SiriusPoint Ltd. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are U.S. dollars in millions except per-share data and ratios. SiriusPoint is a Bermuda-domiciled global multiline insurer and reinsurer, with Reinsurance and Insurance & Services segments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net premiums earned | $613.0 | $612.6 | $1,848.2 | $1,710.7 |
| Total revenue | $702.6 | $597.5 | $2,091.5 | $1,432.0 |
| Net income (loss) | $63.8 | $(93.6) | $264.0 | $(363.0) |
| Net income (loss) available to common shareholders | $57.5 | $(98.4) | $245.3 | $(376.2) |
| Diluted EPS | $0.32 | $(0.61) | $1.36 | $(2.35) |
| Net investment income | $75.1 | $36.2 | $205.3 | $61.4 |
| Combined ratio | 88.0% | 107.7% | 81.6% | 98.5% |
| Core combined ratio | 92.5% | 114.5% | 87.6% | 103.9% |
Q3 underwriting income was $73.8, versus a $46.9 loss a year earlier; nine-month underwriting income was $339.2, versus $25.4. Management’s non-GAAP Core income was $50.0 for Q3 and $245.1 for the first nine months. The Core measure excludes Corporate results, including runoff business and specified investment and other items.
For the nine months, operating cash flow was $367.9 (2022: $245.3); investing cash outflow was $395.3 (2022: $1,363.9), and financing cash outflow was $75.1 (2022: $18.3). Cash, cash equivalents and restricted cash ended at $811.2, down from $913.7 at year-end 2022.
Financial position and liquidity
- Total assets were $12,591.2 and total shareholders’ equity was $2,265.4 at September 30, 2023, compared with $11,036.3 and $2,082.6 at December 31, 2022. Equity growth principally reflected earnings, partly offset by $89.9 of after-tax unrealized losses on available-for-sale debt securities.
- Investments totaled $6,026.0. Debt was $763.5, compared with $778.0 at year-end. The $300 million revolving credit facility had no outstanding borrowings; the company reported compliance with debt covenants.
- Letters of credit issued totaled $1,264.2 and were fully collateralized under secured facilities. Cash, restricted cash and restricted investments totaled $3,367.2; a substantial portion supports reinsurance and letter-of-credit obligations and is not freely available.
- Book value per common share was $12.42, up from $11.56 at year-end; diluted book value was $12.11 and tangible diluted book value was $11.19. Series B preference dividends were $12.0 for the nine months; no common dividends were paid.
Changes, transactions and management commentary
- Underwriting improvement: Q3 catastrophe losses, net of reinsurance and reinstatement premiums, were $12.0 versus $114.6 in Q3 2022, which was largely affected by Hurricane Ian. Nine-month catastrophe losses were $24.9 versus $137.7. Management attributed lower catastrophe exposure partly to its portfolio reductions; reported probable maximum loss was about 10% lower at June 30, 2023 than at December 31, 2022.
- Reserve development and loss portfolio transfer: Nine-month favorable prior-year reserve development was $163.1, compared with $17.2 a year earlier. Management said $122.2 related to the 2023 loss portfolio transfer (LPT) pricing and reserve assessment. The LPT transferred legacy reserves initially estimated at $1.3 billion, reduced to $905.6 at its June closing. At quarter-end, funds-held payable was $862.5 and the estimated deferred gain was $25.8. The contract’s aggregate limit is 130% of roll-forward reserves at inception.
- Premium trends and portfolio strategy: Q3 gross written premiums fell 14.0% year over year and net written premiums fell 15.8%, mainly from reduced international property reinsurance as the company executes its restructuring. Management said it prioritizes underwriting profitability over premium growth and is reallocating capital toward Insurance & Services and higher-margin opportunities.
- Investments: The company continued shifting toward fixed income. Management cited higher interest and dividend income and targeted full-year 2023 net investment income of $250–$260. Average portfolio credit rating was AA; fixed-income duration increased to about 2.7 years. Higher rates can reduce market values even as they improve reinvestment yields.
- Restructuring and investments: The company was closing its Hamburg, Miami and Singapore offices and reducing its Liege and Toronto footprint. It reported stakes in 31 entities after selling three in Q3 and two more in October; Banyan was among the October sales, with its underwriting relationship continuing.
- Costs and financing: Nine-month interest expense rose to $44.3 from $28.1, partly due to LPT funds-held interest and the higher variable rate on the SEK subordinated notes. Restructuring charges were $23.8 through September; management expected about $25 for full-year 2023. The period also included $7.9 of costs associated with the LPT and an acquisition indication of interest.
Risks, contingencies and unusual items
- Financial reporting control weakness: Management concluded disclosure controls were ineffective at September 30 because a material weakness existed in internal control over financial reporting. A changed reporting process lacked adequate controls to calculate and reconcile written and earned premiums, including a manual property-catastrophe calculation and overnight data-transfer error. Management said the resulting Q1/Q2 errors were immaterial, but elected to revise the prior interim statements; it implemented an additional control and expects remediation shortly.
- Prior-period revisions: Q2 net premiums earned were revised down by $64.1; Q2 net income fell by $10.4 and diluted EPS by $0.06. For the first six months, net income was revised down by $17.1 and diluted EPS by $0.10. The filing says the errors were not material to previously issued statements, individually or in aggregate.
- Bermuda tax proposal: A proposed 15% Bermuda corporate income tax was expected to apply to tax years beginning in 2025, subject to legislation. The company said deferred-tax and effective-tax-rate effects could be material; the proposal may increase taxes.
- Market and underwriting exposure: Risks include interest-rate and credit-spread changes, foreign exchange, valuation of long-term investments, catastrophe events, inflation, reserve-estimation uncertainty, climate and geopolitical events, counterparty recoveries and delegated MGA underwriting. A hypothetical 100-basis-point increase in rates implied an estimated $145.5 pre-tax decrease in debt-security carrying value.
- Other items: The company settled contingent value rights for $38.5 during the period. It reported no individual litigation or arbitration likely to have a material adverse effect. The 2017 SEK notes carry a variable rate; the company was in compliance with debt and letter-of-credit covenants.
Important facts for investors to verify
- Whether the premium-calculation control weakness is fully remediated, tested and independently validated, and whether further reporting errors emerge.
- How much of earnings and capital improvement depends on favorable reserve development, including the LPT-related portion, and whether subsequent loss experience supports those estimates.
- Whether investment income reaches management’s $250–$260 full-year target, and how rate, spread and private-investment valuations affect earnings and equity.
- The final terms and accounting effects of Bermuda tax legislation, particularly any deferred-tax or effective-rate impact.
- Whether written-premium declines, restructuring and catastrophe-exposure reductions improve sustainable underwriting returns without impairing business quality or growth.