Q4 2022 Siriuspoint Ltd Earnings Call
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Good morning, ladies and gentlemen.
And welcome to the serious point limited fourth quarter and full year 2022 earnings conference call.
During todays presentation, all parties will be in a listen only mode.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Mr. Joe Carload head.
Head of Investor Relations, and Chief strategy officer of serious point.
Please go ahead thank.
Thank you operator, and good morning, good afternoon to everyone listening I welcome you to the serious point earnings call for the <unk> 2022 full year and fourth quarter results last night, we issued a press release and financial supplement which are available on our website www.
Blue Dot C D S P D dot com.
Additionally, a webcast presentation will coincide with today's discussion and is available on our website with me here today are Scott Egan.
Executive Officer, and Steve Young our Chief Financial Officer, before we start I would like to remind you that today's remarks contain forward looking statements based on management's current expectations actual results may differ please.
Please refer to page two of the Investor presentation for additional information and the company's latest public filings.
At this time I will turn the call over to Scott.
Thank you, Chris and good morning, good afternoon, everyone and thank you for joining our fourth quarter and full year results call.
<unk> completed a very busy and productive five months with serious point.
I remain confident about the opportunities I hate the votes.
We have a healthy balance sheet excellent people and resources.
Strong client and broker relationships.
Diversified business model that has potential to deliver higher returns.
I'm excited to be here and I'm determined to help the company improve its performance and realize its potential.
We have been greetings to be an outstanding organization, but we recognize we're not there now.
Since I joined city appoint a CEO , we have made significant progress on our strategic priorities of reducing volatility.
Proving profitability.
Business simplification.
We believe we have a robust plan in place for 2023 against each of these areas, helping deliver against our underwriting first ethos.
The vision for Citi as point used to be a high performing underwriter and I am confident that we have the right elements in our business required to execute against that strategy and deliver.
However, I recognize we are in the early stages.
That said, we are already seeing positive changes in the company's performance and culture.
We will be disciplined and consistent in our reproach, because we aim to reestablish our credentials and build confidence with their stakeholders as good stewards of capital.
We expect to see meaningful improvement in profitability during 2023, as we benefit from already implemented underwriting and cost saving actions.
<unk> 10 investment yields.
People MGA fee income.
We expect to realize full run rate benefits of all of our strategic actions taken due in 'twenty, two and 'twenty three in 2024, when we expect to deliver a double digit return on equity.
Our business model is diversified and differentiated compared to a traditional P&C insurer.
We have three uncorrelated sources of earnings.
Underwriting income.
Capital light fee income from our five consolidated MGA partnerships.
And the investment income.
Recognizing that past results did not reflect the full power of some of these value drivers, which were impacted by volatility and challenging performance. We believe that the actions we have taken and continue to implement.
Better position the franchise for success.
We aimed to improve performance deliver most paper landings and ultimately deliver attractive returns.
This morning, I will like like further details of our strategic agenda and provide clarity on our clients.
The key points of this overview can be found on slide five of our full year 2022 results presentation, which we are shooting during today's webcast and can also be found on the investor pages of our website.
My intention is to provide transparent updates on our journey and progress as we navigate through 'twenty three and beyond.
I would now like to walk you through the six key focus areas starting with 0.1.
Our fully integrated model with Uncompromised emphasis on underwriting.
The core of our strategy is quality underwriting.
To simplify the organization improved culture.
And create one city is point approach.
We want the organization to be globally connected collapse.
Collaborative.
Disciplined.
Profitable franchise working towards the same targets.
The organization is still in transition and walking towards food unaffected integration folding the merger in 2021.
We are focused on establishing an efficient operating model and a culture that drives performance on delivery.
We are making good progress on creating a one team approach, where we look to improve employee engagement and have made changes to the remuneration structure for 2023 to better align performance on P.
Our underwriting approach must translate to a sustainable and higher level of profitability.
We will prioritize underwriting improvement over top line growth in the medium term.
Moving to point to the reduction in volatility and refinement of the portfolio.
Property Cat exposure has been the main source of underwriting volatility.
In addressing this level of uncertainty in our results has been an ongoing priority for the company.
I would like to emphasize that we have already done a lot and have exited around $300 million of property premiums.
Our PMA was based on one in 100 year event on a per occurrence basis have reduced substantially by around 50% in the last 18 months and.
And we expect further refinements during this year.
Property owner.
Only accounts for around 18% of the group gross premiums Betsy is 31% last year.
The reduction in property cat portfolio benefits. He does a one one renewals is it significantly lowered our reliance on the retro market.
Despite a significant reduction in exposure, we have been cautious in our approach for 2023.
Both reinsurance protection with lower attachment points to further protect our balance sheet.
Pleasingly, our reinsurance protection costs have remained at similar levels to the previous years.
We now believe that the majority of the rebalancing associated with the property portfolio is largely complete but we will continue to review and refine our portfolio mix based on market conditions and our strategic priorities.
In the medium term, we would like to increase the proportion of business of specialty and A&H lines.
London hub, leveraging our Lloyd's platform.
And continue to develop our north American specialty program business.
Our actions are starting to appeal and we are seeing the positive impact of the work carried out in underwriting.
Our cat losses within our core results were significantly lower at $138 million and 22 versus $326 million in 'twenty, one despite 2022 being a heavy count yet for the global insurance industry.
Our loss estimate for hurricane remain unchanged at $81 million or fault.
Four points over book value.
During the second half of 'twenty, two we saw year on year improvement in accident year loss ratios in both discrete Q3 and Q4.
While our accident year combined ratio improved by around nine points during 2022.
Our underwriting ratios are not where we would want them to be.
But we now have a better platform with momentum into 2023.
Our book ex property Cat was profitable in 'twenty, two but we still see significant room for improvement.
One renewals went well.
We remain very disciplined with our approach took advantage of market conditions and focused on our target returns.
We experienced positive rate increases with the majority of lightens seeing rates above loss cost trends, which will support our margins going forward.
As a remainder 55% to 40% of our reinsurance portfolio renews at one one.
Including more than 50% of the overall property portfolio.
Turning now to 0.3, which focuses on the actions we've taken to Derisk our investment strategy.
Our investment portfolio has been a source of earnings volatility during 2021 and two.
On a heavy consumer of capital.
Given our focus on becoming a higher performing underwriter, we have derisked, our investment portfolio to be much more in line with other insurers.
We aim to optimize our returns rather than maximize them and have taken actions to make investment income more predictable.
In 2023, we expect to deliver between $220 million to $240 million of net investment income with a reduced capital charge.
Today, our portfolio is primarily fixed income focused.
Short duration and high quality.
We have limited exposure to triple B and below investment grade bonds.
The average credit rating of our fixed income portfolio is probably.
Third point enhanced fund, which was mainly a hedge fund focused strategy.
Teach for around 18% of our overall portfolio.
Q2 2021.
And changes in fair value created volatility in our P&L.
We have substantially reduced disposition, which is now down to around 100 million or 2% of the total investment portfolio there.
Thereby lowering the capital intensity of the portfolio.
Also 63% of our fixed income investments a note held as available for sale versus none at the end of 2021, which we believe will help reduce volatility when it within our P&L going forward, albeit still contributing to capital.
The designation of new assets to the available for sale also ties in with our investment philosophy to hold fixed income assets to maturity.
We aim to match our liabilities.
Investment yields have risen significantly last year, and we are proactively investing to take advantage of this trend.
We have reduced holdings of cash and short term investments.
And basically it into longer dated fixed income instruments, helping us to eliminate the duration gap with regards to our luxuries apps.
Next we'll come to attractive distribution capabilities as a contributor of fee income.
M. Gs are an important part of our strategy.
And our partnerships generate around 55% of the premiums.
We value our partnerships and aim to further develop these relationships as we leverage our underwriting expertise.
Premium growth via our MGA partnerships has been strong.
More than 50% during the last year predominantly through organic growth in existing partnerships well because we also develop some new ones.
Within this segment, we have five Mg AIDS, which we consolidate in order cadence and believe they have significant value and the underappreciated.
These basically six namely Acadian.
The ultra Cigna.
<unk> and IMG.
<unk> 662 million.
Premiums for Citi as point in 2022.
<unk> had more than 25% premium growth last year.
<unk> also generated $36 million of capital light Nic services fee income during 'twenty two.
The book value at the end of 'twenty, two was only $85 million.
Well below market valuations.
In total we have 36 equity stakes in Mg as ensure tax on other investments at the end of last year.
I believe this is too high to manage for the size of our group and we are reviewing our options to optimize the number of equity Stakes, we have with the aim of having fewer and deeper.
We will be happy owners or investors in M. G H, where it complements our underwriting.
And we do not expect to be active acquirers in this space in the near term.
Moving to 0.5 cost and capital optimization.
Improvement in underwriting income will be supported not only by loss ratio reductions, but also by our cost actions.
The loss ratio should benefit from the actions we have already discussed.
But we believe our cost base is high and we have set a target to lower our costs by more than $50 million by 2024.
This is significant.
And should support around two points of combined ratio improvement.
The majority of the actions needed to deliver cost savings are already advanced and we are in the process of streamlining our operations to function more efficiently.
We announced the rationalization of our geographic footprint last quarter.
On a no looking closely other opportunities to improve our overall operating framework.
As I outlined earlier the group is still going through an integration and we believe that there is room to improve coordination and create a globally connected organization.
Which will further support cost savings as well as improve connectivity collaboration and company culture.
This year, we expect further restructuring charges of $25 million as we deliver on our cost saving goal.
Overall, our goal to deliver a double digit return on equity by 2024, we will need to be supported by higher earnings across all of the three sources of earnings underwriting.
The income from the consolidated <unk>.
Net investment income.
We aim to improve capital generation meaningfully as we achieve higher levels of profitability and we will remain disciplined with regards to capital deployment.
And shooting returns are adequate.
Within our risk appetite.
Finally, we will look at a healthy balance sheet.
Overall, our balance sheet is healthy and we continue to operate the company against that I believe <unk> requirement under the S&P model.
Our Bermuda solvency capital ratio was 194% as at Q3 'twenty two.
Based on preliminary calculations, we expect to see an improvement at the end of 2022.
We have a prudent approach to reserving, which will help mitigate inflationary impact.
Our reserving philosophy considers the uncertainty inherent in our business and we remain conservative with her approach when setting initial loss ratios.
<unk> for cat events, and recognizing the benefit of favorable loss trends.
In conclusion, I'd like to summarize by saying, we have a strong and diversified business model at city point.
We want to be a high performing and shooter.
We are executing at pace to make things better.
We have left no stone unturned and are reviewing everything from our loss ratios to our costs to our premium mix to the investment portfolio and the capital.
Our target is to achieve double digit return on equity by 2024.
We will look to grow in areas, where we can leverage our knowledge and expertise in the specialisms, where we operate.
I am feeling positive as we go into 2023, having done much already and I expect to again see significant improvement in our results.
There will be no complacency as we drive hard to deliver for our customers and shareholders.
I look forward to sharing updates on our meaningful progress as we go through the year.
With these remarks I will pass over to Steve who will take you through the full year financials.
Thank you Scott and good morning, Good afternoon, everyone I'll now take you through the financial section of the presentation and we'll start with slide 15, looking at our full year financials for 2022.
Net losses for the year were $403 million driven mainly by the negative investment result of 323 million.
Total investment losses of $323 million were driven by negative movements in related party funds and the impact of rising interest rates on the fixed income portfolio.
However, within our investment portfolio net investment income increased to $113 million versus $25 million in 2021.
Core underwriting results improved materially during 'twenty two as a result of the actions implemented.
Our loss of $35 million was significantly lower compared to a loss of $163 million in 2021, driven by lower cat losses of 188 million.
The combined ratio for the core business came in at 101, 6%.
On a management basis for 2021, which includes the pre merger period from January one to the acquisition date of February 26 for the legacy serious group topline growth was strong.
<unk> were up 21% year over year, driven by the growth in our insurance and services Division.
Net service fee income was up $23 million versus the prior period, driven by increased revenue and improved margins and travel medical M. G. H.
Included in year end result was $30 million of restructuring costs related to the international platform changes announced in November of 2022 with the associated savings starting to earn in in Q1.
And expect it to increase over the year.
To that end, we also expect an additional $25 million of restructuring costs in 2023, as we continue to right size the organization and create a more efficient operating model.
Moving to slide 16.
We will take a brief look at Q4 financials.
Overall, it was a very positive quarter with regards to the underwriting result, as we delivered underwriting profits of 31 million the.
The core combined ratio was higher at 94, eight but the accident year combined ratio at $96 four was stable year over year.
Core gross premiums written increased 8% from the fourth quarter in 2021, driven by insurance and services up $172 million, partially offset by reinsurance down $118 million.
Net loss of $27 million was an improvement of $113 million over the prior year quarter and was supported by total investment result of $52 million.
As I mentioned earlier included in the quarter is $30 million of restructuring charges.
We experienced no cat losses in the quarter.
Loss experience related to Covid over the last several quarters has been better than originally expected, which has resulted in continued favorable development in the ultimate estimate of those losses.
Currently have no provision booked for winter storm, Elliot and Theyre not expecting significant losses.
On slide 17, we focus on the premium trends and I'll provide an update on one one renewals.
Gross premiums written for core are up over 50% year over year during 'twenty two but the 2021 amounts don't take into account January and February 2021 premiums from serious group prior to the merger.
Normalizing for that gross premiums were written gross premiums written are up 21% year over year with 83% growth in insurance and services driven by organic growth and new deals across A&H lines. The positive impact of reduced COVID-19 related travel restrictions on travel MGA premiums.
Strong growth in our MGA strategic partnerships.
This growth was partially offset by 15% reduction in reinsurance driven primarily by reductions across property lines, reflecting our shift in the business strategy from reinsurance to insurance and services in order to reduce earnings volatility and improve underwriting profitability.
Most notably we've taken significant reductions on our international property Cat portfolio in 2022, and further in 2023, non renewing approximately $100 million of international property Cat premium at one one renewals.
Staying on the topic of renewals the January 2023 renewal reflected a strong market across most of the classes of insurance and reinsurance we right facilitating our continued efforts to rebalance and re underwrite reducing volatility and exposure from property cat and growing insurance and services with a continued focus on.
On growing niche program business across the portfolio.
At one one we saw average rate increases in global property of 20% to 25% with U S property cat up 35% to 40%.
You'll see a 5% to 10% and A&H rates of 2%, all reflecting continued strong market conditions with attractive and less attractive pockets within subsectors of those broad classes.
In addition to rate strengthening we saw improvement in contractual terms and conditions across most classes as well, including reinstatement provisions and tightening of exclusions and coverage.
Slide 18 shows the year on year change in combined ratio for the core business and breaks the movements into individual sub components.
We see those portfolio actions are already yielding positive results as the core combined ratio improved seven nine points over 'twenty, one driven primarily by reduced cat losses.
Underwriting profitability over top line growth will remain our primary focus.
Within reinsurance combined ratio improved nine eight points driven by a reduction in property cat losses.
The insurance and services combined ratio was up 115 points to 97%, mainly due to lower property profitability in our workers' compensation portfolio.
Insurance and services has been profitable six out of eight quarters since the merger and we are encouraged by the overall loss experience to date from our MGA partners and stable profitability.
The other underwriting expense ratio remained stable from last year, which we expect to decline into 2023 as cost actions taken in Q4 begin to earn it.
Moving on to the investment portfolio and investment results on slide 19, and 20, we.
We have made significant progress during the last 18 months on reducing volatility increasing diversification and lowering the capital intensity of our investment portfolio.
Overall, our investment portfolio has remained stable at $6 6 billion at year end 'twenty two versus six 5 billion year end 'twenty, one, but as Scott alluded earlier, the new investment strategy is tilted towards fixed income and away from hedge fund strategies as we aim to deliver predictable and stable returns.
Net investment income was 113 million for full year 'twenty, two but overall investment result was negative $323 million.
The investment result was impacted from negative realized and unrealized loss movements unrelated party and other investments as.
As mentioned on previous calls beginning in the second quarter of 'twenty. Two we have designated new fixed income investments as available for sale, which has reduced income statement volatility generated by the trading portfolio.
For the full year ended December 31, 2022, the trading portfolio resulted in a $115 6 million in losses, primarily due to rising interest rates within our overall investment result.
At year end more than 60% of the fixed income portfolio was designated as available for sale and will continue to grow in 2023, as we continued to rebalance the fixed income portfolio reducing volatility.
Our overall asset leveraged based on tangible diluted shareholders equity stood at three eight times more in line with the market average, while we believe we have a high quality fixed income credit book.
7% of our fixed income portfolio was triple B, while 8% was below investment grade or non rated fixed income instruments.
Duration mismatch has also been a fully eliminated during Q4 as we invested around $1 billion of cash and short term investments into longer duration assets.
Assets backing loss reserves now have a duration of two and a half years, while overall asset duration was approximately $1 eight years.
Slide 21, it looks at our balance sheet.
Overall, our balance sheet remains healthy ending the quarter with $2 1 billion of shareholders' equity.
Total capital, including debt was $2 9 billion, while tangible book value per diluted share was $10 43.
Issue debt was unchanged in the quarter, except for FX changes and our Swedish kronor denominated sub debt and our debt to total capital ratio was 27%, which is within our target range.
With this we conclude the financial section of our presentation I would like to remind you again that we have made significant progress in 2022 as our actions are having a positive impact while we expect meaningful improvement in profitability during 2023.
2024 should be the year, when we realized full run rate benefits of all of our strategic actions and we expect to deliver a double digit return on average common equity.
I would like to thank you again for your time. This morning for any questions. Please contact our Investor relations team at Investor Relations at Sirius P. T Dot com.
With this I will turn the call back over to the operator.
Thank you very much.
So listen gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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