Siriuspoint Ltd quarterly report, Q1 FY2017

Business context and reporting period

Third Point Reinsurance Ltd. (the registrant named in this filing) filed this unaudited Form 10-Q for the three months ended March 31, 2017. It provides global specialty property and casualty reinsurance and manages its investment portfolio through Third Point LLC. The filing reports one operating segment: Property and Casualty Reinsurance. The request metadata names Siriuspoint Ltd.; investors should verify issuer identity because that name does not match the registrant identified in the filing.

Key financial metrics

Amounts are in U.S. dollars unless noted; financial statement amounts are in millions.

Investment return on assets managed by Third Point LLC was 5.8%, versus negative 2.0% a year earlier. Investment gains, rather than underwriting profit, drove the quarterly net income. Equity securities generated $151.5 million of net gains by asset class; net investment income also included $39.3 million of management and performance fees.

At March 31, total assets were $3.91 billion, total liabilities $2.39 billion, and total shareholders’ equity $1.52 billion. Cash and cash equivalents were $11.8 million. Restricted cash and investments securing letters of credit and reinsurance contracts totaled $720.2 million. The company reported $1.43 billion of unrestricted liquid investment assets, as defined in the filing. Senior notes had $115 million principal, a 7.0% coupon, and a February 2025 maturity; their balance-sheet carrying value, net of deferred costs, was $113.6 million. Borrowings from prime brokers were $608.7 million.

Material changes versus the prior comparable period

• Net income improved by $155.3 million, chiefly reflecting the reversal from a $40.1 million investment loss to $128.5 million investment income.
• Premiums written fell $50.8 million. Management attributed the decline mainly to a $94.7 million contract that did not renew and lower renewal premiums, partly offset by extensions, new casualty business, and other contract changes. Earned premiums were broadly stable.
• Underwriting loss widened by $2.0 million and the combined ratio rose 1.4 percentage points to 106.3%, indicating underwriting expenses exceeded earned premiums.
• Cash from operations shifted to an outflow of $18.7 million. Investing activities provided $58.5 million, while financing activities used $37.9 million, including $18.9 million of share repurchases and $20.0 million of withdrawals by non-controlling interests.
• Shareholders’ equity increased from $1.45 billion at year-end to $1.52 billion. Book value per share rose to $14.57 from $13.57; diluted book value per share rose to $14.04 from $13.16.

Outlook, management commentary, risks and unusual items

Management described reinsurance market conditions as challenging, citing ample industry capacity, competition, and pricing pressure. It expects to remain selective in underwriting to improve results; premiums written in 2017 could decline further. The filing provides no quantified earnings or revenue guidance.

Management noted that investment returns are expected to be volatile. The 5.8% quarterly return reflected positive contributions across strategies, led by long/short equities; gains in long equities were partly offset by short positions and hedges. A 10% decline in equity and equity-linked holdings would, under the company’s sensitivity analysis, reduce portfolio value by approximately $170 million.

Other significant risks include reserve-estimation uncertainty, illiquidity and credit risk in non-investment-grade private-label asset-backed securities, market and foreign-exchange exposure, reliance on Third Point LLC, prime-broker borrowing and letter-of-credit facilities, and restrictions on subsidiary dividends. The company reported $220.7 million of letters of credit utilized against $475 million of facilities; a $50 million BNP Paribas facility was not renewed on March 31. The company said it remained in compliance with debt and letter-of-credit covenants. Management expected cash, operating cash flows, and investment income to meet projected needs and debt service for at least 12 months, while noting future financing may be needed if those sources prove insufficient.

A $30.9 million performance fee payable to a related party was recorded following investment gains; the investment agreements provide for a 20% performance allocation, subject to a loss carryforward. The company repurchased 1.53 million shares for $18.9 million at an average $12.32 per share and had $73.7 million remaining under its $100 million authorization. Prior-year reserve development was $1.6 million favorable, but related acquisition-cost increases largely offset its underwriting impact. The filing reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.

Important facts for investors to verify

• Confirm the issuer: the filing identifies Third Point Reinsurance Ltd., not Siriuspoint Ltd.
• Assess how much reported profit and book-value growth depended on investment gains, and how sensitive they are to investment-market reversals.
• Review underwriting profitability, premium concentration, contract renewals, and the outlook for further premium declines; the three largest contracts accounted for 61.3% of Q1 written premiums.
• Evaluate reserve adequacy and the quality and liquidity of investment valuations, particularly Level 3 assets and non-investment-grade asset-backed securities.
• Monitor restricted collateral, prime-broker borrowing, letter-of-credit availability, and the ability of subsidiaries to distribute capital to service obligations.
• Review related-party investment management and performance fees and the remaining share-repurchase authorization.