Siriuspoint Ltd quarterly report, Q3 FY2015

Business context and reporting period

This summary is of Third Point Reinsurance Ltd.’s Form 10-Q for the quarter ended September 30, 2015, filed November 4, 2015. The filing is not for SiriusPoint Ltd.; the company named in the request does not match the registrant in the supplied filing. Third Point Re provides global specialty property and casualty reinsurance and invests its portfolio through Third Point LLC.

Financial results and position

Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.

• Underwriting: Property and casualty reinsurance reported underwriting losses of $5.8 million in Q3 and $19.1 million for nine months. Combined ratios were 102.8% and 104.1%, respectively; above 100% indicates underwriting expenses exceeded earned premiums.
• Cash flow: Nine-month operating cash flow was $191.5 million, investing cash flow was $(250.4) million, and financing cash flow was $41.0 million. Cash and cash equivalents fell to $10.8 million from $28.7 million at year-end 2014.
• Balance sheet and liquidity: At September 30, total assets were $3.56 billion, total liabilities $2.21 billion, and shareholders’ equity $1.35 billion, down from $1.55 billion at December 31, 2014. Restricted cash was $604.4 million. Management reported $1.25 billion of unrestricted liquid investment assets, defined as unrestricted cash and securities with quoted prices in active markets.
• Debt and facilities: The company had $115 million principal amount of senior notes due 2025, bearing 7.0% interest; carrying value net of issuance costs was $113.3 million. Letter-of-credit facilities totaled $500 million, of which $259.8 million was utilized. The filing states the company was in compliance with facility and note covenants.
• Reserves: Loss and loss adjustment expense reserves were $420.6 million, up from $277.4 million at year-end. Nine-month prior-year loss reserve development was favorable by $8.8 million, but associated acquisition-cost increases more than offset that benefit in underwriting results.

Material changes versus prior comparable periods

• Investment performance weakened sharply: Third Point LLC-managed investments returned negative 8.7% in Q3 and negative 4.3% for nine months, versus negative 0.04% and positive 5.5% in the respective 2014 periods. The filing attributes the losses principally to the long equity portfolio; Q3 long/short equity returns were negative 8.2%.
• Premiums written grew 73.6% in the first nine months, reflecting new business, U.S. expansion, contract renewals and higher premium estimates on certain prior-year contracts. Retroactive reinsurance contributed $108.1 million of nine-month earned premiums, compared with an insignificant amount in the 2014 period.
• Underwriting performance remained loss-making and deteriorated modestly: the nine-month combined ratio rose to 104.1% from 103.6%. The Q3 ratio rose to 102.8% from 101.7%.
• Shareholders’ equity declined primarily because of the net loss and distributions to non-controlling interests. Book value per share fell to $12.81 from $14.04 at year-end; diluted book value per share fell to $12.45 from $13.55.
• The company issued $115 million of senior notes in February 2015 and began U.S. reinsurance operations through Third Point Re USA. The catastrophe fund runoff was nearly complete: its net asset value was $0.7 million at quarter-end versus $119.7 million at year-end 2014.

Outlook, commentary, risks and unusual items

• Management described reinsurance market conditions as challenging, with substantial available capacity and pricing pressure, particularly in property catastrophe. It said conditions had deteriorated slightly and could worsen in the near term. No quantified earnings or premium guidance was provided.
• Management cited strong submission flow for targeted non-catastrophe business and customized transactions, including adverse development covers. It expects the U.S. operation to support growth, while noting its limited operating history and results volatility.
• The company recognized $3.1 million of nine-month losses from Texas windstorms and other storm activity. Two commuted contracts accounted for $63.5 million of nine-month paid losses. Q3 investment losses were driven largely by unrealized losses in long equities.
• Key risks include investment-market and liquidity volatility, non-investment-grade private-label asset-backed securities, uncertain loss reserving and premium estimates, reinsurance pricing competition, counterparty exposure, dependence on Third Point LLC, and reliance on letters of credit. A 10% increase in estimated ultimate losses on in-force contracts was modeled to reduce equity by 2.6%; a 10% decrease was modeled to increase it by 1.9%.
• The filing reports no material formal or informal dispute-resolution proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

• Confirm the registrant identity: the supplied filing is Third Point Reinsurance Ltd., not SiriusPoint Ltd.
• Assess whether investment losses, portfolio exposures and valuation estimates—especially for asset-backed securities and private or Level 3 assets—have continued or changed.
• Review reserve adequacy, adverse attritional loss experience, commutations, premium-estimate revisions and the effect of sliding-scale or profit commissions.
• Monitor underwriting profitability and whether premium growth can be sustained without weakening pricing or terms.
• Check liquidity and collateral needs, letter-of-credit renewals and utilization, subsidiary dividend restrictions, and the ability to service the 7.0% notes.
• Evaluate the progress and financial contribution of Third Point Re USA and the completion of the catastrophe fund runoff.