SiriusPoint Ltd. (NYSE:SPNT) Q4 2023 Earnings Call Transcript

SiriusPoint Ltd. (NYSE:SPNT) Q4 2023 Earnings Call Transcript February 21, 2024

SiriusPoint Ltd. beats earnings expectations. Reported EPS is $0.5, expectations were $0.28. SPNT 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 the SiriusPoint Limited Fourth Quarter and Full Year 2023 Financial Results Conference Call. During today’s presentation, all parties will be in listen only mode. As a reminder, this conference call is being recorded and a replay is available through 11:59 PM Eastern time on March 6, 2024. With that, I would like to turn the call over to Sarah Singh, Vice President, 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 2023 full year and fourth quarter results. Last night, we issued our earnings press release and financial supplements, 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 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 maybe informative to investors in gauging 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 2 of our investor presentation for additional information and the company’s latest public filings. At this time, I will turn the call over to Scott.

Scott Egan: Thank you very much, Sarah, and good morning, good afternoon, everyone. Thanks for joining our fourth quarter and full year 2023 results call. 2023 has been a busy turnaround year for SiriusPoint. We restructured our organization to create a business which is simpler, less volatile and now generating double digit return on equity. Our actions have had a demonstrable impact on performance. We delivered our fifth consecutive quarter of positive underwriting result, improved the quality of our earnings and strengthened our balance sheet. We are looking to build on this progress as we go into 2024. 2023 is not a destination. Our longer-term ambition is to become a best-in-class insurer, reinsurer. Before sharing the key messages relating to our results for the year, I want to recap on two developments from the quarter.

Firstly, as previously announced, CMIG International Holding has been taken into private receivership by its lenders in Singapore. CMIG International Holdings is the parent company of CM Bermuda, a 33% shareholder of SiriusPoint with 9.9% voting rights. I would like to emphasize that this development has no impact on the ongoing progress or the day to day running of our business. We are in dialogue with the receiver and trying to be as helpful as possible. S&P Global Ratings has communicated to us that this development is a neutral factor to their ratings and is unlikely to affect assessment of our business position or financial strength. Our focus remains on simplifying our business, reducing volatility and further improving the profitability of the company.

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Q&A Session

Secondly, in November, S&P Global Ratings revised their financial strength rating outlook from negative to stable. This reflects their expectation that SiriusPoint will continue to post strong and improving underwriting results during 2023 to 2025. With this change, all three of our written agencies now have us on a stable outlook. This is an important endorsement for our progress. I’m incredibly proud of the collective effort made by our people to get us to this point and in strengthening our platform. Moving back now to the key messages which are outlined on Slide 5. I will provide an update on the progress we have made across our strategic initiatives. Overall, we are very pleased to report a strong fourth quarter with a combined ratio of 93.4% for our core business and net income of $94 million.

Together with the first three quarters, we have delivered record net income of $339 million for 2023, an improvement of $742 million as compared to 2022. We also accelerated our cost savings program and completed it one year ahead of schedule as we lowered our cost base by more than $50 million versus 2022 and achieved an above guidance return on equity of 16.2%. In our turnaround year of 2023, our ROE was unsurprisingly impacted by one-off items. And adjusting for these, we still delivered a double-digit ROE of 10.2%. During 2023, we also strengthened our capital position and improved the quality of our balance sheet. We completed a lost portfolio transfer, deliberately added to our reserve strength and grew our diluted book value per share by 18%.

This has helped to reduce our asset and debt leverage during 2023. Given the strong performance of the company in 2023 versus both 2022 and our targets, we have paid our employees above target bonuses, rightly rewarding their hard work and dedication to improving and creating shareholder value. With this, I will now take you through the three sources of income, underwriting, investment income and net service fee income from our consolidated MGAs, all of which have delivered a higher return than last year and been strong contributors to our organic capital generation. Beginning with a strong underwriting result for 2023, we delivered a combined ratio of 89.1% for our core business, which was supported by 5 points of one-off reserve releases linked to the LPT transaction announced in 2023.

Excluding the LPT benefits and other one-off items, our adjusted core combined ratio stood at a record 91.2%. This is 10.4 points of like for like improvement versus 2022 and shows the impact of the decisive portfolio actions taken during the last 18 months. The combined ratio has been supported by both loss and expense ratio improvement with the loss ratio improvement helped by lower catastrophe losses which were $14 million for the full year 2023, a 90% reduction from $138 million a year ago. This ties in with our 1-in-100 year event PMLs, which are considerably lower now at around 5% of common shareholders equity, down from 11% at second quarter 2021. However, we continue to remain conservative with regards to volatility and have purchased greater retro protection via more limits and more retention on our core US property cap program for 2024.

Pleasingly, this was achieved at a similar cost to 2023, reflecting a better than market outcome driven on the back of our underwriting progress. Our underwriting first approach remains unchanged and we will continue to prioritize underwriting profits over premium growth in 2024. That said, we expect underlying premium growth during 2024 in the areas we are targeting as evidenced by the newly onboarded MGA partnerships offset by the impact from the already undertaken underwriting actions in the second half of 2023 across specific parts of the portfolio such as workers comp and cyber. These will impact overall premium in 2024, but this should be the last year of significant impact to the top line progression. Coming to investments. Our investment results are strong and supported by higher net investment income, which is ahead of our Q3 revised guidance of $250 million to $260 million.

Net investment income of $284 million in 2023 surpassed our revised expectations, mainly due to the strong rate performance in the first part of the fourth quarter as well as continued rotation into high quality spread products. Our portfolio continues to perform well and we saw no defaults across our fixed income portfolio during 2023. Overall, our investment strategy remains unchanged as we continue to operate a fixed income portfolio with an average credit rating at AA. Looking forward to 2024, we expect net investment income to be in the range of $250 million to $265 million based on the current forward yield curve. Next, we come to our distribution strategy and our consolidated MGAs which have delivered record fee income. Our distribution strategy remains important to us and we have continued to onboard new MGA underwriting partners whilst rationalizing our existing equity stakes during the fourth quarter.

We made great progress towards concentrating on deeper and more meaningful MGA relationships with the sale of nine equity stakes in 2023. This includes Banyan, which we no longer consolidate but continue to provide underwriting capacity to. We have since sold our stake in Corvus in January, bringing our total holdings to 25 MGAs today, down from 36 at the end of 2022. At full year ’22, we outlined our intention to enhance our MGA platform, focusing on partnering as a paper and capacity provider without taking an equity stake. We added a total of nine new MGAs in 2023 choosing to partner with teams that displayed deep underwriting talent and proven track records. During the fourth quarter, we provided new capacity to ProVerity underwriters and Nirvana, strengthening our footprint in professional liability and non-fleet commercial auto.

Since the start of 2024, we have onboarded a new partnership with Parsyl, focused on supply chain marine insurance and launched a new European marine business with Alta Signa, one of our consolidated MGAs. More recently, we partnered with Ryan Specialty Nordics, offering coverage for onshore wind farms as well as packages for small to medium sized enterprises, which includes commercial property and legal liability insurance. Whilst we are taking underwriting action as part of our transformation, you can also see strong evidence of building and growing in our targeted areas. Our consolidated MGA’s standalone performance was strong with revenue growth of 10%, margin improvement of 4 points to 21% and a record $50 million of net service fee income.