SiriusPoint Ltd. (NYSE:SPNT) Q1 2024 Earnings Call Transcript

SiriusPoint Ltd. (NYSE:SPNT) Q1 2024 Earnings Call Transcript May 1, 2024

SiriusPoint Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen, and welcome to SiriusPoint’s First Quarter 2024 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. As a reminder, this conference call is being recorded and a replay is available through 11:59 PM Eastern Time on May 15, 2024. With that, I would like to turn the call over to Dhruv Gahlaut, Head of Investor Relations and Chief Strategy Officer. Please go ahead.

Dhruv Gahlaut: Thank you, operator, and good morning, good afternoon to everyone listening. I welcome you to the SiriusPoint earnings call for the 2024 first quarter results. Last night, we issued our earnings press release and financial supplement, which are now available on our website, www.siriuspt.com. Additionally, our webcast presentation will coincide with today’s discussion and is available on our website. With me here today are Scott Egan, our Chief Executive Officer; and Steve Yendall, our Chief Financial Officer. Before we start, I would like to remind you that today’s remarks contain forward-looking statements based on management’s current expectations. Actual results may differ. Certain non-GAAP financial measures will also be discussed.

Management uses the non-GAAP financial measures in its internal analysis of results and believes that they may be informative to investors engaging the quality of our financial performance and identifying trends in our results. However, these measures should not be considered as a substitute or superior to the measures of financial performance prepared in accordance with GAAP. Please refer to Page 2 of our investor presentation for additional information and the company’s latest public findings. At this point, I will turn the call over to Scott.

Scott Egan: Thank you, Dhruv, and good morning, good afternoon, everyone. Thank you for joining our first quarter 2024 results call. As you can hear, I have a rather croaky voice today, so I apologize in advance, but the great news is our results are better than my voice. I’m really pleased to be able to say that 2024 is off to a strong start. We delivered our 6th consecutive quarter of positive underwriting result, improved the quality of our earnings, and took action to further strengthen our balance sheet. The performance momentum from 2023 has continued with strong year-over-year performance. We are executing on our ambition to deliver consistent and stable earnings that create long-term shareholder value. Our strong results and strategic actions taken this quarter move us closer to our longer-term ambition of becoming a best-in-class insurer reinsurer.

Before sharing the key messages relating to our results, I want to recap on four developments from the quarter within our key messages on Slide 5. Firstly, I would like to highlight the liability management exercise we completed recently. This has further improved the quality and strength of our balance sheet, an area that we highlighted at Q4 that we would focus on. We announced three debt transactions in late March, including our debut debt issuance of $400 million. These transactions were aimed at refinancing $400 million of 2026 legacy senior notes and redeeming the $115 million of legacy 2025 senior notes, all were successfully executed. The new debt instrument will be capital accretive under the rating agency and regulatory capital models and will increase our capital levels by a further $300 million on a net basis.

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Q&A Session

This increase in capital equates to an approximately 20-point improvement in our Q4 ’23 BSCR ratio, which already stands at 255% before this. Our capital levels have never been stronger. Additionally, the redemption of the 115 million 25 senior notes will reduce our financial leverage by around 2.5 points. These transactions together were designed to simplify and optimize our capital structure and complete another part of our repositioning of the group. Secondly, and as we previously communicated, we identified a material weakness in our internal controls over financial reporting in quarter three 2023. As a reminder, the material weakness was in respect to a misstatement of our quarterly premiums during the first half of ’23. I am pleased to say that this has now been fully remediated as of quarter four 2023.

Thirdly, we obtained new ratings from Moody’s ahead of our debt offering. They have assigned us an A3 financial strength rating further validating the progress we have made in improving our results and strengthening our balance sheet. As a reminder, we have financial strength ratings from AM Best, S&P, and Fitch. And this year S&P, Fitch, and AM Best affirmed our financial strength ratings as stable. And finally, I want to highlight the loss portfolio transaction we announced yesterday. This transaction covers approximately $400 million of workers’ comp reserves linked solely to the business we already exited up one, one this year. Given the historical poor performance of this specific book, we felt it was the right decision to reduce future uncertainty now as part of our balance sheet improvement work.

We have entered into a transaction with Enstar which is subject to regulatory approval. This will further improve the quantum and quality of our reserve margin. Turning back now to our Q1 results. We are very pleased to report a strong first quarter with a combined ratio of 91.4% for our core business. Net income of $91 million and diluted book value per share growth of 2%. Importantly, our Q1 performance is within the updated medium-term ROE guidance range of 12% to 15%. Beginning with our strong underwriting result for the quarter, our headline combined ratio of 91.4 for our core business was an improvement of 5% versus prior year on a like-for-like basis excluding the loss portfolio transfer transaction we announced in the first quarter of 2023.

The combined ratio has been supported by both loss and expense ratio improvements with the loss ratio improving five points of which importantly three points came from attritional loss ratio improvement. We recorded no cat losses in the first quarter compared to 7 million last year and have no material exposure related to the Baltimore Key Bridge. On an accident-year basis, the combined ratio also saw an improvement and was down by around four points to 92.9%. Additionally, on a consolidated basis, this quarter marks the 12th consecutive quarter of favorable prior year development providing strong evidence of our prudent approach to reserving. Our other underwriting expense ratio for core business also decreased 1.4 points versus Q1 last year as we realized the benefits from our cost-saving program.

Combined, these improvements are important proof points of the actions we have and are taking to drive better underwriting performance. Turning to our investments result which continues to be strong in quarter one. Net investment income of $79 million reflects the strong rate performance in the first quarter, continued optimization work by the team, and rotation into high-quality spread products. Our portfolio continues to perform well and again we saw no defaults across our fixed income portfolio this quarter. Overall, our investment strategy remains unchanged and we continue to operate a fixed-income portfolio with an average credit rating at AA. Turning now to our distribution strategy and consolidated MGAs, which have delivered strong results.

Our distribution strategy remains important to us and we have continued to onboard new MGA underwriting partners in line with our intention to partner as a paper and capacity provider without taking an equity stake. We added a total of three new MGA partners in the first quarter and expanded our relationship with two existing partners. Since the end of the quarter, we have also entered into two further new partnerships. This momentum we are building should bear fruit as we go through the year and emerge from the impact of the underwriting decisions we have taken to improve the underwriting profit. We continue to rationalize our equity stakes in the first quarter closing the previously announced sale of Corvus and writing off a small investment.

This brings our total holdings to ’24 at the end of the first quarter, down from 36 at the beginning of 2023. Moving on to our consolidated MGA’s standalone performance, service revenues were up 3% on prior year while service margin increased by one point to 30% generating net service fee income of $20 million up 8% year-on-year. Despite the strong underlying performance, we continue to believe that the actual economic value is significantly higher than the carrying value of these assets and is not fully reflected in SiriusPoint’s share price. So in summary, 2024 is off to a strong start. Our aim is to keep that going. We are focused on improving the returns of the business targeting a 12% to 15% return on equity in the medium term. Q1 performance shows we are on track.

With these remarks, I will pass it over to Steve who will take you through the financials.

Steve Yendall: Thank you, Scott, and good morning, good afternoon, everyone. I’ll now take you through the financial section of the presentation, starting with first quarter financials on Slide 8. Overall, it was a strong quarter with all three earnings engines positively contributing to net income and up year-on-year on a like-for-like basis as we adjust for the benefits linked to the loss portfolio transaction. For the underwriting results, this marks the sixth consecutive quarter of positive income as we delivered core underwriting profits of 44 million with a combined ratio of 91.4%. Gross premiums written decreased 17% quarter-on-quarter for our core business. Top-line growth was impacted by premium reductions in both the Reinsurance segment where premiums are down $40 million compared to the first quarter last year and insurance and services where premiums decreased by $140 million.