Filing summary: Third Point Reinsurance Ltd. (NYSE: TPRE)
Entity and period: The supplied filing is Third Point Reinsurance Ltd.’s Form 10-K for the fiscal year ended December 31, 2019, filed February 28, 2020. It is not identified as a Siriuspoint Ltd. filing. The 10-K also includes unaudited fourth-quarter results.
Business context and reporting period
Third Point Re is a Bermuda-based holding company providing property and casualty reinsurance through Bermuda subsidiaries. It manages one operating segment, Property and Casualty Reinsurance. Investment manager Third Point LLC manages substantially all investable assets, including the company’s investment in TP Fund. In 2019, the company expanded into property catastrophe and other event-driven business while shifting part of its investment portfolio toward cash and fixed-income assets to support liquidity and higher underwriting risk.
Financial performance and key metrics
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Gross premiums written | $631.8 million | $578.3 million |
| Net premiums earned | $700.1 million | $621.4 million |
| Net investment income (loss) | $282.6 million | $(251.4) million |
| Net income (loss) attributable to common shareholders | $200.6 million | $(317.7) million |
| Diluted earnings (loss) per share | $2.16 | $(3.27) |
| Net underwriting loss | $(22.3) million | $(42.1) million |
| Combined ratio | 103.2% | 106.8% |
| Net investment return managed by Third Point LLC | 12.8% | (10.8)% |
Underwriting remained unprofitable: the 103.2% combined ratio exceeded the 100% break-even level. The loss ratio improved to 57.6% from 70.6%, while the acquisition-cost ratio rose to 42.2% from 33.2%. Favorable prior-year reserve development of $98.5 million was substantially offset by higher acquisition costs, including a $68.9 million profit-commission adjustment on one retroactive contract.
At December 31, 2019, total assets were $3.44 billion, total liabilities $2.03 billion, and shareholders’ equity $1.41 billion. Loss and loss adjustment expense reserves were $1.11 billion, including $963.4 million of IBNR reserves. Cash and cash equivalents were $639.4 million; restricted cash was $1.01 billion. Total net investments managed by Third Point LLC were $2.59 billion, including $860.6 million in TP Fund.
Operating cash flow was $141.1 million, compared with $13.4 million in 2018. Cash, cash equivalents and restricted cash totaled $1.65 billion at year-end. The company had $115 million principal amount of 7.0% senior notes due 2025; debt carrying value, net of issuance costs, was $114.1 million. It reported $251.8 million of letters of credit issued and $903.0 million of restricted cash and investments held in trust under certain reinsurance arrangements. No shares were repurchased in 2019; $61.3 million remained authorized under the repurchase program.
Fourth quarter: Net income was $29.7 million, versus a net loss of $298.0 million in Q4 2018. Net premiums earned were $198.4 million versus $209.5 million; net investment income was $61.6 million versus a loss of $276.8 million.
Material changes versus the prior comparable period
- Full-year net income swung to $200.6 million from a $317.7 million loss, driven mainly by investment results: the managed investment return recovered to 12.8% from negative 10.8%.
- Gross premiums written increased 9.3%. Property catastrophe premiums began in 2019 and totaled $68.3 million; property’s share of premiums rose to 22.8% from 1.6%, while casualty’s share declined to 24.0% from 40.8%.
- The combined ratio improved by 3.6 percentage points, but remained above 100%, and the segment continued to report an underwriting loss.
- The company reallocated $750 million from TP Fund during 2019. TP Fund assets declined to $860.6 million from $1.28 billion, while collateral and other fixed-income assets increased. Management cited greater claims liquidity needs, the changing underwriting risk profile, and capital targets.
- Restricted cash and investments increased, while letters of credit issued declined to $251.8 million from $349.2 million. The company did not renew its $200 million unsecured letter-of-credit facility when it expired in July 2019.
Outlook, commentary, risks, and unusual items
- Management expected to achieve a combined ratio below 100% in 2020, subject to catastrophe losses exceeding expectations. It expected a similar amount of property-catastrophe premium, with portfolio repositioning intended to improve profitability.
- Management reported improved pricing or terms across many markets entering the January 2020 renewals, but also cited increasing casualty loss trends. It cautioned that reallocating investments to fixed income may lower future investment returns.
- A.M. Best affirmed the subsidiaries’ A- financial strength rating in May 2019 but changed the outlook from stable to negative, citing operating volatility, underwriting losses since inception, and management changes.
- Key risks include reserve-estimation uncertainty, catastrophe exposure, investment volatility and concentration, reliance on Third Point LLC, limited TP Fund withdrawal rights, collateral and letter-of-credit capacity, broker and counterparty credit risk, and regulatory and tax uncertainty. The independent auditor identified valuation of IBNR reserves as a critical audit matter.
- The filing reports no current litigation or arbitration and states that disclosure controls and internal control over financial reporting were effective. Two directors notified the Board they would not stand for reelection at the 2020 annual meeting.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing is for Third Point Reinsurance Ltd. (TPRE), not Siriuspoint Ltd.
- Confirm the intended reporting period: this is an annual 2019 10-K, with separate unaudited Q4 figures included.
- Assess whether 2020 underwriting achieved the stated below-100% combined-ratio goal, and how catastrophe losses and casualty trends affected results.
- Review reserve development and the large IBNR balance, including the extent to which favorable prior-year development recurs or reverses.
- Evaluate investment performance, liquidity and collateral needs after the $750 million reallocation, alongside the negative A.M. Best outlook and outstanding debt obligations.