Filing summary: Third Point Reinsurance Ltd. FY 2017
Issuer check: The request identifies Siriuspoint Ltd, but the supplied 10-K is for Third Point Reinsurance Ltd. (NYSE: TPRE), filed for the fiscal year ended December 31, 2017. This is an annual report, not a standalone Q4 filing; quarterly figures below are from its unaudited Q4 data.
Business context and reporting period
Bermuda-based holding company providing worldwide specialty property and casualty reinsurance through its subsidiaries. The company combines opportunistic underwriting with an investment portfolio managed principally by Third Point LLC. Its single operating segment is Property and Casualty Reinsurance; investment results and certain corporate costs are reported in the corporate function.
Financial performance and key metrics
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Gross premiums written | $641.6 million | $617.4 million |
| Net premiums earned | $547.1 million | $590.2 million |
| Net investment income, after related-party fees | $392.0 million | $98.8 million |
| Net income attributable to common shareholders | $277.8 million | $27.6 million |
| Diluted earnings per share | $2.64 | $0.26 |
| Combined ratio | 107.7% | 108.5% |
| Net underwriting loss | $42.6 million | $50.1 million |
| Net investment return managed by Third Point LLC | 17.7% | 4.2% |
| Operating cash flow | $(78.5) million | $4.8 million |
Underwriting remained unprofitable: the combined ratio exceeded 100%, though it improved 0.8 percentage points. Investment performance drove the year’s profit improvement; the 17.7% net portfolio return was below the S&P 500’s 21.8% total return. Investment management and performance fees totaled $130.7 million, including $94.0 million of performance fees before any loss carryforward.
At year-end, total assets were $4.67 billion, shareholders’ equity was $1.66 billion, and investments in securities were $3.00 billion. Basic and diluted book value per share were $16.33 and $15.65, respectively; diluted book value per share increased 18.9%. Loss and loss adjustment expense reserves were $720.6 million. The company reported $8.2 million of cash and cash equivalents, alongside $2.20 billion of unrestricted liquid investment assets and $867.6 million of restricted cash and investments.
Debt included $115 million principal of 7.0% senior notes due 2025, guaranteed by Third Point Re. Year-end letter-of-credit facilities totaled $425 million, of which $250.5 million was issued and fully collateralized. The subsidiaries reported statutory capital and surplus above their stated enhanced capital requirements: Third Point Re BDA, $1.43 billion versus $759.5 million; Third Point Re USA, $265.2 million versus $93.3 million.
For Q4 2017, net income attributable to common shareholders was $44.3 million, or $0.44 basic and $0.42 diluted per share; net premiums earned were $129.5 million and net investment income was $67.2 million.
Material changes versus comparable periods
- Net income rose to $277.8 million from $27.6 million, primarily reflecting higher investment returns.
- Gross premiums written increased 3.9%, while net premiums earned fell 7.3%, reflecting a lower in-force portfolio, partly offset by $109.4 million of new retroactive reinsurance premiums earned at inception.
- Net investment income increased to $392.0 million from $98.8 million; the investment return improved to 17.7% from 4.2%.
- Net underwriting loss narrowed by $7.5 million. Favorable prior-year reserve development helped, while 2017 catastrophe losses and higher underwriting-related expenses partly offset the improvement.
- Operating cash flow moved from $4.8 million provided in 2016 to $78.5 million used in 2017. Management attributed the decline principally to higher performance fees and lower float generated by reinsurance operations.
- Shareholders’ equity increased from $1.45 billion to $1.66 billion. The company repurchased 3.3 million shares for $40.9 million during 2017.
Outlook, commentary, risks and unusual items
- Management described reinsurance conditions as competitive but noted modest improvements in pricing or terms on some renewals after 2017 catastrophe losses. It was cautiously optimistic about further opportunities, while emphasizing selective underwriting and the possibility of slower premium growth.
- Industry experts cited by the company estimated insured catastrophe losses for 2017 above $100 billion. The company said its own net underwriting losses from catastrophes in 2017 were $5.3 million.
- Reserve estimates, premium estimates and investment valuations require significant judgment. A sensitivity analysis stated that a 10% increase in estimated ultimate losses would increase net underwriting loss by $80.3 million and reduce shareholders’ equity by 4.8%; a 10% decrease would reduce net underwriting loss by $69.9 million and increase equity by 4.2%.
- Investment risks include concentrated positions, short selling, leverage, illiquid or non-investment-grade securities, foreign-currency exposures and counterparty risk. The filing reported gross investment exposure of 155%, net exposure of 93%, and $1.053 billion of margin debt in the investment account, primarily related to collateral arrangements.
- Other key risks include adverse reserve development, dependence on brokers and Third Point LLC, availability of collateral and letters of credit, debt-service and holding-company liquidity constraints, regulatory capital requirements, and uncertainty around U.S. tax treatment, including PFIC and BEAT rules.
- The Tax Cuts and Jobs Act reduced the U.S. corporate tax rate from 35% to 21%; the company recorded a $0.8 million net reduction in deferred tax expense from remeasurement. It also reported $1.9 million of accrued uncertain tax positions.
- On February 28, 2018, the board authorized an additional $148.3 million of repurchases, bringing total remaining authorization under the programs to as much as $200 million. The company does not expect to pay common dividends for the foreseeable future.
- No material litigation was reported. The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Confirm the issuer and security: this filing is Third Point Reinsurance Ltd. (TPRE), not Siriuspoint Ltd.
- Review the audited financial statements and notes for the investment-return contribution to earnings, related-party fees, and the distinction between GAAP net income and underwriting performance.
- Assess reserve adequacy and future development, particularly in auto, casualty and multi-line exposures, and compare reported reserve development with subsequent claims experience.
- Check liquidity and collateral availability, including restricted assets, letter-of-credit utilization, prime-broker financing and regulatory limits on subsidiary dividends.
- Evaluate investment concentration, leverage, non-investment-grade and less-liquid holdings, and the risks associated with the Third Point LLC investment-management agreements.
- Verify the terms and actual execution of the expanded share-repurchase authorization and monitor capital levels, debt service and tax developments.