Filing summary
Entity and period: The supplied filing is Third Point Reinsurance Ltd.’s unaudited Form 10-Q for the quarter ended March 31, 2020. It identifies the registrant as Third Point Reinsurance Ltd. (ticker TPRE), not SiriusPoint Ltd.; verify the entity identity before attributing these results to SiriusPoint.
The company provides global property and casualty reinsurance through Bermuda subsidiaries. It reports one operating segment and invests substantially all its assets through Third Point LLC.
Financial performance
Unless noted otherwise, dollar amounts are U.S. dollars; figures below are in millions.
| Metric | Q1 2020 | Q1 2019 or prior year-end |
|---|---|---|
| Gross premiums written | $204.1 | $319.6 |
| Net premiums earned | $146.3 | $153.1 |
| Net investment income (loss) | $(185.0) | $155.0 |
| Total revenues | $(38.7) | $308.0 |
| Net income (loss) attributable to common shareholders | $(183.6) | $132.9 |
| Basic and diluted earnings (loss) per share | $(1.99) | $1.45 basic; $1.43 diluted |
| Net underwriting income (loss) | $4.4 | $(5.7) |
| Combined ratio | 97.0% | 103.8% |
| Operating cash flow | $(3.2) | $23.0 |
The investment loss was primarily driven by the related-party Third Point Enhanced LP (TP Fund), which returned negative 23.3% and contributed a $200.8 million investment loss. The broader portfolio managed by Third Point LLC returned negative 7.3%, versus positive 7.2% in Q1 2019.
Balance sheet, liquidity and debt
- At March 31, 2020, total assets were $3.34 billion, total liabilities $2.11 billion and shareholders’ equity $1.23 billion. Equity was $1.41 billion at December 31, 2019, mainly reflecting the quarterly loss.
- Cash and cash equivalents were $445.8 million; restricted cash was $975.1 million. Cash, cash equivalents and restricted cash totaled $1.42 billion, compared with $1.65 billion at year-end. Much of the restricted balance secures reinsurance obligations and letters of credit.
- Management reported $692.3 million of unrestricted liquid investment assets, defined as unrestricted cash and investments and securities with quoted prices in active markets.
- Senior notes had $115.0 million principal outstanding, mature in February 2025 and bear interest at 7.0%; the balance-sheet carrying amount, net of deferred costs, was $114.1 million. The company reported compliance with debt covenants.
- Letters of credit issued totaled $267.3 million and were fully collateralized. Management said it expected cash, operating cash flows and investment income to meet projected requirements, including debt service, for at least the next 12 months.
Material changes and drivers
- Gross premiums written fell $115.5 million, or 36.1%, year over year. The company cited $142.8 million of prior-year premiums from contracts not renewed, including a $103.2 million multi-line contract that no longer fit its underwriting strategy. Specialty’s share of Q1 2020 premiums declined to 44.5% from 60.4%.
- Underwriting improved: the combined ratio fell to 97.0% from 103.8%. The company attributed the change mainly to business mix, including lower expected loss-ratio property catastrophe and specialty business, and lower acquisition costs.
- Book value per share declined: basic book value was $13.31 versus $15.37 at year-end; diluted book value was $13.05 versus $15.04.
- Investments managed by Third Point LLC totaled $2.37 billion, down from $2.59 billion at year-end. The company invested about $220 million in corporate debt and structured credit during the quarter and hedged some interest-rate exposure with short positions in long-duration U.S. Treasuries.
- TP Fund represented $659.8 million of the company’s investments at quarter-end, down from $860.6 million at year-end. The company held an approximately 83.4% interest but did not control the fund’s investment decisions.
Outlook, risks and unusual items
- COVID-19 caused an estimated $9.5 million of net incurred losses in Q1, primarily from event-cancellation exposures and certain casualty and multi-line quota-share contracts. Estimates reflected claims considered incurred by March 31 and were subject to significant uncertainty.
- Management expected COVID-19 and economic disruption to affect claims, premiums, investment values and liquidity, but said the ultimate impact on current and future business remained uncertain. It also noted potential exposure to commercial property business interruption, casualty trends, credit deterioration and reduced mortgage-related business.
- Management described stronger pricing across many reinsurance lines before COVID-19 and further rate increases in property catastrophe renewals. It expected to write a similar amount of property catastrophe premium in 2020, with portfolio repositioning intended to improve expected profitability. The filing provides no numerical earnings or return guidance.
- The company said its operations remained fully functional under remote work arrangements and that COVID-19 had not, as of the filing, impaired its ability to meet liquidity, regulatory capital or contractual requirements.
- Prior-year reserves developed favorably by $11.0 million from lower loss estimates, partly offset by premium-earning estimate changes. Management reported a $3.2 million net improvement in prior-period underwriting results after related premium and acquisition-cost effects.
- Key risks include uncertain pandemic-related claims and economic effects, investment-market volatility, TP Fund performance and liquidity, non-investment-grade and asset-backed securities exposure, reserve estimation, catastrophe losses, and regulatory or rating-capital requirements. No material legal proceedings were reported.
Important facts to verify
- Confirm whether this Third Point Reinsurance Ltd. filing is the intended issuer and how it relates to the requested SiriusPoint Ltd. company.
- Track COVID-19 claim development, especially event cancellation, business interruption, casualty and credit-related exposures, against the Q1 estimate.
- Assess TP Fund’s losses, investment concentration, withdrawal terms and the company’s reliance on an external manager for investment decisions.
- Review liquidity available without restriction, collateral and letter-of-credit requirements, and subsidiary dividend constraints.
- Monitor reserve development and the sustainability of the improved 97.0% combined ratio as premium volume and business mix change.
- Evaluate the valuation and liquidity risks in non-investment-grade structured credit and the new opportunistic credit portfolio.