Siriuspoint Ltd quarterly report, Q2 FY2021

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SiriusPoint Ltd. — Q2 2021 Form 10-Q Summary

Reporting period: Three and six months ended June 30, 2021. The unaudited filing reports in U.S. dollars. SiriusPoint completed its acquisition of Sirius Group on February 26, 2021; 2021 results include Sirius Group only from that date, so comparisons with 2020 are not like-for-like.

Business context

SiriusPoint is a Bermuda-domiciled global multiline insurer and reinsurer. Following the acquisition, it reports Accident & Health, Specialty, Property, and Runoff & Other segments. Management says the combination expanded its underwriting capabilities, geographic footprint, and product offerings.

Financial performance and position

  • Q2 revenue and earnings: Total revenue was $561.5 million versus $278.0 million in Q2 2020. Net income was $70.1 million; income available to common shareholders was $64.5 million, or $0.37 per diluted share, versus $124.0 million, or $1.33 per diluted share, a year earlier.
  • First-half results: Revenue was $1,012.6 million versus $239.3 million. Net income was $202.5 million versus a $59.6 million net loss; income available to common shareholders was $195.4 million, or $1.32 per diluted share, versus a $0.65 loss per share.
  • Underwriting: Net premiums earned were $466.3 million in Q2 and $722.3 million for the first half. Net underwriting income was $33.3 million and $42.0 million, respectively. The combined ratios were 92.8% and 94.2%. Property was profitable; Specialty recorded a small underwriting loss, with a 100.0% Q2 combined ratio.
  • Investment results: Net investment income was $77.4 million in Q2 versus $137.2 million in Q2 2020, and $263.9 million for the first half versus a $47.8 million loss. The related-party investment funds contributed $45.6 million in Q2 and $198.8 million in the first half. Results included gains from the Third Point Enhanced Fund and private investments.
  • Cash flow: First-half operating cash flow was $12.4 million versus $30.4 million in 2020. Investing activities provided $820.6 million, including cash and restricted cash acquired with Sirius Group. Financing activities provided $40.1 million. Cash, cash equivalents, and restricted cash ended at $2,587.0 million.
  • Balance sheet and liquidity: Total assets were $10,190.6 million, liabilities $7,507.2 million, and shareholders’ equity $2,683.4 million at June 30, 2021. Cash and cash equivalents were $1,032.6 million; restricted cash was $1,554.4 million. Restricted cash and investments support letters of credit and reinsurance obligations and are not wholly available for general use.
  • Debt: Carrying-value debt totaled $836.5 million, up from $114.3 million at year-end, largely reflecting debt assumed in the acquisition. The company reported compliance with debt covenants and no borrowings under its $300 million revolving facility.
  • Capital and book value: Basic book value per share was $15.59, down from $16.88 at year-end; tangible basic book value per share was $14.48, down from $16.88. Management attributed the decrease primarily to dilution from shares and other securities issued in the acquisition.

Material changes versus the prior comparable period

  • The acquisition substantially increased scale: first-half net premiums earned rose to $722.3 million from $287.1 million, while total investments rose to $4,499.1 million from $1,160.9 million. These comparisons are materially affected by the inclusion of Sirius Group from February 26, 2021.
  • First-half net underwriting income increased to $42.0 million from $2.3 million, aided by acquired business and lower Specialty COVID-19 losses. Favorable prior-year reserve development was $9.7 million, compared with $0.2 million of adverse development in the first half of 2020.
  • Q2 investment income declined from the prior-year period, when markets rebounded strongly after the initial COVID-19 shock. First-half investment results improved substantially from the prior-year loss.
  • First-half corporate expenses included $46.4 million of Sirius Group acquisition-related costs, including $29.7 million of professional and advisory fees and $16.7 million of compensation-related expenses.
  • Effective January 1, 2021, the company changed assumed written premium recognition to recognize premiums ratably over contract terms, consistent with cedent recognition. The retrospective change did not affect previously reported net income or shareholders’ equity.

Outlook, commentary, and risks

  • Management stated that operating subsidiaries had adequate capital resources in aggregate and expected cash flows and investment income to meet expected claims and operating expenses, including interest, over the next 12 months. The filing provides no formal earnings or underwriting guidance.
  • Management described plans to reposition the investment portfolio toward lower volatility and improved risk-adjusted returns, while continuing strategic partnerships and investments. These are forward-looking intentions, not assured outcomes.
  • COVID-19 losses in Specialty were $2.8 million in Q2 and $5.7 million in the first half, compared with $9.9 million and $19.4 million in the respective 2020 periods. Management said the ultimate impact of the pandemic remains uncertain.
  • Catastrophe losses, net of reinsurance and reinstatement premiums, were $12.7 million in Q2 and $18.4 million in the first half, primarily from European windstorms and, for the first half, winter storm Uri. Sirius Group’s Uri losses from before the acquisition were excluded from reported post-acquisition results; including them, first-half catastrophe losses were $57.9 million.
  • Key risks include reserve adequacy, catastrophe and climate exposure, investment volatility and concentration in the Third Point Enhanced Fund, limited control over that fund and certain partners, integration costs, counterparty credit risk, foreign exchange, and regulatory limits on subsidiary distributions. A $16.3 million allowance for expected credit losses was recorded at June 30.
  • On July 30, 2021, the company agreed to a loss portfolio transfer covering $417 million of reserves for a $430 million premium. The transaction, including legacy runoff exposures, was subject to regulatory approval at the filing date.
  • Management said disclosure controls were effective at June 30. However, Sirius Group, which represented approximately 64% of assets and 62% of liabilities, was still being incorporated into the company’s internal-control evaluation.

Important facts for investors to verify

  • How much of reported growth and profitability reflects acquired Sirius Group business versus legacy operations, and what integration costs or synergies remain.
  • The development and adequacy of acquired and legacy loss reserves, including the effect of catastrophe, COVID-19, and social inflation claims.
  • The liquidity and valuation profile of the Third Point Enhanced Fund and other investments, including withdrawal limits and the proportion of fair-value assets using unobservable inputs.
  • The status, regulatory approval, economics, and reserve-risk transfer achieved by the announced $417 million loss portfolio transfer.
  • Debt service, foreign-exchange exposure on the SEK subordinated notes, collateral requirements, and the availability of restricted cash and investments.
  • Progress integrating Sirius Group into internal controls and the potential impact of acquisition-related dilution on per-share measures.