SiriusPoint Ltd

Good morning, ladies and gentlemen, and welcome to the Serious Point Limited first quarter 2021 earnings conference call. During today's presentation, all parties will be in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Ms. Claire Kerrigan, head of investor relations for Serious Point. Please go ahead.

Thank you, Operator. Welcome to the Sirius Point Limited Earnings Call for the first quarter of 2021. Last night, we issued our first quarter Form 10Q, an earnings press release and financial supplement, which are available on our website, www.siriuspt.com. With me here today are Sid Sankaran, our Chairman and Chief Executive Officer, and David Junius, our Chief Financial Officer. Before we begin, I would like to remind you that many of the remarks today will contain forward-looking statements based on current expectations. Actual results may differ materially from those projected as a result of certain risks and uncertainties. Please refer to the earnings press release and the company's other public filings, including the most recent Form 10-Q, where you will find risk factors that could cause actual results to differ materially from these forward-looking statements. In addition, management will refer to certain non-GAAP financial measures, which management believe allow for a more complete understanding of the company's financial results. A reconciliation of these non-GAAP measures to the most comparable GAAP measure is presented in the company's earnings press release that is available on our website. At this time, I will turn the call over to Sid.

Thank you, Claire, and good morning, everyone. I'm very pleased to be here today to officially introduce Serious Point, following the completion of Third Point Re's merger with Serious Group in February. Our combined company has the capital, platform, capabilities, culture, and expertise to take advantage of changing market conditions and compete in a differentiated and effective fashion in the global insurance and reinsurance marketplaces. I'm extremely pleased that by the closing of our transaction, we had added world-class talent to our team, strengthened the quality of our balance sheet, and refocused our underwriting strategy, allowing us to benefit from strong market conditions. We are creating an entrepreneurial and innovative company that is just at the beginning of its transformation. Today, Sirius Point is a meaningful player in the insurance and reinsurance markets, comprising a global platform that serves clients and brokers in almost 150 countries. And it has an outstanding team of experienced leaders and underwriters, many of them long tenured with us, and a robust balance sheet comprising more than $3 billion of capital. We still view ourselves as a startup company, where we see the insurance industry as ripe for change. Sirius Point is going to be at the forefront of that change. COVID-19 has dramatically changed the world's perception of risk. Over the past few years, the spectrum of realistic disaster scenarios has become more apparent, and the insurance industry response to that requires product innovation, better risk management, and capital. With a startup's mentality and a responsive team of experienced underwriters, we can quickly develop solutions to help our clients manage this new risk environment. Our vision is to grow our business, create value, and positively impact a changing world by being the most adaptive and responsive reinsurer in the market. We are aiming to enhance our existing relationships and improve the economics of our key lines of business. while looking at ways that we can grow intelligently and leverage technology to improve how we underwrite and manage risk, use data, and develop new strategic opportunities. As a new company with an entrepreneurial approach and abundant energy to embrace and drive industry disruption and positive change, we are very much a startup insurer. But a company with the 75-year history and relationships that we view and we are part of the class of 2020. We feel we have a head start over the other new entrants in the market as we have existing sticky relationships in business, a broad product offering, existing infrastructure, and global reach. We also have a solid foundation with a strong balance sheet, as can be seen in our A-minus ratings, which were confirmed by AMBEST, S&P, and Fitch during the first quarter of 2021. As a result, we're big enough to matter while having the ability to remain nimble, responsive, and collaborative. This approach is at the heart of our entrepreneurial culture and is what drives our team. Since this is our first earnings call for the combined company, I want to take some time to introduce our four segments, accident and health, or ANH, specialty, property, and runoff. Our accident and health segment is a global leader, offering a broad range of products, including disability, stop-loss accident, travel medical, and expat health plans written on a global basis. It is recognized for its market-leading performance, having been consistently profitable over the last two decades, and was still profitable in 2020 despite the pandemic. Our underwriting teams, based in the U.S., London, and Zurich, write ANH insurance and reinsurance globally through our admitted and surplus lines entities in the U.S., our Lloyd Syndicate 1945, and our international legal entities. Our ANH team employs an effective and integrated Managing General Underwriter Strategy, or MGU, to deliver operational outperformance while maximizing growth. To accomplish this, we partner with market-leading MGUs and create a relationship that is properly incentivized. Today, we have high retention and long-standing relationships with over 15 leading, profit-oriented North American MGUs that generate significant premiums for us. These MGUs retain a share of the underwriting results, creating the right alignment with SeriousPoint. Our two in-house MGUs, IMG and ArmadaCare, design, distribute, and administer global health and travel benefits. IMG offers travel medical insurance, international health insurance for expats, and travel insurance, all of which are poised for a strong rebound as the pandemic is brought under control and international travel resumes. ArmadaCare is a market-leading provider of supplemental healthcare insurance products and administration services in the U.S. It offers employers in various industries a suite of solutions that keep top performers healthy, productive, and focused on their work. IMG and ArmadaCare are best-in-class MGs on their own, but I see an opportunity to apply the latest technology to take their business to a new level. In our specialty segment, we write specialized short-tail lines such as aviation and space, marine and energy, credit, mortgage, contingency event cancellation, and long-tail lines such as general liability, professional liability, auto liability, workers' compensation, umbrella, and environmental. Our specialty reinsurance business is written by our strong network of European branches, our Lloyd Syndicate, and our offices in the U.S. and Bermuda. We access profitable business by leveraging our relationships with local and global insurers and brokers. In addition to our core reinsurance business, we also work with high-quality MGUs and MGAs globally to acquire specialty insurance business. Let me offer a few examples. In Europe, we work with ELSECO, a tech-enabled MGA for aviation and space risks, In Bermuda, we helped establish Arcadian Risk Capital to write general liability and professional liability lines. We are also a founding investor in Pai, which produces workers' compensation business on our paper. In the property segment, we participate in the broader market for property reinsurance treaties written on a proportional and excessive loss basis. Our international business consists of proportional and XOL treaties both treaty and facultative, primarily in Europe, Asia, and Latin America. The international book is diversified across many countries, regions, perils, and layers. In the U.S., we have significant participations on proportional and excessive loss treaties across a variety of clients, ranging from smaller regional companies to large national accounts. Runoff and other consists of asbestos risk, environmental risks, and other long-tail liability exposures, and includes the acquisition and management of runoff liabilities for insurance and reinsurance companies, both in the U.S. and internationally. Finally, we have a unique seeded reinsurance program that allows us to carefully manage our gross-to-net positions across all of our lines of business and is a key part of our risk management strategy. Moving to investments, our investment portfolio is heavily weighted toward traditional fixed income, cash, and restricted cash, with the latter used to support regulatory collateral requirements for our reinsurance book. We have a strong partnership with Third Point LLC and positions in their long-short equity, credit opportunities, and venture funds. We also hold certain legacy serious positions in various alternative asset classes. of which a portion we have already given fund managers redemption notices. We aim to maximize long-term after-tax total return while carefully managing risk and volatility. We also have a portfolio of strategic investments in insured tech companies. At Serious Point, we view investments as an integral part of our strategy to revitalize and grow and modernize and break out of the business. as we leverage both sides of the balance sheet to support our strategic investments, through which we expect to realize appropriate risk-adjusted equity returns, in addition to appropriate premium and business growth. We've continued to execute on our strategy, and we've de-risked a portion of the investment portfolio in order to reduce volatility and release capital for redeployment. Third Point LLC has also reduced leverage in the TP Enhanced Fund, and continues to be a great partner for Serious Point, allowing us to punch above our weight relative to our peers through access to their differentiated and diverse investment expertise and products. We've identified three strategic pillars to drive success, which I'd like to talk about today. To unlock the potential that exists within Serious Point, we need to continue to improve our profitability by being best in class capital allocators better manage our risk, grow higher margin differentiated businesses, and invest in technology. To achieve these goals, we have three pillars, which we'll review. The first pillar is focusing on stabilizing the company's core insurance and reinsurance business through profitable underwriting. And we'll be disciplined in managing our balance sheet and optimizing our capital allocation. The portfolios of Third Point Re and Serious Group experienced challenges in recent years, a number of which were addressed by our strategic combination. Now our goal is to reassess these portfolios and boost profitability while lowering the volatility of the book. To this end, I'm very pleased to report that we made great strides in refining our portfolio in the first quarter, reducing catastrophe exposure through modest additional retro reinsurance purchases and rebalancing the overall portfolio to non-CAT lines, including A&H, credit, aviation, and niche U.S. casualty lines. We'll continue to reshape the portfolio through 2021 to execute on our underwriting strategy and be disciplined in our approach to managing risk. We have identified certain pockets of the property portfolio that do not optimize our returns, which we will restructure, non-renew, or redeploy to optimize portfolio returns. We're also considering our strategic options with respect to the ongoing runoff business. Importantly, we intend to be disciplined in reducing classes which have been unprofitable. At the same time, our global platform and entrepreneurial culture will give us flexibility and culture to adapt to market conditions and be responsive to opportunities. While there's much work ahead, we're confident we're making progress in our execution. The second pillar is revitalizing and growing our core insurance and reinsurance books. While the insurance market has been hardening over the last few years, the rate increases have varied from line to line. The areas that are more specialized and less commoditized have seen the strongest sustainable price gains. As a result, we'll continuously allocate our capital to the best opportunities and react quickly as market conditions change by product and region towards rate adequacy. Our A&H and specialty segments, which respectively comprise 37% and 46% of our first quarter gross written premium, are two areas that we're focused on growing given their better return profiles as we work to drive profitable premium, which we believe will lead to improved performance and accelerate book value growth. In both segments, our MGU, MGA platform that include wholly owned IMG and ArmadaCare, strategic partnerships such as Arcadian, and third-party MGAs are a key driver of our growth strategy. In particular, we'll work to be nimble and react to market conditions to take advantages of dislocations. This approach is illustrated by the investment I mentioned in Arcadian Risk Capital, a Bermuda Incorporated MGU where we've partnered with an outstanding manager and entrepreneur, John Boylan, who has a 30-year track record in the global insurance market. We invested capital, provided expertise, and serious point paper to help John establish Arcadian. Arcadian began writing business in October of 2020, filling the market need for capacity by a well-capitalized company with no legacy business. Arcadian has swiftly ramped up and wrote $29 million of premium in the first quarter of 2020, one. We expect Arcadian to write more than $100 million of gross premium this year as they become a meaningful growth driver for serious points. The third pillar of our strategy is modernize and breakout. We intend to leverage technology and build alternative business models to respond to how the world and risk are changing, optimizing our global platform by partnering with and investing in innovative businesses and teams in the insurance industry. To accomplish this, we're going to assess and rework our platforms so that it's more efficient and ready for higher growth. We're committed to building a strong technology foundation to ensure that Serious Point is an industry leader in this regard. This will make us more productive for our client partners and our investors. We aim to provide startup insurers with seasoned advice and equity or debt capital so they can hire people and invest in technology themselves. We'll provide the platform licenses and risk capital to create a balance sheet to help them write the products. We'll also offer legal and regulatory support and provide the reinsurance expertise, support, and syndication to grow and diversify the capital base for their product offerings. Through this process, we aim to play a role in accelerating their growth and create value in returns. We see this as a differentiator, which will position us as something completely new in the market. I'll share more details on our efforts and execution on all three pillars in subsequent calls. To be successful, we need the right people to drive these initiatives forward, and I'm delighted that the Serious Point proposition is attractive to top-quality entrepreneurial talent. Our Chief Operating Officer and President of Insurance and Services, Prashanth Gangu, leads our growth and modernization efforts. Prashanth joined us at the launch of Serious Point from Oliver Wyman, a unit of Marsha MacLennan, where he was a long-standing partner and head of America's P&C Insurance. We also recently announced that Daryl Ceres joined us as Chief Technology Officer to support the technological transformation of the company. Daryl held executive roles at ProSite, Fireman's Fund, Allianz, and Tesla. In reinsurance, we have an outstanding team in place, including Global Chief Underwriting Officer and President of America's Reinsurance, David Goverin, who joined the company after many years at Berkshire Hathaway. President of International Reinsurance, Monica Kramer-Manheim, who had over 30 years in leadership positions at Legacy Serious Group. President, Global Head of Distribution and Runoff, Dan Malloy. And Vice Chairman, Steve Fass, who brings extensive industry experience as CEO of White Mountains and previously had responsibility for Legacy Serious Group. Key new hires on the reinsurance side include Tim Martin, who will be joining us shortly as Global Head of Property Reinsurance. Tim joins us from Chubb Tempestry, Bermuda, where he was division president responsible for all operating aspects of the company's Bermuda-based P&C reinsurance business. I'm also pleased that Larry Hallett from RFIB has joined our casualty team in the U.S. Larry has a long track record in the casualty reinsurance market, including alternative risk management, captives, runoff, and fronting arrangements, and has 40 years' experience in the North American reinsurance market. I believe this is a terrific underwriting team to execute on our strategy and achieve our goal of delivering profitability. In investments, we brought on Ming Zhang, who joined Third Point Re shortly before the completion of the acquisition to be the first chief investment officer of the company. Prior to joining us, Ming was with MetLife, where he had responsibility for their global insurance risk management, product risk, and pricing oversight. Looking forward, Ming has been tasked with managing our investment portfolio as we strive to deliver less volatile and more consistent returns, which is critical to improving our valuation. We've also brought on Vivette Henry as the company's first chief people officer. I'm proud of the outstanding quality of our leadership team who bring diversity of experience, perspective, and background to Serious Point. Having a diverse and inclusive company is not just a high-minded principle. It also makes good business sense in attracting the best people. More diverse organizations draw upon a range of different backgrounds, life experience, and expertise to help them make better decisions. We aim to ensure diversity at every level of our company, attracting highly talented people who bring a variety of experience and perspectives and can contribute to the ongoing growth, development, and success of SeriousPoint. Moving to KPIs. Our first quarter's financial results reflect the hard work put in by both companies in the run-up to the merger, as well as the first green shoots of our Serious Point strategy. The team and I are committed to delivering results. I'd like to talk a little about how we'll measure success. First, producing an underwriting profit and a combined ratio under 100. For the first quarter, Serious Point produced an underwriting profit of $9 million and a combined ratio of 96.6%. reflecting our focus on writing a profitable and more balanced book of business. Second, growing tangible book value per share. We're baselining tangible book value per share in the quarter at $13.97. At a closing price on Friday of $10.67 per share, Series Point is trading at a meaningful discount to book value. which we expect will close over time as we produce consistent underwriting profits and less volatile overall returns. Third, generating returns on equity in excess of our cost of capital. As underwriting results improve, sustainable higher ROEs will follow. In the first quarter, our annualized return on average common equity was 26.4%, driven by net investment income of $186.5 million. Investment results in the quarter were very strong and above trend. We aspire to generating double-digit return on equity even as investment results revert back to normal trends. To conclude, we have a strong foundation consisting of a great team, strong insurance franchises, and a global footprint which positions us for the future. As we execute on our three-pillared strategy, I expect our combined ratio to gradually improve as we profitably grow our higher margin businesses, while also reducing the risk and volatility of our portfolio. Our team does have much to accomplish as we improve our operations and the efficiency of our organization, which will take time. Our improvement will not be linear, quarter to quarter, given the fundamental nature of the work we need to accomplish, combined with some investments that we need to make our operations improve especially technology. The steps we have taken this quarter towards refining our business to achieve underwriting excellence and establishing a high-quality balance sheet will result in less volatility going forward. We're confident the path of sustained higher underwriting returns, less volatile investment results, and growth in book value will translate into long-term value creation for our shareholders. Let me now turn the call over to David. David's background makes him the ideal person to be CFO of Serious Point. He joined us as COO of Third Point Re in preparation for the merger, and most recently had been the CFO of AIG's General Insurance International business, where he oversaw the transformation in the financial performance of that business with the focus on many of these same lines and classes of business which we have at Serious Point. Over to you, David.