SiriusPoint Ltd. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. SiriusPoint is a Bermuda-based global insurer and reinsurer, reporting Reinsurance and Insurance & Services segments. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net premiums earned | $703.8 | $568.8 | $1,299.3 | $1,098.1 |
| Total revenues | $767.9 | $473.1 | $1,453.0 | $834.5 |
| Net income (loss) | $72.3 | $(56.1) | $217.3 | $(269.4) |
| Income (loss) available to common shareholders | $66.3 | $(60.8) | $204.9 | $(277.8) |
| Diluted earnings (loss) per share | $0.37 | $(0.38) | $1.14 | $(1.74) |
| Combined ratio | 81.9% | 93.1% | 78.2% | 93.4% |
| Core combined ratio (non-GAAP) | 87.7% | 98.3% | 84.4% | 98.0% |
| Core income (non-GAAP) | $85.3 | $20.2 | $205.5 | $46.9 |
Six-month operating cash flow was $206.3, versus $45.2 a year earlier. Investing activities used $297.5 and financing activities used $51.1; cash, cash equivalents and restricted cash ended the period at $771.4, down from $913.7 at year-end 2022.
At June 30, total assets were $12,622.8, total liabilities $10,355.1, and shareholders’ equity $2,267.7. Investments totaled $5,952.8. Cash and cash equivalents were $676.2; a further $95.2 was restricted cash. Restricted investments securing reinsurance and letter-of-credit obligations were $2,517.5.
Debt was $765.9, compared with $778.0 at year-end. The company reported covenant compliance and no borrowings on its $300.0 revolving credit facility. Letters of credit issued totaled $1,297.0. The 2017 SEK subordinated notes carry a floating rate; their effective rate rose to 7.8% from 6.0% at year-end.
Material changes versus prior periods
- Results improved sharply from the prior-year losses, with higher underwriting income and investment results. Net investment income was $68.5 in Q2 and $130.2 for the half year, versus $17.4 and $25.2, respectively, in 2022. Six-month realized and unrealized investment gains were $9.5, compared with losses of $180.3 in 2022; related-party fund losses were nearly eliminated versus $191.5 of losses in the prior-year half.
- Underwriting performance benefited from favorable prior-year reserve development: $138.4 for the half year, versus $11.9 in 2022. Catastrophe losses, net of reinsurance and reinstatement premiums, were $12.9 for the half year versus $23.1; Q2 had no significant catastrophe losses versus $16.2 in Q2 2022.
- Premium growth reflected Insurance & Services expansion, partly offset by reduced Reinsurance premiums as the company executes its restructuring. Six-month gross premiums written increased 5.0% to $1,997.6; Reinsurance gross premiums written fell 13.2%, while Insurance & Services rose 22.8%.
- Book value per common share was $12.59, up 8.9% from $11.56 at December 31, 2022, primarily due to current-period net income. Tangible book value per diluted share, a non-GAAP measure, increased to $11.39 from $10.43.
Outlook, management commentary and risks
- Management targeted full-year 2023 net investment income of $220–$240. No full-year earnings or combined-ratio guidance is provided in the filing.
- Management said July 1 renewals achieved an average rate increase of around 7%, mainly driven by approximately 30% increases in U.S. property. It emphasized underwriting profitability over premium growth and continued reducing catastrophe exposure; probable maximum loss was reduced approximately 10% from December 31, 2022.
- The 2023 loss portfolio transfer (LPT) with Pallas/Compre covers legacy reserves from 2021 and prior. Reserves ceded were initially estimated at $1.3 billion and stood at $905.6 as of June 30 after paid losses and favorable reserve development. The company recorded $884.4 of funds-held payable and a $21.2 deferred gain to be amortized over the claims payout period. The LPT’s aggregate limit is 130% of booked reserves at inception. Management expects the transaction and related reserve releases to increase capital by more than $150 and improve the BSCR ratio by more than 15% versus year-end 2022; this is an expectation, not a reported final outcome.
- Restructuring includes closing Hamburg, Miami and Singapore offices and reducing the Liege and Toronto footprint. Management expects total 2023 restructuring charges of $25; $18.8 was recorded in the first half.
- Management believes inflation effects are within established reserves but noted continuing uncertainty. Principal disclosed risks include catastrophe losses and climate-related events, reserve adequacy, inflation, investment-market and interest-rate volatility, foreign exchange, credit risk, MGA oversight, regulatory limits on subsidiary distributions, and execution of the strategic transformation.
- Other notable items: the company settled contingent value rights for $38.5 in the first half; common-share repurchases were nil. Q2 included a $19.1 loss from remeasurement of liability-classified capital instruments, while six-month foreign exchange losses were $17.5. AFS securities generated $32.0 of six-month unrealized losses recorded in other comprehensive income, not earnings.
Important facts for investors to verify
- How much of the earnings improvement is repeatable versus dependent on favorable reserve development, including the $118.2 attributed to LPT pricing, and what subsequent claims experience indicates about reserve adequacy.
- The LPT’s regulatory and closing conditions, recoverability and settlement mechanics, funds-held balance, and whether projected capital and BSCR benefits are realized.
- Progress toward the $220–$240 full-year net investment income target, portfolio duration and credit quality, and sensitivity to interest rates, credit spreads and alternative-investment valuations.
- Whether Insurance & Services growth translates into sustained underwriting and services profitability, given its Q2 99.2% combined ratio and lower net services income.
- Liquidity available after accounting for restricted cash and pledged investments, letter-of-credit collateral requirements, debt costs, and regulatory limits on distributions from subsidiaries.
- Execution and costs of the restructuring, remaining strategic investments and commitments, and any material developments in the previously disclosed acquisition indication of interest, discussions on which ended in May 2023.