Q2 2022 Siriuspoint Ltd Earnings Call

Operational model is aligned with our overall strategic approach, allowing us to be nimble in our capital allocation and disciplined and data driven in our risk management.

We believe that the combination of a refocused reinsurance business and our growing insurance and services segment can together deliver consistent profitable results.

And positive shareholder returns.

We have continued to develop the insurance and services segment.

Through our partnerships, we are accessing new insurance products often in underserved markets.

We have now established over 30 strategic relationships across our businesses and geographies.

With recent new partnerships.

Our U S and international businesses.

<unk> also sigma.

European financial and professional lines insurance MGA.

RMP.

Another European MGA, which provide digital home rental insurance.

Samos <unk>.

Canadian surgical accidental death insurer.

And Avenue and underwriting platform leveraging technology to directly underwrite an appropriate price for semi autonomous and autonomous motor usage.

We are working with truly differentiated partners, who pass our due diligence screening for operational underwriting compatibility.

And offering them a combination of paper capital and expertise in exchange for among other potential benefits distribution opportunities in niche and specialized area of the market.

We expect this investment of time capital and expertise in turn to create margin.

We have a strong competitive position and a robust pipeline of deal activity.

And we aim to drive disciplined growth with a focus on partnerships that hold real franchise value for our company.

We believe that this partnership approach the value, we bring to partners and the underwriting value created are differentiators for serious point.

We have also made progress in our approach to managing the ongoing volatility in our investment portfolio.

We have reduced our exposure to the third point enhanced fund.

Long short equity strategy.

By over $850 million in the last three quarters and allocated the funds towards alpha seeking credit strategies.

And our assets in the third point optimized credit portfolio now stands at $415 million as of June 30.

We continue to reduce our exposure to legacy serious group alternatives position.

And Additionally, we have elected available for sale accounting, new fixed income position starting in the second quarter.

So neutral to book value compared to a fair market value approach.

Headline net income volatility.

The combination of these actions has and will continue to reduce the volatility of our investment results.

Now turning to our results for this quarter, we continue to see positive momentum.

We achieved consolidated underwriting income of $39 million with a combined ratio of 93, 1%.

We reported a net loss of $61 million in the quarter, primarily driven by investment losses.

I'll return to shortly.

Our overall topline has been steadily growing over the past year with growth of 48% year over year.

Our second quarter 2022, consolidated gross written premiums were $813 million and earned premium has grown for five consecutive quarters since the merger.

Our production growth reflects the success of our strategic shift toward insurance to focus on the growth in A&H and MGA partnerships and to improve underwriting profitability.

The premium split for the quarter is 53% insurance to 47% reinsurance.

And I am pleased with the progress we are seeing in insurance and services segment.

Segment income was $20 million for the quarter with significant improvement in underwriting results year on year, including a strong contribution from serious points strategic partnerships.

Reinsurance delivered gross written premium of over $378 million and a modest segment loss of $200000 for the quarter.

Both numbers are reflective of a business mix shift away from a volatile historical property book towards casualty business in line with our strategy.

Which we expect to bring.

The benefit of stability of our earnings over the longer term.

She natural catastrophe events in the quarter had a modest negative impact on our results.

Those are the South African floods and Midwest U S storms.

We are pleased to report no material development during the quarter on the Russia, Ukraine conflict losses.

<unk> had minimal claims notifications.

We believe we've been prudent in our reserving to take into account our view of the ultimate losses in these events.

Theres not been any development during the quarter to a COVID-19 reserving estimates, although overall trends are positive.

We will continue to monitor and analyze the inflationary environment and its impact on our portfolio.

In order to maintain adequate reserving and pricing estimates.

In light of the impact on the economy in both core and social inflation.

The investment environment over the quarter and half year has been volatile.

Value added the expected impact of the elevated level of current and expected inflation on our pricing and reserving and took action earlier this year to adjust trend assumptions and our pricing to allow for this elevated level of inflation.

We reported net investment losses of $347 million year to date.

By losses from related party investment funds debt securities Mark to market from rising interest rates and widening spreads.

And FX impact on foreign denominated assets.

I think asset shorter than our liability profile put us in a good position to capitalize on the rising rate environment with a strong and stable balance sheet.

While we continue to monitor volatility carefully we do see a return to a higher interest rate environment as having the potential to improve future investment earnings.

To conclude we have made substantial progress since forming serious point in February of 2021 have a clear strategy. We're executing on the work ahead.

Yeah.

And responding to our recent S&P credit watch serious point Board Ni.

Confident our business remains well capitalized and our balance sheet and prospects remains strong.

The board is actively seeking a permanent CEO .

Curious point has an impressive executive leadership team and global underwriting expertise and we are focused on generating returns and book value growth, which accurately reflects the potential of our company and the progress that has been made.

We believe there will be well positioned to continue to execute on our strategy to transform our business and deliver profitable growth.

Our goal is clear.

To drive transformation and operational improvement as we accelerate the momentum across our global operations.

I will now hand, the call over to David to take us through our second quarter financial results.

Thanks, Dan.

For the second quarter, we generated a net loss of $61 million or <unk> 38 cents per diluted share versus net income of $65 million or <unk> 37 per diluted share in the same quarter a year ago. Our annualized return on average common equity in the quarter was negative 11, 8%, we achieved consolidated underwriting income of <unk>.

$39 million with a combined ratio of 93, 1%, reflecting a $5 million or 60 basis points improvement quarter over quarter.

Making it the fifth quarter with an underwriting profit out of the six quarters since we launched serious point.

Core income was $20 million for the second quarter 2022, including underwriting income of $10 million and a combined ratio of 98, 3%, which compares to $31 million and a combined ratio of 93, 2% in the second quarter of 2021, our second quarter results include 16 million.

A catastrophe losses, our two nine points driven by South African floods.

Core income was driven by moderate natural cat activity and some favorable prior year loss development.

Or the Russia, Ukraine conflict and Covid, our reserving approach of recognizing bad news quickly is holding with no change to our original currency ultimate loss pics, and hence very limited financial impact in the quarter. We continue to take a cautious approach to reserving for our growing insurance and services segment holding most ratios at original Opex. Despite <unk>.

Positive actual versus expected trends as we wait for this book to season the <unk>.

<unk> results include net favorable prior year development of $2 million.

Specifically with respect to inflation, we have evaluated the expected impact of the elevated level of current and expected inflation to our pricing and reserving.

Look action earlier, this year to adjust trend assumptions and our pricing to allow for this elevated level of inflation. We have concluded that the impact is within our established reserves given the existing allowances for uncertainty that were already established this is a dynamic situation with a relatively high degree of uncertainty and we will continue to <unk>.

Monitor and analyze the inflationary environment and its impact on our portfolio in order to maintain adequate pricing and reserving estimates.

Core gross premiums written for the second quarter were $812 million compared to $574 million in.

In the same quarter, a year ago, which is a growth of $238 million or 42% the growth year over year is driven by our insurance and services segment reflects our business strategy of shifting our business mix from reinsurance to insurance to reduce earnings volatility and improve underwriting profitability.

Turning to the individual segment results in more detail the insurance and services segment produced underwriting income in the quarter of $10 million with a combined ratio of 96, 1%, while the reinsurance segment broke even with a combined ratio of 101% insurance and services produced income of $20 million consisting of $11 million net.

Services income and an underwriting profit of $10 million with an associated combined ratio 96, 1% net.

Net services income primarily benefited from IMG stronger revenue, which outpaced expenses contributing to margin expansion along with the continued strong performance from our cadence and banyan two of our incubated MGH.

Services income included $57 million of service revenue versus $34 million in the prior year predominantly from growth in Amg's core travel medical products.

Insurance and services underwriting profit included favorable prior year development across our accident and health portfolio, where we continue to benefit from prudent initial loss picks in prior years.

Insurance and services gross premiums written in the segment were $434 million compared to $197 million in the prior year with both our accident and health and property and casualty premiums more than doubling year over year.

We are seeing a positive impact from our investments made over the last 18 months into A&H combined with incubation and partnerships with P&C MGA.

Tying arcadian were strong contributors to growth year on year as well as cordis, which had strong production following our partnership launch in the fourth quarter of 2021.

And where we continue to see demand supply imbalances in the market for cyber insurance.

Two MJ partnerships, which launched this year also cigna and mosaic are gaining traction contributing meaningful to year over year topline growth.

Reinsurance results continue to progress, albeit unevenly the results continue to reflect the improvements of the dramatic reshaping of the portfolio undertaken over the last 18 months, although we continue to have more volatility in property and we want in the long term our casualty reinsurance focus remains on niche specialty lines versus our larger commodity accounts.

We are seeing a good flow of new business with a positive primary commercial line rating environment, partially offset by rising ceding commissions core underwriting expenses were $45 million for the second quarter of 2022 or a seven 9% <unk> ratio, we continue to invest in our insurance and services business.

Yet the <unk> ratio is slightly below our five quarter trend of eight 1% as efficiency gains are keeping track with the investments to improve operational capabilities.

<unk> expenses, excluding service expenses were $27 million in the quarter inclusive of management turnover related severance expense and professional fees. Excluding these items corporate expenses were $16 million for the quarter trending down from previous quarters due to continued expense discipline.

The net investment loss for the second quarter was $142 million driven by a related party investment funds of $61 million in debt securities of $58 million, which includes FX driven investment losses of $26 million and roughly $8 million of losses in the <unk> portfolio.

The loss on the related party investment funds was primarily due to the third point enhanced fund with a negative return of 12, 5% in the quarter. The fund continue to reduce exposures to growth equities, although the valuation of the fund debt positions were impacted by widening credit spreads and exposure to rates.

We further reduced our exposure to <unk> in the quarter and our quarter end balance was $289 million, reflecting a $304 million withdrawal at the end of May as Dan mentioned this brings total redemptions from TP to over $850 million over the last three quarters in.

In the second quarter. We also took action to shift some fair market value accounting to available for sale for new fixed income investments. While this does not have an impact on book value. It will reduce net income volatility and headline risk as of June 30, the balance of fixed income securities held under FFS was $716 million.

And the accumulated other comprehensive loss on this portfolio was $10 million.

Our balance sheet remained strong ending the quarter with $2 2 billion of shareholders' equity.

Total capital, including debt was three <unk>.

Zero 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 flat at 26%, we benefited $25 million in the quarter from a change in the value of liability classified capital instruments because of the decline of serious point stock price tangible book value per diluted share fell $3.

6% in the quarter now, let me turn the call back over to Dan for concluding remarks.

Thanks, David.

Going into the second half of the year.

Our business balance sheet and prospects remains strong.

I and the executive leadership team are committed to ensuring that we remain focused on transforming our business as we grow insurance and services to MGA and other partnerships reduce volatility across our reinsurance and investment portfolios and always put underwriting first.

I am proud to oversee the progress we have made since inception look.

Forward to advancing our ongoing and successful transformation to hand over to a new CEO in due course.

Thank you again for your time this morning, and I'll turn the call back over to the operator.

Thank you ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Okay.