Business context and reporting period
The filing is Third Point Reinsurance Ltd.’s unaudited Form 10-Q for the quarter ended September 30, 2016; the registrant named in the filing is not SiriusPoint Ltd. The company provides global specialty property and casualty reinsurance and manages its investment portfolio through Third Point LLC. The Catastrophe Fund and Catastrophe Reinsurer were dissolved in February 2016.
Financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net premiums earned | $128.2 million | $208.8 million | $398.1 million | $468.5 million |
| Net investment income (loss) | $88.4 million | $(193.2) million | $134.6 million | $(89.6) million |
| Net income (loss) | $72.1 million | $(195.7) million | $74.3 million | $(129.6) million |
| EPS, diluted | $0.68 | $(1.88) | $0.70 | $(1.25) |
| Combined ratio | 106.5% | 102.8% | 110.2% | 104.1% |
All dollar amounts are U.S. dollars. Investment gains drove the return to profitability, while underwriting remained unprofitable: the combined ratio above 100% means underwriting expenses exceeded earned premiums. Third Point LLC-managed investments returned 4.0% in Q3 and 6.0% for the first nine months, versus losses of 8.7% and 4.3% in the comparable 2015 periods.
- Gross premiums written fell 30.7% to $142.6 million in Q3 and 11.1% to $536.6 million for nine months. Management cited nonrenewals, including a prior-year retroactive contract, and selective underwriting amid deteriorating market conditions.
- Nine-month prior-year reserves had $15.0 million of adverse development, adding $12.5 million to net underwriting loss after acquisition-cost offsets. Causes included auto, workers’ compensation and Florida homeowners’ claims; the affected Florida contracts were not renewed.
- At September 30, total assets were $4.18 billion, total liabilities $2.70 billion, and shareholders’ equity $1.48 billion. Equity increased from $1.40 billion at year-end 2015.
- Cash and cash equivalents were $21.0 million. Restricted cash and investments totaled $699.2 million. Management reported $1.58 billion of unrestricted liquid investment assets and said portfolio withdrawals could be made on three days’ notice for claims and five days’ notice for expenses.
- Operating cash flow was $5.6 million for nine months, down from $191.5 million in 2015; investing cash outflow was $18.5 million and financing cash inflow was $13.4 million. Cash ended the period at $21.0 million.
- Senior notes had $115.0 million principal, bear 7.0% interest, and mature in 2025; their net carrying amount was $113.5 million. The company reported covenant compliance. Due to brokers was $894.9 million, including $813.7 million of prime-broker borrowing.
Outlook, risks and notable items
Management gave no specific numerical earnings or premium guidance. It said reinsurance capacity was abundant, competition and pricing pressure were increasing, and market conditions had continued to deteriorate. The company planned to remain selective, potentially slowing premium growth, while focusing on underwriting results and targeted opportunities. Management expected cash, operating cash flow and investment income to meet projected needs and debt service for at least the next 12 months, subject to business and market conditions.
- Investment performance is a major source of earnings volatility. The portfolio includes short positions, derivatives and non-investment-grade private-label asset-backed securities; ABS were $269.2 million at quarter-end and may face credit, valuation and liquidity risk.
- A 10% fall in equity and equity-linked values was estimated to reduce portfolio value by $139.4 million. A 100-basis-point rate increase was estimated to reduce portfolio value by $32.7 million.
- Written put options had a disclosed maximum payout of approximately $537.7 million, subject to potential offsets from assets received on settlement.
- Investment agreements were extended for five years beginning December 22, 2016; the management fee was to decline from 2% to 1.5%. A $24.8 million performance fee payable was recorded at quarter-end.
- The company repurchased $7.4 million of shares in the first nine months under a $100 million authorization; $92.6 million remained available. It did not repurchase shares in Q3.
- Other disclosed commitments included $3.5 million of unfunded Hellenic Fund investment and $3.5 million of future minimum aircraft management fees. No material legal proceedings were reported; management said risk factors had not materially changed.
Important facts for investors to verify
- Confirm the issuer and security being analyzed: this filing is for Third Point Reinsurance Ltd. (NYSE: TPRE), not a registrant named SiriusPoint Ltd.
- Assess whether investment gains are repeatable and how investment volatility, leverage and broker exposures affect capital and liquidity.
- Review reserve adequacy and subsequent claims development, especially the adverse auto, workers’ compensation and Florida homeowners’ experience.
- Track underwriting profitability, premium mix and concentration: the two largest contracts accounted for 69.2% of Q3 gross premiums written.
- Check collateral, letter-of-credit capacity, dividend restrictions, debt service and the availability of unrestricted liquidity under stressed conditions.