Siriuspoint Ltd (SPNT) 2019 Q1 法說會逐字稿

Greetings, and welcome to the Third Point Reinsurance First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Chris Coleman. Thank you. You may begin.

Thank you, operator. Welcome to the Third Point Reinsurance Ltd. Earnings Call for the First Quarter of 2019. Last night, we issued an earnings press release and financial supplement, which is available on our website, www.thirdpointre.bm.

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 first quarter 2019 earnings press release and the company's other public filings, including the risk factors in the company's 10-K, where you will find factors that could cause actual results to differ materially from these forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company assumes no obligation to update or revise them in light of new information, future events or otherwise.

In addition, management will refer to certain non-GAAP measures, which management believes allow for a more complete understanding of the company's financial results. A reconciliation of these measures to the most comparable GAAP measure is presented in the company's earnings press release.

Last night, along with our earnings press release, we announced the transition of our Chief Executive Officer. As was mentioned in the press release, Rob Bredahl has resigned from Third Point Re. I would like to personally thank Rob for his guidance and leadership. Rob was instrumental in helping to form Third Point Re, and we wish him all the best.

I would also like to introduce Dan Malloy as our new CEO. Dan will be known to many of you already and has also been with Third Point Re since the very beginning. We are very excited to begin this new chapter for Third Point Re.

And with that, I will turn the call over to Dan Malloy.

Thank you, Chris, and good morning. First, I'd like to echo Chris' comments. Rob Bredahl has been a good friend and colleague for decades. I've really enjoyed building Third Point Re with him over the last 7.5 years.

Turning now to business. Last night, we also issued a press release regarding the promotions on our U.S. reinsurance operation. David Govrin will be assuming the role of President of Third Point Re U.S.A., replacing Manoj Gupta, and David Drury will assume the role of Global Head of Property Catastrophe. These changes position us well to continue to make progress on the underwriting plans, which I will discuss in more detail in a moment. We're thankful to have such high-caliber individuals, both with extensive experience to lead our U.S. operation going forward.

This morning, I would like to briefly review our results for the first quarter of 2019. I will then provide an update on our underwriting plans and market conditions. Daniel Loeb, CEO of Third Point LLC, will then speak to the investment performance and Chris will discuss our financial results in more detail. We will then open the call up for your questions.

We are very pleased with the performance for the first quarter of 2019. We generated net income of $133 million in the quarter driven by a solid investment return of 7.2%. The first quarter was a record quarter for net income, and we increased total shareholders' equity by 11%. Our diluted book value per share ended the first quarter at $13.95.

Our underwriting results continue to improve as we increase our writing of higher-margin business, resulting in a combined ratio of 103.8% for the first quarter. We expect our combined ratio to continue to improve over the course of 2019 and plan to achieve underwriting profitability later this year or in early 2020.

Now let's move to market conditions and an update on our underwriting plans. As we've talked about for several quarters, we continue building our underwriting platform and are shifting our portfolio to higher-margin business. These changes are projected to drive our combined ratio below 100%. As previously mentioned, we started writing property catastrophe at January 1. During the first quarter, we wrote approximately $42 million of property catastrophe premium. Our plan has gone very well with access to business, portfolio metrics and premium written all better than expected. Our prospects for June 1 also look very attractive. We will have opportunities to review a large number of Florida catastrophe accounts and expect to write a further $10 million of premium in this hardening market.

During the first quarter, we also announced the hiring of a specialty lines underwriting team in Bermuda led by Tracey Gibbons. Tracey and her team will develop a book that will consist of various specialty reinsurance lines, including workers' compensation cat; personal accident and life cat; contingency; kidnap and ransom; and war, terror and political violence. There will likely be only $2 million to $3 million of premium written during the remainder of 2019 as most of this portfolio renews at January 1. We expect the specialty reinsurance portfolio to be approximately $20 million to $25 million in premium volume during 2020.

I will now hand the call over to Daniel Loeb, who will discuss the performance of our investment results in more detail.

Thank you, and good morning. The Third Point Reinsurance investment portfolio managed by Third Point LLC generated positive returns of 7.2% for the first quarter of 2019, net of fees and expenses. The Third Point Reinsurance account represents approximately 17% of assets managed by Third Point. These results came with a beta adjusted exposure to the S&P of 40%, which is about 33% lower than in 2018. This number reflects a 28% decrease year-over-year in net exposures. We believe that our positioning is appropriate at this point in the cycle, and we are pleased with our alpha generation so far this year.

Our equity book generated a return on average exposure of 18.2% for Q1, representing 500 basis points of alpha when viewed through our risk lens. Returns were driven by our active and constructive names, including Nestlé, which gained 19%; Baxter, which was up 24%; United Technologies, which gained 22%; and Campbell's, which gained 17% as it installed new CEO, Mark Clouse, in Q1.

We typically hold our constructive and active names for 3 to 5 years as turnaround stories play out. Nestlé is a great example of what happens when the growth narrative around the company shifts. Nestlé has changed its trajectory over the past 2 years by improving margins, growth and earnings led by a management team that is focused on streamlining the portfolio and returning cash to shareholders. Investors are taking note.

Our short portfolio detracted modestly during Q1, but our dedicated short selling book was alpha-neutral for the year through the end of March, despite the big market move. We also increased our hedges on select individual positions to better isolate idiosyncratic returns and sidestep additional market sector or factor risks.

In credit, corporate credit returned 1.3% on average exposure, while sovereign credit returned 13.2%. During the quarter, we established a substantial position in a complex distressed credit situation and made a small investment in a similar security. We also added meaningful exposure to a sovereign credit for the first time in several years, and we anticipate we will have the chance to increase this position further this year.

In structured credit, we generated a 3.7% return on exposure. We're continuing to focus on the under-banked consumer and building our own risk profiles through securitizations of residential, personal, student and commercial loans. We are pleased that our focus on idiosyncratic, alpha-generating strategies in activism, credit, short selling and emerging compounders deployed with more modest exposure levels is generating lower beta, higher-quality returns for this year in an environment of continued macro volatility. And late in the cycle, we believe we will remain well positioned for 2019 markets.

Now I'd like to turn the call back over to the TPRE management team to discuss our financial results.

Thanks, Daniel. Our return on beginning shareholders' equity for the first quarter was 11%, and our diluted book value per share at the end of the first quarter was $13.95, which was an increase of $0.97 or 7.5% from December 31, 2018. Our share price at year-end was below the strike price on all options and warrants, though with the increase in share price as of March 31, 2019, we have now included the dilution from these end-of-money options and warrants, which reduced the impact of the increase in equity and diluted book value per share.

Net investment income for the quarter was $155 million and reflects the investment return for the period, which Daniel discussed in detail.

Last quarter, we mentioned plans to possibly move some of our investments into other credit strategies, and we continue to work with Third Point LLC to possibly diversify our investment portfolio, lower the volatility of our results and free up capital to support our underwriting activities.

Our gross premiums written for the first quarter was $320 million, which was a decrease of $59 million or 16% from the prior year's first quarter. The decrease in gross premiums written was primarily due to certain contracts that did not renew due to underlying pricing, terms and conditions and contracts written in the prior year period on a multiyear basis with no comparable premium in the current year period. This decrease was partially offset by new contracts bound in the current year period.

The new business in the quarter included $42 million related to the property cat portfolio, which contributed underwriting profit in the first quarter and we expect will contribute further over the course of the year as we build out the portfolio.

As a reminder, we write contracts which may not renew in a comparable period. As a result, our gross premiums written can be lumpy from quarter to quarter. The decrease in the first quarter should not be viewed as an indication of expected premium written trends.

Our combined ratio improved to 103.8% in the first quarter compared to 106.8% for the full year of 2018. The improvement in our combined ratio is progressing as expected and takes time as the higher-margin business earns in and gradually contributes proportionately more to our calendar year results.

We recorded a benefit to net underwriting results of $0.3 million in the quarter related to favorable development of prior year's loss reserves, net of the related impact of acquisition costs.

Total general and administrative expenses for the first quarter of 2019 were $12 million compared to $9 million for the prior year period. The increase was primarily due to higher credit facility expenses as well as an increase in the number of employees compared to the prior year period as we built out our underwriting team and related support staff to execute on the underwriting plans that Dan mentioned earlier.

During the quarter, we did not repurchase any shares. We have $61 million remaining under our existing share repurchase plan, and we may look to opportunistically repurchase shares from retained earnings in future periods. In evaluating whether to buy back shares, we are balancing the accretive benefits of buying back shares at a discount to book value per share, with maintaining sufficient capital to support our evolving underwriting plan, maintaining sufficient rating agency capital, amongst other factors. In addition, we are now more exposed to potential loss from national catastrophes that we are also mindful about.

We thank you for your time, and we'll now open the call for questions. Operator?

(Operator Instructions) Our first question here is from Meyer Shields from KBW.

I guess 2 related questions. The first, what should we understand from the fact that you're appointing a Global Head of Property Catastrophe? Does that imply that this is going to be an increasingly significant line of business focus going forward?

Meyer, as you know, we've started writing property catastrophe January 1st, so it will be an increasing part of the portfolio, certainly, for 2019. David Drury brings 25 years of property cat, and 3 underwriting experience with him, so we think it's -- it was definitely worthwhile to recognize Dave for his efforts and to highlight that it's becoming a significant part of our strategy.

Yes, Meyer. And I'll just -- Chris here. I'll just add that we previously talked about writing a portfolio in the kind of $50 million-ish range over the course of the year with about $40 million of that written in the first quarter. And as Dan Malloy mentioned on the call, we were looking at roughly $10 million or so in Florida, which is all in line with original expectations.

Right. No, I completely understand them. I'm just wondering whether we should expect maybe continued growth as we head into 2020 and so on.

I think it's just the company growth. We might proportionately increase the overall size of the cat portfolio. But beyond that, nothing else is anticipated at this point.

Okay. That's helpful. Second question and, I guess, still on property cat. Last quarter, we discussed expectations for midyear pricing relative to January 1. And the sense was that it might be a little bit weaker. I think I'm stating it correctly, but I apologize if I'm not. Is that still the expectation?

The Florida market is very late this year giving -- given the losses on the development. The firm orders that are out are up significantly, reflecting changing views of risk. We're seeing that our capacity is needed, so I could -- I'm not going to put a definitive number on it, but sort of up 20%-plus seems to be reasonable, particularly, obviously, in terms of layer by layer, program by program affected by facts in terms of [whether it may creep], how are the layers situated relative to other losses. So there's a lot of moving pieces on that.

This concludes the question-and-answer session. I'd like to turn the floor back over to Mr. Dan Malloy for any closing comments.

Well, thanks for joining us and look forward to talking to you next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.