little, if any, market activity for the investment. The inputs applied in the determination of fair value require significant management judgment and estimation.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources other than those of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

Key inputs for over-the-counter (“OTC”) valuations vary based on the type of underlying security on which the contract was written:


•	The key inputs for most OTC option contracts include notional, strike price, maturity, payout structure, current foreign exchange forward and spot rates, current market price of underlying and volatility of underlying.


•	The key inputs for most forward contracts include notional, maturity, forward rate, spot rate, various interest rate curves and discount factor.


•	The key inputs for swap valuation will vary based on the type of underlying on which the contract was written. Generally, the key inputs for most swap contracts include notional, swap period, fixed rate, credit or interest rate curves, current market or spot price of the underlying and the volatility of the underlying.

The following tables present the Company’s investments, categorized by the level of the fair value hierarchy as of March 31, 2015 and December 31, 2014:



	March 31, 2015
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets	($ in thousands)
Equity securities	$	1,209,796	$	18,196	$	—	$	1,227,992
Private common equity securities	—		2,532		962		3,494
Private preferred equity securities	—		—		8,502		8,502
Total equities	1,209,796		20,728		9,464		1,239,988
Asset-backed securities	—		480,066		3,586		483,652
Bank debts	—		—		7,681		7,681
Corporate bonds	—		109,131		3,118		112,249
Sovereign debt	—		132,643		18		132,661
Total debt securities	—		721,840		14,403		736,243
Investments in limited partnerships	—		15,135		6,138		21,273
Options	18,709		4,219		—		22,928
Rights and warrants	1,810		—		—		1,810
Trade claims	—		10,411		—		10,411
Investment in Kiskadee Fund	—		—		5,044		5,044
Total other investments	20,519		29,765		11,182		61,466
Derivative assets (free standing)	281		24,942		—		25,223
Total assets	$	1,230,596	$	797,275	$	35,049	$	2,062,920
Liabilities
Equity securities	$	44,549	$	—	$	—	$	44,549
Sovereign debt	—		17,222		—		17,222
Corporate bonds	—		14,712		—		14,712
Options	15,596		12,778		—		28,374
Total securities sold, not yet purchased	60,145		44,712		—		104,857
Derivative liabilities (free standing)	348		15,536		1,136		17,020
Derivative liabilities (embedded)	—		—		9,618		9,618
Total liabilities	$	60,493	$	60,248	$	10,754	$	131,495



	December 31, 2014
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets	($ in thousands)
Equity securities	$	1,158,428	$	15,207	$	—	$	1,173,635
Private common equity securities	—		2,718		1,443		4,161
Total equities	1,158,428		17,925		1,443		1,177,796
Asset-backed securities	—		395,514		4,720		400,234
Bank debts	—		2,395		—		2,395
Corporate bonds	—		56,795		3,799		60,594
Municipal bonds	—		3,094		—		3,094
Sovereign debt	—		103,331		—		103,331
Total debt securities	—		561,129		8,519		569,648
Investments in limited partnerships	—		55,756		6,354		62,110
Options	3,205		3,791		—		6,996
Rights and warrants	1,843		—		—		1,843
Trade claims	—		10,368		—		10,368
Catastrophe bond	—		2,077		—		2,077
Total other investments	5,048		71,992		6,354		83,394
Derivative assets (free standing)	380		20,750		—		21,130
Total assets	$	1,163,856	$	671,796	$	16,316	$	1,851,968
Liabilities
Equity securities	$	33,222	$	—	$	—	$	33,222
Sovereign debt	—		29,350		—		29,350
Corporate bonds	—		13,312		—		13,312
Options	3,755		2,846		—		6,601
Total securities sold, not yet purchased	36,977		45,508		—		82,485
Derivative liabilities (free standing)	505		9,548		962		11,015
Derivative liabilities (embedded)	—		—		9,289		9,289
Total liabilities	$	37,482	$	55,056	$	10,251	$	102,789

During the three months ended March 31, 2015, the Company made no significant reclassifications of assets or liabilities between Levels 1 and 2. During the year ended December 31, 2014, the Company reclassified $86.6 million of private common equity securities from Level 2 to Level 1 equity securities. This reclassification is the result of the issuer’s IPO, with quoted prices having become available in an active market as of the reporting date.

The following table presents the reconciliation for all investments measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2015 and 2014:



	January 1, 2015			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains(Losses) (1)			March 31, 2015
	($ in thousands)
Assets
Private common equity securities	$	1,443		$	—		$	—	$	—		$	(481	)	$	962
Private preferred equity securities	—			—			8,502		—			—			8,502
Asset-backed securities	4,720			(3,451		)	2,562		(560		)	315			3,586
Bank debt	—			—			7,634		—			47			7,681
Corporate bonds	3,799			—			—		—			(681		)	3,118
Sovereign debt	—			18			—		—			—			18
Investments in limited partnerships	6,354			—			—		—			(216		)	6,138
Investment in Kiskadee Fund	—			—			5,000		—			44			5,044
Total assets	$	16,316		$	(3,433	)	$	23,698	$	(560	)	$	(972	)	$	35,049
Liabilities
Derivative liabilities (free standing)	$	(962	)	$	—		$	—	$	(174	)	$	—		$	(1,136	)
Derivative liabilities (embedded)	(9,289		)	—			—		(29		)	(300		)	(9,618		)
Total liabilities	$	(10,251	)	$	—		$	—	$	(203	)	$	(300	)	$	(10,754	)


	January 1, 2014			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains(Losses) (1)			March 31, 2014
	($ in thousands)
Assets
Private common equity securities	$	2,012		$	—		$	—	$	—		$	—		$	2,012
Asset-backed securities	400			1,921			1,364		(1,903		)	1,770			3,552
Corporate bonds	4,610			—			87		—			84			4,781
Investments in limited partnerships	5,292			—			54		—			(238		)	5,108
Total assets	$	12,314		$	1,921		$	1,505	$	(1,903	)	$	1,616		$	15,453
Liabilities
Derivative liabilities (embedded)	$	(4,430	)	$	—		$	—	$	(783	)	$	(143	)	$	(5,356	)
Total liabilities	$	(4,430	)	$	—		$	—	$	(783	)	$	(143	)	$	(5,356	)


(1)	Total change in realized and unrealized gain (loss) recorded on Level 3 financial instruments are included in net investment income in the condensed consolidated statements of income (loss).

Total unrealized losses related to fair value assets using significant unobservable inputs (Level 3) for the three months ended March 31, 2015 was $1.4 million (2014 - losses of $0.03 million).

For assets and liabilities that were transferred into Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred into Level 3 at the beginning of the period; similarly, for assets and liabilities that

were transferred out of Level 3 during the year, gains (losses) are presented as if the assets or liabilities had been transferred out of Level 3 at the beginning of the year. The Company held no Level 3 investments where quantitative unobservable inputs are produced by the Company itself when estimating fair value.

The following table summarizes information about the significant unobservable inputs used in determining the fair value of the Level 3 investments held by the Company. Level 3 investments not presented in the table below generally do not have any unobservable inputs to disclose, as they are valued primarily using dealer quotes, at cost or net asset value for investment in limited partnerships.



March 31, 2015
Asset	Fair value ($ in thousands)		Valuation technique	Unobservable input	Range
Corporate bond	$	1,804	Discounted cash flow	Yield	18.75 - 20.76%
				Duration	3 years
				Credit spreads	1,786-1,986
				Volatility	25 - 40%


Derivative liabilities (embedded)	$	9,618	Discounted cash flow	Contractual Variable Annual Investment Credit	0.0 - 3.5%
				Mean Monthly Investment Return	1.20%
				Duration Until Contract Settlement	1.50 - 4.75 years
				Interest Rates	U.S. Treasury Spot Rates


December 31, 2014
Asset	Fair value ($ in thousands)		Valuation technique	Unobservable input	Range
Corporate bond	$	2,346	Discounted cash flow	Yield	14.93-16.94%
				Duration	3 years
				Credit spreads	1,376-1,576
				Volatility	20-30%


Derivative liabilities (embedded)	$	9,289	Discounted cash flow	Contractual Variable Annual Investment Credit	0.0 - 3.5%
				Mean Monthly Investment Return	1.20%
				Duration Until Contract Settlement	1.50 - 4.75 years
				Interest Rates	U.S. Treasury Spot Rates

5. Repurchase and reverse repurchase agreements

The Company may enter into repurchase and reverse repurchase agreements with financial institutions in which the financial institution agrees to resell or repurchase and the Company agrees to repurchase or resell such securities at a mutually agreed price upon maturity. Interest expense and income related to these transactions are included in interest payable and receivable in the condensed consolidated balance sheets. For the three months ended March 31, 2015, foreign currency losses of $2.9 million (2014 - gain of $0.1 million) on reverse repurchase agreements and gains of $0.3 million (2014 - $nil) on repurchase agreements are included in net investment income in the condensed consolidated statements of income. Generally, repurchase and reverse repurchase agreements mature within 30 to 90 days.

6. Due from/to brokers

The Company holds substantially all of its investments through its prime brokers pursuant to agreements between the Company and each prime broker. The brokerage arrangements differ from broker to broker, but generally cash and investments in securities and commodities balances are available as collateral against investments in securities sold, not yet purchased and derivative positions, if required.

Due from/to brokers include cash balances maintained with the Company’s prime brokers, investment receivables, margin debt balances, receivables and payables from unsettled trades and proceeds from securities sold, not yet purchased. In addition, due from and to brokers includes cash collateral received and posted from OTC and repurchase agreement counterparties. As of March 31, 2015, the Company’s due from/to brokers includes a total non-U.S. currency balance of $17.8 million (December 31, 2014 - payable of $1.1 million).

The Company uses prime brokerage arrangements to provide cash collateral for its letter of credit facilities and to fund trust accounts securing certain reinsurance contracts. As of March 31, 2015, the Company had $508.0 million (December 31, 2014 - $308.8 million) of restricted cash securing letter of credit facilities and certain reinsurance contracts. Margin debt at the brokers primarily relates to borrowings to fund collateral arrangements and investment activity. Amounts are borrowed through committed facilities with terms of up to 90 days, secured by assets of the Company held by the prime broker, and incur interest based on the Company’s negotiated rates. This interest expense is reflected in net investment income in the condensed consolidated statements of income.

7. Derivatives

The following tables identify the listing currency, fair value and notional amounts of derivative instruments included in the condensed consolidated balance sheets, categorized by primary underlying risk. Balances are presented on a gross basis.



	As of March 31, 2015
	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Assets by Primary Underlying Risk	($ in thousands)
Credit
Credit Default Swaps - Protection Purchased	USD	$	10,958	$	103,308
Credit Default Swaps - Protection Sold	USD	256		2,491
Equity Price
Contracts for Differences - Long Contracts	EUR/USD	1,574		63,877
Contracts for Differences - Short Contracts	AUD/CHF/GBP/JPY/USD	464		49,168
Total Return Swaps - Long Contracts	BRL/JPY/USD	3,649		115,517
Total Return Swaps - Short Contracts	JPY/USD	469		6,109
Index
Index Futures - Long Contracts	JPY	243		30,910
Interest Rates
Interest Rate Swaptions	USD	739		56,882
Foreign Currency Exchange Rates
Foreign Currency Forwards	SAR	—		1,418
Foreign Currency Options - Purchased	CNH/EUR/JPY/SAR	6,871		286,422
Total Derivative Assets		$	25,223	$	716,102

	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Liabilities by Primary Underlying Risk	($ in thousands)
Credit
Credit Default Swaps - Protection Purchased	USD	$	3,660	$	55,849
Credit Default Swaps - Protection Sold	USD	1,876		8,159
Equity Price
Contracts for Differences - Long Contracts	GBP/USD	1,272		16,836
Contracts for Differences - Short Contracts	AUD/CHF/EUR/GBP/SEK/USD	1,579		48,790
Total Return Swaps - Long Contracts	BRL/JPY/USD	1,700		71,253
Interest Rates
Interest Rate Swaptions	USD	378		84,591
Treasury Futures - Short Contracts	USD	74		9,177
Foreign Currency Exchange Rates
Foreign Currency Forwards	CAD/EUR/GBP/JPY/SAR	3,337		211,393
Foreign Currency Options - Sold	CNH/JPY	3,114		126,778
Catastrophe Risk derivatives		30		6,000
Total Derivative Liabilities (free standing)		$	17,020	$	638,826

Embedded derivative liabilities in reinsurance contracts (3)	USD	2,918		20,000
Embedded derivative liabilities in deposit contracts (4)	USD	6,700		75,000
Total Derivative Liabilities (embedded)		$	9,618	$	95,000


(1)	AUD = Australian Dollar, BRL = Brazilian Real; CAD = Canadian Dollar, CHF = Swiss Franc, CNH = Chinese Yuan, EUR = Euro, GBP = British Pound, JPY = Japanese Yen, SAR = Saudi Arabian Riyal, SEK = Swedish Krone, USD = US Dollar


(2)	The absolute notional exposure represents the Company’s derivative activity as of March 31, 2015, which is representative of the volume of derivatives held during the period.


(3)	The fair value of embedded derivatives in reinsurance contracts is included in reinsurance balances payable in the condensed consolidated balance sheet.


(4)	The fair value of embedded derivatives in deposit contracts is included in deposit liabilities in the condensed consolidated balance sheet.



	As of December 31, 2014
	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Assets by Primary Underlying Risk	($ in thousands)
Commodity Price
Commodity Future Options - Sold	USD	$	269	$	25,168
Credit
Credit Default Swaps - Protection Purchased	USD	9,456		89,772
Credit Default Swaps - Protection Sold	USD	205		2,084
Equity Price
Contracts for Differences - Long Contracts	USD	263		3,080
Contracts for Differences - Short Contracts	AUD/EUR	186		6,428
Total Return Swaps - Long Contracts	USD	43		1,874
Total Return Swaps - Short Contracts	USD	34		9,763
Interest Rates
Commodity Futures - Short Contracts	USD	78		186,280
Foreign Currency Exchange Rates
Foreign Currency Forward	CAD/EUR/GBP/JPY	4,241		228,416
Foreign Currency Options - Purchased	EUR/JPY/KRW/SAR	6,355		283,439
Total Derivative Assets		$	21,130	$	836,304

	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Liabilities by Primary Underlying Risk	($ in thousands)
Commodity Price
Commodity Future Options - Purchased	USD	$	285	$	12,012
Credit
Credit Default Swaps - Protection Purchased	USD	3,230		49,465
Credit Default Swaps - Protection Sold	USD	1,319		5,142
Equity Price
Contracts for Differences - Long Contracts	EUR/GBP/USD	1,404		48,152
Contracts for Differences - Short Contracts	AUD/NOK	130		3,070
Total Return Swaps - Long Contracts	USD	590		11,233
Interest Rates
Commodity Futures - Short Contracts	USD	220		467,956
Treasury Futures - Short Contracts	USD	280		10,119
Foreign Currency Exchange Rates
Foreign Currency Options - Sold	EUR/JPY/KRW	3,527		144,257
Catastrophe Risk derivatives	USD	30		6,000
Total Derivative Liabilities		$	11,015	$	757,406

Embedded derivative liabilities in reinsurance contracts (3)	USD	2,769		15,000
Embedded derivative liabilities in deposit contracts (4)	USD	6,520		75,000
Total Derivative Liabilities (embedded)		$	9,289	$	90,000


(1)	AUD = Australian Dollar, CAD = Canadian Dollar, EUR = Euro, GBP = British Pound, JPY = Japanese Yen, KRW = South Korean Won, NOK = Norwegian Krone, SAR = Saudi Arabian Riyal, USD = US Dollar


(2)	The absolute notional exposure represents the Company’s derivative activity as of December 31, 2014, which is representative of the volume of derivatives held during the period.


(3)	The fair value of embedded derivatives in reinsurance contracts is included in reinsurance balances payable in the condensed consolidated balance sheet.


(4)	The fair value of embedded derivatives in deposit contracts is included in deposit liabilities in the condensed consolidated balance sheet.

The following table sets forth, by major risk type, the Company’s realized and unrealized gains (losses) relating to derivative trading activities for the three months ended March 31, 2015 and 2014. Realized and unrealized gains (losses) related to free standing derivatives are included in net investment income in the condensed consolidated statements of income. Realized and unrealized gains (losses) related to embedded derivatives are included in other expenses in the condensed consolidated statements of income.



	March 31, 2015						March 31, 2014
Free standing Derivatives - Primary Underlying Risk	Realized Gain (Loss)			Unrealized Gain (Loss)*			Realized Gain (Loss)			Unrealized Gain (Loss)*
Commodity Price	($ in thousands)
Commodity Future Options - Purchased	$	(286	)	$	285		$	(271	)	$	(5	)
Commodity Future Options - Sold	272			(269		)	316			(168		)
Credit
Credit Default Swaps - Protection Purchased	344			(358		)	(803		)	(2,906		)
Credit Default Swaps - Protection Sold	1,653			(1,660		)	81			(119		)
Equity Price
Contracts for Differences - Long Contracts	(303		)	1,443			276			(2,569		)
Contracts for Differences - Short Contracts	(2,869		)	(1,171		)	(1,820		)	279
Total Return Swaps - Long Contracts	(2,165		)	2,496			4,690			740
Total Return Swaps - Short Contracts	403			436			187			(233		)
Index
Index Futures - Long Contracts	579			243			—			—
Index Futures - Short Contracts	—			—			(139		)	441
Interest Rates
Bond Futures - Short Contracts	—			—			(320		)	(170		)
Commodities Futures - Short Contracts	(201		)	143			—			—
Interest Rate Swaps	—			—			(624		)	293
Interest Rate Swaptions	—			(149		)	530			(919		)
Treasury Futures - Short Contracts	(445		)	206			(256		)	(127		)
Foreign Currency Exchange Rates
Foreign Currency Forward	25,726			(7,579		)	534			(915		)
Foreign Currency Options - Purchased	485			(668		)	(1,266		)	(1,847		)
Foreign Currency Options - Sold	(29		)	503			686			171
	$	23,164		$	(6,099	)	$	1,801		$	(8,054	)
Embedded Derivatives
Embedded derivatives in reinsurance contracts	$	(5	)	$	(115	)	$	—		$	(63	)
Embedded derivatives in deposit contracts	—			(180		)	—			(80		)
Total Derivative Liabilities (embedded)	$	(5	)	$	(295	)	$	—		$	(143	)

*Unrealized gain (loss) relates to derivatives still held at reporting date.

The Company’s derivative contracts are generally subject to the International Swaps and Derivatives Association (“ISDA”) Master Agreements or other similar agreements which contain provisions setting forth events of default and/or termination events (“credit-risk-related contingent features”), including but not limited to provisions setting forth maximum permissible declines in the Company’s net asset value. Upon the occurrence of a termination event with respect to an ISDA Agreement, the Company’s counterparty could elect to terminate the derivative contracts governed by such agreement, resulting in the realization of any net gains or losses with respect to such derivative contracts and the return of collateral held by such party. During the three months ended March 31, 2015, no termination events were triggered under the ISDA Master Agreements. As of March 31, 2015, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $7.9 million (December 31, 2014 - $1.9 million) for which the Company posted $87.0 million (December 31, 2014 - $27.6 million) of collateral in the

normal course of business. Similarly, the Company held collateral (approximately $2.4 million) in cash from certain counterparties as of March 31, 2015. If the credit-risk-related contingent features underlying these instruments had been triggered as of March 31, 2015 and the Company had to settle these instruments immediately, no additional amounts would be required to be posted that would exceed the settlement amounts of open derivative contracts or in the case of cross margining relationships, the assets in the Company’s prime brokerage accounts are sufficient to offset the derivative liabilities.

The Company’s derivatives do not qualify as hedges for financial reporting purposes and are recorded in the condensed consolidated financial statements on a gross basis and not offset against any collateral pledged or received. Pursuant to ISDA master agreements and other counterparty agreements, the Company and its counterparties typically have the ability to net certain payments owed to each other in specified circumstances. In addition, in the event a party to one of the ISDA master agreements or other derivatives agreements defaults, or a transaction is otherwise subject to termination, the non-defaulting party generally has the right to set off against payments owed to the defaulting party or collateral held by the non-defaulting party.

The Company does not offset its derivative instruments and presents all amounts in the condensed consolidated balance sheets on a gross basis. The Company has pledged cash collateral to counterparties to support the current value of amounts due to the counterparties based on the value of the underlying security. As of March 31, 2015 and December 31, 2014, the gross and net amounts of derivative instruments and repurchase and reverse repurchase agreements that are subject to enforceable master netting arrangements or similar agreements were as follows:



	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
March 31, 2015 Counterparty	Gross Amounts of Assets Presented in the Condensed Consolidated Balance Sheet (1)		Financial Instruments		Cash Collateral Received		Net Amount
Financial assets, derivative assets and collateral received	($ in thousands)
Counterparty 1	$	763	$	763	$	—	$	—
Counterparty 2	1,112		966		—		146
Counterparty 3	8,362		6,592		—		1,770
Counterparty 4	2,699		2,699		—		—
Counterparty 5	5,210		3,170		—		2,040
Counterparty 6	7,980		4,051		2,751		1,178
Counterparty 7	2,352		1,817		—		535
Counterparty 8	472		472		—		—
Counterparty 9	253		252		—		1
Counterparty 10	—		—		—		—
Counterparty 11	4		4		—		—
Total	$	29,207	$	20,786	$	2,751	$	5,670

Securities purchased under an agreement to sell
Counterparty 4	$	10,047	$	9,772	$	—	$	275
Counterparty 11	7,583		7,448		—		135
Total	$	17,630	$	17,220	$	—	$	410




	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
March 31, 2015 Counterparty	Gross Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet (2)		Financial Instruments		Cash Collateral Pledged		Net Amount
Financial liabilities, derivative liabilities and collateral pledged	($ in thousands)
Counterparty 1	$	3,562	$	763	$	2,799	$	—
Counterparty 2	966		966		—		—
Counterparty 3	6,592		6,592		—		—
Counterparty 4	3,412		2,699		713		—
Counterparty 5	3,170		3,170		—		—
Counterparty 6	4,051		4,051		—		—
Counterparty 7	1,817		1,817		—		—
Counterparty 8	1,064		472		592		—
Counterparty 9	1,447		252		1,195		—
Counterparty 10	—		—		—		—
Counterparty 11	44		4		40		—
Counterparty 12	2,552		—		2,552		—
Total	$	28,677	$	20,786	$	7,891	$	—

Securities sold under an agreement to repurchase
Counterparty 4	$	61,939	$	61,939	$	—	$	—
Total	$	61,939	$	61,939	$	—	$	—


(1)	The Gross Amounts of Assets Presented in the Condensed Consolidated Balance Sheets presented above includes the fair value of Derivative Contract assets as well as gross OTC option contract assets of $4.0 million included in Other Investments in the Condensed Consolidated Balance Sheets.


(2)	The Gross Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets presented above includes the fair value of Derivative Contract liabilities as well as gross OTC option contract liabilities of $11.7 million included in Securities sold, not yet purchased in the Condensed Consolidated Balance Sheets.



	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
December 31, 2014 Counterparty	Gross Amounts of Assets Presented in the Condensed Consolidated Balance Sheet (1)		Financial Instruments		Cash Collateral Received		Net Amount
Financial assets, derivative assets and collateral received	($ in thousands)
Counterparty 1	$	1,624	$	1,613	$	—	$	11
Counterparty 2	2,199		539		—		1,660
Counterparty 3	10,558		4,802		—		5,756
Counterparty 4	368		368		—		—
Counterparty 5	2,218		133		—		2,085
Counterparty 6	5,832		2,866		2,420		546
Counterparty 7	745		440		—		305
Counterparty 8	699		699		—		—
Counterparty 9	655		461		—		194
Counterparty 10	23		—		—		23
Total	$	24,921	$	11,921	$	2,420	$	10,580

Securities purchased under an agreement to sell
Counterparty 11	$	29,852	$	29,350	$	247	$	255
Total	$	29,852	$	29,350	$	247	$	255

	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
December 31, 2014 Counterparty	Gross Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet (2)		Financial Instruments		Cash Collateral Pledged		Net Amount (3)
Financial liabilities, derivative liabilities and collateral pledged	($ in thousands)
Counterparty 1	$	1,613	$	1,613	$	—	$	—
Counterparty 2	539		539		—		—
Counterparty 3	4,802		4,802		—		—
Counterparty 4	932		368		564		—
Counterparty 5	133		133		—		—
Counterparty 6	2,866		2,866		—		—
Counterparty 7	440		440		—		—
Counterparty 8	2,001		699		1,302		—
Counterparty 9	461		461		—		—
Total	$	13,787	$	11,921	$	1,866	$	—


(1)	The Gross Amounts of Assets Presented in the Condensed Consolidated Balance Sheets presented above includes the fair value of Derivative Contract assets as well as gross OTC option contract assets of $3.8 million included in Other Investments in the Condensed Consolidated Balance Sheets.


(2)	The Gross Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets presented above includes the fair value of Derivative Contract liabilities as well as gross OTC option contract liabilities of $2.8 million included in Securities sold, not yet purchased in the Condensed Consolidated Balance Sheets.


(3)	Net amount as at December 31, 2014 is a result of options not being included as derivative instruments.

8. Loss and loss adjustment expense reserves

As of March 31, 2015 and December 31, 2014, loss and loss adjustment expense reserves in the condensed consolidated balance sheets was comprised of the following:



	March 31, 2015		December 31, 2014
	($ in thousands)
Case loss and loss adjustment expense reserves	$	57,211	$	64,343
Incurred but not reported loss and loss adjustment expense reserves	214,146		210,777
Deferred gains on retroactive reinsurance contracts	2,580		2,242
	$	273,937	$	277,362

The following table represents the activity in the loss and loss adjustment expense reserves for the three months ended March 31, 2015 and 2014:



	March 31, 2015			March 31, 2014
	($ in thousands)
Gross reserves for loss and loss adjustment expenses, beginning of year	$	277,362		$	134,331
Less: loss and loss adjustment expenses recoverable, beginning of year	(814		)	(9,277		)
Net reserves for loss and loss adjustment expenses, beginning of year	276,548			125,054
Increase (decrease) in net loss and loss adjustment expenses incurred in respect of losses occurring in:
Current year	83,647			43,233
Prior years	(2,239		)	3,026
Amortization of deferred gains on retroactive reinsurance contracts	338			—
Total incurred loss and loss adjustment expenses	81,746			46,259
Net loss and loss adjustment expenses paid in respect of losses occurring in:
Current year	(8,338		)	(3,643		)
Prior years	(75,909		)	(13,323		)
Total net paid losses	(84,247		)	(16,966		)
Foreign currency translation	(518		)	—
Net reserve for loss and loss adjustment expenses, end of year	273,529			154,347
Plus: loss and loss adjustment expenses recoverable, end of year	408			10,277
Gross reserve for loss and loss adjustment expenses, end of year	$	273,937		$	164,624

The $2.2 million decrease in prior years’ reserves for the three months ended March 31, 2015 reflects $6.1 million of favorable reserve development partially offset by $3.9 million resulting from increases in premium estimates on certain contracts. The prior years’ reserve development is explained as follows:

•

The $6.1 million of favorable reserve development is offset by increases of $7.1 million in acquisition costs primarily as a result of changes in the estimated split of the composite ratio between loss and loss adjustment expenses incurred and acquisition costs for certain contracts that have sliding scale commissions and profit commissions that vary inversely with loss experience. The net impact as a result of changes in prior years’ reserves was a decrease in net underwriting income of $1.0 million for the three months ended March 31, 2015.

•

The $3.9 million increase in loss and loss adjustment expenses incurred related to the increase in premium estimates on certain contracts was accompanied by a $2.6 million increase in acquisition costs, for a total of $6.5 million increase in loss and loss adjustment expenses incurred and acquisition costs. The related increase in earned premium related to the increase in premium estimates was $6.5 million, resulting in an insignificant change in net underwriting loss for the three months ended March 31, 2015.


•	In total, the change in underwriting income for prior periods due to loss reserve development and adjustments to premium estimates was a decrease of $1.0 million for the three months ended March 31, 2015.

The net paid losses of $84.2 million for the three months ended March 31, 2015 included $63.5 million of paid losses related to two contracts that were commuted in the quarter compared to $nil for the three months ended March 31, 2014.

The $3.0 million increase in prior years’ reserves for the three months ended March 31, 2014 reflects $2.0 million of adverse loss development, primarily related to one crop contract, and $1.0 million related to premium estimate increases on certain other contracts. The change in loss and loss adjustment expense reserves related to premium estimate changes and were accompanied by similar changes in the premium earned for those contracts, resulting in minimal impact to net underwriting income for that period.

9. Management, performance and founders fees

The Company, Third Point Re and Third Point Re USA are party to Joint Venture and Investment Management Agreements (the “Investment Agreements”) with Third Point LLC and Third Point Advisors LLC under which Third Point LLC manages certain jointly held assets.

Pursuant to the Investment Agreements, Third Point Advisors LLC receives an annual performance fee allocation equal to 20% of the net investment income of the Company’s share of the investment assets managed by Third Point LLC, subject to a loss carry forward provision. Additionally, a total management fee equal to 2% annually of the Company’s share of the investment assets managed by Third Point LLC is paid to Third Point LLC and various Founders of the Company. Management fees are paid monthly, whereas performance fees are paid annually, in arrears.

Investment fee expenses related to the Investment Agreements, which are included in net investment income in the condensed consolidated statements of income for the three months ended March 31, 2015 and 2014 are as follows:



	2015		2014
	($ in thousands)
Management fees - Third Point LLC	$	1,475	$	1,189
Management fees - Founders	8,356		6,735
Performance fees - Third Point Advisors LLC	15,844		12,295
	$	25,675	$	20,219

As of March 31, 2015, $15.8 million related to performance fees due under the Investment Agreements was included in performance fee payable to related party in the condensed consolidated balance sheets. As of December 31, 2014, $19.9 million related to the performance fee payable to Third Point Advisors LLC was included in non-controlling interests. Since the performance fee allocation is based on annual performance, the performance fees are included in total liabilities until the performance fee is determined at year end and allocated to Third Point Advisors LLC's capital account, in accordance with the Investment Agreement.

10. Deposit contracts

Deposit liability contracts each contain a fixed interest crediting rate. Certain deposit contracts also contain a variable interest crediting feature based on actual investment returns realized by the Company that can increase the overall effective interest crediting rate on those contracts. These variable interest crediting features are considered embedded derivatives. We include the estimated fair value of these embedded derivatives with the host deposit liability contracts. Changes in the estimated fair value of these embedded derivatives are recorded in other expenses in the condensed consolidated statements of income.

The following table represents activity in the deposit liabilities for the three months ended March 31, 2015 and year ended December 31, 2014:



	March 31, 2015			December 31, 2014
	($ in thousands)
Balance, beginning of period	$	145,430		$	120,946
Consideration received	553			18,398
Net investment expense allocation and change in fair value of embedded derivatives	811			6,436
Payments	(75		)	(350		)
Balance, end of period	$	146,719		$	145,430

11. Senior notes payable and letter of credit facilities

Senior notes payable

As of March 31, 2015, TPRUSA had outstanding debt obligations consisting of an aggregate principal amount of $115.0 million of senior unsecured notes (the “Notes”) due February 13, 2025. The Notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year, beginning August 13, 2015. The Notes are fully and unconditionally guaranteed by Third Point Reinsurance Ltd., and, in certain circumstances specified in the indenture governing the Notes, certain existing or future subsidiaries of the Company may be required to guarantee the Notes. As of March 31, 2015, the Company had capitalized $1.7 million of costs associated with the February 2015 debt issuance, which are presented as a direct deduction from the Notes on the condensed consolidated balance sheets.

Letters of credit

As of March 31, 2015, the Company had entered into the following letter of credit facilities, which automatically renew annually unless terminated by either party in accordance with the required notice period:



	Facility		Utilized		Collateral		Renewal Date
March 31, 2015	($ in thousands)
BNP Paribas (1)	$	50,000	$	554	$	554	April 2, 2016
Citibank	250,000		231,653		231,653		January 23, 2016
J.P. Morgan	50,000		50,000		50,500		August 22, 2015
Lloyds Bank (2)	150,000		—		—		December 31, 2016 and 2018
	$	500,000	$	282,207	$	282,707


(1)	On April 2, 2015, Third Point Re USA entered into a letter of credit facility with BNP Paribas for $50.0 million.


(2)	On February 26, 2015, Third Point Re entered into a letter of credit facility with Lloyds Bank for $150.0 million. The facility consists of two separate sections of $75.0 million each, expiring on December 31, 2016 and December 31, 2018, respectively.

12. Net investment income

Net investment income for the three months ended March 31, 2015 and 2014 consisted of the following:



	2015			2014
Net investment income by type	($ in thousands)

Net realized gains on investments and investment derivatives	$	53,283		$	84,752
Net unrealized gains (losses) on investments and investment derivatives	36,596			(16,254		)
Net loss on foreign currencies	(3,470		)	(3,924		)
Dividend and interest income	7,362			7,728
Dividends paid on securities sold, not yet purchased	(119		)	(33		)
Management and performance fees	(25,675		)	(20,219		)
Other expenses	(3,128		)	(2,044		)
Net investment income on investments managed by Third Point LLC	64,849			50,006
Investment income on cash held by the Catastrophe Reinsurer and Catastrophe Fund	15			29
Net gain on catastrophe bond held by Catastrophe Reinsurer	10			—
Net gain on investment in Kiskadee Fund	44			—
	$	64,918		$	50,035



	2015			2014
Net investment income by asset class	($ in thousands)
Net investment gains on equity securities	$	35,752		$	27,823
Net investment gains on debt securities	41,873			55,192
Net investment losses on other investments	(13,475		)	(1,195		)
Net investment gains (losses) on investment derivatives	17,065			(6,253		)
Net investment gains (losses) on securities sold, not yet purchased	14,352			(13		)
Net investment income (loss) on cash, including foreign exchange gains (losses)	(1,255		)	(4,455		)
Net investment gains (losses) on securities purchased under an agreement to resell	(2,952		)	13
Net investment gains on securities sold under an agreement to repurchase	315			—
Management and performance fees	(25,675		)	(20,219		)
Other investment expenses	(1,082		)	(858		)
	$	64,918		$	50,035

13. Other expenses

Other expenses for the three months ended March 31, 2015 and 2014 consisted of the following:



	2015		2014
	($ in thousands)
Deposit liabilities investment expense	$	631	$	531
Reinsurance contracts investment expense	1,770		113
Change in fair value of embedded derivatives in deposit and reinsurance contracts (1)	300		143
	$	2,701	$	787


(1)	See discussion of accounting policy for embedded derivatives in Note 2 for additional information.

14. Income taxes

We provide for income tax expense or benefit based upon pre-tax income reported in the condensed consolidated financial statements and the provisions of currently enacted tax laws. The Company and its Bermuda subsidiaries are incorporated under the laws of Bermuda and are subject to Bermuda law with respect to taxation. Under current Bermuda law, the Company and its Bermuda subsidiaries are not subject to any income or capital gains taxes. In the event that such taxes are imposed, the Company and its Bermuda subsidiaries would be exempted from any such taxes until March 2035 under the Tax Assurance Certificates issued to such entities pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966, as amended.

The Company has an operating subsidiary incorporated in Bermuda, Third Point Re USA, which made an election to pay taxes in the United States of America under Section 953(d) of the U.S. Internal Revenue Code of 1986, as amended. The operations of Third Point Re USA will be subject to U.S. federal income taxes generally at a rate of 35%. Any of our non-U.S. subsidiaries could become subject to U.S. federal income tax only to the extent that they derive income from activity that is deemed to be the conduct of a trade or business within the United States. We do not consider our non-U.S. subsidiaries to be engaged in a trade or business within the United States and, therefore, do not believe that our non-U.S. subsidiaries are subject to U.S. federal income tax. However, there is little legal precedent as to what constitutes being engaged in a trade or business within the United States and, thus, there exists the possibility that the U.S. Internal Revenue Service could assert claims that our non-U.S. subsidiaries are engaged in a trade or business in the United States and attempt to assess taxes that are not provided for.

The Company also has subsidiaries in the United Kingdom, TPRUK and TPRUK Holdings, which are subject to applicable taxes in that jurisdiction. On July 17, 2013, the U.K. government passed the Finance Act 2013, which reduced the corporate income tax rate from 23% to 21% (effective April 1, 2014) and provided for a further reduction in the corporate income tax rate from 21% to 20% (effective April 1, 2015).

The Company is subject to withholding taxes on income sourced in the United States and in other countries, subject to the countries’ specific tax regulations where the income originated. Income subject to withholding taxes include, but is not limited to, dividends, capital gains and interest on certain investments.

The Company is also subject to uncertain tax positions related to investment transactions in certain foreign jurisdictions. As of March 31, 2015, the Company has accrued $2.6 million for uncertain tax positions.

For the three months ended March 31, 2015 and 2014, the Company recorded income tax expenses, as follows:



	2015		2014
	($ in thousands)
Income tax - U.S. subsidiaries	$	475	$	—
Income tax - U.K. subsidiaries	3		—
Withholding taxes on certain investment transactions	827		—
	$	1,305	$	—

15. Share capital

Authorized and issued

The Company’s authorized share capital of $33.0 million is comprised of 300,000,000 common shares with a par value of $0.10 each and 30,000,000 preference shares with a par value of $0.10 each. As of March 31, 2015, 105,170,735 common shares were issued and outstanding. No preference shares have been issued to date.

16. Share-based compensation

On July 15, 2013, the Third Point Reinsurance Ltd. 2013 Omnibus Incentive Plan (“Omnibus Plan”) was approved by the Board of Directors and subsequently on August 2, 2013 by the Shareholders of the Company. An aggregate of 21,627,906 common shares were made available under the Omnibus Plan. This number of shares includes the shares available under the Third Point Reinsurance Ltd. Share Incentive Plan (“Share Incentive Plan”). Awards under the Omnibus Plan may be made in the form of performance awards, restricted shares, restricted share units, share options, share appreciation rights and other share-based awards.

As of March 31, 2015, 9,541,299 (December 31, 2014 - 10,052,579) of the Company’s common shares were available for future issuance under the equity incentive compensation plans.

Total share based compensation expense of $3.1 million for the three months ended March 31, 2015 (2014 - $2.3 million) was included in general and administrative expenses.

As of March 31, 2015, the Company had $22.7 million (December 31, 2014 - $20.0 million) of unamortized share compensation expense, which is expected to be amortized over a weighted average period of 1.6 years (December 31, 2014 - 1.6 years).


(a)	Management and director options

The management and director options activity for the three months ended March 31, 2015 and year ended December 31, 2014 were as follows:



	Number of options		Weighted average exercise price
Balances as of December 31, 2013	10,981,075		$	13.23
Granted - employees	348,836		18.25
Forfeited	(279,070	)	13.20
Exercised	(60,000	)	10.00
Balances as of December 31, 2014	10,990,841		13.41
Forfeited	(74,418	)	18.00
Exercised	(111,628	)	10.00
Balances as of March 31, 2015	10,804,795		$	13.41

The fair value of share options issued were estimated on the grant date using the Black-Scholes option-pricing model. There were no options granted in the three months ended March 31, 2015. The share price used for purposes of determining the fair value of share options that were granted in the year ended December 31, 2014 was $15.05. The volatility assumption used of 23.1% was based on the average estimated volatility of a reinsurance company peer group. The other assumptions used in the option-pricing model were as follows: risk free interest rate of 2.2%, expected life of 6.5 years and a 0.0% dividend yield. As of March 31, 2015, the weighted average remaining contractual term for options outstanding was 6.9 years (December 31, 2014 - 7.1 years).

The following table summarizes information about the Company’s management and director share options outstanding as of March 31, 2015:



	Options outstanding			Options exercisable
Range of exercise prices	Number of options	Weighted average exercise price	Remaining contractual life	Number of options	Weighted average exercise price
$10.00 - $10.89	6,249,577	$10.03	6.82	3,584,460	$10.01
$15.05 - $16.89	2,312,493	$15.94	6.99	1,256,680	$15.98
$20.00 - $25.05	2,242,725	$20.22	6.93	1,242,726	$20.08
	10,804,795	$13.41	6.88	6,083,866	$13.30

For the three months ended March 31, 2015, the Company recorded $1.6 million (2014 - $1.7 million) of share compensation expense related to share options.

The aggregate intrinsic value of options outstanding and options exercisable as of March 31, 2015 was $25.7 million and $14.8 million, respectively (December 31, 2014 - $28.4 million and $14.0 million, respectively).


(b)	Restricted shares with service condition

Restricted shares vest either ratably or at the end of the required service period and contain certain restrictions during the vesting period, relating to, among other things, forfeiture in the event of termination of employment or service and transferability.

Restricted share award activity for the restricted shares with only a service condition for the three months ended March 31, 2015 and year ended December 31, 2014 was as follows:



	Number of non- vested restricted shares		Weighted average grant date fair value
Balance as of December 31, 2013	657,156		$	10.30
Granted	49,684		15.39
Forfeited	(17,800	)	10.00
Vested	(72,926	)	15.56
Balance as of December 31, 2014	616,114		10.10
Granted	71,429		14.00
Vested	(381,500	)	10.00
Balance as of March 31, 2015	306,043		$	11.13

For the three months ended March 31, 2015, the Company issued 71,429 restricted shares to employees (2014 - 3,125). The restricted shares issued to employees in 2014 and 2015 will vest after three years from the date of issuance, subject to the grantee’s continued service with the Company. The restricted shares issued to directors in 2014 vested on December 31, 2014.

For the three months ended March 31, 2015, the Company recorded $0.8 million (2014 - $0.5 million) of share compensation expense related to restricted share awards.

In December 2014 and February 2015, the Company granted performance-based restricted shares to employees pursuant to the Omnibus Plan. Performance based restricted shares vest based on continued service and the achievement of certain financial performance measures over a three-year performance measurement period. The number of performance-based restricted shares that may be retained upon vesting will vary based on the level of achievement of

the performance goals. The vesting date for these awards are March 1, 2017 and March 1, 2018, respectively. The formula for determining the amount of shares that will vest is based on underwriting performance of the property and casualty reinsurance segment including underwriting income and the amount of float generated, as defined in the relevant award agreements.

For the three months ended March 31, 2015, 514,276 performance-based restricted shares had been granted at a grant date fair value of $14.00 of which 342,846 were considered probable of vesting.

For the year ended December 31, 2014, 459,746 performance-based restricted shares had been granted at a grant date fair value of $14.60 of which 306,496 were considered probable of vesting.

For the three months ended March 31, 2015, the Company recorded $0.6 million (2014 - $nil) of share compensation expense related to the performance-based restricted shares.

17. Non-controlling interests

Non-controlling interests represent the portion of equity in consolidated subsidiaries not attributable, directly or indirectly, to the Company. The ownership interests in consolidated subsidiaries held by parties other than the Company have been presented in the condensed consolidated balance sheets, as a separate component of shareholders’ equity. Non-controlling interests as of March 31, 2015 and December 31, 2014 are as follows:




	March 31, 2015		December 31, 2014
	($ in thousands)
Catastrophe Fund	$	38,706	$	60,153
Catastrophe Fund Manager	—		(259		)
Joint Venture - Third Point Advisors LLC share	15,885		40,241
	$	54,591	$	100,135

Income (loss) attributable to non-controlling interests for the three months ended March 31, 2015 and 2014 was:



	2015			2014
	($ in thousands)
Catastrophe Fund	$	(48	)	$	250
Catastrophe Fund Manager	(32		)	(59		)
Joint Venture - Third Point Advisors LLC share	643			825
	$	563		$	1,016

As of March 31, 2015, the following entities were consolidated in accordance with the Financial Accounting Standards Board’s consolidations voting model (ASC 810):


a)	Third Point Reinsurance Opportunities Fund Ltd. and Third Point Re Cat Ltd.

As of March 31, 2015, Third Point Re’s investment in the Catastrophe Fund was $38.3 million (December 31, 2014 - $59.5 million), representing approximately 49.7% (December 31, 2014 - 49.7%) of the Catastrophe Fund’s issued, non-voting, participating share capital.

The Catastrophe Fund Manager holds 100% of the authorized and issued voting, nonparticipating shares of the Catastrophe Fund, while the Catastrophe Fund’s investors, including Third Point Re, hold 100% of issued non-voting, participating shares. Furthermore, 100% of the authorized and issued voting, non-participating share capital of the Catastrophe Reinsurer and 100% of the issued non-voting, participating share capital of the Catastrophe Reinsurer is held by the Catastrophe Fund.

During the three months ended March 31, 2015, the Catastrophe Fund distributed $42.5 million (Third Point Re’s share - $21.1 million) resulting in a distribution of non-controlling interests for the Catastrophe Fund of $21.4 million for the three months ended March 31, 2015.


b)	Third Point Reinsurance Investment Management Ltd. (the “Catastrophe Fund Manager”)

The Catastrophe Fund Manager had been consolidated as part of the Company with Hiscox’s 15% interest in the Catastrophe Fund Manager recorded as a non-controlling interest. On January 5, 2015, the Company and Hiscox agreed to terminate Hiscox’s 15% ownership in the Catastrophe Fund Manager effective December 31, 2014. On January 5, 2015, the shareholders agreement between Third Point Re, Hiscox, and the Catastrophe Fund Manager was terminated by agreement of the parties that the Catastrophe Fund Manager would repurchase for cancellation Hiscox’s common shares, representing 15%, of the Catastrophe Fund Manager.

As of March 31, 2015, the joint ventures created through the Investment Agreements (Note 9) have been considered variable interest entities in accordance with U.S. GAAP. Since the Company was deemed to be the primary beneficiary, the Company has consolidated the joint ventures and has recorded Third Point Advisors LLC’s minority interests as a non-controlling interest in the condensed consolidated statements of shareholders’ equity.

For the three months ended March 31, 2015, a net distribution of $25.0 million (2014 - $51.0 million) was made to Third Point Advisors LLC and reduced the amount of the non-controlling interest.

As of March 31, 2015, the following entities were not consolidated as per ASC 810: Consolidation:


a)	TP Lux Holdco LP

Third Point Re is a limited partner in TP Lux Holdco LP (the “Cayman HoldCo”), which is an affiliate of the Investment Manager. The Cayman HoldCo was formed as a limited partnership under the laws of the Cayman Islands and invests and holds debt and equity interests in TP Lux HoldCo S.a.r.l, a Luxembourg private limited liability company (the “LuxCo”) established under the laws of the Grand-Duchy of Luxembourg, which is also an affiliate of the Investment Manager.

LuxCo’s principal objective is to act as a collective investment vehicle to purchase Euro debt and equity investments. Third Point Re invests in the Cayman HoldCo alongside other investment funds managed by the Investment Manager. As of March 31, 2015, Third Point Re held a 10.6% (December 31, 2014 - 9.8%) interest in the Cayman Holdco. Third Point Re accounts for its investment in the limited partnership under the variable interest model, in which Third Point Re is not the primary beneficiary, at fair value in the condensed consolidated balance sheets. The Company has elected the fair value option for this investment and records changes in fair value in the condensed consolidated statements of income.

As of March 31, 2015, the estimated fair value of the investment in the limited partnership was $15.1 million (December 31, 2014 - $55.8 million). The Cayman HoldCo made net distributions of $35.1 million to Third Point Re during the period ended March 31, 2015 due to the disposition of underlying investments. The valuation policy with respect to this investment in a limited partnership is further described in Note 4. Third Point Re’s maximum exposure to loss as a result of its involvement with this investment is limited to the carrying value of the investment.

b) Third Point Hellenic Recovery US Feeder Fund, L.P.

Third Point Re is a limited partner in Third Point Hellenic Recovery US Feeder Fund, L.P. (“Hellenic Fund”), which is an affiliate of the Investment Manager. The Hellenic Fund was formed as a limited partnership under the laws of the Cayman Islands on April 12, 2013 and invests and holds debt and equity interests.

Third Point Re committed $11.4 million (December 31, 2014 - $11.4 million) in the Hellenic Fund, of which $nil (2014 - $0.1 million) was called and $nil (2014 - $0.4 million) was distributed during the three months ended March 31, 2015.

As of March 31, 2015, Third Point Re held a 3.0% (December 31, 2014 - 3.0%) interest in the Hellenic Fund. Third Point Re accounts for its investment in the limited partnership under the variable interest model, in which Third Point Re is not the primary beneficiary, at fair value in the condensed consolidated balance sheets. The Company has elected the fair value option for this investment and records the change in the fair value in the condensed consolidated statements of income.

As of March 31, 2015, the estimated fair value of Third Point Re’s investment in the Hellenic Fund was $6.1 million (December 31, 2014 - $6.3 million). The valuation policy with respect to this investment in a limited partnership is further described in Note 4. Third Point Re’s maximum exposure to loss as a result of its involvement with this investment is limited to the carrying value of the investment.

18. Earnings per share

The following sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2015 and 2014:



		2015			2014
Weighted-average number of common shares outstanding:		($ in thousands, except share and per share amounts)
	Basic number of common shares outstanding	103,753,065			103,264,616
	Dilutive effect of options	1,093,353			1,386,722
	Dilutive effect of warrants	1,297,765			1,762,242
	Diluted number of common shares outstanding	106,144,183			106,413,580
Basic net income per common share:
	Net income	$	50,470		$	39,779
	Income allocated to participating shares	(179		)	(252		)
	Net income available to common shareholders	$	50,291		$	39,527
	Basic net income per common share	$	0.48		$	0.38
Diluted net income per common share
	Net income	$	50,470		$	39,779
	Income allocated to participating securities	(175		)	(245		)
	Net income available to common shareholders	$	50,295		$	39,534
	Diluted net income per common share	$	0.47		$	0.37

For the three months ended March 31, 2015 and 2014, anti-dilutive options, warrants and restricted shares with service and performance condition of 4,911,202 and 2,319,286, respectively, were excluded from the computation of diluted earnings per share.

19. Related party transactions

In addition to the transactions disclosed in Note 4, 9 and 17 to these condensed consolidated financial statements, the following transactions are classified as related party transactions, as each counterparty has either a direct or indirect shareholding in the Company or the Company has an investment in such counterparty.


a)	Pine Brook Road Partners, LLC and Narragansett Bay Insurance Company

Third Point Re entered into a quota share reinsurance agreement with Narragansett Bay Insurance Company (“Narragansett Bay”) effective December 31, 2012, which was renewed on December 31, 2013. This contract was not renewed on December 31, 2014. The Company recorded $nil and $1.7 million of premiums earned related to these contracts for the three months ended March 31, 2015 and 2014, respectively. Pine Brook Road Partners, LLC (“Pine Brook”) is the manager of several investment funds, one of which owns approximately

11.9% (December 31, 2014 - 12.0%) of the Company’s outstanding common shares. Pine Brook is also the manager of an investment fund that owns common shares in Narragansett Bay.


b)	Third Point Loan L.L.C.

Third Point Loan L.L.C. (“Loan LLC”) serves as nominee of Third Point Re and other affiliated investment management clients of the Investment Manager for certain investments. Loan LLC has appointed the Investment Manager as its true and lawful agent and attorney. As of March 31, 2015, Loan LLC held $50.5 million (December 31, 2014 - $33.4 million) of Third Point Re’s investments, which are included in investments in securities, commodities, and derivative contracts in the condensed consolidated balance sheets. Third Point Re’s pro rata interest in the underlying investments registered in the name of the Loan LLC and the related income and expense are reflected accordingly in the condensed consolidated balance sheets and the condensed consolidated statements of income.

20. Financial instruments with off-balance sheet risk or concentrations of credit risk

Off-balance sheet risk

In the normal course of business, the Company trades various financial instruments and engages in various investment activities with off-balance sheet risk. These financial instruments include securities sold, not yet purchased, forwards, futures, options, swaptions, swaps and contracts for differences. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at specified future dates. Each of these financial instruments contains varying degrees of off-balance sheet risk whereby changes in the fair values of the securities underlying the financial instruments or fluctuations in interest rates and index values may exceed the amounts recognized in the condensed consolidated balance sheets.

Securities sold, not yet purchased are recorded as liabilities in the condensed consolidated balance sheets and have market risk to the extent that the Company, in satisfying its obligations, may be required to purchase securities at a higher value than that recorded in the condensed consolidated balance sheets. The Company’s investments in securities and commodities and amounts due from brokers are partially restricted until the Company satisfies the obligation to deliver securities sold, not yet purchased.

Forward and futures contracts are a commitment to purchase or sell financial instruments, currencies or commodities at a future date at a negotiated rate. Forward and futures contracts expose the Company to market risks to the extent that adverse changes occur to the underlying financial instruments such as currency rates or equity index fluctuations.

Option contracts give the purchaser the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price. The premium received by the Company upon writing an option contract is recorded as a liability, marked to market on a daily basis and is included in securities sold, not yet purchased in the condensed consolidated balance sheets. In writing an option, the Company bears the market risk of an unfavorable change in the financial instrument underlying the written option. Exercise of an option written by the Company could result in the Company selling or buying a financial instrument at a price different from the current fair value.

In the normal course of trading activities in its investment portfolio, the Company trades and holds certain derivative contracts, such as written options, which constitute guarantees. The maximum payout for written put options is limited to the number of contracts written and the related strike prices and the maximum payout for written call options is dependent upon the market price of the underlying security at the date of a payout event. As of March 31, 2015, the investment portfolio had a maximum payout amount of approximately $963.8 million (December 31, 2014 - $666.9 million) relating to written put option contracts with expiration ranging from one month to 10 months from the balance sheet date. The maximum payout amount could be offset by the subsequent sale, if any, of assets obtained via the settlement of a payout event. The fair value of these written put options as of March 31, 2015 was $19.8 million (December 31, 2014 - $4.5 million) and is included in securities sold, not yet purchased in the condensed consolidated balance sheets.

Swaption contracts give the Company the right, but not the obligation, to enter into a specified interest-rate swap within a specified period of time. The Company’s market and counterparty credit risk is limited to the premium paid to enter into the swaption contract and net unrealized gains.

Total return swaps, contracts for differences, index swaps, and interest rate swaps that involve the exchange of cash flows between the Company and counterparties are based on the change in the fair value of a particular equity, index, or interest rate on a specified notional holding. The use of these contracts exposes the Company to market risks equivalent to actually holding securities of the notional value but typically involve little capital commitment relative to the exposure achieved. The gains or losses of the Company may therefore be magnified on the capital commitment.

Credit derivatives

Credit default swaps protect the buyer against the loss of principal on one or more underlying bonds, loans, or mortgages in the event the issuer suffers a credit event. Typical credit events include failure to pay or restructuring of obligations, bankruptcy, dissolution or insolvency of the underlying issuer. The buyer of the protection pays an initial and/or a periodic premium to the seller and receives protection for the period of the contract. If there is not a credit event, as defined in the contract, the buyer receives no payments from the seller. If there is a credit event, the buyer receives a payment from the seller of protection as calculated by the contract between the two parties.

The Company may also enter into index and/or basket credit default swaps where the credit derivative may reference a basket of single-name credit default swaps or a broad-based index. Generally, in the event of a default on one of the underlying names, the buyer will receive a pro-rata portion of the total notional amount of the credit default index or basket contract from the seller. When the Company purchases single-name, index and basket credit default swaps, the Company is exposed to counterparty nonperformance.

Upon selling credit default swap protection, the Company may expose itself to the risk of loss from related credit events specified in the contract. Credit spreads of the underlying together with the period of expiration is indicative of the likelihood of a credit event under the credit default swap contract and the Company’s risk of loss. Higher credit spreads and shorter expiration dates are indicative of a higher likelihood of a credit event resulting in the Company’s payment to the buyer of protection. Lower credit spreads and longer expiration dates would indicate the opposite and lowers the likelihood the Company needs to pay the buyer of protection. As of March 31, 2015, there was no cash collateral received specifically related to written credit default swaps as collateral is based on the net exposure associated with all derivative instruments subject to applicable netting agreements with counterparties and may not be specific to any individual derivative contract.

The following table sets forth certain information related to the Company’s written credit derivatives as of March 31, 2015 and December 31, 2014:



March 31, 2015	Maximum Payout/ Notional Amount (by period of expiration)						Fair Value of Written Credit Derivatives (2)
Credit Spreads on underlying (basis points)	0-5 years		5 years or Greater Expiring Through 2046		Total Written Credit Default Swaps (1)		Asset		Liability		Net Asset/(Liability)
	($ in thousands)
Single name (0 - 250)	$	—	$	5,857	$	5,857	$	—	$	1,500	$	(1,500	)
Single name (251-500)	2,302		2,491		4,793		256		376		(120		)
	$	2,302	$	8,348	$	10,650	$	256	$	1,876	$	(1,620	)


December 31, 2014	Maximum Payout/ Notional Amount (by period of expiration)						Fair Value of Written Credit Derivatives (2)
Credit Spreads on underlying (basis points)	0-5 years		5 years or Greater Expiring Through 2046		Total Written Credit Default Swaps (1)		Asset		Liability		Net Asset/(Liability)
	($ in thousands)
Single name (0 - 250)	$	—	$	5,142	$	5,142	$	—	$	1,319	$	(1,319	)
Single name (251-500)	—		2,084		2,084		205		—		205
	$	—	$	7,226	$	7,226	$	205	$	1,319	$	(1,114	)


(1)	As of March 31, 2015 and December 31, 2014, the Company did not hold any offsetting buy protection credit derivatives with the same underlying reference obligation.


(2)	Fair value amounts of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting.

Concentrations of credit risk

In addition to off-balance sheet risks related to specific financial instruments, the Company may be subject to concentrations of credit risk with particular counterparties. Substantially all securities transactions of the Company are cleared by several major securities firms. The Company had substantially all such individual counterparty concentration with these brokers or their affiliates as of March 31, 2015. However, the Company reduces its credit risk with counterparties by entering into master netting agreements. Therefore, assets represent the Company’s greater unrealized gains less unrealized losses for derivative contracts in which the Company has master netting agreements. Similarly, liabilities represent the Company’s greater unrealized losses less unrealized gains for derivative contracts in which the Joint Venture has master netting agreements. Furthermore, the Company obtains collateral from counterparties to reduce its exposure to counterparty credit risk.

The Company’s maximum exposure to credit risk associated with counterparty nonperformance on derivative contracts is limited to the net unrealized gains by counterparties inherent in such contracts which are recognised in the condensed consolidated balance sheets. As of March 31, 2015, the Company’s maximum counterparty credit risk exposure was $5.7 million (December 31, 2014 - $9.7 million).

21. Commitments and Contingencies

Investments

Loan and other participation interests purchased by the Company, such as bank debt, may include revolving credit arrangements or other financing commitments obligating the Company to advance additional amounts on demand. As of March 31, 2015, the Company had one unfunded capital commitment of $4.2 million related to its investment in the Hellenic Fund (see Note 17 for additional information).

In the normal course of business, the Company, as part of its investment strategy, enters into contracts that contain a variety of indemnifications and warranties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. Thus, no amounts have been accrued related to such indemnifications. The Company also indemnifies Third Point Advisors LLC, Third Point LLC and its employees from and against any loss or expense, including, without limitation any judgment, settlement, legal fees and other costs. Any expenses related to this indemnification are reflected in net investment income in the condensed consolidated statements of income.

See Note 4 for information regarding investment commitment to Kiskadee Fund.

Financing

On February 13, 2015, TPRUSA issued $115.0 million of Notes due February 13, 2025. The Notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year, beginning August 13, 2015. The Notes are fully and unconditionally guaranteed by Third Point Reinsurance Ltd., and, in certain circumstances specified in the indenture governing the Notes, certain existing or future subsidiaries of the Company may be required to guarantee the Notes.

Litigation

From time to time in the normal course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation, the outcomes of which determine the rights and obligations under the Company’s reinsurance contracts and other contractual agreements. In some disputes, the Company may seek to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. While the final outcome of legal disputes that may arise cannot be predicted with certainty, the Company is not currently involved in any material formal or informal dispute resolution procedures.

22. Segment reporting

The determination of the Company’s business segments is based on the manner in which management monitors the performance of its operations. The Company reports two operating segments - Property and Casualty Reinsurance and Catastrophe Risk Management. The Company has also identified a corporate function that includes the Company’s investment income on capital, certain general and administrative expenses related to corporate activities, interest expense and income tax expense.

The following is a summary of the Company’s operating segments results for the three months ended March 31, 2015 and 2014:



	Three Months Ended March 31, 2015
	Property and Casualty Reinsurance			Catastrophe Risk Management			Corporate			Total
Revenues	($ in thousands)
Gross premiums written	$	213,383		$	(49	)	$	—		$	213,334
Gross premiums ceded	(52		)	—			—			(52		)
Net premiums written	213,331			(49		)	—			213,282
Change in net unearned premium reserves	(74,214		)	7			—			(74,207		)
Net premiums earned	139,117			(42		)	—			139,075
Expenses
Loss and loss adjustment expenses incurred, net	81,746			—			—			81,746
Acquisition costs, net	54,663			(6		)	—			54,657
General and administrative expenses	6,567			233			4,908			11,708
Total expenses	142,976			227			4,908			148,111
Net underwriting loss	(3,859		)	n/a			n/a			n/a
Net investment income	18,575			25			46,318			64,918
Other expenses	(2,701		)	—			—			(2,701		)
Interest expense	—			—			(1,036		)	(1,036		)
Foreign exchange gains	—			—			193			193
Income tax expense	—			—			(1,305		)	(1,305		)
Segment income (loss) including non-controlling interests	12,015			(244		)	39,262			51,033
Segment (income) loss attributable to non-controlling interests	—			80			(643		)	(563		)
Segment income (loss)	$	12,015		$	(164	)	$	38,619		$	50,470

Property and Casualty Reinsurance - Underwriting Ratios:
Loss ratio (1)	58.8		%
Acquisition cost ratio (2)	39.3		%
Composite ratio (3)	98.1		%
General and administrative expense ratio (4)	4.7		%
Combined ratio (5)	102.8		%


(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.



	Three Months Ended March 31, 2014
	Property and Casualty Reinsurance			Catastrophe Risk Management			Corporate			Total
Revenues	($ in thousands)
Gross premiums written	$	82,142		$	5,445		$	—		$	87,587
Gross premiums ceded	—			—			—			—
Net premiums written	82,142			5,445			—			87,587
Change in net unearned premium reserves	(9,841		)	(4,484		)	—			(14,325		)
Net premiums earned	72,301			961			—			73,262
Expenses
Loss and loss adjustment expenses incurred, net	46,259			—			—			46,259
Acquisition costs, net	25,399			32			—			25,431
General and administrative expenses	5,809			834			3,382			10,025
Total expenses	77,467			866			3,382			81,715
Net underwriting loss	(5,166		)	n/a			n/a			n/a
Net investment income	7,313			29			42,693			50,035
Other expenses	(787		)	—			—			(787		)
Segment income including non-controlling interests	1,360			124			39,311			40,795
Segment income attributable to non-controlling interests	—			(191		)	(825		)	(1,016		)
Segment income (loss)	$	1,360		$	(67	)	$	38,486		$	39,779

Property and Casualty Reinsurance - Underwriting Ratios:
Loss ratio (1)	64.0		%
Acquisition cost ratio (2)	35.1		%
Composite ratio (3)	99.1		%
General and administrative expense ratio (4)	8.0		%
Combined ratio (5)	107.1		%


(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.

The following table lists the number of contracts that individually contributed more than 10% of total gross premiums written for the three months ended March 31, 2015 and 2014 as a percentage of total gross premiums written in the relevant period:



	2015		2014
Contract 1	43.8	%	51.1	%
Contract 2	14.3	%	19.6	%
Contract 3	10.2	%	—	%
Total for contracts contributing greater than 10% each	68.3	%	70.7	%
Total for contracts contributing less than 10% each	31.7	%	29.3	%
	100.0	%	100.0	%

The following table provides a breakdown of the Company’s gross premiums written by line of business for the

three months ended March 31, 2015 and 2014:



	2015					2014
	($ in thousands)
Property	$	21,456		10.1	%	$	6,881	7.9	%
Casualty	9,853			4.6	%	50,423		57.5	%
Specialty	182,074			85.3	%	24,838		28.4	%
Total property and casualty reinsurance	213,383			100.0	%	82,142		93.8	%
Catastrophe risk management	(49		)	—	%	5,445		6.2	%
	$	213,334		100.0	%	$	87,587	100.0	%

The following table provides a breakdown of the Company’s gross premiums written by prospective and retroactive reinsurance contracts for the three months ended March 31, 2015 and 2014:



	2015				2014
	($ in thousands)
Prospective	$	196,824	92.3	%	$	85,485	97.6	%
Retroactive (1)	16,510		7.7	%	2,102		2.4	%
	$	213,334	100.0	%	$	87,587	100.0	%


(1)	Includes all retroactive exposure in reinsurance contracts.

The Company records the gross premium written and earned at the inception of the contract for retroactive reinsurance contracts.

Substantially all of the Company’s business is sourced through reinsurance brokers. The following table provides a breakdown of the Company’s gross premiums written from brokers for the three months ended March 31, 2015 and 2014:



	2015					2014
	($ in thousands)
JLT Re	$	127,237		59.7	%	$	—		—	%
Aon Benfield - a division of Aon plc	44,848			21.0	%	5,996			6.8	%
Advocate Reinsurance Partners, LLC	13,950			6.5	%	8,455			9.7	%
Willis Re	13,080			6.1	%	—			—	%
Other brokers	8,808			4.1	%	2,622			3.0	%
Stonehill Reinsurance Partners, LLC	—			—	%	44,744			51.1	%
Guy Carpenter & Company, LLC	(30,352		)	(14.2	)%	(414		)	(0.5	)%
Total broker placed	177,571			83.2	%	61,403			70.1	%
Other	35,763			16.8	%	26,184			29.9	%
	$	213,334		100.0	%	$	87,587		100.0	%

The following table provides a breakdown of the Company’s gross premiums written by domicile of the ceding companies for the three months ended March 31, 2015 and 2014:




	2015				2014
	($ in thousands)
United Kingdom	$	163,760	76.8	%	$	24,837	28.4	%
Bermuda	29,881		14.0	%	4,673		5.3	%
United States	19,693		9.2	%	58,077		66.3	%
	$	213,334	100.0	%	$	87,587	100.0	%

23. Supplemental guarantor information

The following tables present historical, supplemental guarantor financial information as if new debt was issued by a subsidiary of Third Point Reinsurance Ltd. with Third Point Reinsurance Ltd. serving as a parent guarantor. The subsidiary presented as the issuer of debt is TPRUSA, a wholly owned subsidiary, incorporated on November 21, 2014.

The following information sets forth the Company’s condensed consolidating balance sheets as of March 31, 2015 and December 31, 2014 and the condensed consolidating statements of income and cash flows for the three months ended March 31, 2015 and 2014. Investments in subsidiaries are accounted for on the equity method; accordingly, entries necessary to consolidate the parent guarantor, TPRUSA and all other subsidiaries are reflected in the eliminations column.



THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
As of March 31, 2015
(expressed in thousands of U.S. dollars)

	Third Point Reinsurance Ltd.		TPRUSA		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Equity securities	$	—	$	—	$	1,239,988		$	—		$	1,239,988
Debt securities	—		—		736,243			—			736,243
Other investments	—		—		61,466			—			61,466
Total investments in securities and commodities	—		—		2,037,697			—			2,037,697
Cash and cash equivalents	853		4,115		7,380			—			12,348
Restricted cash and cash equivalents	—		—		583,474			—			583,474
Investment in subsidiaries	1,505,862		269,819		158,377			(1,934,058		)	—
Due from brokers	—		—		228,793			—			228,793
Securities purchased under an agreement to sell	—		—		17,630			—			17,630
Derivative assets, at fair value	—		—		25,223			—			25,223
Interest and dividends receivable	—		—		5,902			—			5,902
Reinsurance balances receivable	—		—		250,154			—			250,154
Deferred acquisition costs, net	—		—		164,096			—			164,096
Loss and loss adjustment expenses recoverable	—		—		408			—			408
Amounts due from (to) affiliates	853		645		(1,498		)	—			—
Other assets	360		—		6,497			—			6,857
Total assets	$	1,507,928	$	274,579	$	3,484,133		$	(1,934,058	)	$	3,332,582
Liabilities and shareholders’ equity
Liabilities
Accounts payable and accrued expenses	$	1,347	$	1,257	$	6,188		$	—		$	8,792
Reinsurance balances payable	—		—		53,798			—			53,798
Deposit liabilities	—		—		146,719			—			146,719
Unearned premium reserves	—		—		508,014			—			508,014
Loss and loss adjustment expense reserves	—		—		273,937			—			273,937
Securities sold, not yet purchased, at fair value	—		—		104,857			—			104,857
Securities sold under an agreement to repurchase	—		—		61,939			—			61,939
Due to brokers	—		—		465,558			—			465,558
Derivative liabilities, at fair value	—		—		17,020			—			17,020
Performance fee payable to related party	—		—		15,844			—			15,844
Interest and dividends payable	—		1,015		602			—			1,617
Senior notes payable, net of deferred costs	—		113,315		—			—			113,315
Total liabilities	1,347		115,587		1,654,476			—			1,771,410
Shareholders’ equity
Common shares	10,517		—		1,250			(1,250		)	10,517
Additional paid-in capital	1,069,617		158,400		1,501,130			(1,659,530		)	1,069,617
Retained earnings	426,447		592		272,686			(273,278		)	426,447
Shareholders’ equity attributable to shareholders	1,506,581		158,992		1,775,066			(1,934,058		)	1,506,581
Non-controlling interests	—		—		54,591			—			54,591
Total shareholders’ equity	1,506,581		158,992		1,829,657			(1,934,058		)	1,561,172
Total liabilities and shareholders’ equity	$	1,507,928	$	274,579	$	3,484,133		$	(1,934,058	)	$	3,332,582



THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
As of December 31, 2014
(expressed in thousands of U.S. dollars)

	Third Point Reinsurance Ltd.		TPRUSA			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Equity securities	$	—	$	—		$	1,177,796		$	—		$	1,177,796
Debt securities	—		—			569,648			—			569,648
Other investments	—		—			83,394			—			83,394
Total investments in securities and commodities	—		—			1,830,838			—			1,830,838
Cash and cash equivalents	140		—			28,594			—			28,734
Restricted cash and cash equivalents	—		—			417,307			—			417,307
Investment in subsidiaries	1,451,060		—						(1,451,060		)	—
Due from brokers	—		—			58,241			—			58,241
Securities purchased under an agreement to sell	—		—			29,852			—			29,852
Derivative assets, at fair value	—		—			21,130			—			21,130
Interest and dividends receivable	—		—			2,602			—			2,602
Reinsurance balances receivable	—		—			303,649			—			303,649
Deferred acquisition costs, net	—		—			155,901			—			155,901
Loss and loss adjustment expenses recoverable	—		—			814			—			814
Other assets	600		666			2,246			—			3,512
Amounts due from affiliates	1,339		(403		)	(936		)	—			—
Total assets	$	1,453,139	$	263		$	2,850,238		$	(1,451,060	)	$	2,852,580
Liabilities and shareholders’ equity
Liabilities
Accounts payable and accrued expenses	$	1,226	$	518		$	8,341		$	—		$	10,085
Reinsurance balances payable	—		—			27,040			—			27,040
Deposit liabilities	—		—			145,430			—			145,430
Unearned premium reserves	—		—			433,809			—			433,809
Loss and loss adjustment expense reserves	—		—			277,362			—			277,362
Securities sold, not yet purchased, at fair value	—		—			82,485			—			82,485
Due to brokers	—		—			312,609			—			312,609
Derivative liabilities, at fair value	—		—			11,015			—			11,015
Interest and dividends payable	—		—			697			—			697
Total liabilities	1,226		518			1,298,788			—			1,300,532
Shareholders’ equity
Common shares	10,447		—			1,251			(1,251		)	10,447
Additional paid-in capital	1,065,489		—			1,072,671			(1,072,671		)	1,065,489
Retained earnings	375,977		(255		)	377,393			(377,138		)	375,977
Shareholders’ equity attributable to shareholders	1,451,913		(255		)	1,451,315			(1,451,060		)	1,451,913
Non-controlling interests	—		—			100,135			—			100,135
Total shareholders’ equity	1,451,913		(255		)	1,551,450			(1,451,060		)	1,552,048
Total liabilities and shareholders’ equity	$	1,453,139	$	263		$	2,850,238		$	(1,451,060	)	$	2,852,580



THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(UNAUDITED)
For the three months ended March 31, 2015
(expressed in thousands of U.S. dollars)

	Third Point Reinsurance Ltd.		TPRUSA			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Gross premiums written	$	—	$	—		$	213,334		$	—		$	213,334
Gross premiums ceded	—		—			(52		)	—			(52		)
Net premiums written	—		—			213,282			—			213,282
Change in net unearned premium reserves	—		—			(74,207		)	—			(74,207		)
Net premiums earned	—		—			139,075			—			139,075
Net investment income	—					64,918			—			64,918
Equity in earnings of subsidiaries	51,722		2,443			(25		)	(54,140		)	—
Total revenues	51,722		2,443			203,968			(54,140		)	203,993
Expenses												—
Loss and loss adjustment expenses incurred, net	—		—			81,746			—			81,746
Acquisition costs, net	—		—			54,657			—			54,657
General and administrative expenses	1,252		85			10,371			—			11,708
Other expenses	—		—			2,701			—			2,701
Interest expense	—		1,036			—			—			1,036
Foreign exchange gains	—		—			(193		)	—			(193		)
Total expenses	1,252		1,121			149,282			—			151,655
Income before income tax expense	50,470		1,322			54,686			(54,140		)	52,338
Income tax expense	—		(475		)	(830		)	—			(1,305		)
Income including non-controlling interests	50,470		847			53,856			(54,140		)	51,033
Income attributable to non-controlling interests	—		—			(563		)	—			(563		)
Net income	$	50,470	$	847		$	53,293		$	(54,140	)	$	50,470



THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(UNAUDITED)
For the three months ended March 31, 2014
(expressed in thousands of U.S. dollars)

	Third Point Reinsurance Ltd.		TPRUSA		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Gross premiums written	$	—	$	—	$	87,587		$	—		$	87,587
Gross premiums ceded	—		—		—			—			—
Net premiums written	—		—		87,587			—			87,587
Change in net unearned premium reserves	—		—		(14,325		)	—			(14,325		)
Net premiums earned	—		—		73,262			—			73,262
Net investment income	—		—		50,035			—			50,035
Equity in earnings of subsidiaries	41,007		—		—			(41,007		)	—
Total revenues	41,007		—		123,297			(41,007		)	123,297
Expenses
Loss and loss adjustment expenses incurred, net	—		—		46,259			—			46,259
Acquisition costs, net	—		—		25,431			—			25,431
General and administrative expenses	1,228		—		8,797			—			10,025
Other expenses	—		—		787			—			787
Total expenses	1,228		—		81,274			—			82,502
Income including non-controlling interests	39,779		—		42,023			(41,007		)	40,795
Income attributable to non-controlling interests	—		—		(1,016		)	—			(1,016		)
Net income	$	39,779	$	—	$	41,007		$	(41,007	)	$	39,779



THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
For the three months ended March 31, 2015
(expressed in thousands of U.S. dollars)

	Third Point Reinsurance Ltd.			TPRUSA			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Income including non-controlling interests	$	50,470		$	847		$	53,856		$	(54,140	)	$	51,033
Adjustments to reconcile income including non-controlling interests to net cash provided by (used in) operating activities
Equity in earnings of subsidiaries	(51,722		)	(2,443		)	25			54,140			—
Share compensation expense	—			—			3,083			—			3,083
Interest expense on deposit liabilities	—			—			631			—			631
Net unrealized gain on investments and derivatives	—			—			(36,340		)	—			(36,340		)
Net realized gain on investments and derivatives	—			—			(53,283		)	—			(53,283		)
Foreign exchange gains included in net income	—			—			(193		)	—			(193		)
Amortization of premium and accretion of discount, net	—			21			1,652			—			1,673
Changes in assets and liabilities:
Reinsurance balances receivable	—			—			53,170			—			53,170
Deferred acquisition costs, net	—			—			(8,195		)	—			(8,195		)
Loss and loss adjustment expenses recoverable	—			—			406			—			406
Other assets	242			666			(4,253		)	—			(3,345		)
Interest and dividends receivable, net	—			1,015			(3,395		)	—			(2,380		)
Unearned premium reserves	—			—			74,205			—			74,205
Loss and loss adjustment expense reserves	—			—			(2,907		)	—			(2,907		)
Accounts payable and accrued expenses	122			7			(2,153		)	—			(2,024		)
Reinsurance balances payable	—			—			26,638			—			26,638
Performance fees payable to related party	—			—			15,844			—			15,844
Amounts due from affiliates	486			(1,048		)	562			—			—
Net cash (used in) provided by operating activities	(402		)	(935		)	119,353			—			118,016
Investing activities
Purchases of investments	—			—			(875,871		)	—			(875,871		)
Proceeds from sales of investments	—			—			747,492			—			747,492
Purchases of investments to cover short sales	—			—			(116,867		)	—			(116,867		)
Proceeds from short sales of investments	—			—			150,942			—			150,942
Change in due to/from brokers, net	—			—			(17,603		)	—			(17,603		)
Decrease in securities purchased under an agreement to sell	—			—			12,222			—			12,222
Increase in securities sold under an agreement to repurchase	—			—			61,939			—			61,939
Change in restricted cash and cash equivalents	—			—			(166,167		)	—			(166,167		)
Contributed capital to subsidiaries	(158,000		)	(266,975		)	(25		)	425,000			—
Contributed capital from parent and/or subsidiaries	—			158,000			267,000			(425,000		)	—
Net cash used in investing activities	(158,000		)	(108,975		)	63,062			—			(203,913		)
Financing activities
Proceeds from issuance of common shares, net of costs	1,115			—			—			—			1,115
Proceeds from issuance of senior notes payable	—			114,025			—			—			114,025
Increase in deposit liabilities	—			—			478			—			478
Non-controlling interest in investment affiliate, net	—			—			(24,999		)	—			(24,999		)
Non-controlling interest in Catastrophe Fund	—			—			(21,400		)	—			(21,400		)
Non-controlling interest in Catastrophe Manager	—			—			292			—			292
Dividend received by (paid to) parent	158,000			—			(158,000		)	—			—
Net cash provided by financing activities	159,115			114,025			(203,629		)	—			69,511
Net (decrease) increase in cash and cash equivalents	713			4,115			(21,214		)	—			(16,386		)
Cash and cash equivalents at beginning of period	140			—			28,594			—			28,734
Cash and cash equivalents at end of period	$	853		$	4,115		$	7,380		$	—		$	12,348



THIRD POINT REINSURANCE LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
For the three months ended March 31, 2014
(expressed in thousands of U.S. dollars)

	Third Point Reinsurance Ltd.			TPRUSA		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Income including non-controlling interests	$	39,779		$	—	$	42,023		$	(41,007	)	$	40,795
Adjustments to reconcile income including non-controlling interests to net cash provided by operating activities
Equity in earnings of subsidiaries	(41,007		)	—		—			41,007			—
Share compensation expense	124			—		2,128			—			2,252
Interest expense on deposit liabilities	—			—		448			—			448
Net unrealized gain on investments and derivatives	—			—		16,334			—			16,334
Net realized gain on investments and derivatives	—			—		(84,752		)	—			(84,752		)
Amortization of premium and accretion of discount, net	—			—		364			—			364
Changes in assets and liabilities:
Reinsurance balances receivable	—			—		(29,778		)	—			(29,778		)
Deferred acquisition costs, net	—			—		(2,090		)	—			(2,090		)
Loss and loss adjustment expenses recoverable	—			—		(1,000		)	—			(1,000		)
Other assets	346			—		102			—			448
Interest and dividends receivable, net	—			—		(2,547		)	—			(2,547		)
Unearned premium reserves	—			—		14,325			—			14,325
Loss and loss adjustment expense reserves	—			—		30,293			—			30,293
Accounts payable and accrued expenses	580			—		(6,297		)	—			(5,717		)
Reinsurance balances payable	—			—		16,566			—			16,566
Performance fees payable to related party	—			—		12,295			—			12,295
Amounts due to affiliates	(108		)	—		108			—			—
Net cash (used in) provided by operating activities	(286		)	—		8,522			—			8,236
Investing activities
Purchases of investments	—			—		(797,308		)	—			(797,308		)
Proceeds from sales of investments	—			—		574,482			—			574,482
Purchases of investments to cover short sales	—			—		(67,779		)	—			(67,779		)
Proceeds from short sales of investments	—			—		74,577			—			74,577
Change in due to/from brokers, net	—			—		285,175			—			285,175
Increase in securities purchased under agreement to sell	—			—		1,369			—			1,369
Change in restricted cash and cash equivalents	—			—		(27,467		)	—			(27,467		)
Net cash provided by investing activities	—			—		43,049			—			43,049
Financing activities
Increase in deposit liabilities	—			—		(100		)	—			(100		)
Non-controlling interest in investment affiliate, net	—			—		(51,001		)	—			(51,001		)
Non-controlling interest in Catastrophe Fund	—			—		2,129			—			2,129
Net cash provided by financing activities	—			—		(48,972		)	—			(48,972		)
Net (decrease) increase in cash and cash equivalents	(286		)	—		2,599			—			2,313
Cash and cash equivalents at beginning of period	294			—		31,331			—			31,625
Cash and cash equivalents at end of period	$	8		$	—	$	33,930		$	—		$	33,938

See note 2 for explanation of certain changes made in the presentation of the Company’s condensed consolidated statements of cash flows for the three months ended March 31, 2014 to conform to the 2015 presentation.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our unaudited condensed consolidated interim, financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors" and ”Special Note Regarding Forward-Looking Statements" . Our actual results may differ materially from those contained in or implied by any forward looking statements.

Special Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this Quarterly Report on Form 10-Q.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance that these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. 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:


•	limited historical information about us;


•	operational structure currently is being developed;


•	fluctuation in results of operations;


•	more established competitors;


•	losses exceeding reserves;


•	downgrades or withdrawal of ratings by rating agencies;


•	dependence on key executives;


•	dependence on letter of credit facilities that may not be available on commercially acceptable terms;


•	potential inability to pay dividends;


•	inability to service our indebtedness;


•	limited cash flow and liquidity due to our indebtedness;


•	unavailability of capital in the future;


•	fluctuations in market price of our common shares;


•	dependence on clients’ evaluations of risks associated with such clients’ insurance underwriting;


•	suspension or revocation of our reinsurance license;


•	potentially being deemed an investment company under U.S. federal securities law;


•	potential characterization of Third Point Reinsurance Ltd. and/or Third Point Reinsurance Company Ltd. as a passive foreign investment company;


•	dependence on Third Point LLC to implement our investment strategy;


•	termination by Third Point LLC of our investment management agreement;


•	risks associated with our investment strategy being greater than those faced by competitors;


•	increased regulation or scrutiny of alternative investment advisers affecting our reputation;


•	potentially becoming subject to United States federal income taxation;


•	potentially becoming subject to U.S. withholding and information reporting requirements under the Foreign Account Tax Compliance Act; and


•	other risks and factors listed under “Risk Factors” in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Any one of these factors or a combination of these factors could materially affect our financial condition or future results of operations and could influence whether any forward-looking statements contained in this report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, while we do, from time to time, communicate with security analysts, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, shareholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not our responsibility.

Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” and the “Company,” as used in this report, refer to Third Point Reinsurance Ltd. and its directly and indirectly owned subsidiaries, including Third Point Reinsurance Company Ltd. (“Third Point Re”) and Third Point Reinsurance (USA) Ltd. (“Third Point Re USA”), as a combined entity, except where otherwise stated or where it is clear that the terms mean only Third Point Reinsurance Ltd. exclusive of its subsidiaries. Third Point Reinsurance Investment Management Ltd. is referred to as the “Catastrophe Fund Manager,” Third Point Reinsurance Opportunities Fund Ltd. as the “Catastrophe Fund” and Third Point Re Cat Ltd. as the “Catastrophe Reinsurer.”

Overview

We are a holding company domiciled in Bermuda. Through our reinsurance subsidiaries, we provide property and casualty reinsurance coverage to insurance and reinsurance companies on a worldwide basis. Our goal is to deliver attractive equity returns to our shareholders by combining profitable reinsurance underwriting with superior investment management provided by Third Point LLC, our investment manager. We believe that our reinsurance and investment strategy differentiates us from our competitors.

We manage our business on the basis of two operating segments: Property and Casualty Reinsurance and Catastrophe Risk Management. We also have a corporate function that includes our investment income on capital, certain general and administrative expenses related to corporate activities, interest expense and income tax expense.

Property and Casualty Reinsurance

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 catastrophe risk within the property and casualty segment. We anticipate that our property catastrophe exposures will consistently remain extremely low when compared to many other reinsurers with whom we compete.

In February 2015, we began reinsurance operations in the United States through Third Point Re USA, a Bermuda company licensed as a Class 4 insurer and a wholly owned operating subsidiary of Third Point Re (USA) Holdings Inc. (“TPRUSA”). The results of Third Point Re USA are reflected in the results of the Property and Casualty Reinsurance segment. Third Point Re USA and TPRUSA have a limited operating history and are exposed to volatility in their results of operations. As a result, period to period comparisons of our results of operations may not be meaningful. Third Point Re USA provides reinsurance products that are substantially similar to the reinsurance products currently provided by Third Point Re. Third Point Re USA’s U.S. presence is a strategic component of our overall growth strategy. As a result of Third Point Re USA’s U.S. presence, we have expanded our marketing activities and have begun to broaden our profile in the U.S. marketplace. In addition to developing new opportunities, we are strengthening our relationships with existing cedents and brokers. We also will develop a firsthand understanding of cedent underwriting and claims capabilities that will benefit our underwriting practices.

Insurance 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 consideration received for deposit accounted contracts are collected before losses are paid on reinsurance contracts and proceeds are returned on deposit accounting contracts. In some instances, the interval between cash receipts and payments can extend over many years. During this time interval, we invest the cash received and seek to 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.

We believe that our property and casualty reinsurance segment will contribute to our results by both generating underwriting income as well as generating float. In addition, we expect that float will grow over time as our reinsurance operations expand.

Catastrophe Risk Management

In contrast to many reinsurers with whom we compete, we have elected to limit our underwriting of property catastrophe exposures. On June 15, 2012, Third Point Reinsurance Opportunities Fund Ltd. (the “Catastrophe Fund”), Third Point Reinsurance Investment Management Ltd. (the “Catastrophe Fund Manager”), and Third Point Re Cat Ltd. (the “Catastrophe Reinsurer”) were incorporated in Bermuda. The Catastrophe Fund Manager, a Bermuda exempted company, is the investment manager of the Catastrophe Fund. In December 2014, we announced that we would no longer accept investments in the Catastrophe Fund, that no new business would be written in the Catastrophe Reinsurer and that we would be redeeming all existing investments in the Catastrophe Fund. Despite the Catastrophe Fund’s solid investment returns from its inception, we are winding it down due to challenging market conditions and competition with other collateralized reinsurance and insurance-liked securities vehicles. Catastrophe reinsurance pricing and the fees available to manage catastrophe risk have decreased significantly in the past two years. The Catastrophe Fund Manager will continue to manage the runoff of the remaining exposure in the Catastrophe Fund.

As of March 31, 2015, the Catastrophe Fund had a net asset value of $77.0 million (December 31, 2014 - $119.7 million), and our investment in the Catastrophe Fund was $38.3 million (December 31, 2014 - $59.5 million). There are no additional guarantees by us and no recourse to us beyond this investment. During the three months ended March 31, 2015, the Catastrophe Fund distributed $42.5 million (Third Point Re’s share - $21.1 million) resulting in a distribution from non-controlling interests for the Catastrophe Fund of $21.4 million for the three months ended March 31, 2015.

Investment Management

Our investment strategy is implemented by our investment manager, Third Point LLC, under a long-term investment management contract. We directly own the investments that are held in two separate accounts and managed by Third Point LLC on substantially the same basis as Third Point LLC’s main hedge funds.

Limited Operating History and Comparability of Results

We were incorporated on October 6, 2011 and completed our initial capitalization on December 22, 2011. We began underwriting business on January 1, 2012. We completed an initial public offering of common shares on August 20, 2013 (the “IPO”). As a result, we have a limited operating history and are exposed to volatility in our results of operations. Period to period comparisons of our results of operations may not be meaningful.

In addition, the amount of premiums written may vary from year to year and from period to period as a result of several factors, including changes in market conditions and our view of the long-term profit potential of individual lines of business.

Non-GAAP Financial Measures

We have included financial measures that are not calculated under standards or rules that comprise 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 financial measures. These non-GAAP financial measures may be defined or calculated differently by other companies. We believe 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 referenced below.

Key Performance Indicators

We believe that by combining a disciplined and opportunistic approach to reinsurance underwriting with investment results from the active management of our investment portfolio, we will be able to generate attractive returns for our shareholders. The key financial measures that we believe are most meaningful in analyzing our performance are: net underwriting income (loss) for our property and casualty reinsurance segment, combined ratio for our property and casualty reinsurance segment, net investment income, net investment return on investments managed by Third Point LLC, book value per share, diluted book value per share, growth in diluted book value per share and return on beginning shareholders’ equity.

The table below shows the key performance indicators for our consolidated business for the three months ended March 31, 2015 and 2014:



	2015			2014
Key underwriting metrics for Property and Casualty Reinsurance segment:	(In thousands, except for per share data and ratios)
Net underwriting loss (1)	$	(3,859	)	$	(5,166	)
Combined ratio (1)	102.8		%	107.1		%
Key investment return metrics:
Net investment income	$	64,918		$	50,035
Net investment return on investments managed by Third Point LLC	3.0		%	3.1		%
Key shareholders’ value creation metrics:
Book value per share (2) (4)	$	14.50		$	14.04
Diluted book value per share (2) (4)	$	13.97		$	13.55
Growth in diluted book value per share (2)	3.1		%	2.4		%
Return on beginning shareholders’ equity (3)	3.5		%	2.9		%


(1)	See Note 22 to the accompanying condensed consolidated financial statements for an explanation and calculation of net underwriting loss and combined ratio.


(2)	Book value per share and diluted book value per share are non-GAAP financial measures. See reconciliation below for calculation of book value per share and diluted book value per share.


(3)	Return on beginning shareholders’ equity is a non-GAAP financial measure. See reconciliation below for calculation of return on beginning shareholders’ equity.


(4)	Prior year comparative represents amounts as of December 31, 2014.

Net Underwriting Income (Loss) for Property and Casualty Reinsurance Segment

One way that we evaluate the performance of our property and casualty reinsurance results is by measuring net underwriting income or loss. We do not measure performance based on the amount of gross premiums written. Net underwriting income or loss is calculated from net premiums earned, less net loss and loss adjustment expenses, acquisition costs and general and administrative expenses related to the underwriting activities.

Combined Ratio for Property and Casualty Reinsurance Segment

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. The combined ratio compares the amount of net premiums earned to the amount incurred in claims and underwriting related expenses. This ratio is a key indicator of a reinsurance company’s profitability. A combined ratio greater than 100% means that loss and loss adjustment expenses, acquisition costs and general and administrative expenses related to underwriting activities exceeded net premiums earned. See additional information in Note 22 to our condensed consolidated financial statements.

Net Investment Income

Net investment income is an important measure that affects overall profitability. Net investment income is affected by the performance of Third Point LLC as our exclusive investment manager and the amount of investable cash, or float, generated by our reinsurance operations. Pursuant to our investment management agreements, Third Point LLC is required to manage our investment portfolio on substantially the same basis as its main hedge funds, subject to certain conditions set forth in our investment guidelines. These conditions include limitations on investing in private securities, a limitation on portfolio leverage, and a limitation on portfolio concentration in individual securities. Our investment management agreements allow us to withdraw cash from our investment account with Third Point LLC at any time with three days’ notice to pay claims and with five days’ notice to pay expenses.

We track excess cash flows generated by our property and casualty reinsurance operation, or float, in a separate account that allows us to also track the net investment income generated on the float. 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 incentive compensation. Net income on float as presented is a non-GAAP financial measure. See the table below for a reconciliation of net investment income on float to net investment income.

Net investment income for the three months ended March 31, 2015 and 2014 was comprised of the following:




		2015		2014
	($ in thousands)
Net investment income on float		$	18,575	$	7,313
Net investment income on capital		46,274		42,693
Net investment income on investments managed by Third Point LLC		64,849		50,006
Net investment income on cash collateral held by the Catastrophe Reinsurer		15		29
Net gain on catastrophe bond held by the Catastrophe Reinsurer		10		—
Net gain on investment in Kiskadee Fund (1)		44		—
		$	64,918	$	50,035


(1)	On December 18, 2014, we entered into a subscription agreement with the Kiskadee Diversified Fund Ltd. (“Kiskadee Fund”) to invest up to $25.0 million in Hiscox Insurance Company (Bermuda) Limited’s separately managed insurance-linked securities platform, Kiskadee Re Ltd.

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 of year shareholders’ equity is calculated by dividing net income by the beginning shareholders’ equity attributable to shareholders. We believe this metric is used by investors to supplement measures of our profitability.

Return on beginning shareholders’ equity for the three months ended March 31, 2015 and 2014 was calculated as follows:



		2015			2014
	($ in thousands)
Net income		$	50,470		$	39,779
Shareholders’ equity attributable to shareholders - beginning of period		1,451,913			1,391,661
Return on beginning shareholders’ equity		3.5		%	2.9		%

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. Book value per share is calculated by dividing shareholders’ equity attributable to shareholders by the number of issued and outstanding shares at period end. Diluted book value per share is calculated by dividing shareholders’ equity attributable to shareholders and adjusted to include unvested restricted shares and the exercise of all in-the-money options and warrants. For unvested restricted shares with a performance condition, we include the unvested restricted shares that we consider vesting to be probable. Prior to TPRE’s initial public offering, the market share price was assumed to be equal to the fully 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.

For the three months ended March 31, 2015, book value per share increased by $0.46 per share, or 3.3%, to $14.50 per share from $14.04 per share as of December 31, 2014. For the three months ended March 31, 2014, book value per share increased by $0.40 per share, or 3.0%, to $13.88 per share from $13.48 per share as of December 31, 2013.

For the three months ended March 31, 2015, diluted book value per share increased by $0.42 per share, or 3.1%, to $13.97 per share from $13.55 per share as of December 31, 2014. For the three months ended March 31, 2014, diluted book value per share increased by $0.31 per share, or 2.4%, to $13.43 per share from $13.12 per share as of December 31, 2013.

The increase in basic and diluted book value per share for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 was primarily due to net income during the year. The increase in diluted book value per share was lower than the increase in book value per share due to the dilution from restricted shares issued pursuant to the 2013 Omnibus Incentive Plan.

The following table sets forth the computation of basic and diluted book value per share as of March 31, 2015 and December 31, 2014:



	March 31, 2015			December 31, 2014
Basic and diluted book value per share numerator:	(In thousands, except share and per share amounts)
Total shareholders’ equity	$	1,561,172		$	1,552,048
Less: non-controlling interests	(54,591		)	(100,135		)
Shareholders’ equity attributable to shareholders	1,506,581			1,451,913
Effect of dilutive warrants issued to Founders and an advisor	46,512			46,512
Effect of dilutive share options issued to directors and employees	60,589			61,705
Diluted book value per share numerator:	$	1,613,682		$	1,560,130
Basic and diluted book value per share denominator:
Issued and outstanding shares	103,890,670			103,397,542
Effect of dilutive warrants issued to Founders and an advisor	4,651,163			4,651,163
Effect of dilutive share options issued to directors and employees	6,040,275			6,151,903
Effect of dilutive restricted shares issued to directors and employees (1)	955,385			922,610
Diluted book value per share denominator:	115,537,493			115,123,218

Basic book value per share	$	14.50		$	14.04
Diluted book value per share	$	13.97		$	13.55


(1)	As of March 31, 2015, the effect of dilutive restricted shares issued to directors and employees was comprised of 306,043 of restricted shares with a service condition only and 649,342 restricted shares with a service and performance condition that were considered probable of vesting.

Revenues

We derive our revenues from two principal sources:


•	premiums from property and casualty reinsurance business assumed; and


•	income from investments.

Premiums from our property and casualty reinsurance business assumed are directly related to the number, type and pricing of contracts we write. Premiums are earned over the contract period based on the exposure period of the underlying contracts of the ceding company.

Income from our investments is primarily comprised of interest income, dividends, and net realized and unrealized gains on investment securities included in our investment portfolio.

Expenses

Our expenses consist primarily of the following:


•	loss and loss adjustment expenses;


•	acquisition costs;


•	investment-related expenses;


•	general and administrative expenses;


•	interest expense; and


•	income taxes.

Loss and loss adjustment expenses are a function of the amount and type of reinsurance contracts we write and loss experience of the underlying coverage. Loss and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Depending on the nature of the contract, loss and loss adjustment expenses may be paid over a number of years.

Acquisition costs consist primarily of brokerage fees, ceding commissions, premium taxes and other direct expenses that relate to our writing reinsurance contracts and are presented net of commissions ceded under reinsurance contracts. We amortize deferred acquisition costs in the same proportion that the premiums are earned.

Investment-related expenses primarily consist of management fees we pay to our investment manager, Third Point LLC, and certain of our Founders, pursuant to our investment management agreements and performance fees we pay to Third Point Advisors LLC. A 2% management fee calculated on assets under management is paid monthly to Third Point LLC and certain of our Founders, and a performance fee equal to 20% of the net investment income is paid annually to Third Point Advisors LLC. We include these expenses in net investment income in our condensed consolidated statement of income.

General and administrative expenses consist primarily of salaries, benefits and related payroll costs, including costs associated with our incentive compensation plan, share compensation expenses, legal and accounting fees, travel and client entertainment, fees relating to our letter of credit facilities, information technology, occupancy and other general operating expenses.

Interest expense consists of interest expense incurred on our $115.0 million senior notes issued in February 2015. The senior notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year, beginning August 13, 2015. Also included in interest expense is the amortization of costs incurred in issuing the senior notes. These costs are amortized over the term of the debt and are included in interest expense.

Income taxes consist primarily of taxes incurred in the U.S. as a result of our U.S. operations and withholding taxes and uncertain tax positions on certain investment transactions in the U.S. and in certain foreign jurisdictions.

Critical Accounting Policies and Estimates

See Note 2 of the notes to our condensed condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of our significant accounting and reporting policies.

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions. We believe that the accounting policies that require the most significant judgments and estimations by management are (1) premium revenue recognition including evaluation of risk transfer, (2) loss and loss adjustment expense reserves, and (3) fair value measurements related to our investments. If actual events differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies, there could be a material adverse effect on our results of operations and financial condition.

Premium Revenue Recognition including evaluation of Risk Transfer

For each contract that we write, we estimate the ultimate premiums for the entire contract period and record this estimate at the inception of the contract, to the extent the amount of written premium is estimable. For contracts where the full written premium is not estimable at inception, we record written premium for the portion of the contract period for which the amount is estimable. These estimates are based primarily on information in the underlying contracts as well as information provided by our clients and/or brokers. See Note 2 to our condensed consolidated financial statements for additional information on premium revenue recognition.

Changes in premium estimates are expected and may result in adjustments in any reporting period. These estimates change over time as additional information regarding the underlying business volume is obtained. Along with uncertainty regarding the underlying business volume, our contracts also contain a number of contractual features that can significantly impact the amount of premium that we ultimately recognize. These include commutation provisions, multi-year contracts with cancellation provisions and provisions to return premium at the expiration of the contract in certain circumstances. In certain contracts, these provisions can be exercised by the client, in some cases provisions can be exercised by us and in other cases by mutual consent. In addition, we write a small number of large contracts and the majority of our property and casualty reinsurance segment premiums written to date has been quota share business. As a result, we may be subject to greater volatility around our premium estimates compared to other property and casualty companies. We continuously monitor the premium estimate of each of our contracts considering the cash premiums received, reported premiums, discussions with our clients regarding their premium projections as well as evaluating the potential impact of contractual features. Any subsequent adjustments arising on such estimates are recorded in the period in which they are determined.

Changes in premium estimates may not result in a direct impact to net income or shareholders’ equity since changes in premium estimates do not necessarily impact the amount of net premiums earned at the time of the premium estimate change and would generally be offset by proportional changes in acquisition costs and net loss and loss adjustment expenses.

During the three months ended March 31, 2015, we recorded $27.6 million of increases in premium estimates on prior years’ contracts, (2014 - decreases of $1.0 million). There was an insignificant impact on net income of these changes in premium estimates for the three months ended March 31, 2015 and 2014. Changes in premium estimates generally result in a smaller impact on net premiums earned as the changes in premium estimates are generally known before the premiums on the contract are fully earned. The increases in premium estimates for 2015 were primarily due to clients writing more business than initially expected.

Determining whether or not a reinsurance contract meets the condition for risk transfer requires judgment. The determination of risk transfer is critical to reporting premiums written and is based, in part, on the use of actuarial pricing models and assumptions and evaluating contractual features that could impact the determination of whether a contract meets risk transfer. If we determine that a reinsurance contract does not transfer sufficient risk, we use deposit accounting. See Note 10 to our condensed consolidated financial statements for additional information on deposit contracts entered into to date.

Loss and Loss Adjustment Expense Reserves

Our loss and loss adjustment expense reserves include case reserves and reserves for losses incurred but not yet reported (“IBNR reserves”) and deferred gain on retroactive reinsurance contracts. Case reserves are established for losses that have been reported, but not yet paid, based on loss reports from brokers and ceding companies. IBNR reserves represent the estimated loss and loss adjustment expenses that have been incurred by insureds and reinsureds but not yet reported to the insurer or reinsurer, including unknown future developments on loss and loss adjustment expenses that are known to us. IBNR reserves are established by management based on actuarially determined estimates of ultimate loss and loss adjustment expenses.

Inherent in the estimate of ultimate loss and loss adjustment expenses are expected trends in claim severity and frequency and other factors that may vary significantly as claims are settled. Accordingly, ultimate loss and loss adjustment expenses may differ materially from the amounts recorded in the financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as

necessary. Such adjustments, if any, are recorded in the condensed consolidated statement of income in the period in which they become known.

We perform an actuarial projection of our reserves quarterly and have a third-party actuarial review performed annually. All reserves are estimated on an individual contract basis; there is no aggregation of contracts for projection of ultimate loss or reserves.

We initially reserve every individual contract to the expected loss and loss expense ratio in the pricing analysis.

As loss information is received from the cedents, we incorporate other actuarial methods in our projection of ultimate losses and, hence, reserves. In our pricing analysis, we typically use a significant amount of information unique to the individual client and, when necessary, supplement the analysis with industry data. Industry data primarily takes the form of paid and incurred development patterns from statutory financial statements and statistical agencies. For our actuarial reserve projections, the relevant information we receive from our reinsurance clients include premium estimates, paid loss and loss adjustment expenses and case reserves. We review the data for reasonableness and research any anomalies. On each contract, we compare the expected paid and incurred amounts at each quarter-end with actual amounts reported. We also compare premiums received with projected premium receipts at each quarter end.

There is a time lag between when a covered loss event occurs and when it is actually reported to our cedents. The actuarial methods that we use to estimate losses have been designed to address this lag in loss reporting. There is also a time lag between reinsurance clients paying claims, establishing case reserves and re-estimating their reserves, and notifying us of the payments and/or new or revised case reserves. This reporting lag is typically 60 to 90 days after the end of a reporting period, but can be longer in some cases. We use techniques that adjust for this type of lag. While it would be unusual to have lags that extend beyond 90 days, our actuarial techniques are designed to adjust for such a circumstance.

The principal actuarial methods (and associated key assumptions) we use to perform our quarterly loss reserve analysis may include one or more of the following methods:

A Priori Loss Ratio Method. To estimate ultimate losses under the a priori loss ratio method, we multiply earned premiums by an expected loss ratio. The expected loss ratio is selected as part of the pricing and utilizes individual client data, supplemented by industry data where necessary. This method is often useful when there is limited historical data due to few losses being incurred.

Paid Loss Development Method. This method estimates ultimate losses by calculating past paid loss development factors and applying them to exposure periods with further expected paid loss development. The paid loss development method assumes that losses are paid at a rate consistent with the historical rate of payment. It provides an objective test of reported loss projections because paid losses contain no reserve estimates. For some lines of business, claim payments are made slowly and it may take many years for claims to be fully reported and settled.

Incurred Loss Development Method. This method estimates ultimate losses by using past incurred loss development factors and applying them to exposure periods with further expected incurred loss development. Since incurred losses include payments and case reserves, changes in both of these amounts are incorporated in this method. This approach provides a larger volume of data to estimate ultimate losses than paid loss methods. Thus, incurred loss patterns may be less varied than paid loss patterns, especially for coverages that have historically been paid out over a long period of time but for which claims are incurred relatively early and case loss reserve estimates are established.

Bornhuetter-Ferguson Paid and Incurred Loss Methods. These methods are a weighted average of the a priori loss ratio and the relevant development factor method. The weighting between the two methods depends on the maturity of the business. This means that for the more recent years a greater weight is placed on the a priori loss ratio, while for the more mature years a greater weight is placed on the development factor methods. These methods avoid some of the distortions that could result from a large development factor being applied to a small base of paid or incurred losses to calculate ultimate losses. This method will react slowly if actual paid or incurred loss experience develops differently than historical paid or incurred loss experience because of major changes in rate levels, retentions or deductibles, the forms and conditions of coverage, the types of risks covered or a variety of other factors.

IBNR to Outstanding Ratio Method. This method is used in selected cases typically for very mature years that still have open claims. This method assumes that the estimated future loss development is indicated by the current level of case reserves.

Key to the projection of ultimate loss is the amount of credibility or weight assigned to each actuarial method. Each method has advantages and disadvantages, and those can change depending on numerous factors including the reliability of the underlying data. For most actuaries, the selection and weighting of the projection methods is a highly subjective process. In order to achieve a desirable amount of consistency from study to study and between contracts, we have implemented a weighting scheme that incorporates numerous “rules” for the weighting of actuarial methods. These rules attempt to effectively codify the judgmental process used for selecting weights for the various methods. There can be circumstances where the rules would be modified for a specific reinsurance contract; examples would include a large market event or new information on historical years that may cause us to increase our a priori loss ratio.

As part of our quarterly reserving process, loss-sensitive contingent expenses (e.g., profit commissions, sliding-scale ceding commissions, etc.) are calculated on an individual contract basis. These expense calculations are based on the updated ultimate loss estimates derived from our quarterly reserving process.

Our reserving methodologies use a loss reserving model that calculates a point estimate for our ultimate losses. Although we believe that our assumptions and methodologies are reasonable, the ultimate payments may vary, potentially materially, from the estimates that we have made.

Sensitivity Analysis

The table below shows the impact on our loss and loss adjustment expense reserves, net, acquisition costs, net, net income and shareholders’ equity as of and for the three months ended March 31, 2015 of reasonably likely changes to the actuarial assumption used to estimate our March 31, 2015 loss and loss adjustments expenses incurred. Since many contracts that we write have sliding scale commissions or other loss mitigating features that adjust with the loss and loss adjustment expenses incurred, we consider these contractual features to be important in understanding the sensitivity of our results to changes in loss ratio assumptions.

The following table illustrates the aggregate impact of a ten percent increase and decrease applied to the ultimate loss and loss adjustment expenses incurred, net for each in-force contract in the property and casualty reinsurance segment. These increases and decreases are only applied to contracts which currently have material reserves outstanding (where material is defined as more than 10% of ultimate loss and loss adjustment expenses incurred, net). Ultimate losses and loss adjustment expenses incurred, net represents the sum we will be obligated to pay for fully developed claims (i.e., paid losses plus outstanding reported losses and IBNR losses). The ultimate loss and loss adjustment expenses incurred, net includes all related loss adjustment expenses less recoveries made from inuring reinsurance, salvage, and subrogation.



	10% increase in ultimate loss and loss adjustment expenses			10% decrease in ultimate loss and loss adjustment expenses
	($ in thousands)
Impact on:
Loss and loss adjustment expense reserves, net	$	34,936		$	(34,877	)
Acquisition costs, net	(6,095		)	20,705
Decrease (increase) in net underwriting income	28,841			(14,172		)
Total shareholders’ equity	$	1,561,172		$	1,561,172
Increase (decrease) in shareholders’ equity	(1.8		)%	0.9		%

Fair value measurements

Our investments are managed by Third Point LLC and are carried at fair value. Our investment manager, Third Point LLC, has a formal valuation policy that sets forth the pricing methodology for investments to be used in determining

the fair value of each security in our portfolio. The valuation policy is updated and approved at least on an annual basis by Third Point LLC’s valuation committee (the “Committee”), which is comprised of officers and employees who are senior business management personnel of Third Point LLC. The Committee meets on a monthly basis. The Committee’s role is to review and verify the propriety and consistency of the valuation methodology to determine the fair value of investments. The Committee also reviews any due diligence performed and approves any changes to current or potential external pricing vendors.

Private securities are not registered for public sale and are carried at an estimated fair value at the end of the period, as determined by Third Point LLC. Valuation techniques, used by Third Point LLC, may include market approach, last transaction analysis, liquidation analysis and/or using discounted cash flow models where the significant inputs could include but are not limited to additional rounds of equity financing, financial metrics such as revenue multiples or price-earnings ratio, discount rates and other factors. In addition, we or Third Point LLC may employ third party valuation firms to conduct separate valuations of such private securities. The third party valuation firms provide us or Third Point LLC with a written report documenting their recommended valuation as of the determination date for the specified investments.

Due to the inherent uncertainty of valuation for private securities, the estimated fair value may differ materially from the values that would have been used had a ready market existed for these investments. The actual value at which these securities could actually be sold or settled with a willing buyer or seller may differ from our estimated fair values depending on a number of factors including, but not limited to, current and future economic conditions, the quantity sold or settled, the presence of an active market and the availability of a willing buyer or seller.

Our derivatives are recorded at fair value. Third Point LLC values exchange-traded derivative contracts at their last sales price on the exchange where it is primarily traded. OTC derivatives, which include swap, option, swaption, forward, future and contract for differences, are valued by industry recognized pricing vendors when available; otherwise, fair values are obtained from broker quotes that are based on pricing models that consider the time value of money, volatility, and the current market and contractual prices of the underlying financial instruments.

As an extension of our underwriting activities, the Catastrophe Reinsurer historically has sold derivative instruments that provide reinsurance-like protection to third parties for specific loss events associated with certain lines of business. These derivatives are recorded in the condensed consolidated balance sheets at fair value, with changes in the fair value of these derivatives recorded in net investment income in the condensed consolidated statements of income. These contracts are valued on the basis of models developed by us, which approximates fair value.

We also have derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of the embedded derivative reported in net income. Our embedded derivatives relate to interest crediting features in certain reinsurance and deposit contracts that vary based on the returns on our investments managed by Third Point LLC. We determine the value of the embedded derivatives using models developed internally, which approximates fair value.

Our holdings in asset-backed securities (“ABS”) are substantially invested in residential mortgage-backed securities (“RMBS”). The balance of our holdings in ABS was in commercial mortgage-backed securities, collateralized debt obligations and student loan asset-backed securities. These investments are valued using dealer quotes or recognised third-party pricing vendors. All of these classes of ABS are sensitive to changes in interest rates and any resulting change in the rate at which borrowers sell their properties, refinance, or otherwise pre-pay their loans. As an investor in these classes of ABS, we may be exposed to the credit risk of underlying borrowers not being able to make timely payments on loans or the likelihood of borrowers defaulting on their loans. In addition, we may be exposed to significant market and liquidity risks.

We value our investments in affiliated investment funds at fair value, which is an amount equal to the sum of the capital account in the limited partnership generally determined from financial information provided by the investment

manager of the investment funds. The resulting net gains or net losses are reflected in the condensed consolidated statements of income.

The fair values of investments are estimated using prices obtained from third-party pricing services, when available. However, situations may arise where we believe that the fair value provided by the third-party pricing service does not represent current market conditions. In those situations, Third Point LLC may use dealer quotes to value the investments. For securities that we are unable to obtain fair values from a pricing service or broker, fair values are estimated using information obtained from Third Point LLC.

We perform several processes to ascertain the reasonableness of the valuation of all of our investments comprising our investment portfolio, including securities that are categorized as Level 2 and Level 3 within the fair value hierarchy. These processes include (i) obtaining and reviewing weekly and monthly investment portfolio reports from Third Point LLC, (ii) obtaining and reviewing monthly NAV and investment return reports received directly from our third-party fund administrator, which are compared to the reports noted in (i), and (iii) monthly update discussions with Third Point LLC regarding the investment portfolio, including, their process for reviewing and validating pricing obtained from outside service providers.

For the three months ended March 31, 2015 and 2014, there were no changes in the valuation techniques as it relates to the above.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The key inputs for corporate, government and sovereign bond valuation are coupon frequency, coupon rate and underlying bond spread. The key inputs for asset-backed securities are yield, probability of default, loss severity and prepayment. Key inputs for OTC valuations vary based on the type of underlying security on which the contract was written.

See Note 4 to our condensed consolidated financial statements for additional information on the framework for measuring fair value established by U.S. GAAP disclosure requirements.

Business Outlook

The reinsurance markets in which we operate have historically been cyclical. During periods of excess underwriting capacity, as defined by the availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers. During periods of reduced underwriting capacity, pricing and policy terms and conditions are generally more favorable for insurers and reinsurers. Historically, underwriting capacity has been impacted by several factors, including industry losses, the impact of catastrophes, changes in legal and regulatory guidelines, new entrants, investment results including interest rate levels and the credit ratings and financial strength of competitors.

While management believes pricing remains adequate for the types of business on which we focus, there is significant underwriting capacity currently available. As a result, market conditions are challenging and we believe may worsen in the near term. The segment with the greatest pricing pressure is property catastrophe reinsurance due to an influx of capacity from collateralized reinsurance and other insurance-linked securities vehicles and the absence of significant catastrophe events during 2013 and 2014. As a result of challenging market conditions and competition with other collateralized reinsurance and insurance-linked securities vehicles, we announced in December of 2104 that we would no longer accept investments in the Catastrophe Fund, that no new business would be written in the Catastrophe Reinsurer and that we would be redeeming all existing investments in the Catastrophe Fund. The Catastrophe Fund Manager will continue to manage the runoff of the remaining exposure in the Catastrophe Fund.

In non-catastrophe lines of business, we focus on segments and clients where we believe we benefit from relatively more attractive pricing opportunities due to the strength of our relationships, the tailored nature of our reinsurance solutions or an acute need for reinsurance capital as a result of a client’s growth or historically poor performance. Most of our senior management team have spent decades within the reinsurance market and have strong relationships with intermediaries and reinsurance buyers from which we are receiving a strong flow of submissions in the lines and types of reinsurance we target. Although we are typically presented by brokers with proposed structures on syndicated deals, we seek to customize the proposed solution for the client while improving our risk and return profile and establishing our position as the lead reinsurer in the transaction. We also look for non-syndicated opportunities where a highly customized solution is needed. These solutions may take the form of aggregate stop loss covers, loss portfolio transfers or adverse development reserve covers where clients seek capital relief and enhanced investment returns on their loss and unearned premium reserves. We continue to see strong submission flow in this space.

In February 2015, we began reinsurance operations in the United States through Third Point Re USA, a Bermuda company licensed as a Class 4 insurer and a wholly owned operating subsidiary of TPRUSA. Third Point Re USA and TPRUSA have a limited operating history and are exposed to volatility in their results of operations. Period to period comparisons of their results of operations may not be meaningful. Third Point Re USA provides reinsurance products that are substantially similar to the reinsurance products currently provided by Third Point Re. Third Point Re USA’s U.S. presence is a strategic component of our overall growth strategy. As a result of Third Point Re USA’s U.S. presence, we have expanded our marketing activities and have begun to broaden our profile in the US marketplace. In addition to developing new opportunities, we are strengthening our relationships with existing cedents and brokers. We also will develop a firsthand understanding of cedent underwriting and claims capabilities that will benefit our underwriting practices.

Consolidated Results of Operations—Three months ended March 31, 2015 and 2014:

For the three months ended March 31, 2015, our net income increased by $10.7 million, or 26.9%, to $50.5 million, compared to net income of $39.8 million for the three months ended March 31, 2014.

The change in net income for the the three months ended March 31, 2015 compared to the three months ended March 31, 2014 was primarily due to the following:

•

For the three months ended March 31, 2015, we recorded net investment income of $64.9 million, compared to $50.0 million for the three months ended March 31, 2014. The return on investments managed by Third Point LLC for the three months ended March 31, 2015 and 2014 was 3.0% and 3.1%, respectively. The increase in net investment income was a result of higher average investments managed by Third Point LLC.

•

The net underwriting loss from our property and casualty reinsurance segment for the three months ended March 31, 2015 and 2014 was $3.9 million and $5.2 million, respectively. The improvement in the net underwriting loss is due to a higher in-force book of business for 2015 and modest improvement in the composite ratio. The lower combined ratio is primarily due to a lower general and administrative expense ratio, which has decreased due to proportionately higher net premiums earned.


•	In the first quarter of 2015, we completed the initial capitalization of our U.S. subsidiaries and commenced underwriting in the U.S. As a result, our U.S. subsidiaries became subject to U.S. taxation. For the three months ended March 31, 2015, tax expense on our U.S. operations was $0.5 million compared to $nil for the three months ended March 31, 2014.


•	In February 2015, we issued $115.0 million of senior notes bearing 7.0% interest. As a result, our consolidated results of operations include interest expense of $1.0 million for the three months ended March 31, 2015 compared to $nil for the three months ended March 31, 2014.

Segment Results—Three months ended March 31, 2015 and 2014.

The determination of our reportable segments is based on the manner in which management monitors the performance of our operations. For the periods presented, our business comprises two operating segments - Property and Casualty Reinsurance and Catastrophe Risk Management. We have also identified a corporate function that includes investment results, certain general and administrative expenses related to corporate activities, interest expense and income tax expense.

Property and Casualty Reinsurance

Gross premiums written. Gross premiums written increased by $131.2 million, or 159.8%, to $213.4 million for the three months ended March 31, 2015 from $82.1 million for three months ended March 31, 2014.

Despite challenging market conditions, we have grown our underwriting due to the strength of our relationships. We began underwriting on January 1, 2012 and continue to cultivate our underwriting relationships with intermediaries and reinsurance buyers and, as a result, we believe submission flow will remain strong. We write a small number of large contracts so individual renewals or new business can have a significant impact on premiums recognized in a period. In addition, our reinsurance contracts are subject to significant judgment in the amount of premiums that we expect to recognize. Changes in premium estimates are recorded in the period they are determined and can significantly alter the expected values of a particular reinsurance contract. We also offer customized solutions to our clients, including adverse development covers, which are considered retroactive reinsurance contracts, on which we will not have a regular renewal opportunity. Furthermore, we record gross premiums written and earned for adverse development covers, which are considered retroactive reinsurance contracts, at the inception of the contract. Together, these factors can impact the comparability of premiums earned in a period and trends from period to period and year over year.

As a result of these factors, we may experience volatility in the amount of gross premiums written and earned and period to period comparisons may not be meaningful. The results of our Property and Casualty Reinsurance segment now includes the results of Third Point Re USA, which may further impact comparability of results.

The following table provides a breakdown of our property and casualty reinsurance segment’s gross premiums written by line of business for the three months ended March 31, 2015 and 2014:




	2015				2014
	($ in thousands)
Property	$	21,456	10.1	%	$	6,881	8.4	%
Casualty	9,853		4.6	%	50,423		61.4	%
Specialty	182,074		85.3	%	24,838		30.2	%
	$	213,383	100.0	%	$	82,142	100.0	%

The change in gross premiums written for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 was driven by:

Factors resulting in increases:


•	We wrote $25.6 million of new business for the three months ended March 31, 2015, consisting of $18.1 million of new specialty business, $4.1 million of new casualty business and $3.4 million of new property business.

•

Changes in renewal premiums during the three months ended March 31, 2015 resulted in increased premiums of $13.7 million primarily due to increases in participations and underlying premium volume on contracts that renewed in the quarter as well as one contract which renewed as a multi year contract that was written as a one year contract in the prior year period. Premiums can change on renewals of contracts for a number of factors, including: changes in our line size or participation, changes in the underlying premium volume of the client’s program and pricing trends as well as other contractual terms and conditions.

•

We recognized $130.8 million of premiums in the three months ended March 31, 2015 for three contracts which renewed in the first quarter of 2015 that did not have comparable premiums in the prior year period. Two of these contracts were written in the fourth quarter of 2014 but renewed in the three months ended March 31, 2015 and one was written for a multi-year period in 2013 and renewed in the current period.


•	Changes in premium estimates relating to prior years’ contracts were $27.6 million and $(1.0) million for the three months ended March 31, 2015 and 2014, respectively. The changes in estimates for the three months ended March 31, 2015 were primarily due to one contract where the client expects to write more business than initially expected.

Factors resulting in decreases:


•	We recognized $46.6 million of premium in the three months ended March 31, 2014 that did not renew in the three months ended March 31, 2015, primarily due to one multi-year contract written in the prior year that was not subject to renewal in the comparable current year period.


•	During the three months ended March 31, 2015, two contracts were canceled and re-written, resulting in a net decrease in premium of $20.2 million.

Net premiums earned. Net premiums earned for the three months ended March 31, 2015 increased $66.8 million, or 92.4%, to $139.1 million. The three months ended March 31, 2015 reflects net premiums earned on a larger in-force underwriting portfolio, including new business written and increased premiums from renewals, compared to the three months ended March 31, 2014. In addition, the results for the three months ended March 31, 2015 includes net premiums earned of $16.5 million (2014 - $2.1 million) related to retroactive exposures in reinsurance contracts where we record the gross premiums written and earned at the inception of the contract.

Net investment income. Net investment income allocated to the Property and Casualty Reinsurance segment consists of net investment income on float and was $18.6 million for the three months ended March 31, 2015 compared to $7.3 million for the three months ended March 31, 2014. The increase in net investment income on float for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 was primarily due to an increase in the total amount of float generated by our reinsurance operations. See the discussion of net investment income under “Corporate function” below for explanations of the investment returns on investments managed by Third Point LLC and total net investment income for the periods presented.

Net loss and loss adjustment expenses. The reinsurance contracts we write have a wide range of initial loss ratio estimates. As a result, our net loss and loss expense ratio can vary significantly from period to period depending on the mix of business. For example, property quota share contracts have a lower initial loss ratio compared to other casualty and specialty lines of business. In general, our contracts have similar expected composite ratios (combined ratio before general and administrative expenses); therefore, contracts with higher initial loss ratio estimates have lower acquisition cost ratios and contracts with lower initial loss ratios have higher acquisition cost ratios. Retroactive reinsurance contracts have a higher initial loss ratio since the premiums are generally based on the net loss and loss adjustment reserves and do not include acquisition related and other expenses. In addition, we record the gross premiums written and earned and the net losses as incurred for retroactive exposures in reinsurance contracts at the inception of the contract, which can also impact the mix of premiums earned in a particular period.

Net loss and loss adjustment expenses for the three months ended March 31, 2015 were $81.7 million, or 58.8% of net premiums earned, compared to $46.3 million, or 64.0% of net premiums earned, for the three months ended March 31, 2014.

For the three months ended March 31, 2015, we recorded $6.1 million, or 4.4 percentage points, of net favorable prior years’ reserve development compared to $2.0 million, or 2.8 percentage points, of net adverse prior years’ reserve development for the three months ended March 31, 2014. For the three months ended March 31, 2015 and 2014, we recorded increases of $3.9 million and $1.0 million, respectively, in loss and loss adjustment expense reserves due to increases in premium estimates on prior year contracts.

The prior years’ reserve development for the three months ended March 31, 2015 is explained as follows:

•


•	In total, the change in underwriting income for prior periods due to loss reserve development and adjustments to premium estimates was a decrease of $1.0 million for the three months ended March 31, 2015.

The $2.0 million increase in prior years’ reserves for the three months ended March 31, 2014 primarily related to one crop contract. For the three months ended March 31, 2014, we also recorded an increase of $1.0 million in loss and loss adjustment expense reserves due to increases in premium estimates on prior year contracts. The loss and loss adjustment expense reserves and premium adjustments generally offset resulting in minimal impact to net underwriting income.

General and administrative expenses. General and administrative expenses for the three months ended March 31, 2015 were $6.6 million or 4.7% of net premiums earned compared to $5.8 million or 8.0% of net premiums earned for the three months ended March 31, 2014.

The increase in general and administrative expenses for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 was primarily due to increased headcount and related employee costs, increased share compensation expense, and increased credit facility fees due to higher usage of our letter of credit facilities. Although general and administrative expenses increased compared to the prior year period, the general and administrative expense ratio decreased due to proportionately higher net premiums earned during the current year period.

Other expenses. Other expenses for the three months ended March 31, 2015 were $2.7 million compared to $0.8 million for the three months ended March 31, 2014. The increase in other expenses is primarily due to a higher number of reinsurance contracts written in 2014 and 2015 that have interest crediting features.

Catastrophe Risk Management

The Catastrophe Reinsurer wrote no business before January 1, 2013. From January 1, 2013, the underwriting results of the Catastrophe Reinsurer as well as results of the Catastrophe Fund, the entities for which the Catastrophe Fund Manager underwrites and manages catastrophe risk, are captured with the Catastrophe Fund Manager in this segment. In December 2014, we announced that we would no longer accept investments in the Catastrophe Fund, that no new business would be written in the Catastrophe Reinsurer and that we would be redeeming all existing investments in the Catastrophe Fund. Despite the Catastrophe Fund’s solid investment returns from its inception, we are winding it down due to challenging market conditions and competition with other collateralized reinsurance and insurance-linked securities vehicles. Catastrophe reinsurance pricing and the fees available to manage catastrophe risk have decreased significantly in the past two years. The Catastrophe Fund Manager will continue to manage the runoff of the remaining exposure in the Catastrophe Fund. For the three months ended March 31, 2015 and 2014, the Catastrophe Risk Management segment generated net losses of $0.2 million and $0.1 million, respectively, after attributing income to non-controlling interests.

Corporate function

Investment results

For the three months ended March 31, 2015, we recorded net investment income of $46.3 million (2014 - $42.7 million).

The primary driver of our net investment income is the returns generated by our investment portfolio managed by our investment manager, Third Point LLC. The following is a summary of the net investment return on investments managed by Third Point LLC by investment strategy for the three months ended March 31, 2015 and 2014:



	2015		2014
Long/short equities	1.0	%	0.8	%
Asset-backed securities	1.8	%	1.8	%
Corporate credit	0.3	%	0.8	%
Macro and other	(0.1	)%	(0.3	)%
	3.0	%	3.1	%

S&P 500	1.0	%	1.8	%

The net investment results for the three months ended March 31, 2015 were driven by gains across all investment strategies. The structured credit portfolio contributed more than half of the returns for the quarter. In equities, gains in several core positions in the Industrial & Commodities and Healthcare sectors more than offset moderate losses in Technology, Media and Telecommunications and Financials. The investment results for the three months ended March 31, 2014 were driven by successful single name stock selection and strong returns from the credit portfolio. In particular, the structured credit strategy added 1.8%, or well over 50% of our total returns.

All of our assets managed by Third Point LLC are held in separate accounts and managed under two investment management agreements whereby Third Point Advisors LLC, an affiliate of Third Point LLC, has a non-controlling interest in the assets held in the separate accounts. The value of the non-controlling interest is equal to the amounts invested by Third Point Advisors LLC, plus performance fees paid by us to Third Point Advisors LLC and investment gains and losses thereon.

Our investment manager, Third Point LLC, manages several funds and may manage other client accounts besides ours, some of which have, or may have, objectives and investment portfolio compositions similar to ours. Because of the similarity or potential similarity of our investment portfolio to these others, and because, as a matter of ordinary course, Third Point LLC provides its clients, including us, and investors in its main hedge funds with results of their respective investment portfolios following the last day of each month, those other clients or investors indirectly may have material nonpublic information regarding our investment portfolio. To address this issue, and to comply with Regulation FD, we will continue to post on our website under the heading Investment Portfolio Returns located in the Investors section of the website, following the close of trading on the New York Stock Exchange on the last business day of each month, our preliminary monthly investment results for that month, with additional information regarding our monthly investment results to be posted following the close of trading on the New York Stock Exchange on the first business day of the following month.

General and administrative expenses related to corporate activities

General and administrative expenses allocated to our corporate function include allocations of payroll and related costs for certain executives and non-underwriting staff that spend a portion of their time on corporate activities. We also allocate a portion of overhead and other related costs based on a related headcount analysis. For the three months ended March 31, 2015, general and administrative expenses allocated to the corporate function were $4.9 million (2014 - $3.4 million). The increase compared to the prior year period was primarily due to greater payroll and related expenses as a result of increased headcount, increased share compensation expense and increased legal and other professional advisor expenses.

Interest expense

In February 2015, we issued $115.0 million of senior notes bearing 7.0% interest (“the Notes”). As a result, our consolidated results of operations include interest expense of $1.0 million for the three months ended March 31, 2015 compared to $nil for the three months ended March 31, 2014.

Income taxes

The income tax expense or benefit is primarily driven by the taxable income or loss generated by our U.S.-based subsidiaries as well as withholding taxes and uncertain tax provisions on our investment portfolio and to a lesser extent, taxes paid in relation to our U.K. based subsidiaries.

Our effective tax rate is primarily driven by the portion of taxable income or loss generated by our U.S.-based subsidiaries relative to the income or loss generated by our Bermuda-based operations, which are not subject to corporate income tax. Premiums earned by our U.S. and Bermuda-based subsidiaries generally do not bear a proportionate relationship to their respective pre-tax income for a variety of reasons, including the significant impact on pre-tax income of the different mixes of business underwritten by the particular subsidiary, the presence or absence of underwriting income or loss attributable to such business, and the investment results experienced by the particular subsidiary.

For the three months ended March 31, 2015 and 2014, the Company recorded income tax expense, as follows:



	2015		2014
	($ in thousands)
Income tax - U.S. subsidiaries	$	475	$	—
Income tax - U.K. subsidiaries	3		—
Withholding taxes on certain investment transactions	827		—
	$	1,305	$	—

During the three months ended March 31, 2015, we completed the capitalization of our U.S. entities and commenced operations. Third Point Re USA made an election under Section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be taxed as a U.S. entity. As a result, we are now subject to U.S. tax on income generated by Third Point Re USA and TPRUSA.

Liquidity and Capital Resources

Our investment portfolio is concentrated in tradeable securities and is marked to market each day. Pursuant to our investment guidelines as specified in our two investment management agreements with Third Point LLC, at least 60% of our portfolio must be invested in securities of publicly traded companies and governments of OECD high income countries, asset-backed securities, cash, cash equivalents and gold and other precious metals. We can liquidate all or a portion of our investment portfolio at any time with not less than three days’ notice to pay claims on our reinsurance contracts, and with not less than five days’ notice to pay for expenses, and on not less than 30 days’ notice in order to satisfy a requirement of A.M. Best. Since we do not write excess of loss property catastrophe contracts or

other types of reinsurance contracts that are typically subject to sudden, acute, liquidity demands, we believe the liquidity provided by our investment portfolio will be sufficient to satisfy all our liquidity requirements.

General

Third Point Reinsurance Ltd. is a holding company and has no substantial operations of its own and has moderate cash needs, most of which are related to the payment of corporate expenses. Its assets consist primarily of its investments in subsidiaries. Third Point Reinsurance Ltd.’s ability to pay dividends or return capital to shareholders will depend upon the availability of dividends or other statutorily permissible distributions from those subsidiaries.

We and our Bermuda subsidiaries are subject to Bermuda regulatory constraints that affect our ability to pay dividends. Under the Companies Act, as amended, a Bermuda company may declare or pay a dividend out of distributable reserves only if it has reasonable grounds for believing that it is, or would after the payment, be able to pay its liabilities as they become due and if the realizable value of its assets would thereby not be less than its liabilities. Under the Insurance Act, Third Point Re and Third Point Re USA, as Class 4 insurers, are prohibited from declaring or paying a dividend if it is in breach of their respective minimum solvency margin (“MSM”), enhanced capital ratio (“ECR”) or minimum liquidity ratio or if the declaration or payment of such dividend would cause such a breach. Where either Third Point Re or Third Point Re USA, as a Class 4 insurer, fails to meet its MSM or minimum liquidity ratio on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year without the approval of the Bermuda Monetary Authority (“BMA”).

In addition, each of Third Point Re and Third Point Re USA, as a Class 4 insurer, is prohibited from declaring or paying in any financial year dividends of more than 25% of its respective total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files (at least seven days before payment of such dividends) with the BMA an affidavit signed by at least two directors (one of whom must be a Bermuda resident director if any of the insurer’s directors are resident in Bermuda) and the principal representative stating that it will continue to meet its solvency margin and minimum liquidity ratio.

As of March 31, 2015, Third Point Re could pay dividends to the Company of approximately $324.0 million (2014 - $326.1 million) and Third Point Re USA could pay dividends to the Company of approximately $66.7 million. On February 26, 2015, Third Point Re declared and paid a dividend of $158.0 million to Third Point Reinsurance Ltd. These funds were ultimately used, together with the net proceeds from the issuance of the Notes, to capitalize Third Point Re USA.

Liquidity and Cash Flows

Historically, our sources of funds have primarily consisted of premiums written, reinsurance recoveries, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pay loss and loss adjustment expenses, reinsurance premiums, acquisition costs and general and administrative expenses and to purchase investments.

Our cash flows from operations generally represent the difference between: (l) premiums collected and investment earnings realized and (2) loss and loss expenses paid, reinsurance purchased and underwriting and other expenses paid. Net cash provided by underwriting activities results from excluding investment earnings realized from our operating cash flows results in net cash provided by underwriting activities. Cash flows from operations may differ substantially from net income and may be volatile from period to period depending on the underwriting opportunities available to us. Due to the nature of our underwriting portfolio, claim payments can be unpredictable and may need to be made within relatively short periods of time. Claim payments can also be required several months or years after premiums are collected.

Operating, investing and financing cash flows for the three months ended March 31, 2015 and 2014 were as follows:



	2015			2014
	($ in thousands)
Net cash provided by operating activities	$	118,016		$	8,236
Net cash (used in) provided by investing activities	(203,913		)	43,049
Net cash provided by (used in) financing activities	69,511			(48,972		)
Net (decrease) increase in cash and cash equivalents	(16,386		)	2,313
Cash and cash equivalents at beginning of period	28,734			31,625
Cash and cash equivalents at end of period	$	12,348		$	33,938

Cash flows from operating activities generally represent net premiums collected less loss and loss adjustment expenses, acquisition costs and general and administrative expenses paid. As our underwriting activities have continued to increase from our start of operation in January 2012, we have generated increasing cash flows from operating activities as the collection of premiums has exceeded the payment of loss and loss adjustment expenses and general and administrative expenses. Excess cash generated through our operating activities is then invested by Third Point LLC, which is reflected in the cash used in investing activities.

For the three months ended March 31, 2015 and 2014, we contributed $161.6 million and $20.0 million, respectively, to our separate account managed by Third Point LLC from float generated from our reinsurance operations. These amounts do not necessarily correspond to the net cash provided by operating activities as presented in the condensed consolidated statements of cash flows prepared in accordance with US GAAP.

Cash flows used in investment activities primarily reflects investment activities related to our separate accounts managed by Third Point LLC. Cash flows used in investing activities for the three months ended March 31, 2015 reflects the investment of the net proceeds from our issuance of Notes and float generated from our reinsurance operations. Cash flows provided by investing activities for the three months ended March 31, 2014 reflects the investment of float generated from our reinsurance operations.

In February 2015, we completed a public offering of senior notes issued by TPRUSA and guaranteed by Third Point Reinsurance Ltd. pursuant to a registration statement on Form S-3, from which we received net proceeds of approximately $114.0 million, after deducting underwriting discounts and other offering costs. We used the net proceeds to TPRUSA, together with a capital contribution received indirectly from Third Point Re, to fund an aggregate contribution of $267.0 million for the initial capitalization of Third Point Re USA.

The cash flows from financing activities for the three months ended March 31, 2015 consisted primarily of proceeds from issuance of Notes, partially offset by distributions of non-controlling interests from the investment affiliate and Catastrophe Fund. The cash flows from financing activities for the three months ended March 31, 2014 consisted primarily of distributions of non-controlling interests from the investment affiliate.

For the period from inception until March 31, 2015, we have had sufficient cash flow from proceeds of our initial capitalization and IPO, the issuance of Notes in February 2015 and from our operations to meet our liquidity requirements. We expect that projected operating and capital expenditure requirements and debt service requirements for at least the next twelve months will be met by our balance of cash, cash flows generated from underwriting activities and investment income. We may incur additional indebtedness in the future if we determine that it would be an efficient part of our capital structure.

In addition, we expect that the net proceeds from our IPO in August 2013, proceeds from the issuance of Notes in February 2015 and cash flow from operations will provide us with the financial flexibility to execute our strategic objectives. Our ability to generate cash, however, is subject to our performance, general economic conditions, industry trends and other factors. To the extent that the net proceeds from our IPO and our February 2015 issuance of Notes, combined with existing cash and cash equivalents, investment returns and operating cash flow, are insufficient to fund

our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we issue equity securities in order to raise additional funds, substantial dilution to existing shareholders may occur. If we raise cash through the issuance of additional indebtedness, we may be subject to additional contractual restrictions on our business. There is no assurance that we would be able to raise the additional funds on favorable terms or at all. There are regulatory and contractual restrictions on the ability of our reinsurance subsidiaries to pay dividends to their respective parent companies, including for purposes of servicing TPRUSA’s debt obligations.

We do not believe that inflation has had a material effect on our consolidated results of operations to date. The effects of inflation are considered implicitly in pricing our reinsurance contracts. Loss reserves are established to recognize likely loss settlements at the date payment is made. Those reserves inherently recognize the effects of inflation. However, the actual effects of inflation on our results cannot be accurately known until claims are ultimately resolved.

Cash and restricted cash and cash equivalents

Cash and cash equivalents consist of cash held in banks and other short-term, highly liquid investments with original maturity dates of ninety days or less.

Restricted cash and cash equivalents consist of cash held in trust accounts with the Catastrophe Reinsurer, securing collateralized reinsurance contracts written, trust accounts securing obligations under certain reinsurance contracts and cash held with banks securing letters of credit issued under credit facilities. Restricted cash and cash equivalents increased by $166.2 million, or 39.8%, to $583.5 million as of March 31, 2015 from $417.3 million as of December 31, 2014. The increase in restricted cash was primarily due to reinsurance contracts written in the three months ended March 31, 2015 where our obligations are secured by trust accounts. We do not expect the increase in restricted cash to affect our liquidity position and restricted cash can fluctuate period-to-period.

Letter of Credit Facilities

As of March 31, 2015, we had entered into the following letter of credit facilities, which automatically renew annually unless terminated by either party in accordance with the required notice period:



	Facility		Utilized		Collateral		Renewal Date
March 31, 2015	($ in thousands)
BNP Paribas (1)	$	50,000	$	554	$	554	April 2, 2016
Citibank	250,000		231,653		231,653		January 23, 2016
J.P. Morgan	50,000		50,000		50,500		August 22, 2015
Lloyds Bank (2)	150,000		—		—		December 31, 2016 and 2018
	$	500,000	$	282,207	$	282,707


(1)	On April 2, 2015, Third Point Re USA entered into a letter of credit facility with BNP Paribas for $50.0 million.


(2)	On February 26, 2015, Third Point Re entered into a letter of credit facility with Lloyds Bank for $150.0 million. The facility consists of two separate sections of $75.0 million each, expiring on December 31, 2016 and December 31, 2018, respectively.

As of March 31, 2015, $282.2 million (December 31, 2014 - $218.5 million) of letters of credit, representing 56.4% of the total available facilities, had been drawn upon (December 31, 2014 – 54.6% (based on total available facilities of $400.0 million)).

Under the facilities, we provide collateral that may consist of equity securities, repurchase agreements, restricted cash, and cash and cash equivalents. As of March 31, 2015, total cash and cash equivalents with a fair value of $282.7 million (December 31, 2014 - $219.0 million) was pledged as security against the letters of credit issued. These amounts are included in restricted cash and cash equivalents in the condensed consolidated balance sheets. Each of the facilities contain customary events of default and restrictive covenants, including but not limited to, limitations on liens on collateral, transactions with affiliates, mergers and sales of assets, as well as solvency and maintenance of certain

minimum pledged equity requirements, A.M. Best Company rating of “A-“ or higher. Each restricts issuance of any debt without the consent of the letter of credit provider. Additionally, if an event of default exists, as defined in the letter of credit facilities, we will be prohibited from paying dividends. We were in compliance with all of the covenants as of March 31, 2015.

Financial Condition

Shareholders’ equity

As of March 31, 2015, total shareholders’ equity was $1,561.2 million, compared to $1,552.0 million as of December 31, 2014. This increase was primarily due to net income of $50.5 million offset by net distributions of non-controlling interests of $46.1 million. The net distributions of non-controlling interest included $25.0 million related to our investment in our joint ventures with Third Point LLC created through our two Joint Venture and Investment Management Agreements and the Catastrophe Fund distributed $42.5 million (Third Point Re’s share - $21.1 million) of capital resulting in a distribution of non-controlling interests for the Catastrophe Fund of $21.4 million for the three months ended March 31, 2015.

Investments

As of March 31, 2015, total cash and net investments managed by Third Point LLC at fair value was $2,136.1 million, compared to $1,802.2 million as of December 31, 2014. The increase was primarily due to the proceeds from our debt issuance, float of $161.6 million generated by our reinsurance operations and net investment income for the three months ended March 31, 2015.

Contractual Obligations

On February 13, 2015, TPRUSA issued the Notes in the aggregate principal amount of $115.0 million. The Notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year, beginning August 13, 2015. The Notes are fully and unconditionally guaranteed by Third Point Reinsurance Ltd., and, in certain circumstances specified in the indenture governing the Notes, certain existing or future subsidiaries of the Company may be required to guarantee the Notes, as described in the indenture governing the Notes.

The indenture governing the Notes contains customary events of default, and limits our ability to merge or consolidate or to transfer or sell all or substantially all of our assets and TPRUSA’s ability to create liens on the voting securities or profit participating equity interests of Third Point Re USA, its wholly owned insurance subsidiary. In certain circumstances specified in the indenture governing the Notes, certain of our existing or future subsidiaries may be required to guarantee the Notes. Interest on the Notes is subject to adjustment from time to time in the event of a downgrade or subsequent upgrade of the rating assigned to the Notes or in connection with certain changes in the ratio of consolidated total long-term indebtedness to capitalization (each as defined in the indenture governing the Notes). As of March 31, 2015, we were in compliance with all of the covenants under the indenture governing the Notes, and, during the three months then ended, no event requiring an increase in the interest rate applicable to the Notes occurred.

There have been no other material changes to our contractual obligations from our most recent Annual Report on Form 10-K, as filed with the SEC.

Off-Balance Sheet Commitments and Arrangements

We have no obligations, assets or liabilities, other than those derivatives in our investment portfolio and disclosed in our notes to condensed 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 referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

As of March 31, 2015, we had an unfunded capital commitment of $4.2 million related to our investment in the Hellenic Fund (see Note 17 to our condensed consolidated financial statements for additional information) and an unfunded capital commitment of $20.0 million related to our investment in the Kiskadee Fund (See Note 4 to our

condensed consolidated financial statements for additional information). On January 2, 2015, we funded $5.0 million of our total $25.0 million commitment to the Kiskadee Fund, and expect to fund the remainder in June 2015.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We believe we are principally exposed to the following types of market risk:


•	equity price risk;


•	foreign currency risk;


•	interest rate risk;


•	commodity price risk;


•	credit risk; and


•	political risk.

Equity Price Risk

Our investment manager, Third Point LLC, continually tracks the performance and exposures of our entire investment portfolio, each strategy and sector, and selective individual securities. A particular focus is placed on “beta” exposure, which is the portion of the portfolio that is directly correlated to risks and movements of the equity market as a whole (usually represented by the S&P 500 index) as opposed to idiosyncratic risks and factors associated with a specific position. Further, the performance of our investment portfolio has historically been compared to several market indices, including the S&P 500, CS/Tremont Event Driven Index, HFRI Event Driven Index, and others.

As of March 31, 2015, our investment portfolio included long and short equity securities, along with certain equity-based derivative instruments, the carrying values of which are primarily based on quoted market prices. Generally, market prices of common equity securities are subject to fluctuation, which could cause the amount to be realized upon the closing of the position to differ significantly from their current reported value. This risk is partly mitigated by the presence of both long and short equity securities in our investment portfolio. As of March 31, 2015, a 10% decline in the value of all equity and equity-linked derivatives would result in a loss of $121.3 million, or 5.6% in the fair value of our total net investments managed by Third Point LLC.

Computations of the prospective effects of hypothetical equity price changes are based on numerous assumptions, including the maintenance of the existing level and composition of investment securities and should not be relied on as indicative of future results.

Foreign Currency Risk

Reinsurance contracts

We have foreign currency exposure related to non-U.S. dollar denominated reinsurance contracts. We wrote non-U.S. dollar denominated reinsurance contracts for the first time during 2014. Of our gross premiums written from inception, $110.3 million, or 8.1%, were written in currencies other than the U.S. dollar. For these contracts, non-U.S. dollar assets generally offset liabilities in the same non-U.S. dollar currencies resulting in minimal net exposure. As of March 31, 2015, loss and loss adjustment expense reserves included $5.1 million (December 31, 2014 - $6.1 million) in foreign currencies.

Investments

Third Point LLC continually measures foreign currency exposures in the investment portfolio and compares current exposures to historical movement within the relevant currencies. Within the typical course of business, Third Point LLC may decide to hedge foreign currency risk within our investment portfolio by using short-term forward contracts; however, from time to time Third Point LLC may determine not to hedge based on its views of the likely movements of the underlying currency.

We are exposed to foreign currency risk through cash, forwards, options and investments in securities denominated in foreign currencies. Foreign currency exchange rate risk is the potential for adverse changes in the U.S. dollar value of investments (long and short) and foreign currency derivative instruments, which we employ from both a speculative and risk management perspective, due to a change in the exchange rate of the foreign currency in which cash and financial instruments are denominated. As of March 31, 2015, our total net short exposure to foreign denominated securities represented 3.7% (December 31, 2014 - 3.4%) of our investment portfolio including cash and cash equivalents, was $81.0 million (December 31, 2014 - $61.0 million).

The following tables summarize the net impact that 10% increase and decrease in the value of the U.S. dollar against select foreign currencies would have had on the value of our investment portfolio as of March 31, 2015 and December 31, 2014:



	10% increase in U.S. dollar					10% decrease in U.S. dollar
March 31, 2015	Change in fair value			Change in fair value as % of investment portfolio		Change in fair value			Change in fair value as % of investment portfolio
	($ in thousands)
Euro	$	2,585		0.12	%	$	(2,585	)	(0.12	)%
Japanese Yen	(131		)	(0.01	)%	131			0.01	%
British Pound	69			—	%	(69		)	—	%
Other	5,534			0.25	%	(5,534		)	(0.25	)%
Total	$	8,057		0.36	%	$	(8,057	)	(0.36	)%



	10% increase in U.S. dollar				10% decrease in U.S. dollar
December 31, 2014	Change in fair value		Change in fair value as % of investment portfolio		Change in fair value			Change in fair value as % of investment portfolio
	($ in thousands)
Euro	$	2,418	0.13	%	$	(2,418	)	(0.13	)%
Japanese Yen	322		0.02	%	(322		)	(0.02	)%
British Pound	25		—	%	(25		)	—	%
Other	3,335		0.18	%	(3,335		)	(0.18	)%
Total	$	6,100	0.33	%	$	(6,100	)	(0.33	)%

Interest Rate Risk

Our investment portfolio includes interest rate sensitive securities, such as corporate and sovereign debt instruments, asset-backed securities (“ABS”), and interest rate options. One key market risk exposure for any debt instrument is interest rate risk. As interest rates rise, the fair value of our long fixed-income portfolio falls, and the opposite is also true as interest rates fall. Additionally, some of our corporate and sovereign debt instruments, ABS and derivative investments may also be credit sensitive and their value may indirectly fluctuate with changes in interest rates.

The effects of interest rate movement have historically not had a material impact on the performance of our investment portfolio as managed by Third Point LLC. However, our investment manager monitors the potential effects of interest rate shifts by performing stress tests against the portfolio composition using a proprietary in-house risk system.

The following table summarizes the impact that a 100 basis point increase or decrease in interest rates would have on the value of our investment portfolio as of March 31, 2015 and December 31, 2014:



	100 basis point increase in interest rates					100 basis point decrease in interest rates
March 31, 2015	Change in fair value			Change in fair value as % of investment portfolio		Change in fair value		Change in fair value as % of investment portfolio
	($ in thousands)
Corporate and Sovereign Debt Instruments	$	(15,648	)	(0.7	)%	$	17,429	0.8	%
Asset Backed Securities⁽¹⁾	(12,949		)	(0.6	)%	14,851		0.7	%
Net exposure to interest rate risk	$	(28,597	)	(1.3	)%	$	32,280	1.5	%



	100 basis point increase in interest rates					100 basis point decrease in interest rates
December 31, 2014	Change in fair value			Change in fair value as % of investment portfolio		Change in fair value		Change in fair value as % of investment portfolio
	($ in thousands)
Corporate and Sovereign Debt Instruments	$	(10,486	)	(0.6	)%	$	11,836	0.6	%
Asset Backed Securities⁽¹⁾	(10,521		)	(0.6	)%	12,485		0.7	%
Net exposure to interest rate risk	$	(21,006	)	(1.2	)%	$	24,321	1.3	%


(1)	Includes instruments for which durations are available on March 31, 2015 and December 31, 2014. Includes a convexity adjustment if convexity is available. Not included are mortgage hedges which would reduce the impact of rate changes.

For the purposes of the above tables, the hypothetical impact of changes in interest rates on debt instruments, ABS, and interest rate options was determined based on the interest rates and credit spreads applicable to each instrument individually. We and our investment manager periodically monitor our net exposure to interest rate risk and generally do not expect changes in interest rates to have a materially adverse impact on our operations.

Commodity Price Risk

In managing our investment portfolio, Third Point LLC periodically monitors and actively trades to take advantage of, and/or seeks to minimize any damage from, fluctuations in commodity prices. As our investment manager, Third Point LLC may choose to opportunistically make a long or short investment in a commodity or in a security directly impacted by the price of a commodity as a response to market developments. From time to time, we invest in commodities or commodities exposures in the form of derivative contracts from both a speculative and risk management perspective. Generally, market prices of commodities are subject to fluctuation.

As of March 31, 2015, our investment portfolio included de minimis exposure to changes in commodity prices, through ownership of physical commodities and commodity-linked securities.

We and our investment manager periodically monitor our exposure to commodity price fluctuations and generally do not expect changes in commodity prices to have a materially adverse impact on our operations.

Credit Risk

Reinsurance contracts

We are exposed to credit risk from our clients relating to balances receivable under our reinsurance contracts, including premiums receivable, and the possibility that counterparties may default on their obligations to us. The risk of counterparty default is partially mitigated by the fact that any amount owed to us from a reinsurance counterparty is netted against any claims related losses we would pay in the future. We monitor the collectability of these balances on a regular basis.

We also have credit risk exposure in several reinsurance contracts with companies that write credit risk insurance. We have written $56.0 million of premium included in our credit and financial line of business since inception, which consists primarily of exposure to mortgage insurance credit risks.

Investments

We are also exposed to credit risk through our investment activities related to our separate accounts managed by Third Point LLC. Third Point LLC typically performs intensive fundamental analysis on the broader markets, credit spreads, security-specific information, and the underlying issuers of debt securities that are contained in our investment portfolio.

In addition, the securities, commodities, and cash in our investment portfolio are held with several prime brokers, subjecting us to the related credit risk from the possibility that one or more of them may default on their obligations to us. Our investment manager closely and regularly monitors the concentration of credit risk with each broker and if necessary, transfers cash or securities among brokers to diversify and mitigate our credit risk.

Political Risk

We are exposed to political risk to the extent our investment manager trades securities that are listed on various U.S. and foreign exchanges and markets. The governments in any of these jurisdictions could impose restrictions, regulations or other measures, which may have a material impact on our investment strategy and underwriting operations.

In managing our investment portfolio, Third Point LLC routinely monitors and assesses relative levels of risks associated with local political and market conditions and focuses its investments primarily in countries in which it believes the rule of law is respected and followed, thereby affording more predictable outcomes of investments in that country.

We also have political risk exposure in several reinsurance contracts with companies that write political risk insurance.

Recent Accounting Pronouncements

Refer to Note 2 to our condensed consolidated financial statements for the three months ended March 31, 2015 included in Item 1 of this Quarterly Report on Form 10-Q for details of recently issued accounting standards.

ITEM 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31, 2015. Based upon this evaluation, our Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2015.

(b) Changes in Internal Control over Financial Reporting

There have been no material changes to our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

ITEM 1. Legal Proceedings

We anticipate that, similar to the rest of the reinsurance industry, we will be subject to litigation and arbitration from time to time in the ordinary course of business.

If we are subject to disputes in the ordinary course of our business we anticipate engaging in discussions with the parties to the applicable contract to seek to resolve the matter. If such discussions are unsuccessful, we anticipate invoking the dispute resolution provisions of the relevant contract, which typically provide for the parties to submit to arbitration or litigation, as applicable, to resolve the dispute.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in our Form 10-K filed with the Securities and Exchange Commission on February 27, 2015.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) Not applicable

b) Not applicable

c) Not applicable

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits



4.9	Amended and Restated Founders Agreement, by and among Third Point Reinsurance Company Ltd., Third Point Reinsurance (USA) Ltd., KEP TP Bermuda Ltd., KIA TP Bermuda Ltd., Pine Brook LVR, L.P., P RE Opportunities Ltd. and Dowling Capital Partners I, L.P. dated as of February 25, 2015 (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2015)
4.10	Senior Indenture, dated as of February 13, 2015, among Third Point Re (USA) Holdings Inc., as issuer, Third Point Reinsurance Ltd., as guarantor, and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on From 8-K filed with the SEC on February 13, 2015)
4.11	First Supplemental Indenture, dated as of February 13, 2015, among Third Point Re (USA) Holdings Inc., as issuer, Third Point Reinsurance Ltd., as guarantor, and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on From 8-K filed with the SEC on February 13, 2015)
4.12	7.00% Senior Note due 2025 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on From 8-K filed with the SEC on February 13, 2015)
10.1.1	Joint Venture and Investment Management Agreement by and among Third Point Reinsurance (USA) Ltd., Third Point Advisors LLC and Third Point LLC, dated as of January 28, 2015 (incorporated by reference to Exhibit 10.1.1 to the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2015)
10.2.2	Amendment No. 2 to Employment Agreement between Third Point Reinsurance Ltd. and John R. Berger, dated as of March 1, 2015
10.3.2	Amendment No. 2 to Employment Agreement between Third Point Reinsurance Ltd. and J. Robert Bredahl, dated as of March 1, 2015
10.4.1	Amendment No. 1 to Employment Agreement between Third Point Reinsurance Ltd. and Daniel Victor Malloy III, dated as of April 1, 2015
10.6.2	Form of Employee Restricted Share Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on January 6, 2015)
10.29	Amended and Restated Director Compensation Policy dated May 5, 2015
10.31	Employment Agreement between Third Point Reinsurance (USA) Ltd. and Anthony Urban, dated as of March 1, 2015
10.32.1	Amendment No. 1 to Employment Agreement between Third Point Reinsurance Ltd. and Manoj K. Gupta, dated as of February 26, 2015
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Third Point Reinsurance Ltd.
Date: May 8, 2015
	/s/ John R. Berger
	John R. Berger
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Christopher S. Coleman
	Christopher S. Coleman
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)