Q3 2021 Siriuspoint Ltd Earnings Call

Please come to standing up the company's financial results.

A reconciliation of these non-GAAP measures to the most comparable GAAP measure is presented in 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.

It's been an eventful third quarter for the industry and for serious point.

I'm going to share my perspective on the market our results this quarter and the work we've undertaken to position serious point for sustainable and profitable growth.

This includes working to shift the mix between the insurance and reinsurance portions of our portfolio.

Applying changes to our legacy books by addressing lines of business that no longer fit our risk appetite.

Our continued and growing investment in our insurance and services platforms.

And our planned rebalancing of our investment portfolio.

We believe all of this will shape, our future growth and create value for our stakeholders.

To begin the third quarter exacerbated what has been another significant catastrophe year, highlighting the frequency and severity of secondary payrolls impacts on market losses.

Serious points of losses for Hurricane Ida and the European floods are based on estimated insured market losses of $40 billion and $14 billion respectively.

David will address a loss position a robust approach to reserving and the significant strength of our balance sheet in his remarks.

The losses in the industry as reported not just this quarter, but in the past few years serve to validate our focus on managing the volatility of our property business as we continue to implement the changes identified by a line by line business with you.

While we have a strong balance sheet to absorb these losses, we're making strong progress managing our books to de risk by exiting risks that no longer fit our risk profile or we do not see attractive risk adjusted returns.

Since the close of the merger in February we've made strides reducing our catastrophe exposure through modest additional reinsurance purchases and rebalancing the overall portfolio, the non cat lines, including accident and health credit aviation and niche U S casualty lines.

A reduction of <unk> over the last year reflects execution of the purchase of additional retro sessional reinsurance protection.

Reduction of the legacy third point re property catastrophe book and exiting risks that failed to meet stringent risk hurdles.

However, these actions were insufficient in our minds to manage exposures down to acceptable levels on the enforce book acquired in the merger.

We remain committed to property reinsurance, although we've been clear in our intention to reduce our exposure and we and the industry need to reprice large parts of the business to generate acceptable returns.

We will reduce our exposure to property in general and property cat in particular through three key actions.

First by repricing businesses of risk, where we do not believe the historically price margin is adequate such as cat exposed property pro rata business.

Second by applying a broad reduction in gross and net limits and in particular outsized individual lines, particularly in geographies, where low pricing for broad coverage presents potential overreliance on imprecise risk assessment.

And finally by structuring a reinsurance protections to manage our net limits within the companys risk appetite.

As we've said on prior calls we anticipate that reshaping our portfolio would take a full year to accomplish given the majority of our coverages renew at one one.

Importantly market conditions are improving due to the heavy industry losses from catastrophes this quarter.

As a result, we expect to see better terms and conditions and pricing in the property market, although our focus remains on.

On balancing our portfolio to reduce risk and the associated volatility.

We've also seen heartland broadly in other lines, including cyber and large portions of the casualty and specialty markets in both primary insurance and reinsurance across most geographies.

We believe the market is maintaining underwriting discipline and we don't expect deterioration in terms.

Through our remediation efforts, we expect to see an improvement in underwriting profitability with lower volatility going forward.

While we experienced underwriting losses this quarter, our relationship with third point LLP and the impact of their expertise on our investment portfolio helped to mitigate those losses and continues to be a differentiator for serious point.

We felt very strong returns this quarter, which were predominantly from our investment in the Tpa enhancement and was primarily attributable to long event fundamental and Actavis equities in particular strong performance from the <unk> largest positions.

Equity markets continued to rebound the technology oriented stocks, leading outperformance globally.

As we execute our strategy to reduce overall volatility we also anticipate remixing the asset portfolio overtime.

This will focus on the reallocation of investments from the TP enhanced fund into lower volatility asset classes, which we expect will be material and reducing risk and capital consumption going forward.

Moving on to insurance and services. Our current business portfolio consists of the established A&H business in our primary P&C platforms.

We seek to shift our business mix and drive future growth in insurance and services through incubation of in partnership with MGA and tech companies that provide access to unique specialty primary insurance business.

This will allow us to grow premiums in the primary space with the flexibility to adjust the volume of business based on market cycles.

Across the A&H in P&C, we have more than 30 Mg as in partnerships on our platform today.

Being a liberal means we can allocate capital to areas, where we see market dislocations and demand supply gaps such as D&O and cyber.

Travel in the digital economy present other opportunities.

Strategic partnerships allow us to access business with attractive risk adjusted returns and return for equity participation, our paper and industry expertise.

Is it early days on the majority of these investments, but we do see signs of success and promise.

Examples of these investments, our corvus, which provides cyber insurance for small and midsized companies Rhino, which offer security deposit insurance for renters sold through landlords.

<unk>, providing SME insurance for startups via partnerships with entrepreneurial investing and funding platforms.

And I am Dorothy offering auto travel and other insurance products for our directors.

We're seeing strong contributions from our <unk>, which we're incubating on our platform such as our Canadian in Pi.

Let me touch upon Octavian in particular.

He co founded this MGA, which rights.

<unk> business in September 2020.

Market dislocation D&O provides an attractive opportunity and the business has led an underwritten by strong entrepreneurial talent John boiler and then the team he has built.

The business is performing very well with great market reception.

As of the end of the third quarter, our Canadian as written approximately $150 million in premium and is on track to run about $200 million in premiums by the end of 2021.

We're excited about the market interest in our Canadian and our strategic partnerships in general and anticipate that they will increasingly contribute to our bottom line in the future.

In our runoff segment, our transaction with the country group close at the end of October and underscores our focus on optimizing capital allocation and rebalancing towards insurance, a higher margin and growth lines.

It also provides further certainty I'm serious points reserve position.

Following the completion of the transaction runoff will not be actively acquiring new run off blocks in the LPG reduces our net reserve position in this segment by approximately half.

We made great additions in underwriting talent and leadership this quarter, we've added to our international leadership team hiring Bobby here seeing as head of international strategic business development.

This is a new role created to help us identify new organic and inorganic growth opportunities internationally and shift our business mix from reinsurance to insurance and services, particularly in non cat exposed business.

Patrick Charles joined our North American business this quarter as head of Americas property and casualty insurance.

Patrick leads P&C insurance business in the Americas, driving relationships with PNC, managing general underwriters and supporting the build and launch of new products.

We are delighted with our ability to attract outstanding industry talent.

To conclude we are undertaking a transformational business plan to focus on growth and improving company profitability.

This will result in reallocating capital away from property cat and investment risk and into our insurance and services platform.

We aim to better manage our risk grow higher margin differentiating businesses and invest in technology, we expect our actions and improvements each quarter to deliver progress towards value creation.

I will now hand, the call over to David to take us through the financials.

Thanks, Ed for the third quarter, we generated a net loss of $48 million or <unk> 34 per diluted share versus net income of $69 million or <unk> 73 per diluted share in the quarter a year ago. Our annualized return on average common equity was negative seven 8% for the quarter.

We had a net underwriting loss of $266 million for the third quarter and a combined ratio of 151, 9%, which compares to a net underwriting loss of $30 million and a combined ratio of 121% in the third quarter of 2020, the increase in net underwriting loss was primarily driven by third quarter.

Catastrophe losses in Europe, and North America, our current quarter combined ratio included $287 million of cat losses, or 55, 9% each points compared to 29 percentage points in the quarter a year ago. In addition, the runoff and other segment recorded $7 million of accelerated.

Expenses as we took decisive action on legacy fluke driven contracts that do not meet our cost of capital.

Looking at underwriting in more detail total cat losses came primarily from European floods and hurricane items during the middle of July heavy rainfall associated with the low pressure system burn led to severe flooding in western Europe, particularly in several German states as well as Luxembourg parts of Belgium, France.

In the Netherlands, we provided an estimated loss range of <unk> $70 million to $100 million.

Based on an estimated industry loss of.

10 billion euros on September 9th based on additional information and an updated view of industry loss to $14 billion. We now have reported losses net of reinsurance and reinstatement premiums of $132 million, we have taken into account the high level of uncertainty that exists for this event in particular due to the potential.

Impact of demand surge from a shortage of skilled contractors and adjusters. In addition, we have received a limited amount of actual ceding reporting to date due to the scale of the flooding it will likely take several quarters for the true ultimate losses for this event to become known our loss reserve for Ida is $100 million and reflects a <unk>.

$8 billion industry loss estimate and our ground up review of contracts.

We have also taken into account COVID-19 related labor shortages in the U S and anticipated supply chain disruptions, which we believe will drive loss cost inflation.

Our lower market share of either losses as a percentage of estimated industry losses, partially reflects the actions we took through one one renewals and subsequent reinsurance purchases to reduce third point res Atlantic wind exposure as we discussed we have more work to do to reduce the overall volatility in our reinsurance portfolio.

We will be executing on these changes through the upcoming one one renewals and into Q1 and early Q2 of 2022 to position our portfolio for improved results in the year ahead.

Despite these losses, our shareholders' equity attributable to shares series point common stock declined less than 2% in the quarter.

Turning to Covid reserves, consistent with consistent with the prior two quarters, our ultimate loss pick remains unchanged, while we recognized $2 4 million of COVID-19 losses in the quarter as we continue to earn in our multiyear mortgage insurance book.

While we continue to monitor overall developments and recent court rulings on Covid, particularly on impacted property and business interruption, we did not see anything in the quarter that would change our view on reserves, where more than half our IBM <unk>.

For non Covid reserves, we didn't have $16 million of favorable prior year development across multiple segments due to positive trends in discrete short tail lines and contracts that settled favorably versus our held loss positions. Our gross premiums written for the third quarter were $654 million, we do not view prior year comparisons as relevant.

Given the merger and the transformation of the book, we continue to see strong year over year contributions from our MGA relationships with Pi and arcade in with promising initial contributions coming from our more recently announced ventures with the expectation that their contributions will be more material in 2022.

Underwriting expenses were $89 million for the third quarter of 2021, or a 17 four percentage point <unk> ratio, excluding $7 million from the accelerated interest crediting expense and runoff our expense ratio was generally in line with the second quarter corporate expenses were $20 million in the quarter, including 3 million.

Severance charges down from $26 million in the second quarter. We continue the work of rationalizing platforms between the two legacy companies.

Since the merger date, a legal entity count is down more than 14% and is on track for a 25% reduction by year end, which will simplify our operations and reduce costs. We continue to make investments in talent and technology to support the transformation of the company.

In the Anh segment personal accident rates were up about 1% and U S. Medical market has seen rate changes in line with inflation. Our core book of medical stop loss remains highly competitive as utilization is only just starting to rebound from COVID-19 induced reductions. These reductions had a beneficial effect on our results for that class.

And on our book through 2020 in the first half of 2021, A&H produced an underwriting profit of $15 $2 million and a combined ratio of 86, 4%, which reflects good results and third party business and our wholly owned and to use our motto care and IMG.

In the specialty segment, we reported a net underwriting loss of $6 4 million in combined ratio of one or two 6%, which reflects prudent initial loss picks in the growing our Canadian pie and environmental books to account for the greenest of these businesses. However, we continue to have confidence in these platforms to generate underwriting income in the long term based on comparisons to.

Industry benchmarks within our core reinsurance portfolio casualty continues to be a hard market for both our Lloyds and U S platforms.

Capacity is abundant, but disciplined and we continue to see opportunities to write new attractive business.

For several segments of casualty rate adequacy has shifted from 90% to 99% in 2019 to greater than 105% currently and we expect slight hardening to continue into 2022, both with original rate.

And the improvements in terms, which reinsurers are seeing.

Continued rate increases needed in these markets to compensate for poor conditions between 2013 in 2018 as well as to account for the prospect of continued social inflation.

Marine and energy have continued to see rate increases with liability in onshore segments seeing anywhere from 2% to 5% or more rate increases however for offshore energy. Despite the Gulf of Mexico wind season being among the more active on record loss experience was relatively benign. So we anticipate some softening with upcoming 2022.

<unk> within aviation, we are seeing a pickup in travel due to easing COVID-19 restrictions with most segments of the market continue to seeing a positive rate movement.

For our global credit bond and Bermuda specialty portfolios. We also continue to see positive rate movement, particularly for new business with international credit.

U S mortgage remains fast growing those similar to the prior quarter. There was more reinsurance capacity in the market, especially with post Covid re engagement we.

We are seeing significant price increases in our other parts of our portfolio.

As Ed discussed property has experienced another well above average cat season, largely driven by the European floods and hurricane either in the U S.

Mobily, we believe they are likely will be increased price momentum as reinsurers SaaS global property exposures. Our property segment accounted for 28% of gross premium written in the quarter, producing an underwriting loss of $264 7 million and combined ratio of 276%.

In the third quarter, there is minimal new or renewed property reinsurance business. So we have limited rate change to report looking forward, we are anticipating upwards pressure globally in property cat <unk> reinsurance around 5% to 8%, especially on significantly loss impacted accounts and regions, we expect bifurcation.

And price change between the bottom and top of programs as reinsurers seek to move up in excess of loss.

Structures.

Cat exposed property pro rata reinsurance globally and in the and in particular in the U S will likely experience significant changes in prices and terms and conditions given poor experience over the last few years and there is a general sense that secondary payrolls are not well priced.

Along with other markets, we will maintain a high level of pricing discipline to ensure attritional catastrophe is appropriately priced overall, we have completed a PMO optimization exercise across our global property portfolio in some cases targeting reductions to our net position and shifting capacity of.

<unk> layers in regions, which we believe will provide an improved risk reward profile going into January one.

The runoff segment generated an underwriting loss of $9 9 million for the three months ended September 32021. This loss was driven by other underwriting expenses of $11 4 million, including a $7 1 million charge related to the acceleration of interest crediting features for certain legacy TP re float reinsurance and deposit contracts.

That do not meet our cost of capital and will not be renewed.

Renewed as.

As Sid mentioned, we completed the sale of our run off business to comprehend last week that materially reduces our runoff segment as part of the transaction the subject premium and loss amounts were updated to September 30, as a result of these and other adjustments the premium paid the company was $388 million to cover subject loss reserves of 369.

$1 million, including $4 million of federal excise tax we have incurred we expect to recognize an estimated net charge of $23 million for the L. P. T. In the fourth quarter financials subject to post closing adjustments. This transaction reduces our loss reserves in the runoff segment by approximately half, including some of the longest tail and most challenging reserving.

Losses, including Amy.

Net investment income for the third quarter was $199 8 million, which compares to net investment income of $122 million in the third quarter of 2020 as gains from our investment in the third point enhanced fund were $201 million. This is a 16, 3% return in the quarter and a 38, 3% return for nine months.

Primarily driven by gains in long equity, particularly in the funds largest positions fund performance continues to be well above our annual expected return assumption. We continue to be very pleased with our results and our partnership with third point LLC performance in fixed income and collateral and alert in original currency continues to be inline with.

Patients were rising rates were off were offset by quality yield.

Income and spread tightening performance on a U S. Dollar basis was negatively impacted by the weakening of the U S. Dollar against foreign exchange denominated assets back non U S. Dollar liabilities overall risk assets grew to $1 9 billion, consisting primarily of the $1 4 billion in the third point enhanced fund and 400.

$27 million in legacy serious group alternative assets and were 26% of the total investment portfolio up from 25% at June 30, due to strong alternative fund performance.

The change in value of liability classified capital instruments in the quarter.

It was a gain of $18 8 million as stated on last quarter's call. The value of these instruments will change from quarter to quarter based on the passenger time and fluctuations in serious point stock price on the option like elements of these instruments among other factors the.

Our balance sheet remains strong ending the quarter with $2 6 billion of shareholders' equity as good investment results largely offset the underwriting losses total capital, including debt was $3 5 billion issued debt was unchanged in the quarter and our debt to total capital ratio remained at 24% Kansas.

Tangible book value per diluted share fell one 6% in the quarter and is up just under 1% since March 31, the first financial reporting date following the merger.

Now, let me turn the call back to Sid for concluding remarks.

Thanks, David curious point launched into one of the best markets reinsurers have experienced in a long time.

Working from day, one to address our balance of business, while leveraging our global platform and relationships to benefit from the opportunities and market conditions have created.

Our focus remains on reducing volatility and delivering sustainable underwriting profitability and superior returns for our shareholders. This will be achieved by the rebalancing of our portfolio combined with rigorous risk management and disciplined underwriting.

As I look forward to 2022, I'm very excited about our prospects.

We expect the results of our portfolio review our actions to address our mix of business. The green shoots of returns from our partnership and investment strategy to be evident or.

Our team in global platform will be established our balance sheet is strong and our prospects bright. Thank you for your time I will turn the call back over to the operator.

Thank you. This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

[music].

Yeah.

Okay.

[music].