SiriusPoint Ltd. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial amounts are in millions unless stated otherwise. SiriusPoint is a Bermuda-based global insurer and reinsurer, reporting Reinsurance and Insurance & Services segments. Comparisons with 2021 are affected by the February 2021 acquisition of Sirius Group; 2021 results include that business only from the acquisition date.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net premiums earned | $612.6 | $499.6 | $1,710.7 | $1,197.1 |
| Total revenues | $597.5 | $732.6 | $1,432.0 | $1,782.7 |
| Net income (loss) | $(93.6) | $(47.4) | $(363.0) | $192.6 |
| Net income (loss) available to common shareholders | $(98.4) | $(48.0) | $(376.2) | $184.9 |
| Basic loss per common share | $(0.61) | $(0.30) | $(2.35) | $1.18 |
| Combined ratio | 107.7% | 147.7% | 98.5% | 115.1% |
Q3 investment gains and net investment income were a net loss of $28.2, versus income of $199.8 a year earlier. For the nine-month period, the investment result was a loss of $374.8, versus income of $463.7 in 2021. These swings were a major contributor to the reported net losses, particularly losses on the Third Point Enhanced Fund and fixed-income holdings.
- Underwriting: Q3 core underwriting loss was $88.3, with a 114.5% core combined ratio; nine-month core underwriting loss was $66.0, with a 103.9% core combined ratio. The 98.5% nine-month consolidated combined ratio also reflects corporate/runoff results and is not the core ratio.
- Catastrophe losses: Net catastrophe losses were $114.6 in Q3, including $80.1 from Hurricane Ian, and $137.7 for nine months. Management cited reduced catastrophe-exposed business as a reason losses were below 2021 comparable periods.
- Segments: Insurance & Services premiums grew substantially, while Reinsurance premiums declined in Q3 as the company shifted business mix. Q3 Insurance & Services underwriting recorded a loss of $8.7 and a 102.8% combined ratio; Reinsurance recorded a loss of $79.6 and a 126.1% ratio. Nine-month segment income was $44.5 for Insurance & Services and a $73.0 loss for Reinsurance.
- Margins and reserves: Nine-month net favorable prior-year reserve development was $17.2, driven mainly by COVID-19 and accident-and-health reserve releases, partly offset by strengthening in Workers’ Compensation and Property. Gross loss and LAE reserves were $5,200.5 at September 30.
Balance sheet, cash flow and liquidity
- Total assets were $10,998.1 at September 30, 2022, compared with $10,618.3 at December 31, 2021. Total shareholders’ equity was $2,092.8, down from $2,503.3, primarily due to the year-to-date loss. Basic book value per share was $11.75, down 18.7% from $14.46 at year-end 2021.
- Total investments were $5,738.0, including $3,021.1 in debt securities and $309.0 in related-party investment funds. Cash and cash equivalents were $647.3; restricted cash was $144.2. Cash, cash equivalents and restricted cash totaled $791.5, down from $1,948.4 at year-end.
- Nine-month operating cash flow was $245.3, versus $26.6 in 2021. Investing activities used $1,363.9, principally reflecting investment purchases; financing activities used $18.3. Cash and restricted cash declined by $1,136.9 during the period.
- Debt was $762.0, down from $816.7 at year-end. The company reported compliance with debt covenants and no borrowings on its $300.0 million revolving credit facility. Issued letters of credit totaled $1,232.5 and were fully collateralized under secured facilities.
- Liquidity includes substantial assets restricted to support reinsurance obligations and letters of credit. Management stated that cash, operating cash flow and subsidiary distribution capacity should meet foreseeable needs; subsidiary distributions remain subject to regulatory, contractual and rating-related restrictions.
Changes, outlook, risks and unusual items
- Premium growth reflected expansion in Insurance & Services, including accident and health and strategic partnerships. Management said its strategy is to rebalance toward insurance and higher-margin growth lines and reduce investment volatility.
- The company withdrew $404.0 from the Third Point Enhanced Fund during the nine months to diversify its portfolio; $350.0 of withdrawals remained to be reinvested in or committed to the Third Point Optimized Credit portfolio or other Third Point strategies. The company reported a $194.0 investment loss from the Enhanced Fund for the nine-month period.
- Management cited rising interest rates, wider credit spreads, foreign-exchange movements and inflation as important factors. It said inflation assumptions had been adjusted in pricing and that, as of September 30, estimated inflation effects were within established reserves, while emphasizing continued uncertainty and monitoring.
- The Russia/Ukraine conflict exposure remained uncertain. Management’s underwriting loss estimate was $18.2 as of September 30; the filing also reports $12.9 of nine-month losses in specified lines and $5.3 in runoff business. The investment portfolio had no meaningful direct investment exposure to Russia or Ukraine, according to management.
- On November 2, 2022, after quarter-end, the company announced restructuring of its international property-catastrophe underwriting footprint, including office closures in Hamburg, Miami and Singapore and reduced operations in Liege and Toronto. Expected implementation costs were approximately $30–$35, primarily in Q4 2022. No formal earnings or financial guidance is provided in the filing.
- Leadership changes: Scott Egan became permanent CEO effective September 21, 2022; Steve Yendall became CFO effective October 31, 2022. S&P removed the company and core subsidiaries from CreditWatch with negative implications on September 28.
- Other notable items include a $6.7 Joyn impairment in Q3, $10.0 of nine-month expected credit losses, $12.0 of Series B preference dividends paid year to date, and $5.0 of common-share repurchases. The filing notes that the 2021 interim results were revised to correct a $37.5 understatement of acquisition-related bargain purchase gain; management determined the prior misstatement was not material to Q1 2021.
- Management said no individual litigation or arbitration was likely to have a material adverse effect. Key risks include reserve adequacy, catastrophes and climate-related events, investment-market volatility, inflation and foreign exchange, rating changes, reliance on MGAs and Third Point-managed investments, and execution of the strategic and restructuring plans.
Investor verification points
- Assess whether the improvement in underwriting ratios persists after accounting for catastrophe exposure, reserve development and differences between core and consolidated results.
- Review the valuation, withdrawal terms and concentration risk of Third Point-managed investments, including the remaining $350.0 withdrawal amount and the performance of the Optimized Credit portfolio.
- Track reserve adequacy and the effects of inflation, particularly in Workers’ Compensation and Property, as well as catastrophe and Russia/Ukraine claims estimates.
- Verify implementation costs and expected benefits of the announced restructuring, and monitor management-transition execution.
- Evaluate usable liquidity separately from restricted cash and collateral, and monitor letter-of-credit capacity, subsidiary dividend restrictions, debt covenants and rating developments.
- Reconcile reported earnings with large investment, foreign-exchange and acquisition-related effects; note that 2021 comparisons are affected by the Sirius Group acquisition and the disclosed revision.