EX-99.(C)(3) 3 nc10018386x1_exc3.htm EXHIBIT (C)(3)

Exhibit (c)(3)

 Presentation to Board of Directors  Project Wilson  August 14, 2020 

 Discussion Framework    Within this presentation, we have examined a broad set of options available to Watford and the benefits and considerations associated with each of the options As a standalone ongoing companyRun-off and M&A alternatives Standalone ongoing optionsUsing management’s projections of financial standalone ongoing results, and management guidance on potential alterations to the base plan, have explored the value of the business on a go-forward basis at its current cost of equity and multiples, as well as across a range of sensitivitiesKey question: will changes outlined under various scenarios, if achieved, drive a re-rating of the company’s cost of equity and multiples?Run-off / M&A alternativesHave analyzed management’s projections in a run-off scenario Provide perspectives on potential sale and merger alternatives     2 

 Potential Alternatives for Watford  Multiple potential paths forward exist for WatfordMany standalone paths are not mutually exclusive (i.e., could pursue several options together)    3  Standalone / Organic  Run-Off / M&A  Status Quo  Renegotiation of Service Agreements  De-risk Investment Portfolio  Arch Sidecar & De-risk Investment Portfolio  Run-off  Sale  Merger  1  4  3  2  6  7  8  Establish Non-Arch (Re)insurance Business  5 

 Assessment of Standalone / Organic Alternatives      4  Benefits  Consideration  Description  Status Quo  Benefit from hardening reinsurance marketInitiatives in place to improve underwriting returns  Unclear catalyst to improve valuationUnlikely to address shareholder concernsMay elevate risk of shareholder activism  1  Ongoing operation of the business plan without significant changes  Renegotiation of Service Agreements  2  Could result in improved return profile, more in line with broader reinsurance peer groupBoth Arch and HPS motivated to see Watford succeed  Potential lack of negotiating leverageExisting agreements limit ability to terminate contractsRun-off key threatDoes not address broader strategic challenges  Ability to adjust key terms of service agreements, including fees paid to both Arch and HPS  De-risk Investment Portfolio  3  Ability to return capitalEnhances comparability to traditional reinsurersMay improve cost of equity which is elevated vs. traditional reinsurers, likely in part due to higher risk / volatility investment strategy  Lower returns / more difficult to achieve targeted returnsPotentially offset by capital returnDependent on support of HPS  Shift of investment portfolio from high-yield assets managed by HPS to investment grade bondsShift drives reduced capital requirements, providing opportunity to return capital  Arch Sidecar &De-risk Investment Portfolio  May improve cost of equity which is elevated vs. traditional reinsurersEnhance scaleFurther benefit from hard market  Shareholder patience to reinvest in reinsuranceBalance of capital deployment vs. capital return, particularly at current valuation  4  Shift of investment portfolio from high-yield assets managed by HPS to investment grade bondsShift drives reduced capital requirements, providing capital to write additional reinsurance business  Establish Non-Arch (Re)insurance Business  5  Create “franchise value” Would create optionality on renewal of Arch agreement  Difficult to pursue under current Arch agreementDependent on finding right team / targetLikely requires multi-year ramp-up pattern to prove out business modelDifficult to pursue as a public company  Build out independent insurance / reinsurance business from Arch, either via M&A or hiring 

 Assessment of Run-Off / M&A Alternatives      5  Benefits  Consideration  Description  Run-Off  6  Realization of value over near-term periodReadily achievable; not dependent on external factors (other than Arch)  Arch constraints may complicate ability to sell vehicle to run-off specialist (i.e., as would be financing transaction vs. providing ability to accelerate reserve releases)Contractual fees paid to Arch over run-off period (1% of reserves annually)Risk of some amount of capital becoming “stuck” until regulators release it  Place business into run-offProvides ability to return capital as business runs down  Sale  7  Realize immediate value for company at premium to current market price  Limited universe of partnersDeterrent factor of Arch / HPS agreementsLack of true franchise may limit interestPotentially difficult for run-off company to take on given Arch constraints  Sale of company to strategic or financial acquiror  Merger  8  Greater scale to improve returnsOpportunity to enhance platform  Limited universe of partners; other “total return” reinsurers as key candidatesAbility to reconcile existing Arch / HPS agreements with partners (large number of stakeholders)Desire to issue shares Strategic benefit / resolution of challenges?  Merger with partner to create larger platform 

 WTRE Stock Price Performance and P/BV Multiple    Stock Price ($)    Since WTRE Listing (x)  Source: Capital IQ, SNL Financial (08/11/2020)Notes:Total Return Peers include GLRE and TPRETraditional (Re)insurance Peers include ACGL, ARGO, AXS, RE, RNR and Y    6  Price / Book Value – WTRE vs. Peers  WTRE  Total Return Re. Peers (1)  Traditional Reinsurance Peers (2)  0.45x  0.98x  0.63x  WTRE Stock Price Performance Since Listing  All-Time High: $28.90  All-Time Low: $10.86  $17.46  Volume (Shares, MM)  All-Time High: 0.72x  All-Time Low: 0.27x 

 Comparison of Key Metrics    Price / Book Value  (x)  2021E ROE  (%)  Cost of Equity  (%)    7  Source: Company Filings, Capital IQ, SNL Financial (08/11/2020)Notes:Total Return Peers include GLRE and TPRETraditional (Re)insurance Peers include ACGL, AXS, RE, RNR and Y  WTRE    Total Return Re. Peers  (1)    Traditional Reinsurance Peers  (2)   

 Overview of Management Financial Projections    Projections developed by company management based on current operating model (i.e. status quo scenario)Assumed baseline combined ratio and management feesNo de-risking of portfolioNo sidecar  Premiums Written  ($MM)  Combined Ratio  (%)  Net Investment Assets and Average Yield  ($MM / %)  Net Income and ROAE  ($MM / %)    8  (0.3%)  6.0%  (0.7%)  4.2%  4.1%  4.0%  Net Yield:  (5.9%)  5.1%  (5.6%)  9.5%  11.6%  11.0%  ROAE: 

 Dividend Discount Model Summary    Projections based on Company Operating Model of status quo scenarioAssumed baseline combined ratio and management feesNo de-risking of portfolioNo sidecarDiscount rate of 10.0% based on Watford’s cost of equityExit multiple of 0.45x BVPS based on Watford’s current trading multiple(1)  Notes:As of 08/11/2020Includes loss reserve equity, senior notes, contingent redeemable preferred shares less intangible assets    9  (2) 

 Analysis of Standalone Alternatives      10  Status Quo  Renegotiate Existing Agreements  De-Risk Investment Portfolio  Arch Sidecar and De-Risk Inv. Portfolio  Description  3 point improvement to expense ratio35 bps reduction to investment management expense  Transfer $500MM from HPS to investment grade strategy  Transfer $500MM to investment gradeUse incremental capital to support larger reinsurance business  Baseline assumptions includingHardening marketAchievement of 10%+ ROE  1  4  3  2  Sensitivity Analysis  Key Metrics (2023E)  Combined Ratio: 99%ROAE: 11.0%Net Yield: 4.0%  Combined Ratio: 96%ROAE: 13.9%Net Yield: 4.2%  Combined Ratio: 99%ROAE: 9.8%Net Yield: 3.3%  Combined Ratio: 97%ROAE: 11.9%Net Yield: 3.1% 

 M&A Perspectives      11  Run-off a viable potential option, with Arch’s supportHowever, may be self-administered for a period vs. immediate third-party sale given Arch relationship dynamicsArch to receive run-off economics as part of service agreementMay limit run-off buyer interest given run-off model of optimizing claims activity (vs. pure financing)Ultimately, run-off will require exit option as business becomes increasingly sub-scaleSale options may be constrained by Arch service agreementMulti-year agreement with Arch, and Arch retains right to service run-off business in event of saleFew strategics likely to step into such an arrangement absent changesOngoing interest in insurance / reinsurance platforms, though requires reaching agreement with ArchTransactions for non-franchise / run-off companies have generally ranged from ~0.6x-1.0x P/TBV; multiples for franchise transactions in reinsurance space have generally ranged from ~0.8x-1.3x P/TBVMerger option exists, though universe of partners may be somewhat limited - and will likely require Arch cooperationThird Point Re / Sirius transaction as relevant precedentPotentially motivated counterparties in Greenlight Re, ABR and Harrington Re - and in the future, SiriusPointSeveral key questions for merger transaction:Are benefits created sufficient to drive a meaningful re-rating of stock? (i.e., does it improve meaningfully positioning vs. status quo?)Achievability given service agreements with investment/insurance partners (on both sides) 

 Run-Off Analysis    Projections based on Company Run-Off ModelAssumes business is sold after 5 years of run-offAssumes 100% asset reallocation to investment-grade assets upon run-offDiscount rate of 10.0% based on Watford’s cost of equityExit multiple of 0.80x BVPS based on precedent run-off dealsPresent discounted value of Arch run-off fees over 5 years: $42.9MM or $2.14/share  Notes:Based on 50% of net reserves    12  (1) 

 Appendix  Supporting Materials    13 

 Peer Trading Comparables    Source: Company Filings, Capital IQ, SNL Financial (08/11/2020)Notes:Reflects median annual combined ratio over the last 10 fiscal years, or since inception as appropriateReflects standard deviation of annual combined ratios over the last 10 fiscal years, or since inception as appropriate Reflects median annual BVPS growth, including dividends, over the last 10 fiscal years, or since inception as appropriateReflects standard deviation of annual BVPS growth, including dividends, over the last 10 fiscal years, or since inception as appropriate  Supporting Materials  14  (1)  (2)  (3)  (4) 

 Select Precedent Transactions (1 of 2)  Run-Off P&C Transactions  Limited publicly available data on P&C run-off transactionsOn a recent P&C run-off transaction Morgan Stanley worked on, bids were generally in the 0.85-1.00x range of tangible book valueGreenlight Re rumored to have rejected run-off bid at around ~0.9x P/BV in late 2019  15  Select Precedent Transactions  Source: Capital IQ, SNL Financial, Company Filings and MaterialsNotes:Deal value reflects implied value of 100% stake; book value and tangible book value reflect 12/31/2019 figures (nearest available)  (1)  (1)  (1) 

 Select Precedent Transactions (2 of 2)      16  Select Precedent Transactions  Supporting Materials  Source: Capital IQ, SNL Financial, Company Filings and MaterialsNotes:Represents premium paid to public shareholders; does not incorporate value to CMIHBook value and tangible book value reflect 2Q20 figures as referenced in Third Point investor presentation, which preceded Sirius earnings announcementPartnerRe 6/30/2015 book value adjusted for $315MM breakup fee payable to AXISUtilizes 2018E EPS (instead of NTM EPS) as NTM artificially low due to 4Q’17 losses  (3)  (3)  (2)  (2)  (1)  (4) 

   17  Cost of Equity Analysis  Watford Cost of Equity Analysis  Supporting Materials  Source: Capital IQ, SNL Financial (08/11/2020)   

 Third Point Re Merger with Sirius Group    Transaction Overview  On August 7, 2020, Third Point Re and Sirius Group announced plans to merge to create SiriusPointDeal values Sirius Group at $788MM(1)Transaction value represents ~80% of Sirius’ 2Q’20 TBVThird Point LLC to manage assets directly under the direction of SiriusPointDeal is expected to be accretive to EPS and ROE with limited book value dilutionSid Sankaran, former AIG CFO and Chief Risk Officer to be Chairman and CEO  Transaction Structure  Third Point to acquire 100% of Sirius GroupSirius shareholders will have ability to elect one of three options:$9.50 in cash per shareTPRe shares plus two year CVR which, taken together, guarantees that on the second anniversary of the closing date the electing shareholder will have received equity and cash of at least $13.73 per share on that datei) cash, ii) TPRe shares, iii) Series A preference shares, iv) five year warrants and v) upside share instrumentCMIH has agreed to elect option #3 and has agreed to a 9.9% voting cap and lockup agreementCMIH expected to own ~39%(2) of SiriusPointExisting excess cash and $125MM bridge loan commitment providing funding for cash consideration and other redemptionsDaniel S. Loeb, Third Point’s largest individual shareholder, to provide an equity commitment of $50MM  Expected Business Mix  Notes:Assumes all minority investors elect option 2 at $13.73 of value and CMIH elects option 3 based on 0.743x and TPRe share price of $8.15 (excludes warrants and upside share instrument as both are out of the money)Based on pro forma diluted shares outstanding (includes Series A preference shares)Includes cash and cash equivalents (including restricted cash)  Supporting Materials  18  2Q’20 GPW LTM $2.5Bn  78%  Insurance    22%  Reinsurance    $6.1BnTotal Invested Assets  (3)  Expected SiriusPoint Investment Mix  Third Point attempting to shift from “hedge fund reinsurer” model to more traditional reinsurance modelAcquired more traditional reinsurance business / platformHave actively de-risked investment portfolio over time   

 We have prepared this document solely for informational purposes. You should not definitively rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise. You and your directors, officers, employees, agents and affiliates must hold this document and any oral information provided in connection with this document in strict confidence and may not communicate, reproduce, distribute or disclose it to any other person, or refer to it publicly, in whole or in part at any time except with our prior written consent. If you are not the intended recipient of this document, please delete and destroy all copies immediately.We have prepared this document and the analyses contained in it based, in part, on certain assumptions and information obtained by us from the recipient, its directors, officers, employees, agents, affiliates and/or from other sources. Our use of such assumptions and information does not imply that we have independently verified or necessarily agree with any of such assumptions or information, and we have assumed and relied upon the accuracy and completeness of such assumptions and information for purposes of this document. Neither we nor any of our affiliates, or our or their respective officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this document or any oral information provided in connection herewith, or any data it generates and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. We and our affiliates and our and their respective officers, employees and agents expressly disclaim any and all liability which may be based on this document and any errors therein or omissions therefrom. Neither we nor any of our affiliates, or our or their respective officers, employees or agents, make any representation or warranty, express or implied, that any transaction has been or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject to change. We undertake no obligation or responsibility to update any of the information contained in this document. Past performance does not guarantee or predict future performance.This document and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies, and do not constitute legal, regulatory, accounting or tax advice to the recipient. We recommend that the recipient seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this document. This document does not constitute and should not be considered as any form of financial opinion or recommendation by us or any of our affiliates. This document is not a research report and was not prepared by the research department of Morgan Stanley or any of its affiliates.Notwithstanding anything herein to the contrary, each recipient hereof (and their employees, representatives, and other agents) may disclose to any and all persons, without limitation of any kind from the commencement of discussions, the U.S. federal and state income tax treatment and tax structure of the proposed transaction and all materials of any kind (including opinions or other tax analyses) that are provided relating to the tax treatment and tax structure. For this purpose, "tax structure" is limited to facts relevant to the U.S. federal and state income tax treatment of the proposed transaction and does not include information relating to the identity of the parties, their affiliates, agents or advisors.This document is provided by Morgan Stanley & Co. LLC and/or certain of its affiliates or other applicable entities, which may include Morgan Stanley Realty Incorporated, Morgan Stanley Senior Funding, Inc., Morgan Stanley Bank, N.A., Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Morgan Stanley Bank AG, Morgan Stanley MUFG Securities Co., Ltd., Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Morgan Stanley Asia Limited, Morgan Stanley Australia Securities Limited, Morgan Stanley Australia Limited, Morgan Stanley Asia (Singapore) Pte., Morgan Stanley Services Limited, Morgan Stanley & Co. International plc Seoul Branch and/or Morgan Stanley Canada Limited Unless governing law permits otherwise, you must contact an authorized Morgan Stanley entity in your jurisdiction regarding this document or any of the information contained herein.  19