Business context and reporting period
The filing is Third Point Reinsurance Ltd.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The request metadata names Siriuspoint Ltd., but the filing itself identifies Third Point Reinsurance Ltd. (NYSE: TPRE) as the registrant; verify the intended issuer. The company provides global specialty property and casualty reinsurance and invests through Third Point LLC, including via the related-party Third Point Enhanced LP (TP Fund). Unless noted, figures below are USD millions.
Financial results and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net premiums earned | $145.5 | $141.5 | $298.5 | $284.0 |
| Net investment income | $69.1 | $31.2 | $224.1 | $29.0 |
| Total revenues | $214.6 | $172.7 | $522.6 | $312.9 |
| Net income (loss) attributable to common shareholders | $53.1 | $19.6 | $186.0 | $(6.4) |
| Diluted EPS | $0.57 | $0.19 | $2.00 | $(0.06) |
| Net underwriting income (loss) | $(1.7) | $(5.1) | $(7.4) | $(11.4) |
| Combined ratio | 101.1% | 103.6% | 102.5% | 104.0% |
- Underwriting: Q2 gross premiums written increased 66% to $82.6 million; six-month gross premiums written fell 6% to $402.2 million. Six-month net premiums earned rose 5%. The six-month combined ratio improved 1.5 percentage points, but remained above 100%, indicating an underwriting loss.
- Investments: Investment returns managed by Third Point LLC were 2.9% for Q2 and 10.3% for the first half. The $213.3 million of first-half income from the related-party fund was a major contributor to earnings; the comparison with 2018 is affected by the investment-account restructuring and TP Fund’s September 2018 launch.
- Cash flow: First-half operating cash flow was $97.8 million, versus $13.4 million in 2018. Investing activities used $56.2 million and financing activities used $5.1 million. Cash, cash equivalents and restricted cash totaled $749.9 million at June 30, up from $713.3 million at year-end.
- Balance sheet and liquidity: Total assets were $3,489.5 million, liabilities $2,093.6 million and shareholders’ equity $1,395.9 million at June 30. Cash and cash equivalents were $93.8 million; restricted cash was $656.1 million. Reinsurance balances receivable were $696.2 million, and loss reserves were $1,021.8 million.
- Debt and capital: Senior notes had $115 million principal, mature in 2025 and bear 7% interest; the company reported covenant compliance. Letters of credit issued totaled $395.8 million. The $200 million unsecured facility expired July 30, 2019 and was not renewed. No shares were repurchased in the first half; $61.3 million remained authorized under the buyback program.
Material changes versus prior periods
- First-half net income improved from a $6.4 million common-shareholder loss to $186.0 million of income, driven chiefly by investment performance and the changed investment structure, rather than underwriting profits.
- The company redeemed $750 million from TP Fund during Q2, reallocating $350 million to cash and fixed-income investments; $400 million remained receivable at June 30 and was invested in debt securities in July. Management cited greater liquidity and capital support for a higher-risk underwriting mix as reasons for reducing fund exposure.
- Six-month net favorable prior-year reserve development was $12.3 million, offset by $11.8 million of higher acquisition costs, for only $0.5 million of net underwriting improvement. Adverse development included multi-line, homeowners and general-liability business.
- Shareholders’ equity rose from $1,204.6 million at December 31, 2018, primarily due to first-half earnings. Diluted book value per share, a non-GAAP measure, increased from $12.98 to $14.51.
Outlook, commentary and risks
- Management expected improving reinsurance pricing and terms to continue through at least the January 2020 renewals. It targeted a combined ratio below 100% by year-end 2019, subject to property catastrophe events; this is not a guarantee.
- The company expanded into property catastrophe and specialty lines, writing $57.4 million of new property catastrophe business in the first half. Management said higher expected margins are intended to compensate for the increased risk. It also reported investing in a technology-driven insurance solution.
- Management expects the shift toward liquid fixed-income assets to support claims and capital needs, but acknowledged it may reduce investment returns. Results remain exposed to volatile TP Fund performance; the company does not control the fund’s investment decisions and may not be able to independently verify underlying valuations.
- Key risks include catastrophe losses, reserve-estimate uncertainty, adverse claims trends, reinsurance-market cycles, investment and counterparty losses, illiquid assets, reliance on letters of credit, and restrictions on subsidiary dividends. The filing also highlights possible U.S. passive foreign investment company tax treatment for U.S. shareholders. No material legal proceedings were reported.
Important facts for investors to verify
- Confirm the issuer intended: this filing is for Third Point Reinsurance Ltd., not Siriuspoint Ltd.
- Review the $400 million TP Fund redemption receivable, its July investment, and the amount and liquidity of remaining TP Fund exposure.
- Assess whether underwriting improves enough to meet management’s sub-100% combined-ratio target, and monitor catastrophe and adverse reserve development.
- Examine the sustainability and volatility of investment-driven earnings, related-party fees, and the governance and valuation risks of TP Fund.
- Confirm replacement capacity for the expired unsecured letter-of-credit facility and the effect of collateral and regulatory restrictions on liquidity and capital distributions.