SiriusPoint Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 21, 2024

There are 4 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the SiriusPoint Limited 4th 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 p. M. Eastern Time on March 6, 2024.

Operator

With that, I would like to turn the call over to Sarah Singh, Vice President, Investor Relations. Please go ahead.

Speaker 1

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 4th 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 Regan, our Chief Executive Officer and Steve Yundel, our Chief Financial Officer.

Speaker 1

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.

Speaker 1

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.

Speaker 2

Thank you very much, Sarah, and good morning, good afternoon, everyone. Thank you for joining our Q4 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.

Speaker 2

We delivered our 5th consecutive quarter of positive underwriting result, improved the quality of our earnings and strengthen 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 2 developments from the quarter.

Speaker 2

Firstly, as previously announced, BMG International Holding has been taken into private receivership by its lenders in Singapore. BMG International Holdings is the parent company of Centimeters Bermuda, a 53% shareholder of SiriusPoint with 9.9% voting rights. I would like to emphasize that this development has no impact on the ongoing progress of the day to day running of our business. We are in dialogue with the receiver and trying to be as helpful as possible. S and 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.

Speaker 2

Our focus remains on simplifying our business, reducing volatility and further improving the profitability of the company. Secondly, in November, S and P Global Ratings revised their financial strength rating outlook from negative to stable. This reflects our expectation that SiriusPoint will continue to post strong and improving underwriting results during 2023 to 2025. With this change, all 3 of our rating agencies now have us on a stable outlook. This is an important endorsement for our progress.

Speaker 2

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 4th quarter with a combined ratio of 93.4 percent for our core business and net income of CAD94 1,000,000 Together with the 1st 3 quarters, we have delivered record net income of $339,000,000 for 20.23, an improvement of $742,000,000 as compared to 2022. We also accelerated our cost savings program and completed it 1 year ahead of schedule as we lowered our cost base by more than €50,000,000 versus 2022 and achieved an above guidance return on equity of 16.2%.

Speaker 2

In our turnaround year of 2023, our ROE was unsurprisingly impacted by 1 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.

Speaker 2

With this, I will now take you through the 3 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 percent for our core business, which was supported by 5 points of 1 off reserve releases linked to the LPT transaction announced in 2023. Excluding the LPT benefit 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 $14,000,000 for the full year 2023, a 90% reduction from $138,000,000 a year ago.

Speaker 2

This ties in with our 1 in-one hundred year event P and Ls, which are considerably lower now at around 5% of common shareholders' equity, down from 11% at Q2 of 2021. However, we continue to remain conservative with regards to volatility and have purchased greater retro protection via more limits and lower retention on our core U. S. 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.

Speaker 2

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 NGA partnerships, offset by the impact from the already undertaken underwriting actions in the second half of twenty twenty three 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. Turning to investments. Our investment results are strong and supported by higher net investment income, which is ahead of our Q3 revised guidance of $250,000,000 to $260,000,000 Net investment income of $284,000,000 in 2023 surpassed our revised expectations, mainly due to the strong rate performance in the first half of the fourth quarter, as well as continued rotation into high quality spread products.

Speaker 2

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 $250,000,000 to $265,000,000 based on the current forward yield curve. Next, we come to our distribution strategy and our consolidated NGAs, which have delivered record fee income. Our distribution strategy remains important to us and we have continued to onboard new NGA underwriting partners whilst rationalizing our existing equity stakes during the Q4.

Speaker 2

We made great progress towards concentrating on deeper and more meaningful NGA relationships with the sale of 9 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 Corbus in January, bringing our total holdings to 25 MGAs to date, down from 36 at the end of 2022. At full year 2022, 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 9 new NDAs in 2023, choosing to partner with teams that displayed deep underwriting talent and proven track records.

Speaker 2

During the Q4, we provided new capacity to Proverity Underwriters and Nirvana, strengthening our footprint in professional liability and non suite commercial auto. Since the start of 2024, we have onboarded a new partnership with Parcel focused on supply chain marine insurance and launched a new European marine business with AltaSigna, 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 $50,000,000 of net service fee income.

Speaker 2

Also, we saw a 2% increase to SiriusPoint premiums underwritten to $651,000,000 from these 4 consolidated MGAs. Despite the strong underlying performance, the book value of our consolidated MGAs is only $90,000,000 and we continue to believe that the actual economic value is significantly higher. I will again reemphasize that I believe the value of these NGA is not fully reflected in Sirius Point's share price. Moving on to our reserves and our philosophy around reserving. We continue to maintain a prudent approach to reserving as evidenced by our positive prior year development in 2023.

Speaker 2

For Q4 discrete, this was CAD35 1,000,000 for our core business CAD63 1,000,000 for the full year, excluding any benefits linked to the LPT. Similarly, reserves for the receipts were positive for our consolidated business excluding LPT at $6,000,000 in Q4 $46,000,000 for the full year 2023, which includes increasing our reserve presence by $30,000,000 during Q4 after a strong performance year. Our strong results coupled with the LPT we completed at half year allowed us to further strengthen our balance sheet position as we move forward into 2024. Overall, our balance sheet is strong. Our Bermuda Solvency Capital ratio is 2 37% at the end of the 3rd quarter, also asset and leverage has improved following the 10% growth in diluted book value per share during the Q4.

Speaker 2

Growth in book value was driven by mark to market gains on the fixed income portfolios and the positive earnings generation during the quarter. Full year book value per share growth was strong at 18%. Although our capital levels are strong, the structure is not fully optimal and we are reviewing our capital instruments to make sure we operate with an efficient framework. Our aim is to be a prudent steward of capital and we are updating our ROE guidance to 12% to 15% during the medium term. We are pleased and proud to have not only hit but surpassed all the financial targets that we set for 2023.

Speaker 2

I'm grateful to my colleagues who have pushed hard this year to create shareholder value. That said, the numbers we delivered this year are not a destination and we aim to do better. I have said before, there is no complacency. As we move away from restructuring, we are focused on being a value creation company that delivers consistent profit while operating at best in class levels. We know this is an ambition, but one which we feel has more credibility after our strong 2023 performance.

Speaker 2

I would like to thank all our stakeholders, shareholders, customers and employees for their support and patience during our turnaround year, which is never taken for granted. We believe the future is bright at Sirius Point and we are excited for 2024. With these remarks, I will pass it over to Steve, who will take you through the financials.

Speaker 3

Thank you, Scott, and good morning, good afternoon, everyone. I will now take you through the financial section of the presentation, starting with our full year financials on Slide 13. We had a strong year and delivered record net income to common shareholders of $339,000,000 an impressive $742,000,000 improvement on 2022. All three sources of earnings, underwriting, MGA fee income and investments contribute positively to the results. Core underwriting results improved significantly as we delivered record underwriting profits of $250,000,000 The 2023 results include a one off benefit of $105,000,000 due to reserve redundancy linked to the loss portfolio transfer transaction, which itself demonstrates our prudent reserving philosophy.

Speaker 3

Excluding the releases linked to the LPT, the result was still a record for us with underwriting profits of 145,000,000 and a combined ratio of 93.7%. Our portfolio actions are having a clear impact with catastrophe losses for the core business down 90% to $14,000,000 and other parts of the portfolio are also improving. More detail on our reduction of underwriting volatility is available on Slide 8. Whilst our consolidated gross written premium was stable, the top line for our core business decreased 3%, reflecting the ongoing portfolio actions. Reinsurance premiums decreased by CAD250,000,000 largely due to pulling back in international property.

Speaker 3

This was partially offset by growth in the Insurance and Services segment, which increased by $156,000,000 During 2023, we took additional actions on our workers' comp and cyber portfolios, which will have an impact on our 2024 premiums and offset the underlying growth in the portfolio. App of the Light net services fee income increased 37% to a record $50,000,000 driven by higher fees from Arcadian and IMG. Service revenues are up 10% versus last year, while service margins increased 4 points to 21% for 2023. Total investment result was strong at $273,000,000 and driven by $284,000,000 of net investment income, which surpassed the revised net investment income guidance of $250,000,000 to $260,000,000 given in the 3rd quarter. Unrealized and realized losses, including from related party investment funds were $11,000,000 and significantly better than the 4 $36,000,000 loss in 2022.

Speaker 3

Net corporate and other expenses were down to $258,000,000 for the year, a $55,000,000 improvement versus the prior year. We have 2 moving parts here. 1, we moved $42,000,000 of expenses above the line within our core underwriting result, which supported an improvement, but on the other end, we had $38,000,000 of one off expenses in relation to restructuring costs and transaction costs. Transaction costs of $8,000,000 were in relation to the 13b process and loss portfolio transfer, whilst restructuring costs were $30,000,000 for the year as we accelerated our cost savings program. Other notable items impacting net income during the period included a $59,000,000 loss from mark to market on liability classified capital instruments, dollars 35,000,000 foreign exchange loss and a $101,000,000 tax benefit from the creation of a deferred tax asset as a result of the changes to the Bermuda income tax rules.

Speaker 3

Moving to Slide 14, I'll talk briefly about Q4 financials. Overall, it was a strong quarter with all three earnings engines positively contributing to net income and up year on year. For the underwriting result, this marked the 5th consecutive quarter of positive income since we committed to building a culture driven by strong underwriting. Our core underwriting profits increased 19% to 37,000,000 with the combined ratio down 1.4 points to 93.4%. This includes 2.9 points of short term incentives for staff, which when excluded would equate to a 90.5% combined ratio for the core business compared to 94.8% in 2022 or improvement of 4.3 points.

Speaker 3

Gross premiums written decreased 3% quarter on quarter in our core business. Top line growth was impacted by reductions in premiums in the reinsurance segment, where premiums are down $49,000,000 compared to the Q4 last year. This was partially offset by insurance and service premiums, which increased by $26,000,000 or 6%. Core MGA revenues increased by 21 percent to $56,000,000 compared to the prior quarter and were driven mainly by growth from Arcadian and ING. Margins improved by 16.7 points to a strong 22%, while we grew our MGA net service fee income to $12,000,000 for the quarter.

Speaker 3

The total investment result for the quarter was strong at $65,000,000 This was driven by $78,000,000 of net investment income, which is up by $27,000,000 compared to the prior quarter as the derisked portfolio continues to benefit from rate increases. Unrealized and realized losses, including from related party investment funds were $13,000,000 Net income of $94,000,000 was a significant improvement versus the $27,000,000 loss during the prior year quarter. Other items impacting income included a $6,000,000 restructuring charge, dollars 19,000,000 of foreign exchange losses and the previously mentioned onetime deferred tax benefit of $101,000,000 related to Bermuda's new income tax law. This quarter also includes a $30,000,000 increase to our reserve margin within the corporate segment. As Scott mentioned earlier, this has been done from a position of strength on the back of strong performance and we look to improve the quality of our balance sheet.

Speaker 3

Common shareholders' equity grew 13% during the quarter, supported by the mark to market movements on fixed income investments and growth in net income. Adjusting for AOCI, common shareholders' equity growth was 6% in the quarter. Moving to Slide 15 and focus on premium trends including oneone renewals. During 2023, we continue to take actions to improve the profitability of the book with additional actions during the second half of twenty twenty three related to Cyber and Workers' Compensation segment. We believe these actions will impact our underlying premium growth during 2024, which will be driven by positive rates across our portfolio and volume growth in areas like North American Program Business, Accident and Health and International, which we are actively looking to grow.

Speaker 3

Rating trends in Q4 have remained broadly similar to the 1st 9 months of 2023. Less than 10% of our overall book gets renewed in Q4, excluding North American Program Business, which has experienced average rate increases of around 7%. North American Program Business saw 6 percent rate increases during Q4, excluding cyber and workers' compensation, which have both been under pressure and where we have taken portfolio actions to manage the profitability of our book. Moving to the topic of renewals. At the January 2024 renewal period, we experienced positive rate increases across the majority of the business with an average rate change at around 3% across our reinsurance portfolio.

Speaker 3

This was mainly driven by U. S. Casualty and U. S. Property Business.

Speaker 3

Overall, the renewals were orderly and in line with our expectations. Next, Slide 16 shows the year to date change in combined ratio for our core business and breaks the movements into individual sub components. Our portfolio actions have significantly improved the underwriting profitability with the combined ratio for our core business being 10.4 points better year over year on a like for like basis. Our headline combined ratio of 89.1 percent has benefited from 4.6 percentage points of reserve releases linked to the LPT transaction. However, the expense reallocation of $42,000,000 results in around a 2 percentage point drag.

Speaker 3

Adjusting for these 2 and the short term incentives previously mentioned results on a like for like combined ratio of 91.2% compared to 101.6% in 2022. The core attritional loss ratio is marginally better at 64% or 1 percentage points up on the previous year and is partly impacted from mix changes between Insurance and Services and the Reinsurance segment and also from the large losses in the international business. The mix changes resulted in better profit commissions, which are captured in the acquisition cost ratio and has resulted in 1.4 points of improvement. Looking at both of the moving parts together results in a net improvement of 0.4 points year on year. Slide 1718, we look at the investment portfolio and investment results.

Speaker 3

We have made clear progress during the year as we delivered a strong net investment income figure, increased our overall asset duration to 2.8 years from 1.8 years at Q4 2022 and locked in attractive reinvestment yield in excess of 4.5% on our investments during the year. We rotated our portfolio throughout 2023, investing over $1,800,000,000 as we increased our exposures to corporates and asset backed securities. Portfolio rotation and higher rates have supported our net investment income during 2023, and we expect trend to continue as we aim to deliver a strong net investment income between $250,000,000 to $265,000,000 during 2024. Overall, our investment strategy remains unchanged and focused on maintaining a high quality fixed income portfolio. 74% of our investment portfolio is now fixed income, of which 99% is investment grade with an average credit rating unchanged at AA.

Speaker 3

We didn't experience any defaults in our fixed income portfolio during 2023. P and L volatility is significantly lower compared to last year and has helped given 90% of the fixed income portfolio is now designated as available for sale, up from 88% at Q3 2023 and none at year end 2021. Moving on to Slide 19, which looks at our balance sheet. Our balance sheet is strong, ending the quarter with $2,300,000,000 of common shareholders' equity, which is up 23% since the beginning of the year and 13% during the quarter, driven by the growth in net income. Total capital, including debt, stood at 3,300,000,000 dollars Our issued debt is unchanged, while our debt to total capital ratio is 23.8% and remains within our target range.

Speaker 3

Debt leverage improved by 1.4 points and asset leverage is lower at 3.3 times versus 3.6 times at the end of the third quarter. With this, we conclude the financial section of our presentation. Our 2023 results were strong and showed a significant turnaround in 2023. We delivered record net income of CAD 339,000,000 dollars achieved a 16.2 percent annualized return on average equity and delivered $50,000,000 of cost savings ahead of schedule, which contributed to a consolidated combined ratio of 84.5%, an improvement of 11.9 points year on year. We expect to build on this performance and aim to deliver 12% to 15% return on average common equity in the midterm.

Speaker 3

I would like to thank you again for your time this morning. For any questions, please contact our Investor Relations team at investor. Relations siriuspt.com. I now turn the call back over to the operator.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time or lock off the webcast and enjoy the rest of your day.

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SiriusPoint Q4 2023
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