SiriusPoint Ltd. (NYSE:SPNT) Q2 2024 Earnings Call Transcript

SiriusPoint Ltd. (NYSE:SPNT) Q2 2024 Earnings Call Transcript August 2, 2024

Operator: Good morning, ladies and gentlemen, and welcome to SiriusPoint Second 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 p.m. Eastern time on August 16th, 2024. With that, I would like to turn the call over to Sarah Singh, Vice President Strategy and Investor Relations. Please go ahead.

Sarah Singh: Thank you, operator, and good morning, good afternoon to everyone listening. I welcome you to the SiriusPoint earnings call for the 2024 half-year and second quarter results. Last night, we issued our earnings press release and financial supplement, which are available on our website, www.siriuspt.com. Additionally, a 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 Jim McKinney, 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 for or superior to the measures of financial performance prepared in accordance with GAAP. Please refer to page two of our investor presentation for additional details and the company’s latest public filings. At this time, I will turn the call over to Scott.

Scott Egan: Thanks, Sarah, and good morning, good afternoon, everyone. Thanks for joining our second quarter and half-year 2024 results call. I’m really pleased to report another strong set of results in the second quarter. We continue to build a track record of improving and consistent earnings. We believe that our strong focus on underwriting performance and relentless execution is showing through. This is now our seventh consecutive quarter of underwriting profit. We are building important proof points of the progress that we’re making. Starting with premium, we’ve seen excellent premium growth in our continuing lines whilst retaining our underwriting discipline. Our quarter two discrete core premium growth, excluding the lines exited in 2023, was up 22%, while half-year growth is up 6% year-on-year.

Given our restructuring in ’22 and ’23 to improve underwriting performance, it is important to look at the underlying performance. Our simplified one SiriusPoint, operating structure and culture means we are able to work in a cohesive and agile way, enabling us to allocate capital quickly and to tap into market opportunities where they are most attractive. Insurance and services gross premium written adjusted for the exited programs through 16% year-over-year, driven by our North American programs, international and London business. We’re pleased with this progress given these are important areas of strategic focus. This growth is coupled with a strong half-year combined ratio of 92.5% for our core business, demonstrating our focus and discipline on driving profitable growth.

Q&A Session

During the first half-year, we’ve added seven new programs and expanded three partnerships. This positive momentum has continued into the start of the second half of the year with four new partnerships already announced during July. Our MGA Center of Excellence is beginning to earn a market reputation as an attractive and leading platform for program administrators and managing general agents. I’m excited about the momentum building in this part of the business. Since the quarter end, some loss events have affected the industry, most notably, Crowdstrike and Hurricane Beryl. We did not expect these events to have a significant impact on serious points. Turning now to our MGA’s, we’ve taken multiple actions in relation to our MGA equity stakes to unlock value and simplify our balance sheet.

The deconsolidation of Arcadian has allowed us to recognize the value of our share in this business at a market value without impacting our go-forward P&L. I’ve stated before that the actual economic value of our consolidated MGA’s is significantly higher than the carrying value of these assets. They are not fully reflected in SiriusPoint share price and Arcadian deconsolidation is an important proof point. While it is a first step in this regard, a significant value gap still remains for our remaining consolidated MGA’s. Our remaining three consolidated MGA’s have a book value of $94 million and generated $24 million of net service fee income for the first half in 2024. Our MGA equity stakes are now down to 22 compared to 36 at the start of 2023.

In Q2, our MGA strategic actions resulted in a 46 million pre-tax gain being recognized. With regard to investment, we’ve reported another excellent investment result for the second quarter. This outcome reflects the continuing strong rate performance and our ongoing optimization of the portfolio. As a result, we are pleased to increase our net investment income guidance for the full year 2024 to between $275 and $285 million up from $250 million to $265 million. The combination of our strong underwriting performance, MGA net service fee income and investment results contributed to a net income of $110 million in the second quarter and $201 million for the half year. And at the half year, we are operating within a recently upgraded return on equity range of 12% to 15%.

Diluted book value per share grew 5% in the quarter and 7% year to date. Turning now to our people, they are firmly at the heart of our SiriusPoint business. We have an annual employee engagement survey, The Voice of SiriusPoint, which we ran again at the end of quarter two. We were absolutely delighted to see a significant step up in overall engagement levels, building on high levels recorded in the 2023 survey. Overall employee engagement moved up from 75% to 80%, with all seven categories of engagement going up, including a 9% jump in employee pride in the business. Our net promoter score also increased by 37 points this year. Our response rate of 93%, which was up 13% on last year, indicates that people have faith that we will act on the back of the results, and we will.

Employee engagement is a big lever of organizational success. And we don’t just give it lip service. We live it and breathe it. I am very proud of our people. My special thanks go out to all of them for their unwavering drive and collaboration in improving our business in every regard. Finally, our Q2 Bermuda solvency capital ratio of 284% is the strongest it has ever been. On the back of our strong results in capital position, we are announcing three further capital actions. Firstly, we have agreed with CMIG to repurchase approximately 9.1 million shares for $125 million. Secondly, we have also agreed with CMIG a full and final settlement for the Series A preference shares in cash. Thirdly, the board has authorized repurchase authorizations of approximately $300 million.

These three actions demonstrate that we now have flexibility to use our balance sheet to further improve and simplify the company, while continuing to be prudent custodians of capital. In summary, our half-year performance is strong, with significant delivery against our strategic and operational objectives. Our execution intensity remains focused and high. Our headline return on equity of 16.7% for the half-year demonstrates this. Our underlying return on equity is trending within a recently updated guidance of 12% to 15%. I am grateful to all our stakeholders for their continued support as we drive SiriusPoint performance towards our ambitions of best-in-class. Before we move across to the financials, I want to extend a welcome to our new CFO, Jim McKinney, to SiriusPoint.

Jim joined us during Q2. He has a track record for creating high-performing finance functions throughout his 20-plus year career, as well as deep and broad experience as a publicly listed CFO. I look forward to having Jim on board for his support and experience as we go on the next stage of our journey. With these remarks, I’ll pass it across to Jim.

Jim McKinney: Thank you, Scott, and good morning, good afternoon to everyone. I would like to start by saying how exciting it is to be joining SiriusPoint at this stage of the journey. I’ve been impressed by the depth of talent that we already have within the business, and I look forward to working with the team to create shareholder value and drive forward the change required to realize our ambition of becoming a best-in-class insurer. Starting on Slide 10, we highlight our second quarter results. It was another great quarter with a combined ratio of 93.3% for the core business, gross written premium growth of 22% for continuing lines that is adjusted for the business exited in 2023, and net income of $110 million. The net income reflects an increase of 54 million versus the prior year quarter, with the overall impact of the MGA actions we took in the quarter contributing $46 million to net income.

Diluted book value per share grew 5% in the quarter. Focusing on underwriting, gross premium written increased 5% on the quarter for the core business. Our headline combined ratio of 93.3% for the core business was a 2.4 point deterioration versus prior year on a like-for-like basis, excluding the loss portfolio transfer. This was due to lower favorable prior year development, which stood at $4 million versus $15 million in the prior year quarter, excluding the LPT, and $6 million of catastrophe losses versus none in the prior year quarter. Prior year development will vary over quarters. This marked the 13th quarter of favorable prior year development on a consolidated basis that includes our runoff business, demonstrating our prudent approach to preserving.

Importantly, the attritional loss ratio for the core business improved by 4.6 points versus the prior year quarter. This was partially offset by an increase in acquisition costs of 3.7 points due to loss sensitive features and a change in the business mix. Looking at the trend in the underlying accident year ratio, excluding cats, we have improved earnings quality by 0.4 points compared to the prior year period. Core MGA revenue reduced by $2 million versus prior year to $57 million. Despite this, margins improved by 1.1 points to a strong 17%, resulting in our MGA net service fee income increasing to $10 million for the quarter. Net investment income for the quarter was strong at $78 million. This is up by $10 million compared to the prior year quarter as the de-risk portfolio continues to benefit from rate increases.

Unrealized and realized gains, including from related party investment funds, were $55 million. This includes losses relating to the MGA actions we took during the quarter. The total investment result for the quarter stood at $23 million. Other items impacting income included $4 million of foreign exchange losses and an $11 million impact from mark-to-market on liability-classified capital instruments. Common shareholders’ equity grew 4% during the quarter, supported by the strong earnings and the net gains from the MGA actions. Adjusting for AOCI, common shareholders’ equity grew by 5%. Now looking at our half-year performance on Slide 11. We are very pleased to report a combined ratio of 92.5% for the core business, net income of $201 million, and diluted book value per share growth of 7%, adjusting for the net effect of the MGA actions and the impact from the loss portfolio transfer last year, net income increased 72% year-on-year, demonstrating the improving quality of our underlying earnings.

Importantly, our first half performance is within the medium-term ROE guidance range of 12% to 15%, standing at 16.7% on a headline basis and 13% when excluding the net effect of the MGA actions. Looking at our consolidated MGA performance, net service fee income was up 7% compared to the prior year period of $30 million, with service margin improving by one point to a strong 24%. Looking at the half-year underwriting performance in more detail on Slide 12, we were pleased to report an improvement in the quality of earnings by 1.5 points in our core business compared to prior year. The attritional loss ratio improved by 3.6 points, and the OUE ratio improved by 0.4 points, which in combination more than offset the 2.5 increase in the acquisition cost ratio.

Cat losses were down compared to the prior year at $6 million versus $7 million in the first half of 2023. These remain substantially down since 2022. Now looking at premium trends as shown on Slide 13. Looking first on a discrete quarterly basis, gross premiums written increased 5% quarter-on-quarter for our core business. On a continuing lines basis, which excludes the exited cyber and workers’ compensation business from 2023, gross premiums written were up 22% for the quarter. At half-year, continuing lines premium increased 6% compared to the prior year period. While runoff remains a drag on headline business performance through year end, we expect the impact to be insignificant in 2025. The continuing lines growth was driven by the insurance and service segment, where we had double digit growth in all specialisms, and we saw growth led by both North America and international programs.

This growth included significant contributions from programs launched in 2023 as momentum builds in our distribution strategy that is beginning to bear fruit. On the reinsurance side, premiums were down 6%. We continue to see reductions in U.S. casualty that were partially offset by growth in our Bermuda property and specialty lines. Our underwriting first strategy means that we are targeting growing in areas that we believe will bring the best return on capital, such as North American programs and London and international programs. Our SiriusPoint structure allows us to be nimble capital allocators. In terms of rate, in the first half we saw an average rate change at around 4% across our portfolio, excluding the North American program business.

Rate change was mainly driven by the U.S. casualty and non-U.S. property portfolio. Roughly 10% of the business in steps in the second quarter, and rates were broadly flat here, excluding North American program business. Moving to renewals, the July period produced positive rate increases across the majority of lines, with an average rate change at around 2% across the reinsurance portfolio. The strongest positive rate change was seen in U.S. casualty business and other specialty lines. Turning to our strong quarterly investment result on Slide 14, net investment income for the first half of the year was $157 million. As Scott mentioned earlier, we have increased our net investment income guidance from $250 million to $265 million up to $275 million to $285 million.

Our guidance is based on four yield curves and assumes two rate cuts in the second half of the year. The portfolio continues to perform well. In the second quarter, across our fixed income portfolio, we saw no defaults. Overall, our investment strategy remains unchanged as we continue to operate a high quality, low volatility fixed income portfolio with an average credit rating at AA. 83% of our investment portfolio is now fixed income, of which 98% is investment grade with an average credit rating unchanged at AA. During the quarter, we saw reinvestment rates in excess of 4.5%. Our portfolio duration increased slightly to three years. As a reminder, assets backing loss reserves remain fully matched. Moving to Slide 15, the balance sheet is robust with an estimated 284% BSCR ratio, a significant liquidity.

At quarter end, we had $2.5 billion of common shareholders’ equity. This is up 4% versus the prior quarter. Total capital, including debt, stood at $3.4 billion. As a result of debt actions we took, our debt-to-capital ratio decreased by 3.5 points to 19.3%. This ratio is now within our target range. Asset leverage remains stable at 2.9 times. Last, as Scott mentioned, our strong capital and liquidity positions enabled us to reach agreement with CMIG to purchase approximately 9.1 million shares and to settle the Series A preference shares. Further, the board approved repurchase authorizations of approximately $300 million. These actions demonstrate the confidence we have in our business and the flexibility we have to use our balance sheet to help maximize shareholder value.

With this, we conclude the financial section of our presentation. Our second quarter and half year 2024 results were strong and demonstrate stable, consistent, and improving results. We expect to build on this performance and aim to deliver a 12% to 15% return on average common equity through the cycle. I would like to thank you again for your time this morning. For any questions, please contact our investor relations team at investor.relations@siriuspoint.com. I now turn the call back over to the operator.

End of Q&A: Thank you. Ladies and gentlemen, this concludes the conference of SiriusPoint Limited. Thank you for your participation. You may now disconnect your lines.