SiriusPoint Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. SiriusPoint is a Bermuda-domiciled global insurer and reinsurer, reporting Reinsurance and Insurance & Services segments. The Q1 2021 comparison is not fully like-for-like: Sirius Group was acquired on February 26, 2021, so that period includes its results for only part of the quarter.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $361.4 million | $488.6 million |
| Net income (loss) | $(213.3) million | $169.9 million |
| Net loss available to common shareholders | $(217.0) million; $(1.36) per share | $168.4 million; $1.37 per share |
| Net premiums earned | $529.3 million | $245.2 million |
| Net investment gains (losses) and investment income | $(205.1) million | $186.5 million |
| Operating cash flow | $0.1 million | $(48.8) million |
The swing to a quarterly loss was primarily investment-driven: related-party investment funds recorded a $131.0 million loss versus a $153.2 million gain a year earlier, while other realized and unrealized investment losses were $81.9 million. The TP Enhanced Fund returned negative 15.3%, with losses concentrated in long event/fundamental equity positions. Rising rates and, to a lesser extent, currency movements and wider credit spreads also weighed on investments.
Underwriting improved in volume but was slightly less profitable on the company’s core measure. Core gross premiums written were $1.008 billion and net premiums earned were $520.4 million. Core underwriting income was $12.7 million, compared with $15.2 million; the core combined ratio increased to 97.5% from 93.7%. Consolidated combined ratio was 93.7%, versus 96.5%. Core net services income was $14.0 million, down from $42.7 million, mainly because prior-year Strategic Investment gains did not recur.
- Reinsurance: Underwriting income was $3.1 million versus $16.6 million; combined ratio was 99.0% versus 91.8%. Russia/Ukraine losses and catastrophe claims contributed to the deterioration.
- Insurance & Services: Underwriting income was $9.6 million versus a $1.4 million loss; combined ratio improved to 95.5% from 103.3%. Higher services revenue reflected a full quarter from acquired businesses and new MGA relationships.
Financial position and liquidity
- At March 31, 2022, total assets were $10.916 billion, total liabilities $8.629 billion, and shareholders’ equity $2.288 billion, down from $2.503 billion at year-end 2021. Management attributed the equity decline primarily to the quarterly loss.
- Investments totaled $4.731 billion, including $678.6 million in related-party investment funds. Cash and cash equivalents were $826.1 million; restricted cash was $972.8 million. Cash, cash equivalents and restricted cash totaled $1.799 billion.
- Debt was $808.4 million, down from $816.7 million. The company reported compliance with debt covenants and no borrowings under its $300 million revolving credit facility.
- Letters of credit issued totaled $1.218 billion. Restricted cash and investments support letters of credit and reinsurance obligations; these funds are not freely available for general purposes. Cash, restricted cash and restricted investments together totaled $3.384 billion.
- Net loss and loss adjustment expense reserves were $4.936 billion gross, with $1.279 billion of recoverables. The expected-credit-loss allowance was $34.1 million, up from $21.6 million at year-end.
- Basic book value per share was $13.05, down 9.8% from $14.46 at December 31, 2021. Tangible basic book value per share was $11.99, down 10.4%.
Material changes, outlook and risks
Premium growth largely reflects a full quarter of Sirius Group operations in 2022 versus only a partial quarter in the 2021 comparison, as well as growth in certain Insurance & Services businesses. Management said it is shifting capital toward insurance and higher-margin growth lines, reducing property exposure, and repositioning investments toward greater diversification and lower volatility. It cited the shorter-duration fixed-income portfolio as positioning the company to benefit from higher interest income as assets are deployed. The filing gives no specific earnings or revenue guidance and cautions that quarterly results are not necessarily indicative of full-year results.
The company recorded $18.6 million of current underwriting loss estimates related to the Russia/Ukraine conflict, including $13.3 million in core operations and $5.3 million in Corporate. Management said ultimate exposures and coverage interpretations remain highly uncertain. It reported no meaningful direct investment exposure to Russia or Ukraine, but noted potential indirect impacts, sanctions and heightened cybersecurity threats.
- Q1 included $5.0 million of favorable prior-year reserve development overall, including a $23.5 million reduction in COVID-19 reserves, partly offset by property reserve strengthening attributed to elevated inflation.
- Investment valuations are exposed to interest rates, credit spreads, equity markets and currency movements. Related-party fund NAVs may be reported with a lag; the company also has limited control over Third Point management and withdrawal restrictions. It amended fund and investment-management arrangements during the quarter.
- Cash generation and claims payments can be volatile. The company cited potential reserve inadequacy, catastrophe and climate exposures, credit risk, MGA oversight, ratings, integration, regulatory capital and subsidiary dividend restrictions among its risks.
- The filing identifies no material litigation currently expected to materially affect the company. Management reported disclosure controls were effective and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much of the investment loss reflects market movements versus persistent deterioration, particularly in TP Enhanced Fund and other related-party investments; also verify fund valuation timing and withdrawal terms.
- Whether reserves adequately reflect inflation, catastrophe experience, COVID-19 development and Russia/Ukraine claims, and whether recoverables will be collected.
- Whether underwriting profitability and service-fee growth are sustainable after adjusting for the partial-quarter Sirius Group comparison and changes in business mix.
- How much liquidity is practically available after restricted cash, collateral requirements, subsidiary distribution limits and letters of credit are considered.
- The 2021 comparative was revised to correct a $37.5 million understatement of the Sirius Group acquisition bargain-purchase gain. Management assessed the original misstatement as not material to the 2021 first-quarter financial statements; investors should account for the revision when comparing periods.