Siriuspoint Ltd quarterly report, Q2 FY2022

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

MetricQ2 2022Q2 2021Six months 2022Six 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$51.5m
Core combined ratio98.3%93.2%98.0%93.5%
Net investment gains (losses) and investment income$(141.5)m$77.4m$(346.6)m$263.9m
Operating cash flowNot separately reportedNot 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.