Earnings Transcript for SPNT-PB - Q1 Fiscal Year 2023

Operator: Good morning, ladies and gentlemen, and welcome to the SiriusPoint Ltd First Quarter 2023 Earnings Conference Call. On today’s presentation, all parties will be in a listen-only mode. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Dhruv Gahlaut, Head of Investor Relations and Chief Strategy Officer of SiriusPoint. Please go ahead now, sir.

Dhruv Gahlaut: Welcome you to the SiriusPoint Earnings Call for the 2023 first quarter results. Last night, we issued our earnings press release and financial supplement, which are both 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. Please refer to Page 2 of our investor presentation for additional information and the company’s latest public filings. At this point, I will turn the call over to Scott.

Scott Egan: Thank you, Dhruv, and good morning, good afternoon, everyone. Thank you for joining our first quarter results call. We have been busy executing against our strategic priorities, which I outlined as part of our full-year 2022 results. I intend to provide you with a fuller update on our progress against these at our half-year results update. But today, I will highlight the significant progress we have made during this quarter. Before we get into the results, I would like to update on 2 areas

Steve Yendall: Thank you, Scott, and good morning, good afternoon, everyone. I will now take you through the financial section of the presentation, and we’ll start with Slide 7, looking at our first quarter financials for 2023. Overall, it was a positive quarter as we delivered profits and generated capital across all 3 sources of earnings, underwriting, MGA fee income and investments. Net income for the quarter was up $356 million versus Q1 of last year. Our results were mainly impacted by losses in the investment portfolio in 2022. During Q1 ‘23, core underwriting results improved materially as we delivered underwriting profits of $107 million, which benefited from $90 million of reserve redundancy linked to the LPT transaction. Excluding that $90 million release, underwriting profits were $17 million, with a core ex LPT at 96.8%. Our actions are having an impact as attritional loss ratios and expenses were down, while our cat losses were stable versus the prior year. We experienced $7 million of cat losses in the quarter, which are primarily related to Turkey earthquake Kites and are stable year-on-year. Gross premium written for the core business increased 5%, driven by insurance and services, up $181 million, partially offset by reinsurance, down $128 million, while capital light net services fee income saw a steady increase at $18 million versus $14 million last year. Service revenues were up 12%, while margins are better at around 29%.Total investment result was $74 million, driven by $62 million of net investment income, while unrealized and realized gains, including related party were $12 million and significantly higher than the $213 million loss last year. These results illustrate the progress we’ve made in rebalancing the investment portfolio towards high-quality fixed-income assets to reduce P&L volatility and capitalize on the current high-interest rate environment. Net corporate and other expenses were down $16 million and mainly driven as we moved $10 million of expenses above the line within our core results. Other notable items impacting income include $7 million of restructuring costs and $25 million of negative mark-to-market from liability classified instruments. Moving on to Slide 8. We focus on the premium trends, and I’ll also provide an update on the April 1 renewals. Gross premiums for the core segment were up 5% quarter-over-quarter, mainly driven by the 37% growth in insurance and services. The growth in premiums is driven by organic growth in both strategic partnerships and across our accident and health lines. This growth was partially offset by a 24% reduction in reinsurance, mainly driven by the already-announced portfolio restructuring actions we have taken in the International Property segment. On the topic of renewals, only 7% of our business reduced in April, and we experienced similar trends as the January 1 renewals. We experienced positive rate increases with an average rate change at around 6% across our portfolio, mainly driven by around 15% rate increases in the International Property segment. As part of the remediation of the international property cat book, we continued exiting businesses that did not meet our price requirements. In addition to rate strengthening, we continue to see the same improvement we experienced for the January 1 renewals and contractual terms and conditions across most classes as well, including restatement provisions and tightening of exclusions and coverage. Slide 9 shows the change in combined ratio versus Q1 ‘22 for our core business and breaks the movements into individual subcomponents. Our portfolio actions are yielding positive results as the combined ratio for our core business on a like-for-like basis has improved by 2.5 percentage points. Our headline core of 8.5% has benefited from 16 points of reserve releases linked to the LPG transaction. However, the expense reallocation of $10 million has been a 2-point drag, adjusting for these 2 results in a like-for-like core of 95% versus 97.5% last year. Looking at the combined ratio for the segments and excluding the loss portfolio transfer, the reinsurance combined ratio was stable versus the prior period, while the insurance and services combined ratio was down 0.5 points to 95%. The attritional loss ratio improved for both reinsurance and insurance and services. Moving on to the investment portfolio and investment results on Slides 10 and 11, respectively. We have made progress as we delivered a strong investment result, increased our overall asset duration to 2.1 years from 1.8 years and locked in attractive reinvestment yields in excess of 4% on our investments. We have invested over $500 million this quarter and around $1 billion year-to-date and increased our exposure to corporates and asset-backed securities. Overall, our investment strategy remains unchanged and focused on maintaining a high-quality fixed-income portfolio. 70% of our portfolio is now fixed income, of which 93% is investment grade. The average rating of our fixed income book is AA, which is 9% of the securities being BBB and 70% being below investment grade non-rated fixed income instruments. Given the quality of our portfolio, we believe we are well positioned going into market [indiscernible]. We are monitoring our exposures and proactively making changes to our investment portfolio. We have no direct exposures to SBB, Signature Bank, First Republic Bank and other small regional banks or any AT1 instrument exposure to Credit Suisse in our investment portfolio. Even from the underwriting side, our exposure to SBB, Signature Bank and First Republic, including the D&O book is less than $5 million. As I’ve already highlighted, net investment income for the quarter was $62 million versus $8 million last year, while the overall investment result was $74 million versus a loss of $205 million in the first quarter of ‘22. P&L volatility was lower in Q1, and we expect our actions to designate new fixed-income investments as available for sale will help us going forward. At quarter end, more than 70% of the fixed income portfolio was designated as available for sale, and that will continue to grow in 2023 as we continue to rebalance the fixed income portfolio reducing volatility. Slide 12 looks at our balance sheet. Our balance sheet is strong, ending the quarter with $2.2 billion of shareholders’ equity, up from $2.1 billion since year-end ‘22. Total capital, including debt, was $3 billion, while tangible book value per diluted share was $11.41. Our Bermuda solvency capital ratio was strong and improved to 270% at year-end ‘22. We expect it to further improve by more than 15 points post the completion of the loss portfolio transfer. Also, our issued debt is unchanged, while our debt-to-capital ratio reduced to 25.8% from 27.3% at year-end ‘22 and is within our target range. With this, we conclude the financial section of our presentation. I would like to remind you again we had a good start to 2023 and are in a good position to deal with market volatility, while 2024 should be the year in which we realize the full run rate benefits of all of our strategic actions, and we expect to deliver a double-digit return on average common equity. 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. With this, I’ll turn the call back over to the operator.

Operator: