Third Point Reinsurance Ltd. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed February 27, 2014. The request names Siriuspoint Ltd., but the supplied filing identifies Third Point Reinsurance Ltd. as the registrant. This is an annual report, not a standalone fourth-quarter filing.
Business context
Bermuda-based property and casualty reinsurer, launched underwriting in January 2012. Its strategy combines selective reinsurance underwriting with an actively managed investment portfolio run by Third Point LLC. The company reports Property and Casualty Reinsurance and Catastrophe Risk Management segments, plus corporate investment results. It completed an IPO in August 2013, raising $286.0 million net.
Key financial results
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Gross premiums written | $401.9 million | $190.4 million |
| Net premiums earned | $220.7 million | $96.5 million |
| Net investment income | $253.2 million | $136.4 million |
| Net income | $227.3 million | $99.4 million |
| Diluted earnings per share | $2.54 | $1.26 |
| Operating cash flow | $9.2 million | $(32.6) million |
| Property and casualty combined ratio | 107.5% | 129.7% |
The property and casualty segment recorded a $15.8 million underwriting loss in 2013, improved from a $28.7 million loss in 2012. Its combined ratio remained above 100%, indicating underwriting expenses and claims exceeded earned premiums. Net investment return was 23.9%, compared with 17.7% in 2012; it trailed the S&P 500’s 32.4% return in 2013.
At year-end, total assets were $2.16 billion, total liabilities $649.5 million, and total shareholders’ equity $1.51 billion, including $1.39 billion attributable to shareholders. Cash and cash equivalents were $31.6 million and restricted cash was $193.6 million. The investment portfolio totaled $1.46 billion. The company had $300 million of letter-of-credit facilities, of which $127.3 million was issued; $100.6 million of cash was pledged as collateral. The balance sheet lists no conventional borrowings; investment-related short positions and broker balances are reported separately. The investment account had $3.1 million of margin debt.
For Q4 2013, net income was $80.1 million, versus $60.7 million in Q4 2012. Q4 net premiums earned were $58.5 million and net investment income was $87.1 million.
Changes versus the prior year
- Premium growth reflected the larger underwriting portfolio and new business; casualty premiums rose to $210.0 million from $44.7 million, while property premiums fell to $67.6 million from $103.2 million.
- Improved loss experience, including lower crop losses than in 2012, and lower general and administrative expenses as a share of earned premiums improved the combined ratio. The loss ratio fell to 65.7% from 83.2%; the acquisition-cost ratio increased to 31.5% from 25.5%.
- Investment income increased, driven primarily by realized investment gains and higher average invested assets following the IPO and growth in reinsurance float. Investment management and performance fees rose to $87.3 million from $50.2 million.
- Catastrophe Risk Management began writing business in 2013 and contributed $3.4 million of net income, versus a $1.5 million loss in 2012, which included start-up costs.
- Book value per share increased to $13.48 from $11.07; diluted book value per share rose to $13.12 from $10.89.
Outlook, risks and unusual items
- Management said reinsurance capacity was abundant and near-term market conditions challenging. Property catastrophe pricing was under particular pressure; management cited average rate declines of more than 10% for January 1, 2014 renewals. The company planned to limit Catastrophe Fund growth until conditions improved and remain selective in other lines.
- No numerical earnings, premium or return guidance was provided. Management expected cash, underwriting cash flows and investment income to meet operating and capital needs for at least the next 12 months.
- Investment results are a major earnings driver and expose the company to equity, credit, currency, interest-rate, liquidity, leverage, short-sale and counterparty risks. Net portfolio exposure was 87% of NAV at year-end, versus 63% a year earlier; the portfolio may be concentrated.
- Underwriting risks include uncertain loss reserves, limited operating history, large-contract and broker concentration, catastrophe exposure through the Catastrophe Fund, and reliance on cedents’ underwriting and claims decisions. Three contracts each contributed more than 10% of 2013 gross premiums.
- The company depends on Third Point LLC to manage substantially all investable assets under a long-term agreement; termination rights are limited. 2013 fees included $3.7 million to Third Point LLC for management and $63.0 million in performance fees to Third Point Advisors LLC.
- Regulatory capital, liquidity, dividend, rating and collateral requirements constrain financial flexibility. The company reported compliance with Bermuda statutory capital and minimum liquidity requirements; its A.M. Best rating was A- with a stable outlook. It did not expect to pay shareholder dividends in the foreseeable future.
- In Q4 2013, the company identified an error in prior-period diluted EPS calculations. Corrected annual diluted EPS was $1.26 for 2012 and $2.54 for 2013; basic EPS was unaffected. The auditor issued an unqualified opinion on the financial statements, but did not audit internal control effectiveness. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Third Point Reinsurance Ltd., not Siriuspoint Ltd.
- Review investment returns and downside exposure, including concentration, short positions, leverage, valuation methods and the material contribution of investment income to earnings.
- Assess reserve adequacy as the company’s loss history matures, and track the effects of premium estimate changes and crop claims.
- Monitor reinsurance pricing, renewal retention, broker and contract concentration, and the Catastrophe Fund’s third-party capital and results.
- Verify ongoing A.M. Best and Bermuda capital compliance and the availability and renewal terms of letter-of-credit facilities.
- Consider the diluted EPS correction, share-based compensation, warrants, options and related-party investment-management fees when evaluating per-share results and dilution.