SiriusPoint Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2024

There are 4 speakers on the call.

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 pm Eastern Time on August 16, 2024. With that, I would like to turn the call over to Sarah Singh, Vice President, Strategy and 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 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.Sirius tt.com. Additionally, a webcast presentation will coincide with today's discussion and is available on our website. With me here today are Scott Eagan, our Chief Executive Officer and Jim McKinney, 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 details and the company's latest public filings. At this time, I will turn the call over to Scott.

Speaker 2

Thanks, Sarah, and good morning, good afternoon, everyone. Thanks for joining our second quarter and half year twenty twenty four results call. I'm really pleased to report another strong set of results in the Q2. 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.

Speaker 2

This is now our 7th 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 2 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 2022 and 2023 to improve underwriting performance, it is important to look at the underlying performance.

Speaker 2

Our simplified one serious point 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 grew 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. During the first half year, we've added 7 new programs and expanded 3 partnerships.

Speaker 2

This positive momentum has continued into the start of the second half of the year with 4 new partnerships already announced during July. Our NGA 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 Barrel. We do not expect these events to have a significant impact on Sirius Point.

Speaker 2

Turning now to our MGAs, we've taken multiple actions in relation to our MGA equity stakes to unlock value and simplify our balance sheet. The deconsolidation of Acadian has allowed us to recognize the value of our share in this business at a market value without impacting our go forward P and L. I've stated before that the actual economic value of our consolidated MGAs is significantly higher than the carrying value of these assets. They are not fully reflected in SiriusPoint share price and our Kd and 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 MGAs.

Speaker 2

Our remaining 3 consolidated MGAs have a book value of $94,000,000 and generated $24,000,000 of net service fee income for the first half in twenty twenty four. 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 46,000,000 pretax gain being recognized. With regard to investment, we've reported another excellent investment result for the 2nd quarter. This outcome reflects the continuing strong rate performance and our ongoing optimization of the portfolio.

Speaker 2

As a result, we are pleased to increase our net investment income guidance for the full year 2024 to between $275,000,000 $285,000,000 up from $250,000,000 to $265,000,000 The combination of our strong underwriting performance, MGA net service fee income and investment results contributed to a net income of $110,000,000 in the 2nd quarter $201,000,000 for the half year. And at the half year, we are operating within our 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 2.

Speaker 2

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 7 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.

Speaker 2

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 3 further capital actions.

Speaker 2

Firstly, we have agreed with CMIG to repurchase approximately 9,100,000 shares for $125,000,000 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 $300,000,000 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.

Speaker 2

Our underlying return on equity is trending within our recently updated guidance of 12% to 15%. I am grateful to all our stakeholders for their continued support as we drive City's point 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.

Speaker 2

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.

Speaker 3

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 2nd 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 $110,000,000 The net income reflects an increase of $54,000,000 versus the prior year quarter with the overall impact of the MGA actions we took in the quarter contributing $46,000,000 to net income.

Speaker 3

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 percent for the core business was a 2.4. 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 $4,000,000 versus $15,000,000 in the prior year quarter, excluding the LPT and $6,000,000 of catastrophe losses versus none in the prior year quarter.

Speaker 3

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

Operator

change in the business mix. Looking at

Speaker 3

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 $2,000,000 versus prior year to $57,000,000 Despite this, margins improved by 1.1 points to a strong 17% resulting in our MGA net service fee income increasing to $10,000,000 for the quarter. Net investment income for the quarter was strong at $78,000,000 This is up by $10,000,000 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 $55,000,000 This includes losses relating to the MGA actions we took during the quarter. The total investment result for the quarter stood at 23,000,000 dollars Other items impacting income included $4,000,000 of foreign exchange losses and an $11,000,000 impact from mark to market on liability classified capital instruments.

Speaker 3

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 percent for the core business, net income of $201,000,000 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.

Speaker 3

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 30,000,000 dollars with service margin improving by 1 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 point 5 points in our core business compared to prior year. The attritional loss ratio improved by 3 point 6 points The attritional loss ratio improved by 3 point 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.

Speaker 3

Cat losses were down compared to the prior year at $6,000,000 versus $7,000,000 in the first half of twenty twenty three. These remained 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.

Speaker 3

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%.

Speaker 3

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.

Speaker 3

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.

Speaker 3

Property portfolio. Roughly 10% of the business in sets in the 2nd 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.

Speaker 3

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 $157,000,000 As Scott mentioned earlier, we have increased our net investment income guidance from $250,000,000 to $265,000,000 up to $275,000,000 to $285,000,000 Our guidance is based on 4 yield curves and assumes 2 rate cuts in the second half of the year. The portfolio continues to perform well.

Speaker 3

In the Q2, 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 percent 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 3 years.

Speaker 3

As a reminder, assets backing loss reserves remain fully matched. Moving to Slide 15. The balance sheet is robust with an estimated 2 84 percent BSCR ratio and significant liquidity. At quarter end, we had $2,500,000,000 of common shareholders' equity. This is up 4% versus the prior quarter.

Speaker 3

Total capital including debt stood at 3,400,000,000 dollars 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 repurchase approximately 9,100,000 shares and to settle the Series A preference shares. Further, the Board approved repurchase authorizations of approximately 300,000,000 dollars 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.

Speaker 3

With this, we conclude the financial section of our presentation. Our second quarter and half year twenty twenty four 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.

Speaker 3

RelationsSiriuspoint.com. I now turn the call back over to the operator.

Operator

Thank you. Ladies and gentlemen, this concludes the conference of SiriusPoint Limited. Thank you for your participation. You may now disconnect your

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Key Takeaways

  • SiriusPoint reported its 7th consecutive quarter of underwriting profit with a half-year core combined ratio of 92.5%, driven by strong underwriting discipline and attritional loss improvements.
  • Gross written premiums in continuing lines rose 22% year-over-year in Q2 (6% for the half year), led by North American programs, international and London segments.
  • Net income reached $110 million in Q2 and $201 million for the half year, while investment performance remained robust, prompting an increase in 2024 net investment income guidance to $275 million–$285 million.
  • Capital strength is at an all-time high with a Bermuda Solvency Capital Ratio of 284%, enabling agreements for a $125 million share repurchase from CMIG, settlement of Series A preference shares, and a $300 million buyback authorization.
  • Employee engagement surged to 80% in the latest survey (up from 75%) with a 93% participation rate, reflecting high employee pride and support for the company’s execution strategy.
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Earnings Conference Call
SiriusPoint Q2 2024
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