Q4 2021 Siriuspoint Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the serious 0.4th quarter and full year 2020 One earnings conference call. During today's presentation, all parties will be in a listen only mode.
A reminder, this call is being recorded I would now like to turn the call over to MS. Claire Kerrigan head of Investor Relations for serious claim. Please go ahead.
Thank you operator welcome to the serious point limited earnings call for the fourth quarter of 2021 .
Last night, we issued our earnings press release, and financial supplement which are available on our website www dot serious P. T dot com.
With me here today are sits on crime, all chairman and Chief Executive Officer, and David Genius, Our 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.
Result, assessing risks and uncertainties.
Please refer to the earnings press release, and the company's other public filings, including our recent Form 10-Q for the period ended September 30 of 2021, where you will find risk factors that could cause actual results to differ materially from these coatings statements.
In addition management will discuss 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 to 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 terrific to be speaking with you on the first anniversary of serious points formation.
At the end of February last year, we created a company that has enormous potential with a global platform strong long term relationships and outstanding talent.
Our strategy is focused on a comprehensive re underwriting our property casualty and specialty reinsurance portfolios.
Building value in our insurance and services segment, including our robust and growing platform.
And repositioning our capital allocation within our investment portfolio.
Yeah.
The team has been relentless this year their dedication to positive change in profitable growth and I couldn't be more proud of the talented people who make up serious point.
Some of our milestones. This year include launching on the New York Stock Exchange on February 26, 2021 under the ticker symbol S. P. N T with a new management team, who bring a wealth of diverse experience and expertise.
Creating an insurance and services division and developing our brand as the go to partner for entrepreneurs in the insurance industry.
We've evaluated over 200 partnership opportunities and have long strategic partnerships with over 20 companies, bringing our total portfolio to over 30 relationships.
We've recruited significant new hires in key growth areas and functional support with unique skills and expertise to build on our outstanding talent and drive our business forward.
We've made significant progress over the last year.
Dramatically reshaping our company with a single minded focus on our goals of optimizing our capital allocation, reducing our volatility profile.
You have a global platform to build long term differentiated value for our shareholders partners and clients.
Our focus remains on continuing to shift to a more balanced business mix between insurance and reinsurance.
In particular away from property cat and on reducing equity exposure in our investment portfolio.
As part of our underwriting review, we've materially reduced our property exposure.
Eliminated flow driven transactions and re underwritten our global reinsurance book.
Recent property reinsurance market conditions reinforced our decision to shift to a more diversified portfolio across reinsurance and insurance.
Our investment portfolio had superior returns in the first three quarters of the year.
The fourth quarter results reflect good performance in the broader equity markets.
During the quarter, we completed a redemption of $450 million from the third point enhanced fund to be deployed in cash and fixed income.
With an additional $100 million redemption at the end of January 2022.
We've amended the investment management agreement with third point LLC to facilitate the transformation of our investment portfolio from equity to fixed income.
In line with our risk appetite and the strategic direction of the company.
Our plan is to reduce capital intensity and volatility on the asset side.
This frees up capital to support the growth of our insurance and services business.
More disclosure on our revised investment management agreement will be included as part of our 10-K.
As part of our overall transformation, we've reset them cereal business into two reporting lines effective in the fourth quarter, which our reinsurance and insurance and services.
Previously, we manage our business in four reportable segments.
T accident, and health property and runoff and other.
This change better reflects the management structure of serious point.
It provides greater transparency into the growing contribution from our fee businesses.
Reflects our decision to exit the run off business.
Ultimately this will allow investors to better track our progress as we build our insurance and services business and work to accelerate growth and improve our profitability.
Starting with our reinsurance segment, we're pleased with the material shift in our book over the last three quarters and with the significant reduction in our volatility profile, resulting from our January one renewals, which decreased our gross and gross and net exposures by 35%.
As well as reducing our volatility profile. This decrease reflects our view of price adequacy across global property reinsurance.
Rate increases in property cat reinsurance had been underwhelmed falling yet another near record year of global property Cat losses.
There is still excess supply in the market dampening price adequacy.
In particular pricing at one one was under our expectations and averaged an approximate 10% increase for property cat excess of loss.
That's part a loss free accounts and 15% to 25% for loss affected European geographies.
In general the market did not experience demand supply imbalances.
New entrants and some existing companies gain market share or access to programs with other insurers and reinsurers reevaluating their positions in property, reducing aggregates and moving away from ground up exposure is falling heavy losses.
Even with significant changes in our property portfolio, we retained our key clients sustaining our long held him greatly valued client and broker relationships.
We have been clear that our overall limit profile is going to decrease quite dramatically and that pricing will have to change in the upcoming renewals and our clients understand that.
We've engaged clients with respect our point of view on risk and pricing and we've worked with us over many years.
I'm confident that will continue to be the case and I'm appreciative of their ongoing support.
As part of the continued management of our Cat exposure. We've also increased our levels of retrocession protection.
This includes favourable placement of words quota share program, which is based on long standing relationships and where we've added some new markets and treaties.
We've also fully place or excess of loss retrocession, providing a significantly more protection than we have in place in 2021.
As a result of our actions we have a materially reduced global property book and a re underwritten and more differentiated specialty and casualty portfolio.
In some book such as U S. Casualty, we turned over more than half of the portfolio, resulting in a position where we have a better more specialized client mix.
We'll continue to refine our appetite and optimize capital allocation to ensure we are responsive to market conditions.
Turning to our insurance and services segment.
Underwriting primary insurance and a growing number of business lines, where we offer insurance solutions to meet the changing requirements of our partners.
Yeah.
We have a steady a and H portfolio and our fast growing P&C portfolio.
The A&H MGA platform includes our wholly owned subsidiaries are monetary International Medical group also known as IMG.
And a carefully curated portfolio of M G as writing employer stop loss.
The P&C platform includes partnerships with disruptive mcas offering differentiated insurance products.
We've also initiated several nga's, including Arcadian, and Banyan, which underwrite excess casualty you know D&O and E. T L. I products generally for large clients.
Enjoying a tech enabled midmarket underwriter.
Our poker Nga's cover a range of products, including workers' compensation, cyber small commercial consumer credit aviation and weather derivatives.
We're very selective and partner with MGH that are building, a strong competitive moat by addressing customer needs with the technological and underwriting advantage.
I'll return to our partnership strategy shortly.
Insurance and services delivered strong results in 2021 with segment income of $34 million and a combined ratio of 95, 5%.
Across P&C insurance lines, we've seen products at different stages of the pricing cycle.
Rate increases are slowing in lines, such as D&O, while other lines such as cyber are seeing an acceleration in rate.
Additionally, casualty ceding commissions have reached unacceptable levels from a reinsurance perspective, but are quite attractive from an insurance angle.
Our MGA strategy allows us to play in the profitable portion of the risk value chain.
Covid tempered loss trends on the A&H side, while restraining sales through much of the year.
Our travel business was slow in the first three quarters. It saw a significant rebound in Q4.
And we enter 2022 with strong momentum.
We're investing in our travel medical businesses to take advantage of the positive tailwind.
We continue to monitor RMG as to deliver underwriting results in the year ahead, and expect to build and grow our portfolio of partner businesses.
The associated revenues allows us to diversify away from our traditional reinsurance portfolio.
The combination of service income in underwriting income in this segment requires less capital.
We also believe the underwriting cycles are less volatile on the insurance side in comparison to reinsurance.
We're seeing entrepreneurs launch MTS with a particular interest in casualty and specialty lines.
These disrupted M T A's are being launched by market talent moving from the traditional reinsurance and insurance.
We are offering an alternative to these entrepreneurs to whom we can provide not just backing in distribution, but also expertise to help them manage the paper and balance sheets offering underwriting advice and growth capital.
Much more than a typical reinsurance relationship.
In many cases, we establish multiyear partnerships, which create value for the MTA as well as ourselves through the alignment of interest through our investment in the Ngls.
We clearly understand that third party delegated authority, coupled with rapid growth is the main risk of the sector.
We address that risk by clearly defining our underwriting guidelines exercising ongoing underwriting oversight and constructing deal structures to align incentives and mitigate exposure to serious points balance sheet.
I'm greatly encouraged by the market reception to our differentiating insurance and services strategy and excited by the momentum for generating profitable growth in our insurance and services segment.
I will now hand, the call over to David to take us through the financials.
Thanks, Ed for.
For the fourth quarter, we generated a net loss of $140 million or 88 cents per diluted share versus net income of $134 million or $1 43 per diluted share in the same quarter a year ago, our annualized return on average common equity in the quarter was negative 23 seven <unk>.
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I'd mentioned, we returned to underwriting profitability. Following Q3, but this was offset by investment losses, driven by broad equity market decline.
For the full year, we generated net income of $45 million or 27 cents per diluted share versus net income of $144 million or $1 53 per diluted share in the prior year. Our return on average common equity was two 3% for the year.
Sid mentioned this quarter, we changed our reporting segments to reinsurance and insurance and services the combination of which we define as core with our remaining results, including the former run off segment reported in the corporate results core underwriting income and net core services income are each presented on a gross basis to show the contribution of Undrawn.
Writing and our consolidated distribution platforms before intercompany eliminations, so as if the two parts of the company operated independently as part of this change we have broken out service fee income and expenses as well as gains and losses from our investments in M. G's separately from underwriting income this provides stakeholders with gas.
<unk> transparency into the profit contribution from the feed driven parts of our business as well as the returns on our investments and our strategic partnerships. The combination of core underwriting and net core services income is core income. We believe this presentation better reflects our company's strategy and management structure.
And provides transparency on which to evaluate the transformation of our reinsurance business and the growth in our insurance and services segment additional detail in our segment presentation can be found in our press release and financial supplement on our website and Form 10-K . When it is filed early next week.
We had core underwriting income of $35 million for the fourth quarter and a combined ratio of 93, 6%, which compares to an underwriting loss of $45 million and a combined ratio of 128% in the fourth quarter of 2020.
Prior period results were negatively impacted by reserve strengthening in Q4, 'twenty 'twenty. Our current quarter combined ratio included $24 million of catastrophe losses are four five points. Our core segment loss for the quarter was $7 million, reflecting the write down on our carrying value in parts of our strategic investment portfolio for the.
Full year, we had a core underwriting loss of $174 million and a combined ratio of 110%, which compares to an underwriting loss of $68 million and a combined ratio of 112% in 2020, our full year combined ratio included $326 million in catastrophe losses were 19 points are.
Our loss for the year was $163 million.
Our gross premiums written for the fourth quarter were $691 million and $2 $2 billion for the year, we do not view prior year comparisons as relevant given the merger and the transformation of the book However, our gross premiums written and net premiums written grew 20% and 4% respectively on an estimated pro forma basis year over.
A year, we continue to see strong year over year contributions from our established MGA relationships with promising initial contributions coming from our more recently announced ventures with the expectation that their contributions will be material in 2020.
Looking at segment results in more detail reinsurance and insurance and services produced underwriting income in the quarter of $31 million and $4 million, respectively, and combined ratios of 91, 2% and 98%.
Reinsurance improved sequentially on lower cats insurance and services had a segment loss of $38 million driven by $47 million decrease in the estimated fair value of one of our strategic investments reversing gains from earlier in 2021.
The quarter included $44 million of services revenue versus a minimal amount in the prior year net service fee income was lower than our long term expectations in 2020 , one because our IMG service platform was impacted by reduced travel revenue due to COVID-19 as well as the startup nature of our consolidated M Jays of arcade.
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On a full year basis, the reinsurance segment had an underwriting loss of 197 million and a combined ratio of 116% on heavy cat losses. The full year results for reinsurance include $326 million of catastrophe losses, primarily due to the European floods and hurricane Ida our ultimate loss estimate of 100.
$33 million for the European floods, and $100 million of Hurricane Ida remained unchanged from last quarter.
<unk> stated we are continuing the process of lowering our cat risk through a reduction of gross and net limits.
Underwriting individual risks within the portfolio. This is a parent and a reduction in our risk limits at one January 2020, do where P. M. L. Gross limits gross net limits, which are limits after the impact of a regional property quota shares and net limits, which include the benefit of our view on our retro programs are down 30 to 30.
5% year on year at January one we placed the first layer of 50 million excess $50 million program for global property Cat risks, excluding the U S and a second layer 100 million excess 100 million for global property risks, including the U S and creating a protection layer between $50 million and 200 million for 20 years.
22 are you now retro program leaves us holding residual net risk exposure to frequency of severity and events under $50 million as well as risk above $200 million, we continue to hold cat risk at higher than target level, particularly in the first half of the year as we reduce our exposures on business, whose annual expiry dates are April one.
In June one of 2022 and remain committed to working this risk down further over time.
On a full year basis insurance and services produced segment income of $34 million with $11 million of net service income and underwriting profit of $23 million and a combined ratio of 95, 5%.
Net service income included $134 million of services revenue predominantly from our A&H M G as IMG and Armada combined with Arcadian banyan enjoying.
Insurance and services underwriting profit benefited from strong growth in our P&C M G as well as $14 million of favorable prior year development from A&H. The Anh line continues to benefit from favorable loss ratio trends and its health care products due to lower health care utilization rates that we attribute to the COVID-19 pandemic.
Turning to total COVID-19 losses, and reserves consistent with the prior three quarters, our ultimate loss pick remains effectively unchanged, while we recognized less than $1 million of COVID-19 losses in the quarter as we earn in our multi year mortgage insurance book.
We're beginning to see favorable trends in the settlement of individual policy claims versus held reserves, but we believe responding to these trends it was premature.
We continue to monitor overall developments and recent court rulings on Covid, particularly on impacting the property business interruption.
For non Covid reserves, we had $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. We continue to cautiously approach are growing casualty book setting reserve above pricing and waiting for these green books to season.
While observing early positive trends in actual versus expected.
Our underwriting expenses were $33 million for the fourth quarter of 2021, or a six 2% <unk> ratio the respective full year figures are $135 million of underwriting expenses or seven 8% <unk> ratio corporate expenses, excluding service expenses were $33 million in the quarter.
Excluding one time items corporate expenses are $19 million for the quarter in line with prior quarters, we have largely completed our work on rationalizing our legal entities and reducing our real estate footprint and expect savings from these efforts to begin to flow through the financials and 2022.
They offset by ongoing investments to upgrade our it platforms.
Corporate generated an underwriting loss of $37 million for the three months ended December 31, 2021 as discussed in the third quarter. This loss was driven by exit of a runoff business through a loss portfolio transfer to Capri, which includes premiums paid $381 million to covers subject loss reserves of 362.
Yeah.
Including $4 million of federal excise tax we have incurred on the transfer we recognized a net charge of $23 million in the quarter. This transaction reduces our loss reserves incorporate by approximately half, including some of the longest tail and most challenging reserve classes, including Amy.
The net investment loss for the fourth quarter was $151 million driven by losses from our related party investments of $97 million. A returning <unk> 21 was negative seven 5% while the full year return was plus 27, 9%, we remain committed to reducing our ongoing exposure to equity in our investment portfolio and.
Through $450 million from third point enhanced fund at November and in December and 2021, and another $100 million at the end of January . However, this remains above our long term target for hedge fund equity risk exposure and we will continue to reduce our exposure to equity and our legacy series group alternatives portfolio.
In addition to the losses from <unk> in the quarter, we had $46 million of investment losses from our strategic investments portfolio, which is largely accounted for on a fair value basis.
Gains we had in <unk> 2021, largely reversed in the fourth quarter due to the large decline.
On the market multiples for MJ, platform's, <unk>, leaving us with a loss of $5 million for the year.
Underlying business performance of the M G's in which we have investments for the large part continue to perform to our expectations. The market fair value is not necessarily indicative of underlying operating performance.
Performance in fixed income and collateral original currency continues to be inline with expectations for rising rates were offset by yield income and spread tightening performance on a U S. Dollar basis was negatively impacted by the strengthening of the U S. Dollar against foreign exchange nominated assets that back non U S dollar liabilities.
While it is said we have derisked the investment portfolio, we expect Q1 returns to be depressed based on market returns through today.
The change in value of liability classified capital instruments in the quarter was a gain of $16 million as stated on last quarter's call. The value of these instruments will change from quarter to quarter based on the passage of time and fluctuations in serious point stock price on the option like elements of these instruments among other factors.
Our balance sheet remained strong ending the quarter with $2 $5 billion of shareholder's equity total capital, including debt was $3 3 billion issued debt was unchanged in the quarter and our debt to total capital ratio was largely flat at 25% on the change in equity.
Book value per diluted share fell 6% in the quarter in.
In the first two months of 2020 do both S&P and Fitch have reaffirmed our a minus insurer financial strength ratings now let me turn back the call to said for concluding remarks.
Thanks, David.
Going into 2022, our focus remains on profitable and sustainable growth.
Shifting our business mix and continuing to execute on our insurance and services strategy.
When we close the merger last February we knew it would take a year and one one renewals to Derisk our reinsurance book.
Yeah.
While our results are not yet reflective of the work we have undertaken I'm confident that we have positioned our reinsurance portfolio for lower volatility and improve profitability going forward.
Well, we've been successful in repositioning our portfolio. We've also made meaningful investments in over 20 Mg as an insurance services company.
Bringing our portfolio of partnerships to over 30.
We believe these partnerships will accelerate our growth and improve our profitability as these investments mature over time.
Okay.
Lastly, we've derisked, our investment portfolio, which will result in lower returns, but also lower risk volatility in the year ahead.
We have financial strength, a flexible underwriting and operating platform a great team with a strong entrepreneurial culture and a disciplined growth mindset.
I'm full of enthusiasm for the year ahead.
Thank you for your time and I'll turn the call back over to the operator.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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