Filing summary: Third Point Reinsurance Ltd. (not SiriusPoint Ltd.)
The supplied filing is Third Point Reinsurance Ltd.’s Form 10-K for the fiscal year ended December 31, 2015, filed February 26, 2016. The filing does not identify SiriusPoint Ltd. as the registrant; confirm the company and period before relying on this summary.
Business context and reporting period
Bermuda-based property and casualty reinsurer, with investments managed primarily by Third Point LLC. U.S. underwriting began in February 2015 through Third Point Re USA. The company reported Property and Casualty Reinsurance and Catastrophe Risk Management segments, plus a corporate function. It had a limited operating history and emphasized that results can fluctuate materially.
Financial results and key metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Gross premiums written | $702.4 million | $613.3 million |
| Net premiums written | $700.5 million | $613.2 million |
| Net premiums earned | $602.8 million | $444.5 million |
| Net investment income (loss) | $(28.1) million | $85.6 million |
| Net income (loss) | $(87.4) million | $50.4 million |
| Basic and diluted earnings (loss) per share | $(0.84) | $0.48 basic; $0.47 diluted |
| P&C reinsurance net underwriting loss | $(28.3) million | $(9.6) million |
| P&C combined ratio | 104.7% | 102.2% |
| Operating cash flow | $187.8 million | $122.4 million |
- Profit and investment performance: The net loss primarily reflected the investment portfolio’s negative return, alongside a larger underwriting loss. Net investment return managed by Third Point LLC was -1.6%, compared with 5.1% in 2014 and 23.9% in 2013; the S&P 500 returned 1.4% in 2015.
- Underwriting and margins: The combined ratio above 100% means P&C claims and underwriting expenses exceeded earned premiums. The loss ratio was 68.9% and acquisition cost ratio 31.7%. Premiums earned included $108.1 million from retroactive exposures, recognized at contract inception.
- Balance sheet and liquidity: Total assets were $3.545 billion; total liabilities $2.149 billion; and total shareholders’ equity $1.396 billion at year-end. Cash and cash equivalents were $20.4 million, while unrestricted liquid investment assets were reported at $1.182 billion. Restricted cash and investments totaled $623.0 million, principally supporting letters of credit and reinsurance collateral.
- Debt: TPRUSA issued $115 million of 7.0% senior notes due 2025, fully and unconditionally guaranteed by the parent. Carrying value at year-end was $113.4 million, net of issuance costs. 2015 interest expense was $7.2 million.
Material changes versus the prior comparable period
- Gross premiums written increased 14.5% year over year, while net premiums earned rose 35.6%. Management attributed growth to new business, U.S. operations, premium estimate increases, renewals and reserve-cover activity; commutations and non-renewals partly offset growth.
- Investment income moved from $85.6 million of income to a $28.1 million loss. Management cited losses in long equities and performing credit, partly offset by structured credit, sovereign debt and short equity.
- The P&C combined ratio worsened 2.5 percentage points, from 102.2% to 104.7%; net underwriting loss increased from $9.6 million to $28.3 million. Management cited deteriorating underwriting conditions, prior-year contract effects and $2.7 million of current-year losses from Texas windstorms and other storms.
- Shareholders’ equity declined from $1.552 billion to $1.396 billion. Diluted book value per share fell 5.2%, to $12.85 from $13.55; the company attributed the decline mainly to the net loss.
- Cash provided by operations increased to $187.8 million from $122.4 million. Restricted cash and investments increased to $623.0 million from $417.3 million, reflecting higher collateral requirements and use of restricted investments.
- The Catastrophe Fund was wound down: all investments were redeemed by year-end 2015, and the fund and catastrophe reinsurer were dissolved in February 2016. The company retained a $26.5 million investment in the Kiskadee Fund, which invests in property-catastrophe exposures.
Outlook, commentary, risks and unusual items
- Management said reinsurance capacity was abundant, market conditions had deteriorated and could worsen further. It expected to remain selective, potentially slowing gross written premium growth, while targeting customized and reserve-cover opportunities. No specific earnings or premium guidance was provided.
- Third Point Re USA was supported by a parent net-worth maintenance commitment to maintain at least $250 million of capital. It assumed 75% of Third Point Re USA’s premiums and losses under a quota-share agreement.
- Investment management agreements with Third Point LLC were due to expire on December 22, 2016, subject to renewal provisions. Management said renewal negotiations were active and expected renewal in 2016; this was an expectation, not a completed renewal.
- Key risks include uncertain and potentially inadequate loss reserves, premium-estimation judgment, volatile investment returns, leverage and short-sale exposure, concentrated and non-investment-grade asset-backed securities, collateral and letter-of-credit availability, rating downgrades, broker and counterparty concentration, and dependence on Third Point LLC and key executives.
- The company had $550 million of letter-of-credit facilities, with $270.4 million utilized at year-end. Its ability to renew or expand facilities on acceptable terms could constrain underwriting or require changes to investment strategy.
- Management reported no current litigation or material dispute-resolution proceedings. Ernst & Young issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Most important facts for investors to verify
- Confirm the filing belongs to the intended issuer: this document names Third Point Reinsurance Ltd., rather than SiriusPoint Ltd.
- Review the audited financial statements and notes for reserve adequacy, loss development, retroactive reinsurance accounting and assumptions underlying premium estimates.
- Assess investment portfolio exposures, valuation methods, leverage, short positions and asset-backed securities credit and liquidity risks.
- Verify current debt, interest obligations, letter-of-credit capacity, collateral restrictions and the operating subsidiaries’ ability to upstream cash under Bermuda solvency rules.
- Check subsequent disclosures for the actual renewal or replacement of Third Point LLC’s investment management agreements and developments in underwriting conditions.
- Consider that the filing states no foreseeable common-share dividends are expected, and that historical investment performance is not a guarantee of future results.