Business context and reporting period
This summary covers Third Point Reinsurance Ltd.’s unaudited Form 10-Q for the three months ended March 31, 2018. The filing identifies Third Point Reinsurance Ltd. as the registrant; it does not identify SiriusPoint Ltd. as the registrant. Third Point Re provides global specialty property and casualty reinsurance and manages its investment portfolio through Third Point LLC.
Financial performance
Amounts are in U.S. dollars; financial statement figures below are in millions unless otherwise stated.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Gross premiums written | $378.4 | $146.4 |
| Net premiums earned | $142.5 | $138.0 |
| Total revenues | $140.3 | $266.5 |
| Net investment income (loss), after fees | $(2.2) | $128.5 |
| Net income (loss) attributable to common shareholders | $(26.0) | $104.2 |
| Diluted earnings (loss) per share | $(0.26) | $0.98 |
| Operating cash flow | $(36.7) | $(18.7) |
| Investing cash flow | $163.2 | $94.4 |
| Financing cash flow | $(126.3) | $(37.9) |
Underwriting remained loss-making: net underwriting loss was $6.4 million versus $8.7 million, and the combined ratio improved to 104.5% from 106.3% (above 100% indicates underwriting costs exceeded earned premiums). The loss ratio was 65.0%, the acquisition-cost ratio 36.1%, and the general and administrative expense ratio 3.4%.
Financial position and liquidity
At March 31, 2018, total assets were $4.756 billion, total liabilities $3.137 billion, and shareholders’ equity $1.613 billion. Equity attributable to common shareholders was $1.607 billion, down from $1.656 billion at year-end 2017. Investments in securities totaled $2.812 billion, compared with $2.996 billion at year-end.
Cash and cash equivalents were $6.4 million; restricted cash was $543.2 million. Including restricted cash, cash, cash equivalents and restricted cash totaled $549.6 million. Restricted cash and investments securing letters of credit and certain reinsurance contracts totaled $867.1 million. The company reported $2.068 billion of unrestricted liquid investment assets.
Senior notes had $115.0 million principal outstanding, bear 7.0% interest, and mature in 2025; their balance-sheet carrying value, net of deferred costs, was $113.8 million. The company also reported $792.6 million due to brokers, including $751.5 million of prime-broker borrowings. Letter-of-credit facilities totaled $425.0 million, of which $237.0 million was utilized and fully collateralized. Management reported compliance with debt and letter-of-credit covenants.
Material changes versus the prior comparable period
- Gross premiums written rose 158.5%, driven by new and renewed business, premium estimate increases, and a larger in-force portfolio. Net premiums earned increased only 3.2%, reflecting the timing of premium earning.
- Investment performance shifted sharply: the return on investments managed by Third Point LLC was negative 0.2%, versus positive 5.8% in Q1 2017. Losses in long equities were partly offset by structured-credit gains and hedges. Net investment income before related-party fees fell to $7.8 million from $167.8 million; after fees, it was a $2.2 million loss.
- Foreign-exchange losses increased to $6.6 million from $0.02 million, primarily from revaluation of British-pound loss reserves. Management said corresponding gains on foreign-currency collateral generally offset these losses, resulting in minimal net exposure.
- Prior-period reserve estimates produced a $16.9 million net increase in reserves, but management reported a $0.8 million improvement in prior-period underwriting results after associated premium and acquisition-cost adjustments. Florida homeowners’ contracts had $4.0 million of adverse development, attributed mainly to water-damage claims and assignment-of-benefits practices.
- The company repurchased 1.64 million shares for $23.8 million at a weighted-average $14.55 per share and authorized repurchases of up to $200 million in aggregate under its program. It also recorded $101.7 million of net withdrawals from related-party noncontrolling interests.
Outlook, commentary and risks
Management described reinsurance capacity as ample and market conditions as challenging, while noting modest improvement in terms or underlying pricing in some lines. It was cautiously optimistic about further improvement and potential demand from catastrophe-affected insurers, but said the effect on capacity in unaffected lines remained unclear. Management emphasized selective underwriting; it may consider expanding into lines or structures with higher risk where expected margins are judged adequate. The filing gives no numerical earnings or revenue guidance and cautions that quarterly results are not necessarily indicative of full-year results.
Key risks include volatile investment returns and dependence on Third Point LLC, underwriting and reserve-estimation uncertainty, mortgage-credit and catastrophe exposures, non-investment-grade and potentially illiquid investments, counterparty and broker credit risk, and reliance on collateralized letter-of-credit and prime-broker facilities. A 10% decline in equity and equity-linked exposures was estimated to reduce portfolio value by $179.8 million. The filing reported no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of March 31, 2018.
Important facts for investors to verify
- Confirm the issuer and security being analyzed: this filing is for Third Point Reinsurance Ltd., not a registrant named SiriusPoint Ltd.
- Review whether the investment portfolio’s performance, including concentrated equity and non-investment-grade asset exposures, is consistent with the investor’s risk assumptions.
- Assess reserve adequacy and developments in Florida homeowners’ claims, mortgage-related business, and premium estimates.
- Evaluate liquidity and collateral constraints: most reported cash was restricted, and the company relied on prime-broker borrowing and fully collateralized letter-of-credit facilities.
- Monitor related-party investment fees, withdrawals, and governance, as well as capital returns through the share-repurchase program.