Q1 2021 Siriuspoint Ltd Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the serious point limited first quarter 2021 earnings conference call.
During todays presentation, all parties will be in a listen only mode.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder of this conference call is being recorded.
I would now like to turn the call over to MS. Clare Kerrigan head of Investor Relations for serious point. Please go ahead.
Thank you operator.
Welcome to the serious point limited earnings call for the first quarter of 2021 now.
The last night, we shoot out fast course of form 10-Q, and earnings press release, and financial supplement which are available on the website www dot serious P T dot com.
With me here today of sits on current all chairman and Chief Executive Officer, and David Genius of Chief Financial Officer.
Before we begin I would like to remind you that many of the remarks today will contain forward looking statements based on current expectations.
Actual results may differ materially from those projected at the result of recession risks and uncertainties.
Please refer to the earnings press release, and the company's other public filings, including the most recent form 10-Q, where you'll find risk factors that could cause actual results to differ materially from these forward looking statements.
In addition management will refer to certain non-GAAP financial measures, which management believes allow for a more complete understanding of the company's financial results.
The reconciliation of these non-GAAP measures for the most comparable GAAP measure is presented and the company's earnings press release that is available on our website.
At this time I will turn the call over to Seth.
Thank you Claire and good morning, everyone.
I'm very pleased to be here today to officially introduced serious point.
Following the completion of third point of <unk> merger with serious group in February.
Our combined company has the capital platform capabilities culture, and expertise to take advantage of change and market conditions and compete and a differentiated and effective fashion and the global insurance and reinsurance marketplaces.
I am extremely pleased the by the closing of our transaction, we'd added world class talent to our team.
Strengthen the quality of our balance sheet.
And refocused, our underwriting strategy, allowing us to benefit from strong market conditions.
We are creating and entrepreneurial and innovative company that is just at the beginning of its transformation.
Today serious pointed of meaningful player and the insurance and reinsurance markets comprising of global platform that serves clients and brokers and almost 150 countries.
And it has an outstanding team of experienced leaders and underwriters many of them long tenured with us and a robust balance sheet comprising more than $3 billion of capital.
We still view ourselves as a startup company.
Where we see the insurance industry is ripe for change.
Julien point is going to be at the forefront of that change.
COVID-19 has dramatically changed the world's perception of risk.
Over the past few years the <unk>.
Spectrum of realistic disaster scenarios has become more apparent.
And the insurance industry response to that requires product innovation better risk management and capital.
With the startups mentality and a responsive team of experienced underwriters. We can quickly develop solutions to help our clients manage this new risk environment.
Our vision is to grow our business create value and positively impact of changing world by being the most of adaptive and responsive reinsurer and the market.
We are aiming to enhance our existing relationships and improve the economics of our key lines of business.
While looking at ways that we can grow intelligently and leverage technology to improve how we underwrite and manage risk use data and develop new strategic opportunities.
As the new company with an entrepreneurial approach and abundant energy to embrace and drive industry disruption and positive change we are very much of startup insurer.
But a company with the 75 year history and relationships that we view.
And we are part of the class of 2020.
We feel we have a head start over the other new entrants of the market as we of existing sticky relationships and business.
A broad product offering.
Existing infrastructure and global reach.
We also have a solid foundation with a strong balance sheet as can be seen and our a minus ratings, which were confirmed by a M best S&P and Fitch during the first quarter 2021.
As a result, we're big enough to matter, while having the ability to remain nimble responsive and collaborative.
This approach is at the heart of our entrepreneurial culture and is what drives our team.
Since this is our first earnings call for the combined company I wanted to take some time to introduce our for segments.
Accident and health for Anh specialty property and runoff.
Our accident and health segment is a global leader offering a broad range of products, including disability stop-loss accident travel medical and ex Pat Health plans written on a global basis.
It is recognized for its market leading performance having been consistently profitable over the last two decades and was still profitable in 2020, despite the pandemic.
Our underwriting teams based in the U S, London, and Zurich, right, A&H insurance and reinsurance globally through our admitted and surplus lines entities and the U S.
And our Lloyd's syndicate, and $19 45, and our international legal entities.
Our anh team in place and effective and integrated managing general underwriter strategy for MDU to deliver operational outperformance, while maximizing growth.
To accomplish this we partner with market, leading <unk> and create a relationship that is properly incentivized.
Today, we had high retention and long standing relationships with over 15 lead and profit oriented and North American Mg use that generate significant premiums for us.
These are and to use retain of share of the underwriting results, creating the right alignment with serious point.
Our two in the house and to use IMG and Armada care design, distribute and administer and global health and travel benefits.
IMG offers travel medical insurance International Health insurance for Expats and travel insurance.
All of which are poised for a strong rebound as the pandemic has brought under control and international travel visits.
Our monarch Harris and market, leading provider of supplemental health care insurance products and administration services and the U S.
It offers employers and various industries of suite of solutions that keep top performers healthy productive and focused on their work.
IMG and Armada care of best in class <unk> of thereof, but.
But I see an opportunity to apply the latest technology to take their business to a new level.
And our specialty segment, we write specialized short tail lines, such as aviation and space Marine and energy credit mortgage contingency event cancellation.
And long tail lines, such as general liability professional liability auto liability workers' compensation umbrella and environmental.
Our specialty reinsurance business is written by a strong network of European branches.
Our Lloyd's syndicate, and our offices and the U S and Bermuda.
And we access profitable business by leveraging our relationships with local and global insurers and brokers.
In addition to our core reinsurance business. We also work with high quality <unk> and MGA is globally to acquire specialty insurance business.
Let me offer a few examples and.
And Europe, we work with the ulcer co of Tech enabled MGA for aviation and space risks and.
And <unk>, we helped establish Arcadia and risk capital to write general liability and professional liability lines.
We are also a founding investor and Pi, which produces workers' compensation business on our paper.
And the property segment, we participate and the broader market for property reinsurance treaties written on a proportional and excess of loss basis.
Our international business consists of proportional and ex ol treaties, both treaty and facultative, primarily in Europe Asia and Latin America.
The International book is diversified across many countries regions perils and layers.
And the U S. We have significant participations on proportional and excess of loss treaties across a variety of clients ranging from smaller regional companies to large national accounts.
Runoff and other consist of asbestos risk environmental risk and other long tail liability exposures and includes the acquisition and management of runoff liabilities for insurance and reinsurance companies both in the U S and internationally.
Finally, we are of unique ceded reinsurance program that allows us to carefully manage our gross to net positions across all of our lines of business and is a key part of our risk management strategy.
Moving to the investments.
Our investment portfolio is heavily weighted toward traditional fixed income cash and restricted cash with the latter used to support regulatory collateral requirements for our reinsurance book.
We have a strong partnership with third point LLC.
And positions and they're long short equity credit opportunities and venture funds.
We also hold certain legacy serious positions and various alternative asset classes.
Of which a portion we have already given fund managers redemption notices.
We aim to maximize long term after tax total return, while carefully managing risk and volatility.
We also of the portfolio of strategic investments and insure tech companies.
The serious point, we view investments as an integral part of our strategy to revitalize the and grow and modernize and breakout of the business as we leverage both sides of the balance sheet to support our strategic investments.
Through which we expect to realize the appropriate risk adjusted equity returns in addition to.
Appropriate premium and business growth.
We've continued to execute on our strategy.
And we've Derisked a portion of the investment portfolio in order to reduce volatility and release capital for redeployment.
Third point LLC has also reduced leverage and the TP enhanced fund and continues to be of great partner for serious point of.
Allowing us to punch above our weight relative to our peers through access to their differentiated and diverse investment expertise and products.
We've identified three strategic pillars to drive success, which I'd like to talk about today.
The unlock the potential that exists within the serious point, we need to continue to improve our profitability by being best in class capital Allocators.
Better manage our risk.
<unk> grow higher margin of differentiated businesses and invest in technology.
To achieve these goals, we have three pillars, which we'll review.
The first pillar is focused in and stabilizing the companys core insurance and reinsurance business through profitable underwriting.
And we will be disciplined and managing our balance sheet and optimizing our capital allocation.
The portfolio as of third point re and serious group experienced challenges in recent years, a number of which were addressed by our strategic combination.
Now our goal is to reassess these portfolios and boost profitability, while lowering the volatility of the book.
To this and I'm very pleased to report that we made great strides and refining our portfolio and the first quarter.
Reducing catastrophe exposure through modest additional retro reinsurance purchases and rebalancing of the overall portfolio, the non cat lines, including A&H credit.
Asian, and niche U S casualty lines.
We will continue to reshape the portfolio through 2021 to execute on our underwriting strategy and be disciplined and our approach to managing risk.
We have identified certain pockets of the property portfolio debt do not optimize our returns, which we will restructure non renew or redeploy to optimize portfolio of returns.
We're also considering our strategic options with respect to the ongoing runoff businesses.
Importantly, we intend to be disciplined and reducing classes, which have been unprofitable.
At the same time, our global platform and entrepreneurial culture will give us flexibility and culture to adapt to market conditions and be responsive to opportunities.
While there is much work ahead, we're confident we're making progress and our execution.
The second pillar of revitalizing and growing our core insurance and reinsurance books.
While the insurance market has been of hardening over the last few years the rate increases of varied from line to line.
The areas that are more specialized and less commoditized I've seen the strongest the sustainable price gains.
As a result, we will continuously allocate our capital to the best opportunities and react quickly as market conditions change by product and region towards rate adequacy.
Our A&H and specialty segments, which respectively comprised 37% and 46% of our first quarter gross written premium.
Our two areas that we're focused on growing given the better return profiles as we work to drive profitable premium.
Which we believe will lead to improved performance and accelerate book value growth.
And both segments are MCU MGA platform that include wholly owned IMG and Armada care strategic partnerships, such as our Korean and third party Mg as our key driver of our growth strategy.
In particular, we will work to be nimble and react market conditions to take advantages of dislocations.
This approach is illustrated by the investment I mentioned and Arcadia and risk capital of.
The Bermuda incorporated MGE, and <unk>, where we partner with and outstanding manager and entrepreneur, John Boylan, who has a 30 year track record and the global insurance market.
We invested capital provided expertise and serious paper to help John establish Arcadia.
Our Canadian began writing business in October of 2020, filling and the market need for capacity by well capitalized company with no legacy business.
Our Canadian of swiftly ramped up and wrote $29 million of premium and the first quarter of 2021.
We expect our Canadian to write more than $100 million of gross premium this year as they become a meaningful growth driver for serious point.
The third pillar of our strategy is modernized and breakout.
We intend to leverage technology and build the alternative business models to respond to how the world and risk are changing opt.
Optimizing our global platform by partnering with and investing in the innovative businesses and teams and the insurance industry.
To accomplish this we're going to assess and rework our platforms that is more efficient and ready for higher growth.
We're committed to building a strong technology foundation to ensure that serious point as an industry leader in this regard.
This will make us more productive for our client partners and our investors.
We aim to provide the startup insurers with seasoned advice and equity or debt capital. So they can hire people and and invest in technology themselves.
We will provide the platform licenses and risk capital to create a balance sheet to help them write the products.
We will also offer legal and regulatory support provide the reinsurance expertise support and syndication to grow and diversify the capital base for their product offerings.
Through this process, we aim to play a role and accelerating the growth and create value and returns.
We see this as a differentiator, which will position us as something completely new and the market.
I'll share more details on our efforts and execution of all three pillars and subsequent calls.
To be successful we need the right people to drive these initiatives forward and I'm delighted that the serious point proposition is attractive to top quality entrepreneurial talent.
Our chief operating officer, and President of insurance and services per shop, Ganga leads our growth and monetization efforts.
For Sean joined US at the launch of serious point from Oliver Wyman of unit of Marsh and Mclennan.
And where he was the long standing partner and head of Americas P&C insurance.
We also recently announced the Daryl serious joined US as Chief Technology officer to support the technological.
The transformation of the company.
Daryl held executive roles of Procyte, Fireman's fund Alliums and Tesla.
And reinsurance we have an outstanding team in place, including global Chief underwriting Officer, and President of Americas reinsurance David govern.
And who joined the company after many years of Berkshire Hathaway.
President of International reinsurance Monica Kramer Manheim great.
Over 30 years and leadership positions of legacy serious group.
President Global head of distribution and runoff Dan Malloy.
And Vice Chairman, Steve <unk>, who brings extensive industry experience as CEO of White Mountains, and previously had responsibility for legacy serious.
Key new hires of the reinsurance side include Tim Martin, who will be joining us shortly as global head of property reinsurance.
Tim and joins us from Chubb Tempus free Bermuda, whereas division President responsible for all operating aspects of the computer company's Bermuda based P&C reinsurance business.
I'm also pleased that Larry Hallett from RFID has joined our casualty team and the U S.
Larry is the long track record and the casualty reinsurance market, including alternative risk management captives runoff and fronting arrangements and as 40 Years' experience and the North America and reinsurance market.
I believe this of terrific underwriting team to execute on our strategy and achieve our goal of delivering profitability.
And investments, we brought on and Minsheng, who joined third point re shortly before the completion of the acquisition to be the first chief investment officer of the company.
Prior to joining us <unk> with Metlife, where he had responsibility for their global insurance risk management product risk and pricing oversight.
Looking forward <unk> has been tasked with managing our investment portfolio as we strive to deliver less volatile and more consistent returns, which is critical to improving our valuation.
We've also Brian for that Henry is the company's first chief people officer.
I am proud of the outstanding quality of our leadership team, who bring diversity of experience perspective and background to serious point.
Having a diverse and inclusive companies not just the high minded principle. It also makes good business sense and attracting the best people.
More Diversed organization has dropped on a range of different backgrounds life experience and expertise to help them make better decisions.
We aim to ensure diversity at every level of our company attracting highly talented people, who bring a variety of experiences and perspectives and can contribute to the ongoing growth development and success of serious point.
Moving to Kpis.
Our first quarter's financial results reflect the hard work put in by both companies and the run up to the merger as well as the first green shoots of our serious point strategy.
The team and are committed to delivering results.
I'd like to talk a little about how we will measure success.
First producing an underwriting profit and a combined ratio under 100.
For the first quarter Cirrus point produced an underwriting profit of $9 million and a combined ratio of 96, 6%.
Reflecting our focus on writing of profitable and more balanced book of business.
Second growing tangible book value per share.
We're baseline and tangible book value per share and the quarter of $13 97.
And the closing price on Friday of $10 67 per share.
Serious point is trading at a meaningful discount to book value, which we expect will close over time as we produce consistent underwriting profits and less volatile overall returns.
Third.
Generally net returns on equity and access of our cost of capital.
As underwriting results improved sustainable higher Roe's will follow.
For the first quarter, our annualized return on average common equity was 26, 4% driven.
Driven by net investment income of $186 $5 million.
Investment results and the quarter were very strong and above trend.
We aspire to generating double digit return on equity even as investment results revert back to normal trends.
To conclude we have a strong foundation consisting of a great team strong insurance franchises, and a global footprint, which positions us for the future.
As we execute on our three pillared strategy I expect our combined ratio to gradually improve as we profitably grow our higher margin businesses, while also reducing the risk and volatility of our portfolio.
Our team does have much to accomplish as we improve our operations and the efficiency of our organization, which will take time.
The improvement will not be linear.
The quarter, given the fundamental nature of the work we need to accomplish.
Combined with some investments that we need to make our operations improved especially technology.
The steps taken this quarter towards refining our business to achieve underwriting excellence and establishing a high quality balance sheet will result, and less volatility going forward.
We're confident the path of sustained higher underwriting returns less volatile investment results and growth and book value will translate into long term value creation for our shareholders.
Let me now turn the call over to David David's background makes him the ideal person to be CFO of serious point.
He joined US as COO of third point re and preparation for the merger and most recently had been the CFO of Aig's General insurance International business.
All of the transformation and the financial performance of that business with the focus on many of the same lines and classes of business, which we have a serious point.
Over to you David.
Thanks, Ed.
Since the formal merger on February 26 serious point has had a strong start to 2021.
Importantly, we have had good feedback from rating agencies investors employees clients and prospective partners.
Much was accomplished and these initial weeks much work remains to be done to re underwrite our portfolio established for good operating rhythm for the combined company assess and address the talent gaps and overall our it infrastructure. We are excited with our plan and the opportunity that we see ahead.
Turning to our first quarter results, we reported net income of $131 million, which includes $9 million of bargain purchase gain or $1 <unk> per diluted share our annualized return on average equity was 26, 4% and ending shareholders' equity was $2 6 billion. We ended the first quarter of 2012.
And one with tangible diluted book value per share of <unk> 97, a decrease of 16% from year end due to share issuances related to our acquisition of serious group.
Our results were driven by our strong investment returns highlighted by the TP enhanced funds return of 14, 6% and the first quarter and a $35 million increase and the valuation of our investment and Pi.
These results were above our investment return expectations, and we do not expect them to be recurring to Ted's point on investment Derisking TP enhanced funds plus other invested assets were a quarter of total invested assets at March 31 down for more than a third at year end for <unk> stand alone <unk>.
Turning to underwriting our primary focus for the year is to deliver and underwriting profit and the first quarter was a good first step and fulfilling this goal gross premiums written as reported were $367 million, reflecting only one months of serious group contribution, including a full three months of Sirius group DPW was nine <unk>.
$49 million and the quarter.
Overall, we are seeing market conditions stabilize around the world driven by underwriting discipline and positive rate improvement.
That said the rate story continues to defer byproduct with heavily impacted lines such as aviation seeing strong rate increases while less differentiated lines such as workers' comp that has seen strong rate adequacy in the in the past few years starting to soften these rate trends continued in the first quarter.
And for April one renewals were some lines showed double digit rate improvements.
Property Cat reinsurance also continues to see risk adjusted rate increases and most global markets, but at a declining pace.
However, the market has not yet fully digested the impact of the high levels of cats in the first quarter, while property cat as a core part of the portfolio. We are focused on growth and the non cat lines to continue to improve our balance as well as carefully evaluating the allocation and utilization of our caf PMO to improve portfolio.
The return.
Underwriting income in the first quarter was $9 million generating a combined ratio of $96. Six our reported results include only one month of results for Sirius group and serious groups, Texas Storm Yuri losses fell into the pre merger stub period.
Total catastrophe losses that include a full three months of Sirius group were $40 million and the associated accident year combined ratio on that basis was 99 eight.
Breaking out underwriting further I'd like to discuss our for segments Anh specialty property and runoff and.
<unk> was 37%, 37% of <unk> and the quarter and almost totally reflects the results of the legacy serious group as the legacy <unk> business and this segment was limited.
<unk> produced an underwriting profit of $5 3 million.
And the combined ratio of $84 nine which reflects strong results from the primary reinsurance and our motto of care segments, while IMG, which has traveled focus continues to be impacted by the COVID-19 pandemic. Although we are encouraged by the pace of vaccinations, particularly in the U S and expect to pick up and travel and the second half of 2000.
'twenty one.
Specialty represented 46% of J P. W and the quarter underwriting income was largely breakeven with a $100 two combined ratio and reflects prudent loss picks and the growing arcadian Pi and environmental books, two accounts net count for the greenness of this business. Despite our overall confidence in these platforms to generate underwrite.
The <unk> income and the long term.
<unk> was 17% of <unk> and the quarter, producing an underwriting profit of $5 $4 million and the combined ratio of $93. Three while this quarter's reported results clearly benefited from serious Yuri losses falling into the pre merger of period the pro forma accident year combined ratio for this segment was $99 for.
For on higher Cat losses, we have and attractive globally diversified cat portfolio, where we will also take advantage of the highest risk adjusted returns when allocating our peak zone P&L. The process, we anticipate continuing through January one of next year.
Brighthouse had minimal production and the quarter as new blocks available and the market did not meet our pricing hurdles the.
Underwriting loss of $1 $7 million reflects runoff of legacy portfolios in line with expectations and segment results did not benefit from and allocation of investment income.
Turning to expenses total corporate and other expenses were $68 million and the first quarter, largely driven by $40 million of of transaction related expenses and severance as well as $17 million to reestablish the Sirius group provision for expected credit losses, which was taken down and purchase accounting.
Underwriting expenses were slightly lower than expectations.
On the balance sheet and addition to the disclosures on the impact of the acquisition and our 10-Q I also call your attention to the December 31, 2020 pro forma balance sheet filed and our 8-K last Friday. The opening balance sheet is on a strong footing and I'd like to call out of few of the most significant items.
The first transaction related intangibles were established with the evaluation of $174 million and largely reflect distribution and managing general underwriter of relationships and the value of our insurance licenses.
Second the casualty reserves of serious group, we're aligned on the same basis that we took when we strengthened <unk> reserves in the fourth quarter of 2020. This adjustment resulted in a $70 million increase and the opening balance sheet casualty reserves for the legacy serious book This places us higher in the range of ex.
<unk> best estimates.
Third our COVID-19 ultimate loss picks in the quarter were unchanged to $364 million with IV and are representing approximately 60% of outstanding COVID-19 reserves. We continue to monitor COVID-19 developments closely but believe we are adequately reserved absence of significant shift and the regulatory environment for coverage interpretations.
Fourth we've established a fair market liability of $135 million for the contingent consideration capital instruments issued and the acquisition of serious group, including the series a performance shares warrants contingent value rights and upside rates. These values may fluctuate quarter to quarter, depending on the.
The serious point stock price and other factors.
Our shareholders' equity as of March 31 was $2 6 billion and includes $200 million of newly issued series B preference shares we issued 58 million common shares in the acquisition to bring our total shares outstanding to $162 million.
Outstanding debt at quarter end was $829 million, which is comprised of the previously issued TP re senior debt and the assumed serious group senior debt and sub debt no new debt was issued in the transaction and the resultant debt to capital ratio is 24% at March 31 <unk>.
Capital levels remained strong with regulatory capital well above compliance requirements and above rating agency expectations serious point also maintains a high level of liquidity with $2 3 billion of cash cash equivalents and restricted cash. We also established a $300 million revolver as an additional source of liquidity if needed.
And which remains Undrawn and now let me turn the call back to Sid for concluding remarks.
Thanks, David.
And truly proud to be leading serious point.
We've built a truly exciting new company with the differentiated culture and approach.
And we're set up to challenge the status quo.
Great new ways of conducting business.
We remain committed to establishing a more balanced and diversified business through a prudent mix of underwriting and investment risk.
As we execute and deliver more consistent results over time, we expect to build sustained long term value for our shareholders and.
I believe that we have a bright future ahead of us build with the enormous potential.
Thank you for your time and I'll turn the call back over to the operator.
Thank you for your participation and this does conclude today's teleconference. You may disconnect your lines at this time.
Have a great day.