Q2 2021 Siriuspoint Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the serious point of limited second quarter of 2021 of earnings Conference calls.
Today's presentation, all parties will be in listen only mode.
As a reminder, this conference call being recorded in all of them like the turn the call over the most Claire Carrington head of Investor Relations for serious point.
Please go ahead ma'am.
Thank you operator.
Welcome to the serious point limited earnings call for the second quarter of 'twenty 'twenty 1.
Last night, we issued our second quarter of form 10-Q, and earnings press release and financial supplement other than that.
And then on the loss portfolio transfer transaction of which comprise all of which are available on our website www dot there is P T dot com.
With me here today of sits on from our Chairman and Chief Executive Officer, and David Junior Chief Financial Officer.
Before we begin I would like to remind you remind you that many of the remarks today will contain forward looking statements based on current expectations.
Actual results may differ materially from those projected as a result of secession risks of risks and uncertainties.
He's refresh the earnings press release on the company's other public filings, including the recent form 10-Q on the form 10 keys of the period ended March 31st 2021 way the way.
Where you will find risk factors that could cause actual results to differ materially from those 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.
A reconciliation of these non-GAAP measures. The most comparable GAAP measure is presented in the company's earnings press release, which is available on our website.
This time I will turn the call as the he said.
Thank you Claire and good morning, everyone.
On today's call I'll provide a high level overview of our second quarter financial results and provide an update on our progress executing on our 3 pillar strategy as we work to establish sustained underwriting profitability.
David will then review our second quarter results in more detail.
We were also pleased to announce yesterday the loss portfolio transfer transaction with concrete of legacy runoff specialist, which eliminates our highest risk long tailed reserves.
The deal between Sirius America, and serious Bermuda with Palottery, a subsidiary of Capri covers 400 of $17 million of loss reserves subject to or associated with the transaction.
Including much of the legacy of curious group runoff business, including asbestos and environmental from a premium of $430 million.
The transfer which is subject to regulatory approval and other closing conditions covers the bulk of the economic risk of the reserves of the run off segment, including most of serious points of legacy of any exposure to a runoff specialist better able to focus on these blocks.
Assuming we receive timely regulatory approvals this transaction will be reflected in our third quarter results.
Importantly, it will free up approximately $100 million of rating agency capital to deploy into higher growth of more profitable lines of business.
Allowing us the optimized capital allocation and focus on rebalancing towards insurance and higher margin and Grubhub.
While providing further clarity on serious points reserve position.
Turning to our results I'm very pleased with our team's execution and strong delivery on our first full quarter.
We achieved the combined ratio of 92 point of 8% in the second quarter of 2021.
Which keeps us well on track to deliver an underwriting profit in 2020 of them after multiple years of underwriting losses at our predecessor companies.
On a reported basis catastrophe losses were $12.7 million or 2.7 percentage points on the Companys combined ratio, which were primarily from late June European Windstorms.
In addition, the team has been actively monitoring the impact of the devastating European floods in July the third quarter of that.
Even though our office of the edge, Belgium was not impacted our Paramount concern is the safety and wellbeing of our local team members as well as ensuring our ability to serve the needs of our clients of the region.
Our thoughts are with our European colleagues and clients as they navigate the disaster and worked to repair and rebuild.
That said the actions taken to reduce our catastrophe exposure of January 1.2021of prove it out.
Through the reduction of P&l's boosting participation rates on our existing quota shares and additional reinsurance purchases.
Based on the information we have today, we estimate our losses in the third quarter from this event to be capped at approximately $30 million absent a dramatic increase from the initial industry loss estimates.
For the second quarter of 2021, we delivered net income of $65 million with 37 cents per diluted common share and tangible diluted book value per share of <unk> 33 ships were 2.4% to $14.30 since March 31st.
We will continue to measure our execution through our kpis of the underwriting profitability tangible book value growth and the ability to generate double digit returns on equity.
All of which we delivered this quarter.
Turning to investment income, we earned $77 million of the second quarter of 2021, which compares to prior year's second quarter net investment income of $137 million.
Our investment in the third point enhanced fund earned of 3.7% return for the quarter and contributed $45 million of investment income.
Underwriting of this quarter continued its focus on remediation.
Along with re underwriting and growth in our targeted insurance and reinsurance classes.
We've made progress on of exiting risks that do not meet our return hurdles as well as rebounds from the portfolio to expand more into special lifeline as we continue to diversify beyond the property.
We expect the growth will be in line of star revised underwriting targets on appetite.
We've conducted of policy level of review across our entire portfolio applied changes and expect our updated appetite and focus on high quality business, which is partially reflected in our 2021 year to date I'm doing yourselves to be fully executed with Q1 and Q2 renewals.
This will continue to merge the 2022 financial results.
We have cumulatively remediated the key.
The percentage of the portfolio in the last 2 quarters and expect to remediate or non renew an additional 11%.
As we execute our strategy to stabilize our core insurance and reinsurance portfolios. We've been aggressively reshaping of reinsurance book, which is the legacy of third point re portfolio in particular.
Small number of large transactions that are no longer within our risk appetite.
This is proved to be a headwind of premium growth with net premiums earned were 466 million from the second quarter of 2021.
Counterbalancing, the that's the remain attractive areas to grow on both reinsurance and insurance with strong margin some of the access into our existing distribution channels as well as our growing array of partnerships, including our announced transactions with Arcadian banyan.
Hestia join Rhino and Outdoorsy among others.
Many of these partnerships are focused on growing our contribution to the portfolio of from insurance.
While the premium volume for 2021 year to date as modest from these activities. We expect these ventures to be strong contributors to growth in 2022, and beyond which I'll refer to in more detail later.
In our reinsurance portfolio market conditions remain positive with adequate pricing across global casualty specialty and property, albeit of a decelerating rate increases.
Across the majority of the reinsurance lines absent of few we believe we've passed the price of the peak.
As we allocate capital and focus on all 3 pillars of our strategy, we take advantage of positive market conditions, but we're not reliant on the recent hardening market.
We intend to capitalize on market dislocation and believe we are well placed to move quickly and navigate changes in conditions as they evolve.
We believe we have strong services assets in our portfolio, where we see good growth opportunities.
Our wholly owned managing general underwriters and agents M genes are M. <unk> IMG and Armada participate on areas of the market with strong macroeconomic tailwind, including travel on health care.
Serious point already has a distinct advantage in our services business and with an infusion of pounds of capital, we see significant opportunities for us from grocery as well.
We remain bullish on the travel sector overall, particularly coming out of Covid Lockdown, even though continued international travel restrictions, including restrictions on inbound travelers to the United States have negatively impacted our top line versus expectations and IMG this quarter.
M J provide access to unique specialty primary insurance business, allowing us to grow premiums from the primary space with the flexibility to adjust the volume of business based on market cycles.
They generate commission based nonrecurring fee income, which provides a source of income to serious point.
We're seeing M. J valuations rise to 12 to 16 times EBITDA up from 10 times EBITDA of 5 years ago.
The increase was driven by a huge amount of deployable capital on the buy side reduced opportunities elsewhere in the insurance space and increased based on the M J model.
The market has seen an increase from new M. J startups, both traditional M. J is led by experienced underwriters, leaving margin from the insurers and innovative M. J startups founded by Tech made of entrepreneurs.
We're establishing serious point as the partner of choice for these M. G X.
We offer of global platform, consisting of the admitted in the U S licenses in the U S. Lloyd Syndicate of 1945, Bermuda class 4 entities of European Branch network in Asia plus.
We have an ability to be nimble paired with the multi year investment outlook, but it's not based on short term performance.
Our approach involves taking investment stakes, where appropriate and offering of the use of paper balance sheet capacity product expertise actuarial support an MGA operations support.
In some cases, we're truly incubating new businesses by working with founders from day, 1 and setting up the new business.
Our senior leaders relationships of driving significant deal flow, we evaluated more than 100 deals the tech driven on traditional M D. As in our first 100 days.
We believe the potential partners come to us because they like our paper on platform and the speed with which we can respond.
We see these deals as an opportunity to leverage into equity investments and we see the bulk of our net premium growth coming from this area of the years ahead.
While we're seeing terrific deal flow will continue to employ a disciplined process and utilize the strong screen as we evaluate investments.
Which is focused on a credential founding team with the defensible competitive advantage, which is within the underwriting appetite on risk management of limits.
The potential of industrial must also have strategic alignment with the serious point the trusted co investors won't be of an opportunity to playing out the girl.
Yeah.
We've made strong progress on this pillar through the second quarter building momentum with the pipeline of attractive deals and working with experienced an innovative partners to launch a number of new businesses.
We co founded join and insure Tech M J, which surround them the she and her team.
The collective experience from the insurer tack on small commercial space.
Join under its commercial insurance from the small and middle markets being positive disruption on current market the market offerings through digital technology data analytics and automation.
We launched banyan risk of M. J I co founded the 2 mushroom Jones offering custom D&O insurance risk solutions and complex risk areas, including life Sciences Global initial public offerings on the technology sector.
We've also partnered with Outdoorsy in the RV rental marketplace platform, which do rumbling through M. J provides an innovative technology driven insurance solutions globally to the 37 million followers.
We invested an outdoorsy didn't provide risk capital to romley.
Our longest standing investments in innovative technology, driven businesses, such as Pi and insure Tech nobler, which was bought by USA. This quarter have also continued to add value and.
This is our partnership with John Boylan, who successfully building out the team at Arcadia and risk of attracting the best talent from across the industry.
We aim to play a role in accelerating the growth of the companies, we are partnering with and investing to create value.
We have multiple avenues to drive profitable growth of the time, which will deliver value to our shareholders, including appropriate exits from realized gains.
Now, let me turn the call over to David to review, our financial results in more detail.
Thanks, Ed.
For the second quarter, we generated net income of $65 million of 37 cents per diluted share versus $131 million or $1.05 per diluted share in the first quarter of 2021. The sequential decline was largely attributable to our investment results normalizing off of highly elevated levels of <unk>.
<unk> in the first quarter. Additionally, our average fully diluted shares outstanding rose to 161 million as compared to $118 million in the first quarter, reflecting a full quarter for the purchase of Sirius group and the issued share count importantly.
Importantly, we had better balance in our earnings with stronger underwriting results, including favorable prior year development and light cat losses reduce transaction expenses and favorable movement in the value of liability classified capital instruments. Our annualized return on average common equity was 10, 6% for the.
Quarter.
We generated a net underwriting profit of $33 million and our combined ratio was 92, 8%, which compares to 96, 6% in the first quarter of 2021, our first half combined ratio was 94.2% keeping us on track to deliver an underwriting profit for the full year of 2020.1.
Our current quarter combined ratio included $13 million of catastrophe losses of 3 percentage points compared to 8 percentage points in the first quarter. After adjustments for 3 months of serious group results. We also benefited from $10 million or 2.2 percentage points of favorable development primarily from Reis.
The accident years, and our European property book, which has been a strong performer over time.
Our ultimate loss pick on Covid reserves remains unchanged and we recognized $3 million of Covid losses in the quarter, earning in on a multi year mortgage insurance book, while we continue to monitor overall developments and recent court rulings on Covid, particularly on impacted property business interruption, we did not see anything in the quarter.
It would change our view on reserves, where more than half are IV and R.
Our gross premiums written for the second quarter were 563 million, which compares to $949 million in the first quarter of 'twenty or 'twenty, 1 which includes $582 million of serious group's gross premiums written in the pre merger period from January 1.2021of the merger date of February 26, as a book of seasonally way.
Towards writings of January 1.
We do not view of prior year comparisons as relevant given the merger and the transformation of the book.
As we continue to make the tough decisions necessary to pull back on contracts and books that do not meet our risk of profitability hurdles. We continued to see strong year over year of contributions from our MGA relationships with Pi and arcadian with promising additional contributions coming from our more recently announced ventures.
With the expectation that their contributions will be more material in 2022.
Underwriting expenses were 72 million for the second quarter of 2021 compared to $71 million in the first quarter, which included $41 million from serious groups pre merger period.
There was a 1.1% increase in the other underwriting expense ratio quarter on quarter, which was due to lower earned premiums corporate expenses were $26 million in the quarter down from $68 million from the first quarter due to the absence of merger related expenses importantly, we have begun the work the on.
During work of rationalize the rising the platforms between the 2 legacy companies such as shrinking on New York area of real real estate footprint by half as we commit to a hybrid working model.
We have also rationalized our legal entities such as merging our 2 operating companies in Bermuda, and reducing our intermediate holding and service companies since the merger date, our legal entity count is down 12%.
And is on track for of 25% reduction by year end, which will simplify our operations and reduce cost. However, we also intend to make continued investments in talent and technology.
In the Anh segment personal accident rates were up mid single digits in the U S. Medical market has seen rate changes in line with inflation. The U S. Medical market remains highly competitive as utilization remains low but is expected to rebound in the second half of 2020.1.
Anh produced an underwriting profit of $3 million on a combined ratio of 97.0%, which reflects strong results in primary reinsurance and our motto care, while I M. G, which is travel focused continues to be impacted by COVID-19.
In the specialty segment casualty continues to see broad hardening with rate increases of low double digits on renewing business largely in line with the first quarter. We continued to see the benefits of the improved primary rating environment with higher adjustable bases and resulting improvement in loss ratios. The momentum of this quarter suggests the market is.
Continuing to correct for years of soft pricing and reserve deficiencies as well as the increasing loss cost trends aviation's on average rate increase near 20% off slightly from the first quarter.
Energy saw high single digit rate increases also off slightly from Q1.
U S mortgage continues to see strong double digit premium increases driven by increased new home sales and higher home values, although rate per risk unit has flattened as we are seeing more reinsurance capacity enter the market. Our specialty segment accounted for 51% of gross premiums written in the quarter underwriting income was largely break.
Even with the 100% combined ratio and reflects prudent loss picks in the growing Arcadian Pi and environmental books to account for the greenness of this business. Despite our overall confidence in.
And these platforms to generate underwriting income in the long term.
And the property segments rates reflect the April 1 Japan in June 1, Florida renewals and were up mid single digits off slightly from the prior quarter flow.
Lord of golf programs, So all of a rate change of plus.
Just 20 per cent and loss impacted the first layers in zero to 5% in top layers, but generally we observe the market is trending back to flat on non non loss affected programs and layers, which were oversubscribed and the rates flat to up mid single digits. We have pulled back our Florida limits approximately 15% as of second.
Quarter end, and we non renewed accounts, where we viewed the pricing of snap, but relative to shifting exposures.
In U S Pro rata rates were up in the high single digits with loss affected accounts getting more especially post winter storm Uri in Q1, but there is rate fatigue and generally rates seem to have peaked after about 40 consecutive months of hardening. Our property segment accounted for 38% of gross premium written in the quarter producer.
And the underwriting profit of $30 million on a combined ratio of 84% we have an attractive globally diversified cat portfolio, where we will also take advantage of the highest risk adjusted returns.
When allocating our peak zone Cat P. M. L. A process, we anticipate continuing through January 1st of next year. The run off segment had negative production in the quarter due to canceled rewrite of of discrete contract and overall no underwriting gain or loss.
Net investment income for the second quarter was $77 million, which compares to net investment income of $187 million from the first quarter of 'twenty or 'twenty, 1 as gains from our investment in the third point enhanced fund were $45 million, representing a 3.7% return in the quarter, primarily driven by gains in long.
Equity versus a 14, 6% return in the first quarter.
As well as the nonrecurring nature of the $35 million pie valuation write up in Q1, while investment returns normalized from the strong gains in the first quarter second quarter returns were still above our annual expected return assumption.
We continue to be very pleased with our results and our partnership with third point LLC.
Overall risk assets were $1.8 billion, consisting primarily of $1.2 billion in the third point enhanced fund and $441 million in legacy serious group of alternative assets and total which were 25% of the total investment portfolio unchanged from March 31 the.
The balance sheet continues to improve in the in the quarter of shareholders' equity increased by $74 million. The $2.7 billion total capital, including debt was $3.6 billion.
Our debt to total capital ratio was unchanged at 24% the.
The change in value of liability classified.
Capital instruments in the quarter was $16 million the details of which can be found in our posted financial materials.
As stated on last quarter's call. We do expect the value of these instruments the change from quarter to quarter based on the past of your time on the option like elements of these instruments as well as fluctuations from serious point stock price on among other factors in the second quarter, the contingent value rights or C V ours and the warrants issued in the purchase of theory.
We're listed on the O T X Q ex exchange under the symbol S. S. P C F and pink sheet market under the symbol S. S. P F F respectively, giving holders of the securities additional.
Out of a new for liquidity also in the quarter. The cornerstone investors in the series B preference shares sold $5.5 million of their 8 million shares to the public and of registered offering in the securities now trade on the New York stock exchange under the symbol S. P. N T Dash P. B the cornerstones may seek our support for additional registered offerings.
The the contractual terms of their series B investment.
Now, let me turn the call back over to Sam for concluding remarks.
Thank you David.
I'm very pleased with our execution this quarter, we've made solid progress delivering on elements of all 3 of our strategic pillars stable.
Stabilizing our portfolio on improving our profitability, we vitalize on growing our core insurance and reinsurance books and building alternative business models, partnering with and investing in innovative businesses and teams of the insurance industry.
This is the Liberty is an important first step as we work to establish serious points of underwriting profitability on future development and growth by being best in class of allocators of capital diligently managing the risk and growing higher margin of differentiated businesses, while investing in technology.
I'm extremely proud of the top came on partnerships, we have assembled on the talent in the organization on.
I believe we're going to continue to be the partner of choice for entrepreneurial and best in class capital Allocators, who intend to build disruptive and innovative businesses on.
Look forward to updating you on our continued progress next quarter.
Thank you for your time on I'll turn the call back to the operator.
Thank you for attending today's presentation. The conference is now concluded you may disconnect.