Earnings Transcript for SPNT-PB - Q4 Fiscal Year 2022

Operator: Good morning, ladies and gentlemen, and welcome to the SiriusPoint Ltd. Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] 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.

Dhruv Gahlaut: Thank you operator, and good morning, good afternoon to everyone listening. I welcome you to the SiriusPoint earnings call for the 2022 full year and fourth quarter results. Last night, we issued a press release and financial supplement, which are available on our website, www.siriuspt.com. Additionally, our 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 time, I will turn the call over to Scott.

Scott Egan: Thank you Dhruv, and good morning, good afternoon, everyone. Thank you for joining our fourth quarter and full year results call. I have now completed a very busy and productive 5 months with SiriusPoint. I remain confident about the opportunities ahead of us. We have a healthy balance sheet, excellent people and resources, strong client and broker relationships and a diversified business model that has potential to deliver higher returns. I’m excited to be here, and I’m determined to help the company improve its performance and realize its potential. We have the ingredients to be an outstanding organization, but we recognize we’re not there now. Since I joined SiriusPoint as CEO, we have made significant progress on our strategic priorities of reducing volatility, improving profitability and business simplification. We believe we have a robust plan in place for 2023 against each of these areas helping deliver against our underwriting-first ethos. The vision for SiriusPoint is to be a high-performing underwriter, and I am confident that we have the right elements in our business required to execute against that strategy and deliver. However, I recognize we are in the early stages. That said, we are already seeing positive changes in the company’s performance and culture. We will be disciplined and consistent in our approach as we aim to reestablish our credentials and build confidence with our stakeholders as good stewards of capital. We expect to see meaningful improvement in profitability during 2023 as we benefit from already implemented underwriting and cost-saving actions, locked-in investment yields and stable MGA fee income. We expect to realize full run rate benefits of all our strategic actions taken during 2022 and 2023 in 2024, when we expect to deliver a double-digit return on equity. Our business model is diversified and differentiated compared to a traditional P&C insurer. We have 3 uncorrelated sources of earnings

Steve Yendall: Thank you, Scott, and good morning, good afternoon, everyone. I'll now take you through the financial section of the presentation, and we'll start with Slide 15, looking at our full year financials for 2022. Net losses for the year were $403 million driven mainly by the negative investment result of $323 million. Total investment losses of $323 million were driven by negative movements in related party funds and the impact of rising interest rates on the fixed income portfolio. However, within our investment portfolio, net investment income increased to $113 million versus $25 million in 2021. Core underwriting results improved materially during 2022 as a result of the actions implemented. Our loss of $35 million was significantly lower compared to a loss of $163 million in 2021 driven by lower cat losses of $188 million. The combined ratio for the core business came in at 101.6%. On a management basis for 2021, which includes the premerger period from January 1 to the acquisition date of February 26 for the legacy Sirius Group, top line growth was strong. Premiums were up 21% year-over-year driven by the growth in our Insurance & Services division. Net services fee income was up $23 million versus the prior period driven by increased revenue and improved margins in travel medical MGAs. Included in the year-end result was $30 million of restructuring costs related to the international platform changes announced in November of 2022 with associated savings starting to earn in Q1 and expect it to increase over the year. To that end, we also expect an additional $25 million of restructuring costs in 2023 as we continue to right size the organization and create a more efficient operating model. Moving to Slide 16. We'll take a brief look at Q4 financials. Overall, it was a very positive quarter with regards to the underwriting result as we delivered underwriting profits of $31 million. The core combined ratio was higher at 94.8%, but the accident year combined ratio at 96.4% was stable year-over-year. Core gross premiums written increased 8% from the fourth quarter in 2021 driven by Insurance & Services, up $172 million, partially offset by Reinsurance, down $118 million. Net loss of $27 million was an improvement of $113 million over the prior year quarter and was supported by total investment result of $52 million. As I mentioned earlier, included in the quarter is $30 million of restructuring charges. We experienced no cat losses in the quarter. Loss experience related to COVID over the last several quarters has been better than originally expected, which has resulted in continued favorable development in the ultimate estimate of those losses. We currently have no provision booked for winter storm Elliott and are not expecting significant losses. On Slide 17, we focus on the premium trends, and I will provide an update on 1/1 renewals. Gross premiums written for core are up over 50% year-over-year during 2022, but the 2021 amounts don’t take into account January and February 2021 premiums from Sirius Group prior to the merger. Normalizing for that, gross premiums rewritten -- gross premiums written are up 21% year-over-year with 83% growth in Insurance & Services driven by organic growth and new deals across A&H lines, the positive impact of reduced COVID-related travel restrictions on travel MGA premiums and strong growth in our MGA strategic partnerships. This growth was partially offset by a 15% reduction in reinsurance driven primarily by reductions across property lines, reflecting our shift in the business strategy from Reinsurance to Insurance & Services in order to reduce earnings volatility and improve underwriting profitability. Most notably, we’ve taken significant reductions on our international property cat portfolio in 2022 and further in 2023, non-renewing approximately $100 million of international property cap premium at 1/1 renewals. Staying on the topic of renewals, the January 2023 renewal reflected a strong market across most of the classes of insurance and reinsurance we write, facilitating our continued efforts to rebalance and re-underwrite, reducing volatility and exposure from property cat and growing Insurance & Services with a continued focus on growing niche program business across the portfolio. At 1/1, we saw average rate increases in global property of 20% to 25%, with U.S. property cat up 35% to 40%, casualty up 5% to 10% and A&H rates of 2%, all reflecting continued strong market conditions with attractive and less attractive pockets within subsectors of those broad classes. In addition to rate strengthening, we saw improvement in contractual terms and conditions across most classes as well, including reinstatement provisions and tightening of exclusions and coverage. Slide 18 shows the year-on-year change in combined ratio for the core business and breaks the movements into individual subcomponents. We see those portfolio actions are already yielding positive results as the core combined ratio improved 7.9 points over 2021 driven primarily by reduced cat losses. Underwriting profitability over top line growth will remain our primary focus. Within Reinsurance, the combined ratio improved 9.8 points driven by a reduction in property cat losses. The Insurance & Services combined ratio was up 1.5 points to 97% mainly due to lower profitability in our workers' compensation portfolio. Insurance & Services has been profitable 6 out of 8 quarters since the merger. And we are encouraged by the overall loss experience to date from our MGA partners and stable profitability. The other underwriting expense ratio remained stable from last year, which we expect to decline into 2023 as cost actions taken in Q4 begin to earn in. Moving on to the investment portfolio and investment results on Slide 19 and 20. We have made significant progress during the last 18 months on reducing volatility, increasing diversification and lowering the capital intensity of our investment portfolio. Overall, our investment portfolio has remained stable at $6.6 billion at year-end 2022 versus $6.5 billion year-end 2021. But as Scott alluded earlier, the new investment strategy is tilted towards fixed income and away from hedge fund strategies as we aim to deliver predictable and stable returns. Net investment income was $113 million for full year 2022, but overall investment result was negative $323 million. The investment result was impacted from negative realized and unrealized loss movements on related party and other investments. As mentioned on previous calls, beginning in the second quarter of 2022, we have designated new fixed income investments as available for sale, which has reduced income statement volatility generated by the trading portfolio. For the full year ended December 31, 2022, the trading portfolio resulted in $115.6 million in losses primarily due to rising interest rates within our overall investment result. At year-end, more than 60% of the fixed income portfolio was designated as available for sale, and we’ll continue to grow in 2023 as we continue to rebalance the fixed income portfolio reducing volatility. Our overall asset leverage based on tangible diluted shareholders’ equity stood at 3.8 times, more in line with the market average, while we believe we have a high-quality fixed income credit book. 7% of our fixed income portfolio was BBB, while 8% was below investment-grade nonrated fixed income instruments. Duration mismatch has also been fully eliminated during Q4 as we invested around $1 billion of cash and short-term investments into longer duration assets. Assets backing loss reserves now have a duration of 2.5 years, while overall asset duration was approximately 1.8 years. Slide 21 looks at our balance sheet. Overall, our balance sheet remains healthy, ending the quarter with $2.1 billion of shareholders’ equity. Total capital, including debt, was $2.9 billion, while tangible book value per diluted share was $10.43. Issued debt was unchanged in the quarter, except for FX changes and our Swedish kroner-denominated sub debt. And our debt to total capital ratio was 27%, which is within our target range. With this, we conclude the financial section of our presentation. I would like to remind you then that we have made significant progress in 2022 as our actions are having a positive impact while we expect a meaningful improvement in profitability during 2023. 2024 should be the year when we realize 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: Thank you very much. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

End of Q&A: