Q4 2023 SiriusPoint Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the serious point limited fourth quarter and full year 2023 financial results Conference call.
During todays presentation, all parties will be in listen only mode.
As a reminder, this conference call is being recorded and a replay is available through 11 59 P. M. Eastern time on March six 2024.
With that I would like to turn the call over to Sarah thing Vice President Investor Relations. Please go ahead.
Thank you operator, and good morning, good afternoon to everyone.
I welcome you to the serious point I call. It a 2023, Oh, yes fourth quarter of about.
Last night, we issued our earnings press release, and financial supplement which are available on our website.
W. W Dot.
T T dot com I.
Additionally, I'll watch the presentation well call them five of today's discussion.
Favorable on our website.
Let me get today are Scott and Dan O'keefe Executive Officer, He's young our Chief Financial Officer.
Probably but I would like to remind you that today's remarks contain forward looking statements.
And the management.
Actual results may vary.
Our non-GAAP financial measures will also be discussed.
Management uses the non-GAAP financial measures.
And final analysis.
And believe they may be informative to investors engaging the quality of our financial performance and identify trends.
However, these measures should not be considered as a substitute for.
Or superior to the measures of financial performance prepared in accordance with that.
Please refer to page two of our investor presentation for additional information and the company's greatest problem.
At this time I will turn the call over to Scott.
Thank you very much and good morning. Good afternoon, everyone. Thank you for joining our fourth quarter full year 2020 results call.
2020 fee has been a busy couple of days.
City point.
We restructured our organization.
But you shouldn't look like.
And I suppose the title and no generate double digit returns on equity.
Our actions have had a demonstrable impact on performance.
We delivered our fifth consecutive quarter of positive underwriting results.
Improved quality of earnings.
Straight to their balance sheet.
We are looking to build on this progress as we go into 'twenty 'twenty four 'twenty Noah's.
Good evening.
Our longer term ambition is to become a best in class in sugar beet sugar.
Before sharing the key message is related to our results for the year I want to reach out to developments from the quarter.
Firstly as previously announced do you mind you international holding.
Taken into receivership by its lenders in Singapore.
<unk> International Holdings is the parent company.
Company ops.
You bet.
53% shareholder of serious point with 99% voting rights.
I would like to emphasize this development has no impact on their own.
<unk> progress what does it take to be running all of our business.
We are in dialogue with the receiver and trying to be as helpful as possible.
S&P global ratings has communicated to us that this development is a mutual fund.
And it's unlikely to assessment of our business position of financial strength.
Our focus remains on simplifying our business, reducing volatility and further improving the profitability of the company.
Secondly in November.
Global we can revise the financial strain speaking I would like to make it to people.
This precise fit expectation that city is point, we'll continue to post strong unimproved underwriting.
During 2023 to 25.
With this change okay.
Hey, Alex Gauna speak like like.
Yes.
Endorsement for our progress.
I'm incredibly proud of the collective.
<unk> people to get to this point have been strengthening our platform.
Moving back now to the key messages.
On slide five.
I will provide an update on the progress we have made across our strategic initiatives.
Overall, we're very pleased to report strong fourth quarter with a combined ratio of 92.
0.4% for the coal business.
Income of $94 million.
Together with the first three quarters, we have delivered record net income of 300 million.
Does fluctuate.
An improvement of $742 million as compared to 2022.
We also extended our cost savings program.
Is it one year ahead of schedule as we lowered our cost base by more than $60 million versus 2022.
Pete and I bumped into return on equity of six.
16, 2%.
And our current year of 2023, our auto was unsurprisingly in Pi.
By one off items and adjusting for these we still delivered a double digit auto we pinpoint 2%.
Julian. Thank you team, we also strengthened our capital position and improved the quality of our balance sheet.
We completely the loss portfolio transfer.
Currently I detailed reserve strength and.
Book value per share.
By 15%.
This has helped to reduce our I'll say on that.
During 2023.
Given the strong performance of the company in 2022 do you guys see for 2022 on those targets, we have paid our employees above target bonuses right leader wont think that hard work and dedication to improving and creating shareholder value.
With this I.
I will now see the three sources of income.
The right thing.
Investment income.
Our next Santos fee income above consults consolidated E N G H oldest.
All of which helped deliver a higher return.
And last year.
Strong contributors to an organic capital generation.
Beginning with a strong underwriting result from 'twenty to 'twenty three.
We delivered a combined ratio of 89, 1% for the coal business, which was supported by five points of one off definitely CS leaked to the L. P transaction announced in 2023.
Excluding the LPT benefit but.
One off items.
Adjusted core combined ratio.
A record 91, 2%.
This is 10.4 points of like for like improving the CS 'twenty to 'twenty, two and shows the impact of the decisive portfolio actions taken during the last 18 months.
The combined ratio has been supported by both loss and expense ratio improvement with the loss ratio improvement helped by lower catastrophe losses, which were 14 million for the full year 'twenty 'twenty. Please.
90% of production from $158 million a year ago.
This ties in with our one in 100 gig PMA.
P M <unk>, which are considerably lower.
5% of common shareholders' equity.
From a 11% second quarter 2021.
However, we continue to remain conservative with regards to volatility.
Just to make the retro protection via more limit onboard retention on our core U S property Cat program.
Thank you Nicole.
Pleasingly. This was achieved similar coast 'twenty 'twenty.
Slightly better than Buck outcome, driven on the box.
Making progress.
Our observations first approach remains unchanged.
And we will continue to prioritize underwriting profits.
<unk> growth in 2024.
That said, we expect underlying premium growth during 2024 and the areas we are targeting.
Hey, evidenced by the newly on boarded NGA partnerships.
Offset by the impact from the already undertaken underwriting actions.
The second second half of 2020.
Specific parts of the portfolio such as workers on.
On cycle.
These will impact overall premium in 2020 full but this should be the last year or significant impact to the top line progression.
Turning to investments.
Our investment.
Joel I'm supported by higher net investment income.
She's.
Although Q T device guidance of $250 million to $260 million.
Net investment income of $284 million in 2020 key.
Our revised expectations, mainly due to the strong rate performance in the first half of the fourth quarter as well as continued rotation into high school the fixed rate products.
Our portfolio continues to perform well and we sold no default across our fixed income portfolio during 2023.
Overall, our investment strategy remains unchanged.
We continue to operate our fixed income portfolio with an average credit rating doubling.
Looking forward to 2024, we expect net investment income to be in the range of $250 million to $265 million based on the forward view Cook.
Next we come to a distribution strategy.
The controller D E N G H, which have delivered record fee income.
A distribution strategy remains important to us and we have continued to onboard U N G underwriting partners, while rationalizing our existing equity stakes during the fourth quarter.
We made great progress towards concentrating on deeper and more meaningful NGA relationships with the sale of nine equity Stakes in 2020.
This includes <unk>, which we no longer consolidate but continued to defy underwriting capacity too.
We have since sold their stake in Corpus in January bringing our total holdings to 25 Mg dose.
56 at the end of 2022.
Phil years, 'twenty, two we outlined our intention to enhance that NGA thoughtful.
Focusing on partnering pizza on capacity.
With those.
Speak.
We added a total of 90, new Andas in 2020 between excusing to partner with deep underwriting talent and proven track records.
During the fourth quarter, we prefer ICU capacity two truths that if the underwriters.
Strengthening our footprint in prep.
Personal liability unknown sleek can actually local.
Since the start of 'twenty 'twenty four we have on boarded a new partnership.
With also focused on supply chain Marine insurance and launched a new European Marine business with old Cigna, one of our consolidated M. G H.
More recently, we partnered with Ryan specialty Nordics offering coverage, but onshore wind farms as well as how could use for small to medium sized enterprises, which includes commercial property and legal liability insurance.
Well it would be off taking underwriting action as part of our transformation. You can also see strong evidence of building undoing enough target areas.
A consolidated N G. H Standalone performance was strong with revenue growth of 10%.
Margin improvement of four points to 21%.
And a record $50 million or mixing up as fee income.
Also we saw a 2% increase the city's point premiums underwritten to $651 million from these four consoles E N G H.
Despite the strong underlying performance.
File youthful book consolidated M. G is only $19 million.
We continue to believe that the actual economic value.
It can be higher.
I will again reemphasize that I believe <unk> is not something you play in cities point shift price.
Moving onto a biz apps and our philosophy around exactly.
We continue to maintain a prudent approach to reserving as evidenced by our positive prior year development in 2023.
But Q4 discrete.
It was $55 million for the core business and.
63 million for the school year, excluding any benefits to the LPT.
Similarly, it was absolutely seats with positive for the consolidated business excluding L. P T.
$6 million in Q4 and 40.
$46 million for the year 2023.
Which includes increasing our reserve prudence by $50 million during Q4 after a strong performance here.
Our strong results coupled with the LPT completely at the half year allows us to further strengthen our balance sheet position as we move forward into 2024.
Overall, our balance sheet is strong.
Our Bermuda solvency capital ratio.
It's 257% at the end of the third quarter.
Oh, so assay and leverage has improved.
The 10% goal and does it keep book value per share during the fourth quarter.
Growth in book value was driven by Mark to market gains on the fixed income portfolio.
The positive earnings generation during the quarter.
Do you book value per share growth was strong.
The same.
Although our capital levels are strong the structure is not until the optimal.
Reviewing our capital instruments to make sure we operate with an efficient framework.
Okay.
Just to be prudent stewards of capital.
We are updating our <unk> guidance to 12% to 15% during the medium term.
We are pleased that took not only hit but surpassed all the financial targets that we set for 2023.
I'm grateful to my colleagues, who have pushed hard this year to create shareholder value.
That said the numbers to be delivered this year not a destination and we aim to do better.
I have said before there is no complacency.
As we move away from restructuring we are focused on being a value creation company that delivers consistent profit while operating.
Hopefully best in class levels.
We know this is an ambition.
But one which we feel is more credibility are sort of still 2020 fee performance.
I would like to thank all our stakeholders.
The holders customers and employees for their support and patience during this coming year, which is never taken for granted.
We believe the future is bright studies point.
We are excited for 2024.
But these remarks.
Well possible that to Steve who will take you through the financials. Thank.
Thank you Scott and good morning, good afternoon, everyone.
I will now take you through the financial section of the presentation, starting with our full year financials on slide 13.
We had a strong year and delivered a record net income to common shareholders of $339 million.
An impressive $742 million improvement on 2022.
All three sources of earnings underwriting NGA thing become and investments contributed positively to the results.
Or underwriting results improved significantly as we delivered record underwriting profit of $250 million.
For 2023 results include a one off benefit of 105 million due to reserve redundancy linked to the loss portfolio transfer transaction.
Which itself demonstrates our prudent reserving philosophy.
Excluding the release was linked to the L. P. T. The result was still a record for us with underwriting profits of $145 million and a combined ratio of 92, 7%.
Our portfolio actions are having a clear impact with catastrophe losses for the core business down 90% to $14 million in other parts of the portfolio are also improving.
More detail on our reduction of underwriting volatility is available on slide eight.
Yeah.
I'll start consolidated gross written premium was stable.
Top line for our core business decreased 3%, reflecting the ongoing portfolio actions.
Reinsurance premiums decreased by 250 million largely due to pulling back and international property.
This was partially offset by growth in the insurance and services segment, which increased by 156 million.
During 2023, we took additional actions on our workers' comp cyber portfolios, which will have an impact on our 2020 for premiums and offset the underlying growth in the portfolio.
After the late net services fee income increased 37% to a record 50 million driven by higher fees from our Acadian and IMG.
Service revenues are up 10% versus last year, while service margins increased four points to 21% for 2023.
Total investment result was strong at 273 million and driven by 284 million of net investment income, which surpassed the revised net investment income guidance of $250 million to $260 million given in the third quarter.
Unrealized and realized losses.
<unk> from related party investment funds were $11 million and significantly better than the 436 million loss in 2022.
Net corporate and other expenses were down to 258 million for the year.
55 million improvement versus the prior year.
We have two moving parts here.
One we moved $42 billion of expenses above the line within our core underwriting result, which supported an improvement but on the other end, we had $38 million of one off expenses in relation to restructuring costs and transaction costs.
Transaction cost of $8 million, where our relationship with <unk> process and loss portfolio transfer whilst restructuring costs were $30 million for the year as we accelerated our cost savings program.
Other notable items impacting net income during the period included a 59 million loss from Mark to market on liability classified capital instruments.
35 million foreign exchange loss.
101 million tax benefit from the creation of a deferred tax asset as a result of the changes to the Bermuda income tax rules.
Moving to slide 14, I'll talk briefly about the fourth quarter financials.
Overall, it was a strong quarter with all three earnings engines positively contributing to net income and up year on year.
The underwriting result, this marks the fifth consecutive quarter of positive income since we committed to building a culture driven by strong underwriting.
Our core underwriting profit increased 19% to $37 million with a combined ratio down one four points to 93, 4%.
This includes two nine points of short term incentives for staff, which when excluded would equate to a 95% combined ratio for the core business compared to 94, 8% in 2022 or improvement of four three points.
Gross premiums written decreased 3% quarter on quarter in our core business.
Top line growth was impacted by reductions in premiums in the reinsurance segment, where premiums are down $49 million compared to the fourth quarter last year.
This was partially offset by insurance and service premiums, which increased by $26 million or 6%.
Core NGA revenues increased by 21% to 56 million compared to the prior quarter.
Namely by growth from our Canadian and IMG margins increase improved by 16 seven points to a strong 22%. While we grew our MGA net service fee income fell $12 million for the quarter.
The total investment results for the quarter was strong at 65 million.
This was driven by 78 million of net investment income, which is up by $27 million compared to the prior quarter.
The Derisk portfolio continues to benefit from rate increases.
Unrealized and realized losses, including from related party investment funds with $13 billion.
Net income of $94 million with a significant improvement versus the $27 million loss during the prior year quarter.
Other items impacting income included the $6 million.
6 million restructuring charge of $19 million of foreign exchange losses, and the previously mentioned one time deferred tax benefit of 101 million related to Bermuda is new income tax law.
This quarter also includes a $30 million increase to our reserve margin within the corporate segment.
As Scott mentioned earlier this has been done from a position of strength on the back of strong performance and we look to improve the quality of our balance sheet.
Common shareholders' equity grew 13% during the quarter supported by the Mark to market movements on fixed income investments and growth in net income.
Adjusting for a OCI common shareholders' equity growth was 6% in the quarter.
Moving to slide 15, and focus on premium trends, including one one windows.
In 2023, we continue to take actions to improve the profitability of the book.
With additional actions during the second half of 'twenty three related to cyber and workers compensation segment.
We believe these actions will impact our underlying premium growth during 2024, which will be driven by positive rates across our portfolio and volume growth in the areas like North American program business accident, and health and international which we are actively looking to grow.
Ratings trends in Q4 have remained broadly similar to the first nine months of 2023.
Less than 10% of our overall book gets renewed in Q4, excluding North American program business, which has experienced average rate increases of around 7%.
North American program business saw a 6% rate increases during Q4, excluding cyber and workers compensation.
Which have both been under pressure and where we have taken portfolio actions to manage the profitability of our book.
Yeah.
Moving to the topic of renewables.
The January 2020 for renewal period, we experienced positive rate increases across the majority of the business with an average rate change at around 3% across our reinsurance portfolio.
This was mainly driven by U S casualty and U S property business.
For all the renewals were orderly and in line with our expectations.
Next slide 16 shows the year to date change in combined ratio for our core business and breaks the movement into individual sub components.
Our portfolio actions have significantly improved the underwriting profitability with the combined ratio for our core business to 10.4 points better year over year on a like for like basis.
Our headline combined ratio of 89, 1% has benefited from four six percentage points of reserve releases linked to the LPT transaction.
However, the expense reallocation of 42 million results in about a two percentage point drag.
Adjusting for these two in the short term incentives previously mentioned results on a like for like combined ratio of 91, 2% compared to 101, 6% in 2022.
Our core Attritional loss ratio is marginally better at 64% or one percentage points up on the previous year and is partly impacted from mix changes between the insurance and services and the reinsurance segment and also from the large losses in the international business.
The mix changes resulted in better profit commissions, which are captured in the acquisition cost ratio and has resulted in one four points of improvement.
Looking at both at the moving parts together results in a net improvement of 0.4 points year on year.
Slide 17, and 18, we look at the investment portfolio and investment result.
We have made clear progress during the year as we delivered a strong net investment income figure increased our overall asset duration to two eight years from one eight years at Q4, 2022 and locked in attractive reinvestment yield in excess of four 5% on our investments during the year.
We rotated our portfolio throughout 2023 investing over $1 8 billion as we increased our exposures to corporate and asset backed securities portfolio rotation and higher rates have supported our net investment income during 2023, and we expect trend to continue as we aimed.
To deliver a strong and net investment income between $250 million to $265 million during 2024.
Overall, our investment strategy remains unchanged and focused on maintaining a high quality fixed income portfolio.
74% of our investment portfolio is now fixed income of which 99% is investment grade with an average credit rating unchanged at double a week.
We didn't experience any defaults in our fixed income portfolio during 2023.
P&L volatility is significantly lower compared to last year and has helped given 90% of the fixed income poorly O is now designated as available for sale up from 88% at Q3, 2023, and none at year end 2021.
Moving on to slide 19, which looks at our balance sheet.
Balance sheet is strong ending the quarter with $2 2 billion of common shareholders' equity, which is up 23% since the beginning of the year and 13% during the quarter driven by the growth in net income.
Total capital, including debt stood at $3 3 billion.
Our issue debt is unchanged, while our debt to total capital ratio is 23, 8% and remains within our target range.
Leverage improved by 1.4 points and asset leverage is lower at three three times versus three six times at the end of the third quarter.
With this we conclude the financial section of our presentation.
Our 2023 results were strong and showed a significant turnaround in 2023.
We delivered record net income of $339 million achieved a 16, 2% annualized return on average equity and delivered $50 million of cost savings ahead of schedule, which contributed to a consolidated combined ratio of 84, 5% an improvement of 11 nine points year on year.
We expect to build on this performance and aim to deliver 12% to 15% return on average common equity in the midterm.
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 I now turn the call back over to the operator.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
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