Filing summary
Entity and period: The supplied filing is Third Point Reinsurance Ltd.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016—not a filing identified as Siriuspoint Ltd. The company provided global specialty property and casualty reinsurance and invested its assets through Third Point LLC. Amounts below are U.S. dollars.
Financial performance and position
- Second quarter: Net premiums earned were $133.1 million, up from $120.6 million a year earlier. Net investment income was $86.3 million versus $38.6 million. Net income was $53.4 million, or $0.51 per diluted share, compared with $15.7 million, or $0.15 per diluted share.
- First six months: Net premiums earned were $269.9 million versus $259.7 million. Net investment income fell to $46.2 million from $103.5 million; net income was $2.2 million, or $0.02 per diluted share, versus $66.1 million, or $0.62 per diluted share.
- Underwriting: The second-quarter combined ratio was 119.2%, compared with 107.8% in 2015; the six-month ratio was 111.9% versus 105.1%. Ratios above 100% indicate underwriting expenses exceeded earned premiums. Net underwriting losses were $25.6 million for the quarter and $32.2 million for the half-year.
- Investment performance: Third Point LLC-managed investments returned 4.0% in the quarter and 1.9% for the half-year, versus 1.7% and 4.8% in the comparable 2015 periods. Q2’s investment income included $53.6 million of unrealized gains; the six-month result included a $1.2 million net unrealized loss and $42.0 million of realized gains.
- Cash flow: Six-month operating cash flow was $28.2 million, down from $130.5 million. Investing cash outflow was $38.9 million and financing cash outflow was $2.6 million. Cash and cash equivalents ended at $7.0 million, down from $20.4 million at year-end.
- Balance sheet and liquidity: Total assets were $4.10 billion and shareholders’ equity was $1.40 billion at June 30. Investments in securities totaled $2.77 billion. Restricted cash and investments were $680.6 million; the company reported $1.43 billion of unrestricted liquid investment assets. Due to brokers was $794.1 million, and repurchase-agreement liabilities were $168.4 million.
- Debt: The company reported $113.5 million of senior notes, net of deferred costs, against $115.0 million principal. The notes mature in 2025, carry a 7% coupon, and are guaranteed by the parent. The company reported compliance with debt covenants.
Changes, outlook and key risks
- Six-month gross premiums written were $394.0 million, slightly below $397.7 million in 2015. Specialty premiums increased while property premiums declined; management attributed period-to-period premium variation to contract mix, renewals, extensions and updated premium estimates.
- Prior-year reserves developed adversely by $14.4 million in the first half, compared with $7.0 million of favorable development in 2015. Management cited adverse experience in auto, workers’ compensation and Florida homeowners’ business, among other exposures.
- Management said reinsurance market conditions had deteriorated and could weaken further. It planned to remain selective in underwriting, potentially slowing premium growth. No numerical earnings or premium guidance was provided.
- Investment results are expected to be volatile. Risks include market and credit exposures, non-investment-grade private-label asset-backed securities, valuation uncertainty, liquidity constraints, foreign exchange and reliance on prime brokers and letter-of-credit facilities. A 10% decline in equity and equity-linked investments was estimated to reduce investment value by $103.3 million.
- The investment-management agreements were extended for a further five-year term beginning December 22, 2016; the management fee was set to decline from 2% to 1.5%. The performance fee remained subject to a loss-carryforward provision.
- The company authorized a share repurchase program of up to $100 million and repurchased $7.4 million of shares during the first half. It reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the filing’s registrant: the supplied document is for Third Point Reinsurance Ltd., despite the request naming Siriuspoint Ltd.
- Review reserve adequacy and the sources of adverse development, especially auto, workers’ compensation and Florida homeowners’ claims.
- Assess whether investment returns can support results amid underwriting losses and the substantial decline in first-half investment income year over year.
- Verify liquidity available after restricted collateral, broker financing, and potential claims needs; the reported cash balance alone is limited.
- Review concentration in brokers, major contracts and distribution channels, and the terms and collateral requirements of letter-of-credit facilities.