SiriusPoint Ltd

Good morning, ladies and gentlemen, and welcome to the Serious Point Limited first quarter 2022 earnings conference call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference 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 Serious Point Limited earnings call for the first quarter of 2022. Last night, we issued our 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 recent Form 10-K for the period ended December 31, 2021, 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 believes 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 extremely pleased that the first quarter of 2022 showed positive underwriting progress. as we continue to execute on the strategic priorities we made out one year ago to transform our business. Curious Point launched in 2021 with the capital, platform, and expertise to address our legacy challenges and unlock the potential that exists in our company. When we launched, we outlined our plans to achieve profitability through a shift in business mix towards insurance products, a significant reduction in exposure to catastrophe risk, and a complete re-underwriting of our reinsurance business. Finally, on the asset side, we intended a de-risking of our investment portfolio. This is the first quarter that meaningfully reflects the hard work that has been undertaken since then. We achieved a consolidated underwriting profit of $34 million for the quarter, with a combined ratio of 93.7% and gross premiums written of just over $1 billion. Our results this quarter show progress in the deliberate shift towards our promising insurance and services segment as our strategic partnerships approach gains traction, evidenced by growth and momentum in premium and profitability. We also improved on last quarter's reinsurance segment results as our steps to reduce the risk in our portfolio and ruthlessly execute on our re-underwriting continued. I'm extremely pleased in our progress on both of these fronts. That said, our investment results were disappointing this quarter, driven primarily by losses in the Third Point Enhance Fund. We continue to execute our investment de-risking program in the coming quarter. I'd like to dive a little deeper on our progress. We've remediated, reduced, and refined Serious Point's underwriting portfolio, Risk Appetite. We executed a loss portfolio transfer to exit legacy runoff business and freed up capital. We announced an agreement for an industry first in the creation of a solution for the investment needed in our Lloyds platform, which I'll return to shortly, and pivoted our focus from property cap reinsurance to harness opportunities across the insurance market, particularly through our unique strategic partnership approach. We've also restructured our legal entities to streamline operations and reduce cost. We've attracted industry-leading talent to our open senior leadership roles and the integration of our legacy companies has progressed well. This has been a dramatic capital reallocation, and that includes shifting our investment portfolio from equity to fixed income, in line with our risk appetite and the strategic direction of Serious Point. This approach also frees up capital, which we intend to redeploy to support the growth and expected value creation of our insurance and services business. As I'll discuss shortly, we're seeing growth in our more established partnerships and green shoots of progress in many of our newer investments. We believe that we are positioning Serious Point for long-term, profitable growth through the meaningful restructuring work that we have undertaken. And as a result, we see significant intrinsic value in our current share price. Given the material discount to book value, we repurchased $5 million of common stock in March, with $57 million remaining in our share repurchase authorizations. we will continue to review our share repurchase program quarter to quarter. Much of the value we are creating is within our insurance and services segment. We are shifting our identity from a traditional reinsurer, rebalancing our business to create value for our shareholders and positioning a serious point for the future. This transformation is largely driven by our strategic partnership model within our insurance and services segment. We believe our MGA First model allows for sustainable value creation, that differentiating technology is more likely to be developed in small, innovative organizations, and that the best underwriting talent is increasingly gravitating towards entrepreneurial managing general agents. Serious Point's competitive advantage is as a partner to these MGAs, supporting those with the differentiating and value-add offering in a variety of ways. We believe that strong strategic and incentive alignment is key for mutual success. We often establish multi-year partnerships to create value for both businesses. We can provide growth capital, distribution, access to our global platform, fronting, our extensive expertise, including underwriting, actuarial, and product development. And finally, management of regulated insurance company paper and balance sheets. We provide much more than a typical fronting or reinsurance relationship. working towards the success of both of our businesses while driving disruptive change and entrepreneurialism in the insurance industry. We are very selective, partnering with MGAs and insurance service providers that are building a strong competitive mode across a variety of segments by addressing customer needs. We've announced over 20 strategic partnerships with MGAs and insurance service providers in the last year, bringing our total partnerships to more than 30. We believe these partnerships will accelerate growth and improve profitability as we support our investments to mature over time to deliver long-term sustainable value. In the fourth quarter of 2021, we resegmented our results into insurance and services and reinsurance in line with our strategy to provide more transparency to the value creation from insurance and services. This segment had a strong start to the year. generating income of $24 million, including underwriting income of $10 million with a 95.5% combined ratio, and $14 million of service income on $57 million of service revenues. I want to highlight three types of MGA partnerships. The first is incubations or startups, where we can provide startup capital, operational support, licenses, and expertise to allow entrepreneurs to launch new businesses at record time. These include Arcadian Risk Capital, which offers general and professional liability and property, Banyan Risk, which underwrites D&O, Joint Insurance, covering small and mid-market commercial insurance, LimitFi, which offers credit insurance, Parameter Climate, which provides climate underwriting and distribution, and VERD, a Florida homeowner insurance carrier. Secondly, we partner with technology-enabled MGAs, where we make an investment, generally at a relatively early point in their maturity, offering capital, paper, and or front-end arrangements. These include Corvus, a cyber insurer, Honeycomb, which provides commercial real estate insurance, Players Health, offering amateur and youth sports insurance and risk management, and Startup Insurer Voucher. Finally, we have our wholly-owned subsidiaries, ArmadaCare, which provides supplemental health and employee benefit solutions, and International Medical Group, or IMG, which provides travel medical and assistance insurance. These are our most established and developed MGAs with increased contributions to income and growth this quarter. Following a return to normalcy post-COVID restrictions, we've seen an increase in employees using Armada's supplemental health products. perhaps going back to the doctor or scheduling elective surgeries, leading to a very good renewal season and continued profitability, following the trend set in 2021. With an increased use of benefits, Armada's customers have seen continued value in their employee benefit offering, and during the renewals, many opted to add either employees or benefits to their programs, positively impacting Armada's quarterly results. We are also seeing a strong recovery in travel after challenging 2020 and 2021 due to COVID-related travel reductions. Driven by leisure travel returning to pre-pandemic levels, we're seeing strong momentum in IMG's results, with $1.7 million of income in the first quarter versus breaking even in the same quarter last year, with the insurance generated by IMG for Syriza Point's balance sheet generating a combined ratio for the quarter of 90.8%. Leisure travelers are taking longer and more expensive trips and choosing to buy insurance at a higher rate than pre-pandemic norms, resulting in continued strong performance within the travel medical market segment. Serious Point is accessing this opportunity via IMG's approach to merchandising on key aggregators and the business's effective direct digital marketing program, while we continue to invest in IMG's platform to grow product and distribution. Our partnership with Mosaic Insurance is designed to reinvigorate Serious Point's Lloyd Syndicate 1945. As part of the partnership and subject to Lloyd's regulatory approval, which we anticipate the second half of 2022, Mosaic will acquire a managing agency while Serious Point retains Syndicate 1945. This creates a unique arrangement that offers a path to growth and development, also providing Serious Point access to Mosaic's growing product classes and geographic reach with best-in-class underwriters. Our alignment with Mosaic includes taking a stake in the business and a seat on their board. Separately, Syndicate 1945 improved in Lloyd's rankings from the fourth to the second quartile in the last year due to focused work to improve the underwriting, which is reflective of the reevaluation, remediation, and innovation being applied to our entire business while making tough choices on the business we continue to write. In addition to the MGA partnerships, We invest in high-value insurance service providers that support the MGA ecosystem. These include Lucky Truck, a digital broker and aggregator specializing in commercial trucking insurance, and BrokerVuta, a commercial insurance platform that simplifies submissions for brokers, MGAs, and carriers. As we reposition ourselves as an insurer and partner of choice for entrepreneurial, nimble MGAs and tech-enabled insurance service providers, Remediating the reinsurance segment of our business remains an important part of our strategy and has a key part to play in the Serious Point offering. We have outstanding reinsurance talent within our business, which drives our reinsurance client and broker relationships and provides a deep bench of expertise for both our reinsurance book and the MGA and InsurTech partnerships. We have an established global platform, which provides access to global and local opportunities. And we have a nimble approach to market opportunity and rate adequacy, all of which we intend to leverage to position us for long-term disciplined growth within our risk appetite. Following the substantial and ongoing re-underwriting and reallocation in our reinsurance segment, premiums written for the quarter were $524 million, with a segment income of $3 million and a 99% combined ratio. David will address our specific Ukraine-Russia and catastrophe losses, but this includes our current modest underwriting loss estimate for Russia and Ukraine of $13 million, and combined with catastrophe losses, net of reinsurance and restatement premiums of $7 million, which falls within our budgeted cap loan for the quarter. As is the case for businesses across the insurance and economic markets, we're closely monitoring the potential impact of the Ukraine-Russia conflict. The full consequences of this war are still to unfold in terms of economic and tragically human cost. The ultimate impact on our business of this conflict still remains uncertain. We'll continue to monitor the unfolding situation closely and ensure full compliance with applicable sanctions. More generally, we've made major changes in our reinsurance segment in the last 15 months, having exited or non-renewed approximately $700 million of business, reflecting major re-underwriting across our portfolio. We continue our re-underwriting as transactions renew and anticipate additional portfolio actions throughout 2022. We've reduced our global property aggregates by more than 30% on more prudent risk thresholds overall, as well as the pullback from select regions and perils where we view there as heightened risk or inadequate rate. We exited London direct and facultative property, as well as most CAT exposed property risk and US property pro rata, where we had concerns about inherent catastrophe pricing and the risk presented by secondary perils. We exited the legacy third point refloat transactions and a book of political violence, workers' comp cap, cyber and war previously written out of our Bermuda office. We also exited a significant volume of accounts in our US casualty pro rata portfolio, replaced by structured and niche business, which we expect to outperform higher acquisition cost commodity accounts. My re-underwriting is a continuous process with account-by-account scrutiny across our portfolio, including the deal structure, target economics and distribution, as well as other factors including the market cycle and view of the seeding company. We have flagged approximately 20% of accounts in our current reinsurance portfolio for likely non-renewal or increased scrutiny, including where the market cycle has peaked and conditions are deteriorating. or generally where we'd prefer to improve our position with more niche and non-commoditized business. While 401 rates were generally positive, we deployed approximately 30% less aggregates than planned at the 401 renewals. This reflects our underwriting discipline and avoidance of risks, which we view as underpriced or inadequately modeled. Lower aggregate deployment creates near-term impact on our financial results, given the higher fixed costs of our retrocessions. However, we have retained the option to deploy more aggregates later in the year, such as Atlantic Winged at 6-1, should the pricing and terms be favorable. We remain committed to our strategy for global reinsurance, and especially property reinsurance, to maintain discipline and avoid deploying aggregates unless we have confidence in the risk-reward profile and price adequacy of the business. This strategy includes shifting to a more nimble, lower-cost operating model so we have the ability to flex our top line up or down in response to market conditions and avoiding the top line pressures associated with high fixed operational and retrocession expenses. The net investment loss of $205 million is the main driver of our overall results this quarter. This is very disappointing given the progress we've made in our underwriting results and the step that we are taking to address this pressing issue. The return was primarily due to negative returns for the long-event fundamental equities in the Third Point Enhanced Fund, with detraction led by growth-oriented positions in the enterprise technology and financial sector. Repositioning our investment portfolio for stable and sustainable returns remains an ongoing and key priority for us. As we reported last quarter, we amended our investment management agreement with Third Point LLP at the end of 2021, and are aggressively reallocating capital to eliminate the extreme levels of investment volatility that we've experienced over the last year. We redeemed $100 million from the Third Point Enhanced Fund during the quarter, following $450 million of redemptions in the fourth quarter of 2021. We intend to execute on further withdrawals from TPE in the coming quarter and continue the redemption of funds. We continue, however, to be extremely excited about partnership opportunities with Third Point in both the managed credit and TPE venture space. I will now hand the call over to David to take us through the financials.