SiriusPoint Ltd. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited; amounts in U.S. dollars unless stated otherwise. SiriusPoint is a Bermuda-based global insurer and reinsurer, reporting Reinsurance and Insurance & Services segments. The six-month 2021 comparison includes Sirius Group only from its February 26, 2021 acquisition date, limiting comparability.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net premiums earned | $568.8m | $452.3m | $1,098.1m | $697.5m |
| Total revenues | $473.1m | $561.5m | $834.5m | $1,050.1m |
| Net income (loss) | $(56.1)m | $70.1m | $(269.4)m | $240.0m |
| Net income (loss) available to common shareholders | $(60.8)m | $64.5m | $(277.8)m | $232.9m |
| Core underwriting income | $9.6m | $31.3m | $22.3m | $46.5m |
| Core net services income | $10.6m | $8.8m | $24.6m | $51.5m |
| Core combined ratio | 98.3% | 93.2% | 98.0% | 93.5% |
| Net investment gains (losses) and investment income | $(141.5)m | $77.4m | $(346.6)m | $263.9m |
| Operating cash flow | Not separately reported | Not separately reported | $45.2m | $12.4m |
Premium growth was driven mainly by Insurance & Services, including accident and health business and strategic partnerships. Q2 consolidated underwriting income was $38.8m, versus $49.3m a year earlier; the consolidated combined ratio was 93.1%, versus 89.1%. The company’s stated Core measures exclude corporate and runoff items and are non-GAAP.
Investment losses were the principal drag on earnings. The six-month loss included $191.5m of losses from related-party investment funds and $180.3m of other realized and unrealized investment losses, partly offset by $25.2m of net investment income. Foreign-exchange gains of $75.9m and an income tax benefit of $18.0m also affected the six-month result.
- Balance sheet at June 30: Total assets were $10.84bn; total liabilities $8.62bn; total shareholders’ equity $2.22bn, down from $2.50bn at year-end 2021. Basic book value per share was $12.62, down from $14.46 at year-end.
- Investments and liquidity: Total investments were $5.06bn; cash and cash equivalents $746.6m; restricted cash $630.6m. Cash, cash equivalents and restricted cash totaled $1.38bn, compared with $1.95bn at year-end. Restricted investments were an additional $1.82bn, largely securing reinsurance obligations and letter-of-credit facilities.
- Cash flows: Six-month operating cash flow was $45.2m; investing cash outflow was $605.4m, primarily reflecting investment purchases; financing cash outflow was $11.0m. Ending cash, cash equivalents and restricted cash declined by $571.2m.
- Debt and facilities: Debt was $781.3m, down from $816.7m at year-end. The company reported compliance with debt and facility covenants and no borrowings under its $300m revolving credit facility. Letters of credit issued totaled $1.23bn; facilities are collateralized and subject to covenants.
Material changes and management commentary
- Q2 earned premiums rose, but weaker underwriting results and sharply negative investment performance drove a shift from prior-year profit to loss. Core combined ratio deteriorated year over year, reflecting catastrophe losses, lower favorable reserve development and a shift toward longer-tail casualty business.
- For the first six months, gross premiums written increased to $1.82bn from $904.5m. Insurance & Services growth was substantial; Reinsurance premium growth partly reflects the prior-year acquisition timing.
- The company withdrew $404m from Third Point Enhanced Fund during the first half and continued reallocating investments to diversify and reduce portfolio volatility. At June 30, $400m of withdrawals remained to be reinvested in or committed to Third Point strategies under the fund arrangements.
- Management reported $23.1m of first-half catastrophe losses and $13.2m of losses from the Russia/Ukraine conflict in Core results, plus $5.3m of conflict-related corporate losses. The current overall underwriting loss estimate for the conflict was $18.5m; management said the ultimate impact remains highly uncertain.
- Net favorable prior-year reserve development was $11.9m for the first half, including favorable COVID-19 development, partly offset by property reserve strengthening associated with inflation. Management said its inflation impact estimate was within established reserves, while noting continuing uncertainty and monitoring.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management’s stated strategy is to rebalance toward Insurance & Services and higher-margin growth lines, diversify investments and maintain a shorter-duration fixed-income portfolio. It expects higher reinvestment rates to benefit future investment income, but results depend on markets and business performance.
- CEO Siddhartha Sankaran resigned effective May 16, 2022; Daniel V. Malloy was appointed interim CEO while a permanent CEO search proceeds. The COO and President of Insurance & Services also resigned. S&P placed the company and core subsidiaries on CreditWatch with negative implications; a downgrade below A- could materially affect the business, according to the filing.
- Market risks include interest rates, credit spreads, equity and private-investment valuations, and foreign exchange. A 100-basis-point increase in rates was estimated to reduce debt-security carrying value by $67.3m before tax. Fund valuations may rely on NAV estimates and reporting lags; some investments have redemption restrictions.
- Other disclosed risks include uncertain Russia/Ukraine exposures, inflation and catastrophe losses, reserve-estimation uncertainty, counterparty credit risk, MGA oversight, and dependence on Third Point-managed investments. The allowance for expected credit losses was $32.4m at June 30, up from $21.6m at year-end.
- Debt securities purchased from April 1, 2022 were classified as available for sale; fair-value changes unrelated to credit are recorded in other comprehensive income. Six-month 2021 results were revised to correct a prior understatement of acquisition-related bargain-purchase gain that had understated pre-tax income and common-shareholder income by $37.5m; management concluded the prior-period error was not material.
- The company reported no litigation or arbitration it considered individually likely to have a material adverse effect. It also reported effective disclosure controls as of June 30, 2022. A material lease not yet commenced carries approximately $10.1m of minimum commitments.
Important facts for investors to verify
- How investment performance, related-party fund exposures, NAV valuation lags and reinvestment restrictions may affect future earnings and liquidity.
- Whether the interim leadership arrangement and permanent CEO search resolve S&P’s negative CreditWatch concerns and preserve ratings and business relationships.
- How catastrophe, Russia/Ukraine and inflation-related losses develop, and whether reserve assumptions remain adequate.
- How much reported cash is available for general purposes after restricted cash, pledged collateral, letters of credit and regulatory constraints; confirm subsidiary dividend capacity remains sufficient.
- When comparing periods, account for the partial inclusion of Sirius Group in first-half 2021 and distinguish GAAP results from management’s non-GAAP Core measures.