Q1 2022 Siriuspoint Ltd Earnings Call
Any risks and uncertainties.
Please refer to the earnings press release, and the company's other public filings, including the recent Form 10-K for the period ended December 31 2021.
You will 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.
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 sit.
Thank you Claire and good morning, everyone.
I'm extremely pleased that the first quarter of 2022 showed positive underwriting progress as we continue to execute on the strategic priorities, we laid out one year ago to transform our business.
<unk> launched in 2021 with the capital platform and expertise to address our legacy challenges and unlock the potential that exists in our company.
When we launched we outlined our plans to achieve profitability through a shift in business mix towards insurance products.
A significant reduction of exposure to catastrophe risk.
And a complete re underwriting of our reinsurance business.
Finally on the asset side, we intended a derisking of our investment portfolio.
This is the first quarter of meaningfully reflects the hard work that has been undertaken since then.
We achieved a consolidated underwriting profit of $34 million for the quarter with a combined ratio of 93, 7% and gross premiums written of just over $1 billion.
Our results this quarter show progress the deliberate shift towards a promising insurance and services segment.
Our strategic partnerships approach gains traction evidenced by growth and momentum in premium and profitability.
We also improved on last quarter's reinsurance segment results as our steps to reduce the risk in our portfolio and ruthlessly execute on our re underwriting continued.
I am extremely pleased in our progress on both of these fronts.
That said our investment results were disappointing this quarter driven primarily by losses in the third point enhanced fund.
We continue to execute our investment Derisking program in the coming quarter.
I'd like to dive a little deeper on our progress.
We have remediated reduced and refine serious points underwriting portfolio and risk appetite.
We executed a loss portfolio transfer to exit legacy run off business and freed up capital.
We announced an agreement for an industry first in the creation of a solution for the investment needed in our Lloyd's platform, which I'll return to shortly.
And pivoted, our focus from property cat reinsurance to harness opportunities across the insurance market, particularly through our unique strategic partnership approach.
We've also restructured our legal entities to streamline operations and reduce cost.
We've attracted industry, leading talent to our open senior leadership roles and the integration of our legacy companies has progressed well.
This has been a dramatic capital reallocation.
And that includes shifting our investment portfolio from equity to fixed income.
In line with our risk appetite and the strategic direction of serious point.
This approach also frees up capital, which we intend to redeploy its posted growth in expected value creation of our insurance and services business.
As I will discuss shortly we're seeing growth in our more established partnerships and green shoots of progress in many of our newer investments.
We believe that we're positioned serious point for long term profitable growth through the meaningful restructuring work that we've undertaken.
And as a result, we see significant intrinsic value in our current share price.
Given the material discount to book value, we repurchased $5 million of common stock in March with $57 million remaining in our share repurchase authorization.
We will continue to review our share repurchase program quarter to quarter.
Much of the value we are creating is within our insurance and services segment.
We're shifting our identity from a traditional reinsurer rebalancing our business to create value for our shareholders and positioning a serious point for the future.
This transformation is largely driven by our strategic partnership model within our insurance and services segment.
We believe our MGA first model allows for sustainable value creation.
The differentiating technologies more likely to be developed and small innovative organizations.
And that the best underwriting talent is increasingly gravitating towards entrepreneurial managing general agents.
Serious points competitive advantage as a partner to these MGA supporting those with a differentiated and value add offering and a variety of ways.
We believe that strong strategic and incentive alignment is key for mutual success.
We often establish multiyear partnerships to create value for both businesses.
We can provide growth capital distribution access to a global platform fronting our extensive expertise, including underwriting actuarial and product development.
And finally management of regulated insurance company paper and balance sheets.
We provide much more than a typical fronting where reinsurance relationship working towards the success of both of our businesses, while driving disruptive change in entrepreneurial life insurance industry.
We are very selective partnering with MGH and insurance service providers that are building a strong competitive moat across a variety of sentiments by addressing customer needs.
We've announced over 20 strategic partnerships with MGH and insurance service providers in the last year, bringing our total partnerships to more than 30.
We believe these partnerships will accelerate growth and improve profitability as we support our investments to mature over time to deliver long term sustainable value.
In the fourth quarter of 2021, we resubmitted our results into insurance and services and reinsurance in line with our strategy to provide more transparency into the value creation from insurance and services.
The segment had a strong start to the year generating income of $24 million, including underwriting income of $10 million with a 95, 5% combined ratio and $14 million of service income on $57 million in service revenues.
I wanted to highlight three types of MGA partnerships.
The first is incubation or start ups, where we can provide startup capital operational support licenses and expertise to allow entrepreneurs to launch new businesses in record time.
These include Arcadian risk capital, which offers general and professional liability and property.
In risk, which underwrites D&O.
Joining insurance cover in small and mid market commercial insurance.
Unify which offers credit insurance.
Parameter climate, which provides climate underwriting and distribution and.
<unk>, a Florida homeowner insurance carrier.
Secondly, we partner with technology enabled MGH, where we're making investments generally at a relatively early point in their maturity offering capital paper <unk> function arrangements.
These include Qorvis cyber insurer honeycomb, which provides commercial real estate insurance players health offering amateur youth sports insurance and risk management and startup ensure about.
Finally, we have wholly owned subsidiaries our motto care, which provides supplemental health and employee benefit solutions and international Medical group, where IMG, which provides travel medical assistance insurance.
These are our most established and developed MGH with increased contributions to income and growth this quarter.
Following a return to normalcy post COVID-19 restrictions, we have seen an increase in employees using our modest supplemental health products.
Perhaps going back to the Doctor reschedule elective surgeries, leading to a very good renewal season and continued profitability following the trend set in 2021.
With an increased use of benefits are modest customers have seen continued value of their employee benefit offering and during the renewals many opted to add either employees or benefits their programs positively impacting our modest quarterly results.
We are also seeing a strong recovery in travel after a challenging 2020 in 2021 due to COVID-19 related travel reductions.
Driven by leisure travel returning to pre pandemic levels, we're seeing strong momentum in <unk> results with $1 $7 million of income in the first quarter versus breakeven in the same quarter last year.
With the insurance generated by LNG for serious points balance sheet generating a combined ratio for the quarter of 98%.
Leisure travelers are taking longer and more expensive trips and choosing to buy insurance at a higher rate than pre pandemic norms, resulting in continued strong performance within the travel medical market segment.
Serious point is accessing this opportunity via Rmg's approach to merchandising on key Aggregators and the business is effective direct digital marketing program, while we continue to invest in R&D platform to grow product and distribution.
Our partnership with mosaic insurance is designed to reinvigorate curious points from Lloyd's Syndicate $19 45.
As part of the partnership and subject to Lloyd's regulatory approval, which we anticipate the second half of 2022, Mosaiq will acquire a managing agency, while serious point retain syndicate $2 45.
This creates a unique arrangement, but offers a path to growth and development also providing serious point access to mosaics growing product classes and geographic reach with best in class underwriters.
Our alignment with mosaic includes taking a stake in the business in a seat on their board.
Separately Syndicate 1945 improved in Lloyd's rankings from the fourth to second quartile over the last year due to focused work to improve the underwriting which is reflective of the reevaluation remediation and innovation being applied to our entire business, while making tough choices on the business we continue to write.
In addition to the MJ partnerships, we invest in high value insurance service providers that support the MGA ecosystem. These.
These include Lucky truck digital broker aggregator specializing in commercial trucking insurance broker Buda commercial insurance platform that simplifies submissions for brokers MGH and carriers.
As we reposition ourselves as an insurer and partner of choice for entrepreneurial nimble MGH and tech enabled insurance service providers.
<unk> mediating the reinsurance segment of our business remains an important part of our strategy and is a key part to play in the sea This point offering.
We have outstanding reinsurance talent within our business, which drives our reinsurance client and broker relationships and provides a deep bench of expertise for both our reinsurance book and the MGA and insure tech partnerships.
You have an established global platform, which provides access to global and local opportunities and we are a nimble approach to market opportunity and rate adequacy.
All of which we intend to leverage to position us for long term disciplined growth within our risk appetite.
Following the substantial and ongoing re underwriting and reallocation in our reinsurance segment premiums written for the quarter were $524 million with the segment income of $3 million and a 99% combined ratio.
David will address our specific Ukraine, Russia and catastrophe losses. This includes our current modest underwriting loss estimate for Russia, and Ukraine of $13 million and combined with catastrophe losses net of reinsurance and reinstatement premiums of $7 million, which falls within our budgeted cat load for the quarter.
As is the case for businesses across the insurance and economic markets. We're closely monitoring the potential impact of the Ukraine, Russia conflict.
The full consequences of this more skill to unfold in terms of economic contractually human cost.
Ultimate impact on our business of this conflict still remains uncertain.
Continue to monitor the unfolding situation closely and ensure full compliance with applicable sanctions.
More generally we've made major changes in our reinsurance segment in the last 15 months, having exited or non renewed approximately $700 million of business, reflecting major re underwriting across our portfolio.
We continue our re underwriting as transactions renew and anticipate additional portfolio actions throughout 2022.
We have reduced our global property aggregates by more than 30%.
A more prudent risk thresholds overall as well as the pullback from select regions in Payrolls will review there is heightened risk or an adequate rate.
We exited London direct and facultative property as well as most cat exposed property risk and U S property pro rata, where we have concerns about inherent catastrophe pricing and the risk presented by secondary perils.
We exited the legacy third point re flow transactions in our book of political violence Workers' comp Cat Sideburn War previously written out of our Bermuda office.
We also exited a significant volume of accounts in our U S. Casualty pro rata portfolio replaced by structured a niche business, which we expect to outperform higher acquisition cost commodity accounts.
Our re underwriting its a continuous process with account by account scrutiny across our portfolio, including the deal structure target economics in distribution as well as other factors, including the market cycle and viewed the seeding company.
We have flagged approximately 20% of accounts that are current reinsurance portfolio for likely non renewal or increased scrutiny, including where the market cycle has peaked and conditions are deteriorating or generally where we preferred improve our position with more niche and non commoditized business.
Well for one rates were generally positive we deployed approximately 30% less aggregates been planned before loan renewals.
This reflects our underwriting discipline and avoidance of risk, which we view as under priced or inadequately model.
Lower aggregate deployment creates a near term impact on our financial results given the higher fixed cost of a retro session.
However, we have retained the option to deploy more aggregates later in the year such as Atlantic wind at six one should the pricing and terms be favorable.
We remain committed to our strategy for global reinsurance in our specialty property reinsurance to maintain discipline and avoid deploying aggregates unless we have confidence in the risk reward profile and price adequacy of the business.
This strategy includes shifting to a more nimble lower cost operating model. So we have the ability to flex our topline up or down in response to market conditions and avoiding the topline pressures associated with high fixed operational retrocession expenses.
Okay.
The net investment loss of $205 million is the main driver of our overall results this quarter.
This is very disappointing given the progress we've made in our underwriting results and the steps that we're taking to address the pressing issue.
The return is primarily due to negative returns for the long term fundamental equities and the third point enhanced fund with detraction led by growth oriented positions in the enterprise technology and financial sector.
Repositioning our investment portfolio for stable and sustainable returns remains ongoing and key priority for us.
As we reported last quarter, we amended our investment management agreement with third point LLC at the end of 2021 are aggressively reallocating capital to eliminate the extreme levels of investment volatility that we've experienced over the last year.
We redeemed $100 million from the third point enhanced fund during the quarter following $450 million of redemptions in the fourth quarter of 2021.
We intend to execute on further withdrawals from TP in the coming quarter and continue the redemption of funds.
We continue however to be extremely excited about partnership opportunities with third point and both the managed credit and TP venture space.
I will now hand, the call over to David to take us through the financials.
Thanks, Ed for the first quarter, we generated a net loss of $217 million.
For $1 36 per diluted share versus net income of $168 million or $1 35.
Diluted share in the same quarter, a year ago, our annualized return on average common equity in the quarter was a negative 39, 5%, we achieved an underwriting profit of $34 million with a combined ratio of 93, 7%, reflecting a $10 million or 160 basis.
<unk> improvement quarter over quarter, marking the fourth quarter with an underwriting profit out of the five quarters since we launched serious point.
This is our second quarter reporting under the new segment structure, our reinsurance and insurance and services the combination of which we define as core with a remaining results, including the former runoff segment reported in the corporate results core underwriting income and net core services income are each presented on a gross basis to show the.
<unk> of underwriting and our consolidated distribution platforms before intercompany eliminations. So as if the two parts of the company operated independently as.
As a reminder, as part of this change we have broken out.
Service fee income and expenses as well as gains and losses from our investments in <unk> separately from underwriting income.
This provides stakeholders with greater transparency into the profit contribution from the fee 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.
<unk> and provides transparency on which to evaluate the transformation of our reinsurance business and the growth in our insurance and services segment additional detail on our segment presentation can be found in our Form 10-Q.
Core segment income was $27 million from the first quarter 2022, including underwriting income of $13 million and a combined ratio of 97, 5%, which compares to a $15 million and a combined ratio of 93, 7% in the first quarter of 2021, which only included partial results from serious group is.
The acquisition closed at the February last year.
Our current quarter combined ratio includes $7 million of cat losses are one three points, excluding Russia, Ukraine losses, and $20 million of cat losses, or three nine points, including Russia and Ukraine.
Core underwriting income was driven by benign Nat cat activity and favorable prior year loss development, partially offset by a $13 million loss provision for the events in Russia and Ukraine.
Russia, Ukraine, despite not having any reported losses in line with our reserving philosophy.
Of recognizing bad news quickly, we've taken reserving action unknown exposures, including our exposure to a limited number of aviation reinsurance contracts with work whole coverage on planes leased Russian airlines as well as political violence trees with exposure in Ukraine.
In many cases, we reserved at or near what we believe to be our ultimate exposure. Despite this being an evolving situation with outcomes still highly uncertain.
Outside Russia, and Ukraine, net cat losses were $7 million driven by February European Windstorm in Australia and floods.
Australia, we have established a full in that reserve on a single contract and is it fair to this historic Australia and flooding.
Sid mentioned cat losses, including Russia, and Ukraine are slightly below budgeted cat loads, keeping us on track to deliver another in profit for the full year.
The quarterly results include net favorable prior year development of $5 million across three areas first we continued to benefit from prudent reserving in our accident and health book with favorable prior year development across a number of prior year accident years in both our U S International A&H books our.
Action was taken to closeout reserves on individual contracts second we took action to release a portion of our Covid reserves, an area, where we continue to see actuals come in below reserving positions on the on individual contracts, which allowed us to release specific contract level reserves as well as a portion of our management margin on our overall COVID-19 ultimate loss picks.
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Third partially offsetting this favorable development, we had adverse development related to property exposures due to CD reported losses coming in above expectations due to higher building material and skilled labor costs.
The long tail lines, we continue to see favorable actual versus expected trends in all classes, except workers' comp, which which despite pressure on rates and loss reserves are developing within our reserving margins.
Despite this overall positive trend we did not take action on these lines in the quarter as we wait for a book to season, we continue to book reserves at levels higher than prices across our entire book.
With particular attention given to our growing casualty business written by partner Ngls.
Core gross premiums written for the first quarter.
We're $1 billion, we do not view prior year comparisons is particularly relevant as the first quarter of 2021 included only one month of serious group results. However, our growth streams written and net premiums written grew 10% and 3% respectively on an estimated pro forma basis year over year. This growth reflects our business strategy.
Shifting our business mix weighting from reinsurance or insurance to reduce earnings volatility improve underwriting profitability. Our gross premiums written and net brings written business mix shift is emerging quickly with a 10 point shift from 2021.
Turning to the individual segment results in more detail the reinsurance and insurance and services segment produced underwriting income in the quarter, a $3 million and $10 million with combined ratios of 99.0% and 95, 5% respectively.
Reinsurance results were impacted by the aforementioned $13 $3 million of losses from Russia, Ukraine.
Or more than four points of losses to the segment.
Beyond the property or casualty reinsurance focus remains a niche specialty lines versus larger commodity counts, where we are seeing a good flow of new business with a positive primary commercial lines rating environment across most lines, partially offset by rising ceding commissions.
Insurance and services produced segment income of $24 million, consisting of $14 million net services income.
An underwriting profit of $10 million and a combined ratio of 95, 5% net services income primarily benefited from a modest continued strong margins and outperformance by AMG stronger revenue and lower than planned expenses contributed to margin expansion.
Services income included $57 million of services revenue versus $18 million in the prior year predominantly from our A&H MGH <unk> intermodal together with our Canadian and Daniel.
Insurance and services underwriting profit benefited from favorable prior year development across our accident and health portfolio, where we continue to reserve prudently.
Insurance and services gross premiums written in the segment were $484 million compared to $191 million in the prior year, reflecting a portfolio mix of approximately two thirds accident health and one third P&C and.
In A&H IMG saw a strong travel premium recovery and our North American portfolio has been boosted by organic increases in our portfolio and steady growth.
New business written by the North American portfolio is running well as was expected.
Our international portfolio has performed in line with our historically top tier level overall for A&H and we're very pleased with the quarter NGA are heating and band and were strong contributors to growth year on year as well as corvus, which had strong production. Following our partnership launch in the fourth quarter of 2021, and where we continue to see demand supply.
And the market for cyber insurance.
Core underwriting expenses were $46 million from the first quarter of 2022.
Or an eight 8% <unk> ratio, we are investing in A&H and our growing MGA portfolio, which is offset by efficiency gains in our reinsurance book.
Corporate expenses, excluding service expenses with $34 million in the quarter driven by elevated provisions for expected credit losses of $13 million largely due to reinsurance exposures to Russia and Florida.
Excluding this onetime item corporate expenses were $21 million for the quarter in line with prior quarters.
Corporate generated an underwriting loss of $6 million for the three months ended March 31, 2022% due to a risk attaching political islands contract with exposure to Ukraine, which was non renewed last year as part of our portfolio re underwriting.
And where we have a book loss.
Even though we have not yet received a formal loss notification.
The net investment loss for the first quarter was $205 million driven by losses from our related party investments of $131 million a return in <unk> 2022, and the third point and hence fund the bulk of our related party investments was negative 15, 3%.
<unk> targeted gains and PPE, we had in the first nine months of 2021 largely reversed in the fourth quarter of 2021, and the first quarter of 2022, we reiterate our commitment to shifting our investment mix from hedge funds to fixed income our quarter end third point enhanced balance was $650 million incorporating the previously.
We reported $100 million redemption at the end of January and the $450 million redemption in the fourth quarter of 2021. In addition, we continue to exit our legacy series group alternatives portfolio down 22% since year end to $153 million on redemptions and sales. Although this portfolio continues to be subject.
Gating and other restrictions.
We have taken further action to move away from fair market value accounting for new positions and our strategic investments portfolio, where we believe changes in fair market value driven by publicly traded peer groups are not necessarily indicative of the underlying operating performance of our privately held portfolio the underlying business performance of the <unk> in which we have invested.
That's for the large part continuing to perform to our expectations.
Our $3 $6 billion of fixed income portfolio inclusive of short term investments had a loss of $61 million in the quarter or a return of just under 2%. This was despite the interest rate increase in the first quarter as we have positioned our fixed income portfolio at one eight years, excluding cash and cash equivalents relative to relative.
Two our liability duration at approximately three years of duration positioning as well as an allocation to cash and short term investments will enable the company to benefit from a rising rate environment.
Funds away from hedge funds.
Widening credit spreads also impacted returns, although we expect this short duration portfolio.
To pull to par towards maturity residential MBS and corporate debt led to declines.
Our balance sheet remains extremely strong ending the quarter with $2 $3 billion of shareholder's equity total capital, including debt was $3 1 billion.
Issued debt was unchanged in the quarter, except for FX changes and our SDK sub debt and our debt to total capital ratio was up one point to 26% on the change in equity tangible book value per diluted share fell 10% in the quarter since the start of the year S&P invest in search of all reaffirmed our a minus insurer financial strength.
Ratings now, let me turn the call back to Sid for concluding remarks.
Thanks, David.
We have positive momentum as we head towards mid year and are well positioned to take advantage of opportunities as they arise.
Our progress so far is testament to the team's tireless commitment to our transformation development and growth.
I'm immensely proud of what is being achieved across our platform and business segments to position us for long term sustainable profitability and value creation.
Our focus remains on underwriting profitability, reducing volatility across our underwriting and investment portfolios and developing our insurance and services business.
There is no doubt that we have considerable work to do but we are committed to delivering against our strategic priorities and to aid in understanding of the opportunity our growing value proposition and market differentiation presents.
Thank you for your time and with that I'll turn the call back over to the operator.
Thank you that does conclude the conference call for today, we thank you all for your participation and kindly ask that you. Please disconnect your lines have a great day everyone.
Yes.
Yes.
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