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, 2017. The registrant named in the filing is Third Point Reinsurance Ltd., not Siriuspoint Ltd. The company provides global specialty property and casualty reinsurance and invests its portfolio through Third Point LLC.
Financial results and position
Amounts below are in U.S. dollars; financial statement figures are rounded to millions.
- Second quarter: Total revenue was $280.9 million, up from $219.5 million; net income was $74.6 million, or $0.73 basic and $0.71 diluted per share, versus $53.4 million, or $0.51 per share.
- First six months: Total revenue was $547.4 million versus $316.2 million; net income was $178.8 million versus $2.2 million. Net investment income was $235.8 million versus $46.2 million.
- Underwriting: Six-month gross premiums written fell 23.1% to $302.9 million, while net premiums earned rose to $311.6 million from $269.9 million, partly due to $83.9 million of new retroactive reinsurance premiums. The six-month combined ratio improved to 106.6% from 111.9%, but remained above 100%, indicating an underwriting loss. Net underwriting loss was $20.8 million versus $32.2 million.
- Investment performance and fees: Net investment return on assets managed by Third Point LLC was 4.5% for the quarter and 10.6% for the half-year, compared with 4.0% and 1.9%, respectively. Six-month investment income included $154.5 million of realized gains and $127.8 million of unrealized gains; management and performance fees totaled $72.6 million.
- Cash flow: Operating cash flow was negative $17.4 million, compared with positive $28.2 million in the prior-year half. Investing activities provided $73.8 million and financing activities used $58.1 million. Cash and cash equivalents were $8.3 million at June 30.
- Balance sheet and debt: Total assets were $4.22 billion and shareholders’ equity was $1.58 billion. Loss and loss adjustment expense reserves were $678.5 million. Senior notes had $115 million principal outstanding, bear 7% interest, and mature in 2025; the company reported compliance with debt covenants.
- Liquidity and collateral: Restricted cash and investments totaled $730.5 million. Unrestricted liquid investment assets were $1.89 billion. The company had $777.2 million due to brokers, including $696.3 million of prime-broker borrowing. Letters of credit utilized were $218.0 million against $475.0 million of facilities.
Material changes versus the prior comparable period
- Six-month net income rose substantially, primarily reflecting stronger investment results: investment return was 10.6% versus 1.9% in the prior-year period.
- Underwriting losses narrowed and the combined ratio improved, although underwriting remained unprofitable. Favorable prior-year reserve development of $32.5 million was largely offset by higher acquisition costs under profit-commission terms, with minimal net underwriting benefit.
- Premiums written declined, reflecting contracts not renewed and other portfolio changes; management also cited challenging market conditions. The new retroactive contracts increased earned premiums in 2017.
- Shareholders’ equity increased from $1.45 billion at year-end 2016 to $1.58 billion, principally from earnings, partly offset by $40.9 million of share repurchases and $18.1 million of net distributions related to non-controlling interests.
Outlook, commentary, risks and unusual items
- Management said reinsurance capacity and competition remained high and pricing pressure persisted in targeted lines. It planned to remain selective, which could slow premium growth; 2017 premiums could decline further. No specific earnings or premium guidance was provided.
- Quarterly gross premiums were concentrated: the largest contract represented 65.9% of total, and the largest broker sourced 68.7%. Management cautioned that the small number and customized nature of contracts make premium comparisons volatile.
- Investment returns are expected to be volatile. The portfolio included $224.9 million of asset-backed securities, all described as private-label and non-investment-grade, with associated credit and liquidity risks. Private investment valuations also involve significant estimation.
- Other disclosed risks include reserve estimation and claims uncertainty, dependence on Third Point LLC, market and foreign-currency movements, prime-broker borrowing and collateral availability, and regulatory limits on subsidiary dividends. A 10% decline in equity and equity-linked investments was estimated to reduce value by $161.7 million.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls as of June 30, 2017. It reported a $3.2 million unfunded commitment to the Hellenic Fund and $1.9 million accrued for uncertain tax positions.
Most important facts for investors to verify
- Confirm the issuer identity: this filing names Third Point Reinsurance Ltd., notwithstanding the request metadata naming Siriuspoint Ltd.
- Assess how much reported earnings depended on investment gains and whether those returns are repeatable, given management’s stated volatility risk and the $72.6 million of six-month investment fees.
- Review underwriting profitability, premium contraction, contract and broker concentration, and the limited net benefit from favorable reserve development.
- Evaluate liquidity beyond the $8.3 million cash balance, including restricted collateral, prime-broker borrowing, letter-of-credit facilities, and regulatory limits on subsidiary dividends.
- Monitor reserve adequacy, non-investment-grade ABS exposure, valuation judgments, and the availability of collateral and financing under stressed conditions.