Business context and reporting period
This is Third Point Reinsurance Ltd.’s Form 10-K for the fiscal year ended December 31, 2018, with unaudited quarterly results. The request metadata names Siriuspoint Ltd., but the filing identifies the registrant as Third Point Reinsurance Ltd. The company is a Bermuda-based specialty property and casualty reinsurer; its single operating segment is Property and Casualty Reinsurance. Its investment portfolio is managed principally by Third Point LLC.
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Gross premiums written | $578.3 million | $641.6 million |
| Net premiums written | $558.4 million | $639.1 million |
| Net premiums earned | $621.4 million | $547.1 million |
| Net underwriting loss | $(42.1) million | $(42.6) million |
| Combined ratio | 106.8% | 107.7% |
| Net investment income (loss) | $(251.4) million | $392.0 million |
| Net income (loss) attributable to common shareholders | $(317.7) million; $(3.27) per diluted share | $277.8 million; $2.64 per diluted share |
| Operating cash flow | $13.4 million | $(78.5) million |
| Shareholders’ equity | $1.205 billion | $1.661 billion |
| Diluted book value per share | $12.98 | $15.65 |
For Q4 2018, net premiums earned were $209.5 million and net loss attributable to common shareholders was $298.0 million, or $3.24 per diluted share. Net investment loss was $276.8 million. Q4 2017 net income attributable to common shareholders was $44.3 million, or $0.42 per diluted share.
At year-end, cash and cash equivalents were $104.2 million and restricted cash was $609.2 million. Restricted investments securing reinsurance contracts were $239.6 million. The filing reports $877.2 million of unrestricted, liquid investment assets. Total assets were $3.086 billion and total liabilities were $1.882 billion. Senior notes had $115.0 million principal outstanding, bear 7.0% interest, and mature in 2025; the balance-sheet amount, net of deferred costs, was $113.9 million.
Material changes versus the prior comparable period
- Annual net loss swung from $277.8 million of common-shareholder income in 2017 to a $317.7 million loss in 2018, primarily reflecting investment performance: managed investments returned negative 10.8% in 2018 versus positive 17.7% in 2017. The S&P 500 total return was negative 4.4% in 2018.
- Gross premiums written declined 9.9%, while net premiums earned increased 13.6%, reflecting a higher in-force portfolio and the timing and earning of retroactive contracts. Specialty’s share of gross premiums written rose to 44.8% from 19.6%; property fell to 1.6% from 21.4%.
- The combined ratio improved by 0.9 percentage points to 106.8%, but remained above 100%, indicating underwriting losses. The loss ratio increased to 70.6% from 67.6%; lower acquisition-cost and expense ratios partly offset that increase.
- Shareholders’ equity fell by $456.9 million, mainly due to the net loss and $138.7 million of share repurchases. The company repurchased 10.3 million shares during 2018.
- Effective August 31, 2018, substantially all invested assets and related liabilities were transferred into Third Point Enhanced LP (TP Fund), a related-party investment fund. At year-end, the company held an $1.284 billion investment in the fund and did not control its investment decisions.
Outlook, commentary, risks and unusual items
- Management described reinsurance-market conditions as challenging, with significant underwriting capacity and only modest pricing improvement despite major catastrophe losses in 2017 and 2018. It was cautiously optimistic about some improvement in capital-relief business.
- The company intended to pursue new specialty lines and expand casualty excess-of-loss business; it began writing a modest property-catastrophe portfolio in 2019. It also planned to add underwriting staff. No specific earnings or premium guidance was provided.
- 2018 catastrophe losses were $18.5 million, including $11.3 million related to California utility liability exposures. Favorable prior-year reserve development of $12.9 million partly offset adverse development in general liability and homeowners’ business.
- Reinsurance underwriting remained loss-making, and results are exposed to uncertain loss reserves, catastrophe claims, premium-estimate changes, broker and counterparty credit risk, and intense market competition. Three brokers sourced 73.7% of 2018 gross premiums written; the largest supplied 34.3%.
- Investment risks include concentrated positions, leverage, short positions, illiquid or hard-to-value assets, and the company’s limited control and withdrawal rights in TP Fund. The 2018 portfolio’s net investment exposure was 54% of NAV; asset-backed securities were 14.1% of net investments managed by Third Point LLC.
- Letters of credit issued totaled $349.2 million; the unsecured $200 million facility expires July 30, 2019. Some secured facilities were amended to uncommitted status in December 2018. The company reported compliance with facility covenants at year-end.
- Common equity declined by more than 20% during 2018, which can activate termination or collateral rights in certain reinsurance contracts. No client had notified the company of an intention to exercise those rights as of the filing, but the potential cash or collateral impact was not reasonably estimable.
- After year-end, the partnership agreement reduced the management fee from 1.5% to 1.25% effective January 1, 2019, and allowed withdrawals of up to $250 million in 2019 and another $250 million in 2020–2021 to invest in specified affiliated credit-focused funds.
- The Bermuda subsidiaries met their enhanced capital and minimum liquidity requirements. A.M. Best ratings were A- (Excellent), stable outlook. Dividend capacity at year-end was reported as approximately $260.8 million for Third Point Re BDA and $1.4 million for Third Point Re USA; the company does not expect to pay common dividends in the foreseeable future.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is for Third Point Reinsurance Ltd., not Siriuspoint Ltd., and covers fiscal 2018 rather than only Q4.
- Review the audited financial statements and investment disclosures to understand the drivers, valuation and recurrence risk of the $251.4 million annual investment loss and the Q4 loss.
- Assess reserve adequacy, including the $937.2 million loss and loss adjustment expense reserve, and the sensitivity analysis showing a 10% adverse ultimate-loss change would reduce equity by 10.8%.
- Check subsequent renewal, extension or replacement of the $200 million letter-of-credit facility and availability of collateral, particularly given the uncommitted secured facilities.
- Monitor whether clients exercise contract termination or collateral rights following the equity decline, and whether Bermuda regulatory capital or dividend capacity changes.
- Evaluate the terms, fees, performance and liquidity restrictions of TP Fund, including the 2019 fee reduction and proposed allocations to affiliated funds.