SiriusPoint Ltd. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are identified where relevant. Amounts are U.S. dollars.
Business context
SiriusPoint is a Bermuda-based global insurer and reinsurer. It acquired Sirius International Insurance Group on February 26, 2021, changing its name from Third Point Reinsurance and reshaping its strategy. FY2021 includes Sirius Group from the acquisition date, so comparisons with 2020 are substantially affected by the enlarged business and are not fully comparable.
Management’s priorities are to re-underwrite reinsurance, grow Insurance & Services through MGAs and related partnerships, and reduce investment-portfolio volatility. The company moved to two reportable segments: Reinsurance and Insurance & Services.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $2,180.7 million | $889.7 million |
| Net premiums earned | $1,717.0 million | $610.8 million |
| Net income | $55.8 million | $143.8 million |
| Net income available to common shareholders | $44.6 million | $143.5 million |
| Diluted EPS | $0.27 | $1.53 |
| Net cash from operating activities | $1.6 million | $73.3 million |
| Net realized/unrealized investment gains and net investment income | $312.5 million | $278.9 million |
Revenue growth primarily reflects the acquisition. Investment returns were a major earnings contributor: TP Enhanced Fund returned 27.9%, and the company recorded $304.0 million of gains from related-party investment funds. Other revenue of $151.2 million included a $50.4 million bargain-purchase gain, $51.1 million of service-fee revenue, and $49.7 million of fair-value gains on acquisition-related liability-classified instruments.
- Underwriting: Core underwriting loss was $173.6 million versus $68.7 million in 2020; the Core combined ratio improved to 110.0% from 111.9% but remained above 100%, indicating an underwriting loss. Reinsurance reported a $196.9 million loss and 116.3% combined ratio; Insurance & Services reported $23.3 million underwriting income and a 95.5% combined ratio.
- Catastrophe and pandemic losses: Net catastrophe losses were $329.0 million, including European floods and Hurricane Ida. Core catastrophe losses were $326.0 million. COVID-19 losses were $8.7 million in the consolidated overview; segment discussion reports Core COVID-19 losses of $9.6 million, reflecting differing scopes. FY2020 COVID-19 losses were $46.7 million.
- Reserves: Net favorable prior-year reserve development was $42.6 million, compared with $33.8 million of adverse development in 2020. Gross loss and loss adjustment expense reserves were $4,841.4 million at year-end.
- Equity and book value: Total shareholders’ equity was $2,503.3 million, including $2,303.7 million of common shareholders’ equity. Basic book value per share fell 14.3% to $14.46; tangible basic book value per share fell 20.7% to $13.38, largely reflecting acquisition-related dilution and intangible assets.
- Assets and liquidity: Total assets were $10,618.3 million. Investments were $4,529.9 million, cash and cash equivalents $999.8 million, and restricted cash $948.6 million. Operating cash flow declined to $1.6 million; cash flows can be volatile given the timing of premiums, recoveries and claims.
- Debt and capital: Debt was $816.7 million at carrying value, comprising $406.0 million of 2016 Senior Notes, $296.3 million of 2017 SEK Subordinated Notes and $114.4 million of 2015 Senior Notes. The $300 million revolving facility was undrawn; $1,117.0 million of letters of credit had been issued. The company reported compliance with debt and facility covenants.
Material changes and unusual items
- The acquisition’s total consideration was $1,079.8 million; the company recognized a $50.4 million bargain-purchase gain. Acquired Sirius Group contributed $1,224.3 million of revenue and a $161.2 million net loss from February 26 through year-end.
- A loss portfolio transfer with Pallas Re covered $362 million of reserves, for a $381 million premium and up to $592 million of aggregate coverage. It reduced net runoff reserves by 48%; the company recorded a $23 million fourth-quarter charge. The agreement does not release SiriusPoint from its obligations to insureds.
- The company redeemed $450 million from TP Enhanced Fund in the fourth quarter: $200 million was reallocated to cash and fixed income, and $250 million was a redemption receivable at year-end.
- Fourth-quarter net loss was $136.8 million, including a $140.3 million loss available to common shareholders and diluted loss per share of $0.88. Quarterly investment results included a $151.2 million loss in total realized/unrealized investment gains and net investment income.
- The company revised 2021 interim statements after identifying a $37.5 million understatement of the acquisition bargain-purchase gain. Management judged the error not material to the interim periods; the revision did not affect year-end shareholders’ equity.
- FY2021 included $58.8 million of acquisition-related corporate expenses and $97.9 million of amortization of acquired value of business. The company also changed its assumed-premium accounting policy effective January 1, 2021; the change did not affect previously reported net income or equity.
Outlook, commentary and risks
Management gave no specific quantitative earnings or premium guidance. It reported continued rate improvement across many insurance lines, strong demand and growth among program/MGA businesses, and favorable rate momentum in casualty and specialty reinsurance. It also noted elevated catastrophe losses, pressure on reinsurance economics from higher cedent retentions and commissions, and a strategic shift toward insurance and services and a smaller, less volatile property reinsurance portfolio.
- Execution and integration risks include achieving the strategy, growing MGA partnerships, controlling expenses and completing technology and operational integration.
- Material uncertainties include catastrophe and climate losses, inflation and claims-cost trends, COVID-19 coverage disputes, reserve adequacy, and adverse legal or regulatory developments.
- Investment risks include market and interest-rate movements, concentrated exposure to Third Point-managed investments, limited withdrawal rights and potential conflicts of interest. The company reported negative S&P and Fitch outlooks for key operating subsidiaries, despite A- ratings.
- Reinsurance recoverables were $1,215.3 million, of which $655.1 million was net of collateral; collection and counterparty performance remain relevant risks. The Pallas balance was fully collateralized.
- Regulatory restrictions can constrain subsidiary dividends. The company reported approximately $844.4 million of Bermuda dividend capacity, subject to regulatory, capital and rating considerations; it paid no common dividends and does not expect to pay them in the foreseeable future.
- Management and the auditor concluded internal control over financial reporting was effective, but controls over acquired Sirius Group representing approximately 59% of assets, 64% of liabilities and 58% of revenue were excluded from the assessment and audit while integration continued.
Important facts for investors to verify
- How much of reported earnings and investment performance is recurring versus acquisition gains, fair-value movements and other one-time items.
- Whether underwriting improves, especially in Reinsurance, after catastrophe losses and portfolio remediation; monitor combined ratios and the effect of favorable reserve development.
- The adequacy and development of acquired and legacy loss reserves, including COVID-19, casualty, catastrophe and runoff exposures, and the practical protection and collectability of the Pallas LPT.
- Whether MGA and Insurance & Services growth produces sustainable segment profits and service income after expenses, investment needs and integration costs.
- Liquidity and capital availability after claims, collateral and letter-of-credit needs, debt service, regulatory restrictions and withdrawals or reallocations from Third Point-managed funds.
- The completion of acquired-company control integration and any subsequent changes to the company’s control assessment.