SIRIUSPOINT LTD.
The following discussion and analysis is intended to help the reader understand
our business, financial condition, results of operations, liquidity and capital
resources. You should read this discussion in conjunction with our unaudited
consolidated financial statements and the related notes contained elsewhere in
this Quarterly Report on Form 10-Q ("Form 10-Q"). The terms "we," "our," "us,"
and the "Company," as used in this report, refer to SiriusPoint Ltd.
("SiriusPoint") and its directly and indirectly owned subsidiaries as a combined
entity, except where otherwise stated or where it is clear that the terms mean
only SiriusPoint exclusive of its subsidiaries.
The statements in this discussion regarding business outlook, our expectations
regarding our future performance, liquidity and capital resources and other
non-historical statements in this discussion are forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties, including, but not limited to, the risks and uncertainties
described in "Risk Factors" of our Annual Report on Form 10-K for the year ended
December 31, 2021 (the "2021 Form 10-K"), as updated by this Form 10-Q, and in
"Cautionary Note Regarding Forward-Looking Statements" below. Our actual results
may differ materially from those contained in or implied by any forward-looking
statements.
Acquisition of
OnFebruary 26, 2021 , we completed the acquisition ofSirius International Insurance Group, Ltd. ("Sirius Group ") and changed our name fromThird Point Reinsurance Ltd. toSiriusPoint Ltd. See Note 3 "Acquisition ofSirius Group " in our unaudited consolidated financial statements included elsewhere in this Form 10-Q for a more detailed discussion on theSirius Group acquisition. Our results of operations and financial condition for the nine months endedSeptember 30, 2021 includeSirius Group for the period fromFebruary 26, 2021 throughSeptember 30, 2021 . The following discussion and analysis of our results of operations for the three and nine months endedSeptember 30, 2022 , compared to the three and nine months endedSeptember 30, 2021 , should be read in that context.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Form 10-Q may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding prospects for our industry, our business strategy, plans, goals and expectations concerning our market position, international expansion, investment portfolio expectations, future operations, margins, profitability, efficiencies, capital expenditures, liquidity and capital resources and other non-historical financial and operating information. When used in this discussion, the words "believes," "intends," "seeks," "anticipates," "plans," "estimates," "expects," "assumes," "continues," "should," "could," "will," "may" and the negative of these or similar terms and phrases are intended to identify forward-looking statements. Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following:
•our ability to attract and retain key senior management;
•a downgrade or withdrawal of our financial ratings;
•our ability to execute on our strategic transformation, including changing the mix of business between insurance and reinsurance and restructuring our underwriting platform;
•the impact of the novel coronavirus ("COVID-19") pandemic or other
unpredictable catastrophic events including uncertainties with respect to
current and future COVID-19 losses across many classes of insurance business and
the amount of insurance losses that may ultimately be ceded to the reinsurance
market, supply chain issues, labor shortages and related increased costs,
changing interest rates, equity market volatility and ongoing business and
financial market impacts of COVID-19;
•the costs, expenses and difficulties of the integration of the operations of
•fluctuations in our results of operations;
45
--------------------------------------------------------------------------------•inadequacy of loss and loss adjustment expense reserves, the lack of availability of capital, and periods characterized by excess underwriting capacity and unfavorable premium rates;
•the performance of financial markets, impact of inflation, and foreign currency fluctuations;
•legal restrictions on certain of
•our ability to compete successfully in the (re)insurance market and the effect of consolidation in the (re)insurance industry;
•technology breaches or failures, including those resulting from a malicious cyber-attack on us, our business partners or service providers;
•the effects of global climate change, including increased severity and frequency of weather-related natural disasters and catastrophes and increased coastal flooding in many geographic areas;
•our ability to retain highly-skilled employees and the effects of potential labor disruptions due to COVID-19 or otherwise;
•the outcome of legal and regulatory proceedings, regulatory constraints on our business, including legal restrictions on certain of our insurance and reinsurance subsidiaries' ability to pay dividends and other distributions to us, and losses from unfavorable outcomes from litigation and other legal proceedings;
•reduced returns or losses in
•our concentrated exposure in funds and accounts managed byThird Point LLC , our lack of control overThird Point LLC , our limited ability to withdraw our capital accounts and conflicts of interest among various members ofThird Point Advisors LLC ("TP GP"),Third Point Enhanced LP ("TP Enhanced Fund "),Third Point LLC and us;
•our potential exposure to
•risks associated with delegating authority to third party managing general agents ("MGAs");
•future strategic transactions such as acquisitions, dispositions, investments, mergers or joint ventures; and
•other risks and factors listed under "Risk Factors" in our 2021 Form 10-K, as updated by this Form 10-Q, and other subsequent periodic reports filed with theSecurities and Exchange Commission .
Any one of these factors or a combination of these factors could materially affect our financial condition or future results of operations and could influence whether any forward-looking statements contained in this report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
In addition, while we do, from time to time, communicate with security analysts, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, shareholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not our responsibility.
Overview
We are a holding company domiciled inBermuda . Through our subsidiaries, we provide multi-line insurance and reinsurance products and services on a worldwide basis. We aim to be a highly diversified business with a sustainable and scalable underwriting platform, and a portfolio of insurance-related businesses. We seek to leverage our underwriting talent and capabilities, proven management expertise and geographical footprint, to build on our existing portfolio and identify new opportunities to create value. We intend to allocate our capital to the best opportunities and react quickly to new risks. We are focused on optimizing capital allocation and rebalancing towards insurance and higher margin and growth lines. We have embarked on a series of strategic partnerships which we see as a key differentiator and a means by which we can add value and drive disruptive change in the industry, responding to consumers' insurance needs. We have licenses to write property, casualty and accident & health insurance and reinsurance globally, including admitted & non-admitted licensed companies inthe United States , a Bermuda Class 4 company, aLloyd's of London ("Lloyd's") syndicate and managing agency, and an internationally licensed company domiciled inSweden and operating through a global branch network, predominately inEurope . 46 --------------------------------------------------------------------------------
Products and Services
The acquisition ofSirius Group created a highly diversified portfolio with expanded underwriting capabilities, geographical footprint and product offerings. In the fourth quarter of 2021, we began classifying our business into two reportable segments - Reinsurance and Insurance & Services. Where applicable, all prior periods presented have been revised to conform to this new presentation. Each segment is described below.
Reinsurance Segment
We provide reinsurance products to insurance and reinsurance companies, government entities, and other risk bearing vehicles on a treaty or facultative basis. We participate in the broker market for reinsurance treaties written inthe United States andBermuda primarily on a proportional and excess of loss basis. Our international book of business consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business, primarily inEurope ,Asia andLatin America .
The Reinsurance segment provides coverage in the following product lines: Aviation & Space, Casualty, Contingency, Credit & Bond, Marine & Energy, Mortgage and Property.
Insurance & Services Segment
The Insurance & Services segment predominantly provides insurance coverage in
addition to receiving fees for services provided within Insurance & Services and
to third parties. Insurance & Services revenues allows us to diversify our
traditional reinsurance portfolio and generally has lower capital requirements.
We make both controlling and noncontrolling equity investments and debt
investments in MGAs and other insurance-related business (collectively,
"Strategic Investments"). In addition, service fees from MGAs and their
insurance provided are generally not as prone to the volatile underwriting cycle
that is common in reinsurance marketplace. The Insurance & Services segment
provides coverage in the following product lines: Accident & Health ("A&H"),
Environmental, Workers' Compensation, and other lines of business including a
cross section of Property and Casualty lines.
Investment Management
We continue to reposition our investment portfolio to better align with our underwriting strategy, while leveraging our strategic partnership withThird Point LLC . We believe that this repositioning will result in lower volatility, while taking advantage of opportunities to improve risk-adjusted returns across asset classes. Under our investment strategy, our fixed income investments, which comprise the majority of our portfolio, are outsourced to a diversified range of third-party asset managers. This includes the Third Point Optimized Credit fixed income strategy, which is predominately investment grade and managed byThird Point LLC , to which we are contractually obligated to reinvest all or part ofTP Enhanced Fund withdrawals to date.Third Point LLC continues to manage a significant portion of our alternative investments, includingTP Enhanced Fund ,Third Point Venture Offshore Fund I LP ("TP Venture Fund ") andThird Point Venture Offshore Fund II LP ("TP Venture Fund II"), as well as working with us on asset-liability management strategies that are tailored to our risk and capital considerations. Our investment objective is to maximize long-term after-tax total return while (1) limiting the investment risk within prudent risk tolerance thresholds, (2) maintaining adequate liquidity, and (3) complying with the regulatory, rating agency, and internal risk and capital management requirements, all in support of the company goal of meeting policyholder obligations.
Recent Developments
Restructuring and Transformation Plan
We are restructuring our underwriting platform to support the future shape of our business. As part of our ongoing strategy to strengthen underwriting results and align our operating platform to our business portfolio,SiriusPoint will be making changes to the structure and composition of our international branch network.SiriusPoint will reduce the locations from which we underwrite property catastrophe reinsurance. As a result,SiriusPoint will close our offices inHamburg ,Miami andSingapore , and reduce our footprint in Liege andToronto . Following the anticipated closures and scaling of our operating platform, we will continue to serve clients and underwrite North American property catastrophe business fromBermuda , and international property catastrophe business fromStockholm . 47 --------------------------------------------------------------------------------
Interest Rates and Inflation
We continue to see rising interest rates as a result of central banks' monetary policies across the globe. While the rise in interest rates negatively affects the fair value of current debt security holdings, it also provides higher reinvestment rates upon maturity or sales of our existing portfolio. Additionally, our 2017 SEK Subordinated Notes bear interest at a variable rate based on the Stockholm Interbank Offered Rate plus a margin. As inflation continues to increase we have evaluated the impact on our underwriting results and reserves. We proactively adjusted trend assumptions in our pricing. As ofSeptember 30, 2022 , we believe our estimate of the impact of inflation is within our established reserves given the existing provisions for uncertainty that we previously established. As the inflationary environment is dynamic with a relatively high degree of uncertainty, we will continue to monitor and analyze the inflationary environment and its effect on our portfolio in order to maintain adequate pricing and reserving estimates.
FollowingRussia's invasion ofUkraine inFebruary 2022 , theU.S. , theU.K. , and theEuropean Union governments, among others, have developed coordinated financial and economic sanctions targetingRussia that, in various ways, constrain transactions with numerous Russian entities, including major Russian banks, and individuals; transactions in Russian sovereign debt; and investment, trade and financing to, from, or in certain regions ofUkraine . The effect of theRussia /Ukraine conflict with respect to exposures and coverage interpretations is highly uncertain. We are closely monitoring the developments relating to theRussia /Ukraine conflict and assessing its impact on our business and the insurance and reinsurance sectors. The degree to which companies may be affected depends largely on the nature and duration of uncertain and unpredictable events, such as further military action, additional sanctions, and reactions to ongoing developments by global financial markets. The conflict also created heightened cyber-security threats to our information technology infrastructure. For additional discussion on risks relating to cybersecurity, see "Risks Relating to Our Business - Technology breaches or failures, including those resulting from a malicious cyber-attack on us or our business partners and service providers, could disrupt or otherwise negatively impact our business" in Part I, Item 1A of our 2021 Form 10-K. Our current underwriting loss estimate of$18.2 million as ofSeptember 30, 2022 has changed minimally from our initial loss estimates in the first quarter of 2022; however the ultimate impact on our business remains highly uncertain. While the economic uncertainty resulting from the conflict has impacted global financial markets, the Company's investment portfolio does not have meaningful direct exposure to investments inRussia orUkraine . Other impacts due to this evolving situation are currently unknown and could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope, including, among other potential impacts, the geographic proximity of the situation relative to the rest ofEurope , where a material portion of our business is carried out.
S&P CreditWatch
On
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--------------------------------------------------------------------------------Key Performance Indicators
We believe that the following key financial indicators are the most important in evaluating our performance:
Three months ended Nine months ended
September 30, September 30, September 30,
September 30, 2022 2021 2022 2021
($ in millions, except for per share data and ratios)
Combined ratio 107.7 % 147.7 % 98.5 % 115.1 %
Core underwriting loss (1) $ (88.3) $ (244.6) $ (66.0) $ (198.1)
Core net services income (1) $ 12.9 $ 0.8 $ 37.5 $ 52.3
Core loss (1) $ (75.4) $ (243.8) $ (28.5) $ (145.8)
Core combined ratio (1) 114.5 % 150.2 % 103.9 % 116.6 %
Annualized return on average common
shareholders' equity attributable to
SiriusPoint common shareholders (20.1) % (7.8) % (24.0) % 12.3 %
Basic book value per share (1) (2) $ 11.75 $ 14.46 $ 11.75 $ 14.46
Tangible basic book value per share (1) (2) $ 10.71 $ 13.38 $ 10.71 $ 13.38
Diluted book value per share (1) (2) $ 11.61 $ 14.33 $ 11.61 $ 14.33
Tangible diluted book value per share (1) (2) $ 10.58 $ 13.27 $ 10.58 $ 13.27
(1)Core underwriting loss, Core net services income, Core loss and Core combined
ratio are non-GAAP financial measures. See definitions in "Non-GAAP Financial
Measures" and reconciliations in "Segment Results" below and Note 4 "Segment
reporting" in our unaudited consolidated financial statements included elsewhere
in this Form 10-Q. Basic book value per share, tangible basic book value per
share, diluted book value per share and tangible diluted book value per share
are non-GAAP financial measures. See definitions and reconciliations in
"Non-GAAP Financial Measures".
(2)Prior year comparatives represent amounts as of
Core Results
See "Segment Results" below for additional information.
Annualized Return on Average Common Shareholders' Equity Attributable to SiriusPoint Common Shareholders
Annualized return on average common shareholders' equity attributable toSiriusPoint common shareholders is calculated by dividing annualized net income (loss) available toSiriusPoint common shareholders for the period by the average common shareholders' equity determined using the common shareholders' equity balances at the beginning and end of the period.
Annualized return on average common shareholders' equity attributable to
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2022 2021 2022 2021
($ in millions)
Net income (loss) available to SiriusPoint
common shareholders $ (98.4) $
(48.0)
Common shareholders' equity attributable toSiriusPoint common shareholders - beginning of period 2,023.3 2,480.1 2,303.7 1,563.9 Common shareholders' equity attributable toSiriusPoint common shareholders - end of period 1,884.5 2,438.0 1,884.5 2,438.0 Average common shareholders' equity attributable toSiriusPoint common shareholders$ 1,953.9 $
2,459.1
Annualized return on average common shareholders' equity attributable to SiriusPoint common shareholders (20.1) % (7.8) % (24.0) % 12.3 % The decrease in annualized return on average common shareholders' equity attributable toSiriusPoint common shareholders for the three months endedSeptember 30, 2022 was due to a higher net loss during the three months endedSeptember 30, 2022 , primarily as a result of catastrophe losses for Hurricane Ian and other third quarter catastrophe events and realized and unrealized investment losses, compared to catastrophe losses for the European floods and Hurricane Ida, partially offset by realized and unrealized investment gains for the three months endedSeptember 30, 2021 . 49 -------------------------------------------------------------------------------- The decrease in annualized return on average common shareholders' equity attributable toSiriusPoint common shareholders for the nine months endedSeptember 30, 2022 was due to a net loss during the nine months endedSeptember 30, 2022 , primarily as a result of realized and unrealized investment losses and catastrophe losses for Hurricane Ian and other catastrophe events, including South African floods and French hail storms, compared to realized and unrealized investment gains for the nine months endedSeptember 30, 2021 , partially offset by catastrophe losses for the European floods, Hurricane Ida, June windstorms and winter storm Uri in the prior year period.
Basic and Tangible Basic Book Value Per Share
Basic book value per share and tangible basic book value per share are non-GAAP financial measures and there are no comparableU.S. GAAP measures. See "Non-GAAP Financial Measures" for an explanation and reconciliations. As ofSeptember 30, 2022 , basic book value per share was$11.75 , representing a decrease of$0.87 per share, or 6.9%, from$12.62 per share as ofJune 30, 2022 . As ofSeptember 30, 2022 , tangible basic book value per share was$10.71 , representing a decrease of$0.87 per share, or 7.5%, from$11.58 per share as ofJune 30, 2022 . The decreases were primarily due to a net loss in the current period. As ofSeptember 30, 2022 , basic book value per share was$11.75 , representing a decrease of$2.71 per share, or 18.7%, from$14.46 per share as ofDecember 31, 2021 . As ofSeptember 30, 2022 , tangible basic book value per share was$10.71 , representing a decrease of$2.67 per share, or 20.0%, from$13.38 per share as ofDecember 31, 2021 . The decreases were primarily due to a net loss in the current period.
Diluted and Tangible Diluted Book Value Per Share
Diluted book value per share and tangible diluted book value per share are
non-GAAP financial measures and there are no comparable
As ofSeptember 30, 2022 , diluted book value per share was$11.61 , representing a decrease of$0.87 per share, or 7.0%, from$12.48 per share as ofJune 30, 2022 . As ofSeptember 30, 2022 , tangible diluted book value per share was$10.58 , representing a decrease of$0.87 per share, or 7.6%, from$11.45 per share as ofJune 30, 2022 . The decreases were primarily due to a net loss in the current period. As ofSeptember 30, 2022 , diluted book value per share was$11.61 , representing a decrease of$2.72 per share, or 19.0%, from$14.33 per share as ofDecember 31, 2021 . As ofSeptember 30, 2022 , tangible diluted book value per share was$10.58 , representing a decrease of$2.69 per share, or 20.3%, from$13.27 per share as ofDecember 31, 2021 . The decreases were primarily due to a net loss in the current period.
Consolidated Results of Operations-Three and nine months ended
The following table sets forth the key items discussed in the consolidated
results of operations section, and the period over period change, for the three
and nine months ended
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2022 2021 Change 2022 2021 Change
($ in millions)
Total underwriting income
(loss) $ (46.9) $ (237.9) $ 191.0 $ 25.4 $ (180.1) $ 205.5
Total realized and
unrealized investment
gains (losses) and net
investment income (28.2) 199.8 (228.0) (374.8) 463.7 (838.5)
Other revenues 13.1 33.2 (20.1) 96.1 121.9 (25.8)
Net corporate and other
expenses (70.8) (59.9) (10.9) (220.2) (194.5) (25.7)
Intangible asset
amortization (2.1) (2.0) (0.1) (6.0) (4.1) (1.9)
Interest expense (9.4) (9.7) 0.3 (28.1) (24.4) (3.7)
Foreign exchange gains 51.6 16.1 35.5 127.5 16.5 111.0
Income tax (expense)
benefit (0.9) 13.0 (13.9) 17.1 (6.4) 23.5
Net income (loss) $ (93.6) $ (47.4) $ (46.2) $ (363.0) $ 192.6 $ (555.6)
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The key changes in our consolidated results for the three and nine months ended
Underwriting results
The improvement in net underwriting results for the three months endedSeptember 30, 2022 was driven by lower catastrophe losses compared to the prior year period. Catastrophe losses, net of reinsurance and reinstatement premiums, were$114.6 million , or 18.7 percentage points on the combined ratio, for the three months endedSeptember 30, 2022 , compared to$286.5 million , or 57.3 percentage points on the combined ratio, for the three months endedSeptember 30, 2021 . The lower catastrophe losses were a result of our significant reduction in catastrophe exposed business. The improvement in net underwriting results for the nine months endedSeptember 30, 2022 was driven by lower catastrophe losses compared to the prior year period. Catastrophe losses, net of reinsurance and reinstatement premiums, were$137.7 million , or 8.0 percentage points on the combined ratio, for the nine months endedSeptember 30, 2022 , compared to$304.9 million , or 25.5 percentage points on the combined ratio, for the nine months endedSeptember 30, 2021 . The lower catastrophe losses were a result of our significant reduction in catastrophe exposed business.
See "Segment Results" below for additional information.
Investments
Investment Portfolio
The following is a summary of our total investments, cash and cash equivalents and restricted cash and cash equivalents as ofSeptember 30, 2022 andDecember 31, 2021 : September 30, December 31, 2022 2021 ($ in millions) Debt securities, trading$ 1,697.1 $ 2,085.6 Debt securities, available for sale 1,324.0 - Total debt securities (1) 3,021.1 2,085.6 Short-term investments 1,991.6 1,075.8 Investments in related party investment funds (2) 309.0 909.6 Other long-term investments 414.9 456.1 Equity securities 1.4 2.8 Total investments 5,738.0 4,529.9 Cash and cash equivalents 647.3 999.8 Restricted cash and cash equivalents (3) 144.2 948.6 Total invested assets and cash $
6,529.5
(1)Includes
(2)Consists of our investments in
(3)Primarily consists of cash and fixed income securities such asU.S. Treasuries, money markets funds, and sovereign debt, securing our contractual obligations under certain (re)insurance contracts that we will not be released from until the underlying risks have expired or have been settled. The main driver for the increase in total investments as ofSeptember 30, 2022 was the deployment of our cash to short-term investments to take advantage of rising interest rates. Additionally, total investments also increased as there was an increase in investment purchases to cover short positions and securities under repurchase agreements. These increases were offset by losses in related party investment funds, primarily from the decline in fair value of our investment in theTP Enhanced Fund , in addition to net realized and unrealized investment losses, due to rising interest rates and widening credit spreads. We withdrew$404.0 million from theTP Enhanced Fund during the nine months endedSeptember 30, 2022 , as we continue our plan to diversify and reduce the volatility of our portfolio. Fixed income assets are positioned with a shorter duration than liabilities to capitalize on a rising rate environment. Our fixed income portfolio returned (0.6)% on an original currency basis, despite the interest rate increase in the third quarter, as we have positioned our fixed income portfolio, short duration relative to our liabilities, at 1.3 years excluding cash and cash equivalents. We believe that our duration positioning, as well as allocation to cash and short term investments, will also enable us to benefit from increased interest income in the remainder of 2022 as we continue to deploy the portfolio. 51 -------------------------------------------------------------------------------- The Company has elected to classify debt securities purchased on or afterApril 1, 2022 as available for sale ("AFS"). This election was made as the AFS model more accurately reflects the investment strategy as we do not actively trade individual securities within our investment portfolio. The AFS portfolio has been funded by sales of the trading portfolio and reallocation of investments from theTP Enhanced Fund during the three and nine months endedSeptember 30, 2022 . Investment Results
The following is a summary of the results from investments and cash for the
three and nine months ended
Three months ended Nine months ended
September 30, September 30, September 30,
September 30, 2022 2021 2022 2021
($ in millions)
Net realized and unrealized investment gains
(losses) $ (56.1) $ (11.7) $ (236.4) $ 43.7
Net realized and unrealized investment gains
(losses) from related party investment funds (8.3) 202.4 (199.8) 401.2
Net investment income 36.2 9.1 61.4 18.8
Total realized and unrealized investment
gains (losses) and net investment income $ (28.2) $ 199.8 $ (374.8) $ 463.7
The following is a summary of net investment income (loss) by investment
classification, for the three and nine months ended September 30, 2022 and 2021:
Three months ended Nine months ended
September 30, September 30, September 30,
September 30, 2022 2021 2022 2021
($ in millions)
Debt securities, trading $ (21.2) $ 2.4 $ (141.4) $ 12.6
Debt securities, available for sale 12.5 - 15.4 -
Short-term investments (6.1) (5.6) (8.7) (4.2)
Other long-term investments 7.1 11.5 5.5 73.4
Equity securities (0.1) (1.4) (0.5) (1.4)
Net realized and unrealized investment gains
(losses) from related party investment funds (8.3) 202.4 (199.8) 401.2
Realized and unrealized investment gains
(losses) and net investment income before
other investment expenses and investment loss
on cash and cash equivalents (16.1) 209.3 (329.5) 481.6
Other investment expenses (6.9) (7.8) (14.5) (12.3)
Net investment loss on cash and cash
equivalents (5.2) (1.7) (30.8) (5.6)
Total realized and unrealized investment
gains (losses) and net investment income $ (28.2) $ 199.8 $ (374.8) $ 463.7
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Investment Returns
The following is a summary of the net returns for our investments on aU.S. Dollar and local currency basis for the three and nine months endedSeptember 30, 2022 and 2021: Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 TP Enhanced Fund (3.2) % 16.3 % (28.2) % 38.3 % TP Venture Fund 0.5 % 5.5 % (16.9) % 10.0 %SiriusPoint total fixed income investments (1)(2) In U.S. dollars (1.2) % (0.1) % (4.7) % (0.1) % In local currencies (0.6) % 10.0 % (3.6) % 0.4 %SiriusPoint total equity securities and other long-term investments In U.S. dollars 1.4 % 1.5 % 0.7 % 12.6 % In local currencies 1.6 % 1.5 % 1.1 % 12.7 %
(1)Fixed income investments exclude cash and cash equivalents.
(2)Includes returns of (0.8)% and (3.8)% from investments in the TPOC Portfolio
for the three and nine months ended
Total realized and unrealized investment losses and net investment income for the three months endedSeptember 30, 2022 was primarily attributable to losses on the fixed income portfolio of$8.7 million , or a (1.2)% return, on our debt securities primarily due to rising interest rates and to a lesser extent foreign currency movements and widening credit spreads. Our fixed income portfolio is positioned shorter than liabilities however our results have been impacted by foreign exchange losses due to strengthening of theU.S. dollar against global currencies. We also recognized a net investment loss of$8.4 million from our investment in theTP Enhanced Fund , corresponding to a (3.2)% return. The return was attributable to losses from short event/fundamental equities; long activist positions; corporate credit; and late stage private positions. These losses were partially offset by income from interest rate hedges, long event/fundamental equities, activist hedges and structured credit positions. Total realized and unrealized investment losses and net investment income for the nine months endedSeptember 30, 2022 was primarily attributable to a net investment loss of$194.0 million from our investment in theTP Enhanced Fund , corresponding to a (28.2)% return. The return was attributable to losses from long event/fundamental and activist equities; credit, including corporate credit and structured credit; and late stage private positions. These losses were partially offset by income from interest rate hedges and short equity positions. In addition to losses on theTP Enhanced Fund , we recognized losses of$126.0 million , or a (4.7)% return, on our debt securities and$5.0 million , or a 0.7% return, on our equity securities and other long-term investment portfolios, primarily due to rising interest rates and to a lesser extent foreign currency movements and widening credit spreads. Total realized and unrealized investment gains and net investment income for the three months endedSeptember 30, 2021 was primarily attributable to net investment income of$201.0 million from our investment in theTP Enhanced Fund , corresponding to a 16.3% return. The return was primarily attributable to long event/fundamental and activist equities, in particular strong performance from the fund's largest positions: Upstart Holdings Inc., SentinelOne Inc., and Prudential PLC. In addition, we recognized net investment income of$6.9 million on fixed maturity, short term, equity and alternative investments. This was mainly attributable to unrealized gains of$4.9 million resulting from market appreciation on alternative investments and offset by unfavorable foreign exchange developments. Total realized and unrealized investment gains and net investment income for the nine months endedSeptember 30, 2021 was primarily attributable to net investment income of$398.8 million from our investment in theTP Enhanced Fund , corresponding to a 38.3% return. The return was primarily attributable to long event/fundamental equities, in particular Upstart Holdings Inc. and SentinelOne Inc. In addition, we recognized an unrealized gain of$35.4 million from our investment inPie Insurance and$18.1 million in unrealized gains in other private equity and hedge fund investments for the nine months endedSeptember 30, 2021 .
Refer to Part I, Item 3. "Quantitative and Qualitative Disclosures about Market Risks" of this Form 10-Q for a discussion of certain risks and factors that could adversely impact our investments results.
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--------------------------------------------------------------------------------Other Revenues
For the three months endedSeptember 30, 2022 , other revenues primarily consisted of$20.5 million of service fee revenue from MGAs,$1.8 million of changes in the fair value of liability-classified capital instruments and a$6.7 million impairment loss related to our investment in Joyn. For the three months endedSeptember 30, 2021 , other revenues consisted of$18.8 million of changes in the fair value of liability-classified capital instruments,$12.5 million of service fee revenue from MGAs and a bargain purchase gain of$2.0 million . The decrease in other revenues for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 is driven by the decrease in gain from the decline in the fair value of the liability-classified capital instruments in line with a less significant decline in share price, partially offset by higher services fee revenue fromInternational Medical Group, Inc. ("IMG") due to improved market conditions. For the nine months endedSeptember 30, 2022 , other revenues primarily consisted of$66.4 million of service fee revenue from MGAs,$39.0 million of changes in the fair value of liability-classified capital instruments and a$6.7 million impairment loss related to our investment in Joyn. For the nine months endedSeptember 30, 2021 , other revenues consisted of$50.4 million of bargain purchase gain,$37.3 million of service fee revenue from MGAs and$34.3 million of changes in the fair value of liability-classified capital instruments. The decrease in other revenues is driven by the bargain purchase gain recorded in 2021, partially offset by an increase in service fee revenue primarily resulting fromIMG and ArmadaCorp Capital, LLC ("Armada") fee revenue reflecting only a partial quarter in the first quarter of 2021 and a gain from the decline in the fair value of liability-classified capital instruments. The bargain purchase gain represents the excess of the fair value of the underlying net assets acquired and liabilities assumed over the purchase price. The bargain purchase determination is consistent with the fact thatSirius Group was acquired at a discount to book value.
Net Corporate and Other Expenses
Net corporate and other expenses include services expenses, costs associated with operating as a publicly-traded company, non-underwriting activities, including service fee expenses from our MGA subsidiaries, and expected credit losses from our insurance and reinsurance balances receivable and loss and loss adjustment expenses recoverable. In addition, for the three and nine months endedSeptember 30, 2021 , net corporate and other expenses included costs related to the acquisition ofSirius Group . The increase in net corporate and other expenses for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 was primarily driven by increased services expenses from continued business growth in IMG, as well as severance, compensation related expenses and professional fees associated with the recent executive changes. The increase in net corporate and other expenses for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 was primarily driven by increased services expense from IMG compared to expenses only from the date of acquisition ofSirius Group for the nine months of 2021, as well as severance, compensation related expenses and professional fees associated with the recent executive changes. This was partially offset by$49.5 million of expenses associated with the acquisition ofSirius Group , certain professional and advisory fees and compensation-related expenses, which were incurred in the nine months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2022 , we recorded current expected credit expense losses (gains) of$0.7 million (2021 -$(0.3) million ). For the nine months endedSeptember 30, 2022 , we recorded current expected losses of$10.0 million (2021 -$15.3 million ) primarily due to credit exposure from Russian (re)insurers and cedents and downgrades of certainFlorida catastrophe exposed insurers. In the nine months endedSeptember 30, 2021 , we recognized an allowance for credit losses of$16.8 million as a result of the acquisition ofSirius Group . We recorded an expense to re-establishSirius Group's expected credit losses provision from the pre-merger period. See Note 13 "Allowance for expected credit losses" in our unaudited consolidated financial statements included elsewhere in this Form 10-Q for a more detailed discussion on the credit loss methodology.
Amortization of Intangible Assets
Amortization of intangible assets for the three months endedSeptember 30, 2022 was$2.1 million (2021 -$2.0 million ). The increase in amortization for the three months endedSeptember 30, 2022 was due to the use of amortization patterns which are 54 --------------------------------------------------------------------------------
based on the period over which they are expected to generate future net cash inflows from the use of the underlying intangible assets.
Amortization of intangible assets for the nine months endedSeptember 30, 2022 was$6.0 million (2021 -$4.1 million ). The increase is driven by the nine months endedSeptember 30, 2021 reflecting only a partial quarter of expense from the legacySirius Group companies in the first quarter of 2021.
Interest Expense
Interest expense and finance costs are related to interest due on our senior and subordinated notes. Total interest expense for the three months endedSeptember 30, 2022 was$9.4 million (2021 -$9.7 million ). The decrease in interest expense for the three months endedSeptember 30, 2022 was due to interest payments made in Swedish Krona on the 2017 SEK Subordinated Notes, which weakened as compared to theU.S. Dollar. Total interest expense for the nine months endedSeptember 30, 2022 was$28.1 million (2021 -$24.4 million ). The increase is driven by the nine months endedSeptember 30, 2021 reflecting only a partial quarter of expense on the senior notes and 2017 SEK Subordinated Notes from the legacySirius Group companies in the first quarter of 2021, partially offset by interest payments made in Swedish Krona on the 2017 SEK Subordinated Notes, which weakened as compared to theU.S. Dollar.
Foreign Currency Translation
Except for the Canadian reinsurance operations of SiriusPoint America and certain subsidiaries of IMG, theU.S. dollar is the functional currency forSiriusPoint's business. Assets and liabilities are remeasured into the functional currency using current exchange rates; revenues and expenses are remeasured into the functional currency using the average exchange rate for the period. The remeasurement process results in foreign exchange gains (losses) in the consolidated results of operations. Foreign exchange (gains) losses exclude investment generated net realized and unrealized investment gains (losses) as addressed in Investment Results above. The foreign exchange gains of$51.6 million for the three months endedSeptember 30, 2022 , were primarily due to$51.9 million of foreign exchange gains from our international operations and$19.2 million of foreign currency effects from the 2017 SEK Subordinated Notes, as a result of the strengthening of theU.S. Dollar. These gains were partially offset by losses on foreign currency derivatives intended to reduce foreign currency exposure. The foreign exchange gains of$127.5 million for the nine months endedSeptember 30, 2022 , were primarily due to$114.5 million of foreign exchange gains from our international operations and$54.3 million of foreign currency effects from the 2017 SEK Subordinated Notes, as a result of the strengthening of theU.S. Dollar. These gains were partially offset by losses on foreign currency derivatives intended to reduce foreign currency exposure. The foreign exchange gains of$16.1 million and$16.5 million for the three and nine months endedSeptember 30, 2021 , respectively, were primarily due to the Company's international operations and from the foreign currency effects of the 2017 SEK Subordinated Notes.
Additional foreign currency gains (losses) were recorded as part of the investments results. See Note 8 "Total realized and unrealized investment gains (losses) and net investment income" in our unaudited consolidated financial statements included elsewhere in this Form 10-Q.
On an aggregate basis, the effects of foreign exchange resulted in a benefit to net income of$25.6 million and$66.2 million and comprehensive income of$16.6 million and$54.1 million for the three and nine months endedSeptember 30, 2022 , respectively. Income Tax Expense Income tax expense for the three months endedSeptember 30, 2022 compared to income tax benefit for the three months endedSeptember 30, 2021 is due to losses in taxable jurisdictions in the prior periods and includes an adjustment based on re-estimating the annual effective tax rate for both periods.
Income tax benefit for the nine months ended
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Segment Results - Three and nine months ended
The determination of our reportable segments is based on the manner in which management monitors the performance of our operations. In the fourth quarter of 2021, we began classifying our business into two reportable segments - Reinsurance and Insurance & Services. Collectively, the sum of these two segments constitute "Core" results. Corporate includes the results of all runoff business, which represent certain classes of business that we no longer actively underwrite, including those that have asbestos and environmental and other latent liability exposures and certain reinsurance contracts that have interest crediting features.
The following tables set forth the operating segment results and ratios for the
three months ended
Three months ended September 30, 2022
Segment
Insurance & Measure
Reinsurance Services Core Eliminations (2) Corporate Reclass Total
($ in millions)Gross premiums written$ 318.4 $ 524.9 $ 843.3 $ -$ 0.5 $ -$ 843.8 Net premiums written 267.1 366.7 633.8 - 0.6 - 634.4 Net premiums earned 304.5 305.4 609.9 - 2.7 - 612.6 Loss and loss adjustment expenses incurred, net 286.3 217.8 504.1 (1.5) (4.7) - 497.9 Acquisition costs, net 69.8 81.0 150.8 (34.0) - - 116.8 Other underwriting expenses 28.0 15.3 43.3 - 1.5 - 44.8 Underwriting income (loss) (79.6) (8.7) (88.3) 35.5 5.9 - (46.9) Services revenue 3.4 52.5 55.9 (35.4) - (20.5) - Services expenses - 47.2 47.2 - - (47.2) - Net services fee income 3.4 5.3 8.7 (35.4) - 26.7 - Services noncontrolling loss - 0.5 0.5 - - (0.5) - Net investment gains from Strategic Investments 0.3 3.4 3.7 - - (3.7) - Net services income 3.7 9.2 12.9 (35.4) - 22.5 - Segment income (loss)$ (75.9) $ 0.5 $ (75.4) $ 0.1$ 5.9 $ 22.5 $ (46.9) Underwriting Ratios: (1) Loss ratio 94.0 % 71.3 % 82.7 % 81.3 % Acquisition cost ratio 22.9 % 26.5 % 24.7 % 19.1 % Other underwriting expenses 9.2 % 5.0 % 7.1 % 7.3 % ratio Combined ratio 126.1 % 102.8 % 114.5 % 107.7 %
(1)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
(2)Insurance & Services MGAs recognize fees for service using revenue from contracts with customers accounting standards, whereas insurance companies recognize acquisition expenses using insurance contract accounting standards. While ultimate revenues and expenses recognized will match, there will be recognition timing differences based on the different accounting standards.
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Three months ended September 30, 2021
Segment
Insurance & Measure
Reinsurance Services Core Eliminations (2) Corporate Reclass Total
($ in millions)Gross premiums written$ 395.3 $ 240.6 $ 635.9 $ -$ 5.3 $ -$ 641.2 Net premiums written 289.6 183.9 473.5 - 5.3 - 478.8 Net premiums earned 326.4 160.6 487.0 - 12.6 - 499.6 Loss and loss adjustment expenses incurred, net 471.5 91.0 562.5 (0.8) 15.6 - 577.3 Acquisition costs, net 85.4 41.8 127.2 (21.4) 1.1 - 106.9 Other underwriting expenses 32.1 9.8 41.9 - 11.4 - 53.3 Underwriting income (loss) (262.6) 18.0 (244.6) 22.2 (15.5) - (237.9) Services revenue - 37.8 37.8 (25.3) - (12.5) - Services expenses - 40.4 40.4 - - (40.4) - Net services fee loss - (2.6) (2.6) (25.3) - 27.9 - Services noncontrolling income (loss) - 3.4 3.4 - - (3.4) - Net services income - 0.8 0.8 (25.3) - 24.5 - Segment income (loss)$ (262.6) $ 18.8 $ (243.8) $ (3.1)$ (15.5) $ 24.5 $ (237.9) Underwriting Ratios: (1) Loss ratio 144.5 % 56.7 % 115.5 % 115.6 % Acquisition cost ratio 26.2 % 26.0 % 26.1 % 21.4 % Other underwriting expenses ratio 9.8 % 6.1 % 8.6 % 10.7 % Combined ratio 180.5 % 88.8 % 150.2 % 147.7 %
(1)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
(2)Insurance & Services MGAs recognize fees for service using revenue from contracts with customers accounting standards, whereas insurance companies recognize acquisition expenses using insurance contract accounting standards. While ultimate revenues and expenses recognized will match, there will be recognition timing differences based on the different accounting standards.
We measure segment performance as Core income, which is comprised of two components, underwriting income and net services income. Core segment income is the combined total for the Company's two segments, Reinsurance and Insurance & Services. Core Premium Volume Gross premiums written increased by$207.4 million , or 32.6%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Net premiums written increased by$160.3 million , or 33.9%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Net premiums earned increased by$122.9 million , or 25.2%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increases in premium volume were primarily a result of increased contribution from strategic partnerships and growth in our Insurance & Services segment, reflecting strong growth in A&H, while the Reinsurance segment decreased as we shifted the business mix away from Reinsurance to Insurance & Services. Core Underwriting Results We generated an underwriting loss of$88.3 million and a combined ratio of 114.5% for the three months endedSeptember 30, 2022 , compared to an underwriting loss of$244.6 million and a combined ratio of 150.2% for the three months endedSeptember 30, 2021 . The improvement in net underwriting results was primarily driven by lower catastrophe losses, partially offset by lower favorable loss reserve development.
For the three months ended
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including
Losses incurred included$2.6 million of adverse loss development for the three months endedSeptember 30, 2022 , compared to favorable loss development of$13.9 million for the three months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2022 , adverse loss development was driven by strengthening of Workers' Compensation reserves based on reported loss emergence, partially offset by favorable development in Property, Casualty and A&H. Core Services Results
Services revenue was
For the three months endedSeptember 30, 2022 , net services fee income increased to$8.7 million compared to net services fee loss of$2.6 million for the three months endedSeptember 30, 2021 .
We recognized net services income of
The increases were primarily due to the continued business growth in IMG, which benefited from increased demand for its travel insurance products and services, as well as additional revenue from new MGA relationships compared to the prior year period.
The following tables set forth the operating segment results and ratios for the
nine months ended
Nine months ended September 30, 2022
Segment
Insurance & Measure
Reinsurance Services Core Eliminations (2) Corporate Reclass Total
($ in millions)Gross premiums written$ 1,220.9 $ 1,442.3 $ 2,663.2 $ -$ 2.9 $ -$ 2,666.1 Net premiums written 963.5 1,005.6 1,969.1 - 2.2 - 1,971.3 Net premiums earned 931.6 762.5 1,694.1 - 16.6 - 1,710.7 Loss and loss adjustment expenses incurred, net 685.5 506.6 1,192.1 (3.8) 10.0 - 1,198.3 Acquisition costs, net 236.0 198.4 434.4 (86.4) 0.9 - 348.9 Other underwriting expenses 86.8 46.8 133.6 - 4.5 - 138.1 Underwriting income (loss) (76.7) 10.7 (66.0) 90.2 1.2 - 25.4 Services revenue 3.4 165.9 169.3 (102.9) - (66.4) - Services expenses - 135.3 135.3 - - (135.3) - Net services fee income 3.4 30.6 34.0 (102.9) - 68.9 - Services noncontrolling loss - 0.6 0.6 - - (0.6) - Net investment gains from Strategic Investments 0.3 2.6 2.9 - - (2.9) - Net services income 3.7 33.8 37.5 (102.9) - 65.4 - Segment income (loss)$ (73.0) $ 44.5 $ (28.5) $ (12.7)$ 1.2 $ 65.4 $ 25.4 Underwriting Ratios: (1) Loss ratio 73.6 % 66.4 % 70.4 % 70.0 % Acquisition cost ratio 25.3 % 26.0 % 25.6 % 20.4 % Other underwriting expenses 9.3 % 6.1 % 7.9 % 8.1 % ratio Combined ratio 108.2 % 98.5 % 103.9 % 98.5 %
(1)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
(2)Insurance & Services MGAs recognize fees for service using revenue from contracts with customers accounting standards, whereas insurance companies recognize acquisition expenses using insurance contract accounting standards. While ultimate revenues and expenses recognized will match, there will be recognition timing differences based on the different accounting standards.
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Nine months ended September 30, 2021
Segment
Insurance & Measure
Reinsurance Services Core Eliminations (2) Corporate Reclass Total
($ in millions)Gross premiums written$ 931.6 $ 628.0 $ 1,559.6 $ -$ (13.9) $ -$ 1,545.7 Net premiums written 773.8 468.5 1,242.3 - (19.0) - 1,223.3 Net premiums earned 862.8 334.7 1,197.5 - (0.4) - 1,197.1 Loss and loss adjustment expenses incurred, net 773.7 198.6 972.3 (1.7) 4.5 - 975.1 Acquisition costs, net 224.1 97.6 321.7 (42.5) 2.3 - 281.5 Other underwriting expenses 82.6 19.0 101.6 - 19.0 - 120.6 Underwriting income (loss) (217.6) 19.5 (198.1) 44.2 (26.2) - (180.1) Services revenue - 89.9 89.9 (52.6) - (37.3) - Services expenses - 81.0 81.0 - - (81.0) - Net services fee income - 8.9 8.9 (52.6) - 43.7 - Services noncontrolling income (loss) - 1.8 1.8 - - (1.8) - Net investment gains from Strategic Investments 0.3 41.3 41.6 - - (41.6) - Net services income 0.3 52.0 52.3 (52.6) - 0.3 - Segment income (loss)$ (217.3) $ 71.5 $ (145.8) $ (8.4)$ (26.2) $ 0.3 $ (180.1) Underwriting Ratios: (1) Loss ratio 89.7 % 59.3 % 81.2 % 81.5 % Acquisition cost ratio 26.0 % 29.2 % 26.9 % 23.5 % Other underwriting expenses ratio 9.6 % 5.7 % 8.5 % 10.1 % Combined ratio 125.3 % 94.2 % 116.6 % 115.1 %
(1)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
(2)Insurance & Services MGAs recognize fees for service using revenue from contracts with customers accounting standards, whereas insurance companies recognize acquisition expenses using insurance contract accounting standards. While ultimate revenues and expenses recognized will match, there will be recognition timing differences based on the different accounting standards.
We measure segment performance as Core income, which is comprised of two components, underwriting income and net services income. Core segment income is the combined total for the Company's two segments, Reinsurance and Insurance & Services. Core Premium Volume Gross premiums written increased by$1,103.6 million , or 70.8%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Net premiums written increased by$726.8 million , or 58.5%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Net premiums earned increased by$496.6 million , or 41.5%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increases in premium volume were primarily as a result of growth across Insurance & Services segment, reflecting strong growth in A&H and an increased contribution from strategic partnerships for the nine months endedSeptember 30, 2022 , as well as the nine months endedSeptember 30, 2021 reflecting only a partial quarter from the legacySirius Group companies in the first quarter of 2021. Core Underwriting Results We incurred an underwriting loss of$66.0 million and a combined ratio of 103.9% for the nine months endedSeptember 30, 2022 , compared to an underwriting loss of$198.1 million and a combined ratio of 116.6% for the nine months endedSeptember 30, 2021 . The increase in net underwriting results was primarily driven by lower catastrophe losses. 59 -------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2022 catastrophe losses, net of reinsurance and reinstatement premiums, were$137.7 million , or 8.1 percentage points on the combined ratio, including$80.1 million for Hurricane Ian and$57.6 million for other catastrophe events, including South African floods and French hail storms, compared to$301.9 million , or 25.2 percentage points on the combined ratio, including$132 million for the European floods and$100 million for Hurricane Ida, as well as$40 million from June windstorms and winter storm Uri, for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , losses from theRussia /Ukraine conflict, including losses from the political risk, trade credit, and aviation lines of business, were$12.9 million , or 0.8 percentage points on the combined ratio. Losses incurred included$3.9 million of favorable loss development for the nine months endedSeptember 30, 2022 compared to favorable loss development of$16.4 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , favorable loss development was due to loss reductions in COVID-19 and A&H reserves due to better than expected loss experience, with the most significant offsetting movements being reserve strengthening in direct Workers' Compensation reserves based on reported loss emergence, and in the Property lines, driven by the current elevated level of inflation.
Core Services Results
Services revenue was$169.3 million for the nine months endedSeptember 30, 2022 compared to$89.9 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to higher services revenue in IMG from increased demand for travel insurance products and services, as well as continued growth inArcadian Risk Capital Ltd. ("Arcadian"). The nine months endedSeptember 30, 2021 reflected only a partial quarter in the first quarter of 2021 from the legacySirius Group companies. We recognized net services income of$37.5 million for the nine months endedSeptember 30, 2022 , compared to net services income of$52.3 million for the nine months endedSeptember 30, 2021 . The decrease is primarily driven by the gain from our investment inPie Insurance included in the nine months endedSeptember 30, 2021 , partially offset by higher margins achieved in our IMG business for the nine months endedSeptember 30, 2022 . For the nine months endedSeptember 30, 2022 , net services fee income increased to$34.0 million compared to net services fee income of$8.9 million for the nine months endedSeptember 30, 2021 . The increase is primarily due to increased services revenues from IMG, Armada and Arcadian for the nine months endedSeptember 30, 2022 , as well as the nine months endedSeptember 30, 2021 reflected only a partial quarter in the first quarter of 2021 from the legacySirius Group companies. 60 --------------------------------------------------------------------------------
Reinsurance Segment
Reinsurance consists of our underwriting lines of business which offer Aviation & Space, Casualty, Contingency, Credit & Bond, Marine & Energy, Mortgage, and Property on a worldwide basis. The following table sets forth underwriting results and ratios, and the period over period changes for the Reinsurance segment, for the three and nine months endedSeptember 30, 2022 and 2021: Three months ended Nine months ended September September 30, September 30, September 30, 30, 2022 2021 Change 2022 2021 Change ($ in millions) Gross premiums written$ 318.4 $ 395.3 $ (76.9) $ 1,220.9 $ 931.6 $ 289.3 Net premiums written 267.1 289.6 (22.5) 963.5 773.8 189.7 Net premiums earned 304.5 326.4 (21.9) 931.6 862.8 68.8 Loss and loss adjustment expenses incurred, net 286.3 471.5 (185.2) 685.5 773.7 (88.2) Acquisition costs, net 69.8 85.4 (15.6) 236.0 224.1 11.9 Other underwriting expenses 28.0 32.1 (4.1) 86.8 82.6 4.2 Underwriting loss (79.6) (262.6) 183.0 (76.7) (217.6) 140.9 Services revenues 3.4 - 3.4 3.4 - 3.4 Net services fee income 3.4 - 3.4 3.4 - 3.4 Net investment gains from Strategic Investments 0.3 - 0.3 0.3 0.3 - Segment loss$ (75.9) $ (262.6) $ 186.7 $ (73.0) $ (217.3) $ 144.3 Underwriting ratios: (1) Loss ratio 94.0 % 144.5 % (50.5) % 73.6 % 89.7 % (16.1) % Acquisition cost ratio 22.9 % 26.2 % (3.3) % 25.3 % 26.0 % (0.7) % Other underwriting expense ratio 9.2 % 9.8 % (0.6) % 9.3 % 9.6 % (0.3) % Combined ratio 126.1 % 180.5 % (54.4) % 108.2 % 125.3 % (17.1) %
(1)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
Premium Volume Gross premiums written in the Reinsurance segment decreased by$76.9 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , driven by both Property and Casualty lines as we rebalance the portfolio towards Insurance & Services. Gross premiums written in the Reinsurance segment increased by$289.3 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by a full quarter of legacySirius Group premiums in the first quarter of 2022, partially offset by lower premiums written on Casualty lines as we rebalance the portfolio towards Insurance & Services.
Underwriting Results
The Reinsurance segment incurred an underwriting loss of$79.6 million and a combined ratio of 126.1% for the three months endedSeptember 30, 2022 , compared to an underwriting loss of$262.6 million and a combined ratio of 180.5% for the three months endedSeptember 30, 2021 . The increase in net underwriting results for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , was due to lower catastrophe losses and higher favorable loss reserve development. The Reinsurance segment incurred an underwriting loss of$76.7 million and a combined ratio of 108.2% for the nine months endedSeptember 30, 2022 , compared to an underwriting loss of$217.6 million and a combined ratio of 125.3% for the nine months endedSeptember 30, 2021 . The increase in net underwriting results for the nine months endedSeptember 30, 2022 , compared to the nine months endedSeptember 30, 2021 , was due primarily to lower catastrophe losses and higher favorable loss reserve development. 61 -------------------------------------------------------------------------------- For the three months endedSeptember 30, 2022 , catastrophe losses, net of reinsurance and reinstatement premiums, were$114.6 million , including$80.1 million from Hurricane Ian and$34.5 million from other third quarter catastrophe losses, compared to$283.5 million , including$132 million for the European floods and$100 million for Hurricane Ida, for the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , catastrophe losses, net of reinsurance and reinstatement premiums, were$137.7 million including$80.1 million for Hurricane Ian and$57.6 million for other catastrophe events, including South African floods and French hail storms, compared to$301.9 million , including$132 million for the European floods,$100 million for Hurricane Ida and$40 million for the June windstorms and winter storm Uri, for the nine months endedSeptember 30, 2021 . Net favorable prior year loss reserve development was$16.3 million for the three months endedSeptember 30, 2022 compared to net favorable prior year loss reserve development of$5.7 million for the three months endedSeptember 30, 2021 . The favorable loss reserve development for the three months endedSeptember 30, 2022 was primarily due to lower than expected reported losses in the property lines. Net favorable prior year loss reserve development was$11.8 million for the nine months endedSeptember 30, 2022 compared to net favorable prior year loss reserve development of$6.7 million for the nine months endedSeptember 30, 2021 . The favorable loss reserve development for the nine months endedSeptember 30, 2022 was primarily due to COVID-19 reserve releases.
Insurance & Services Segment
Insurance & Services offers a comprehensive set of services for startup MGAs and
insurance services companies including fronting services, risk capital and
equity and debt financing. Furthermore, we offer expertise in underwriting,
pricing and product development to businesses with whom we partner. The
Insurance & Services segment predominantly provides insurance coverage in
addition to receiving fees for services provided within Insurance & Services and
to third parties. The Insurance & Services segment provides coverage in the
following product lines: A&H (including business generated by IMG and Armada),
Environmental, Workers' Compensation, and other lines of business including a
cross section of Property and Casualty lines.
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The following table sets forth underwriting results, net MGA results, and ratios
for the segment results, and the period over period changes, for the three and
nine months ended September 30, 2022 and 2021:
Three months ended Nine months ended
September September September 30, September
30, 2022 30, 2021 Change 2022 30, 2021 Change
($ in millions)
Gross premiums written $ 524.9 $ 240.6 $ 284.3 $ 1,442.3 $ 628.0 $ 814.3
Net premiums written 366.7 183.9 182.8 1,005.6 468.5 537.1
Net premiums earned 305.4 160.6 144.8 762.5 334.7 427.8
Loss and loss adjustment
expenses incurred, net 217.8 91.0 126.8 506.6 198.6 308.0
Acquisition costs, net 81.0 41.8 39.2 198.4 97.6 100.8
Other underwriting expenses 15.3 9.8 5.5 46.8 19.0 27.8
Underwriting income (loss) (8.7) 18.0 (26.7) 10.7 19.5 (8.8)
Services revenue 52.5 37.8 14.7 165.9 89.9 76.0
Services expenses 47.2 40.4 6.8 135.3 81.0 54.3
Net services fee income (loss) 5.3 (2.6) 7.9 30.6 8.9 21.7
Services noncontrolling loss 0.5 3.4 (2.9) 0.6 1.8 (1.2)
Net investment gains from
Strategic Investments 3.4 - 3.4 2.6 41.3 (38.7)
Net services income 9.2 0.8 8.4 33.8 52.0 (18.2)
Segment income $ 0.5 $ 18.8 $ (18.3) $ 44.5 $ 71.5 $ (27.0)
Underwriting ratios: (1)
Loss ratio 71.3 % 56.7 % 14.6 % 66.4 % 59.3 % 7.1 %
Acquisition cost ratio 26.5 % 26.0 % 0.5 % 26.0 % 29.2 % (3.2) %
Other underwriting expense
ratio 5.0 % 6.1 % (1.1) % 6.1 % 5.7 % 0.4 %
Combined ratio 102.8 % 88.8 % 14.0 % 98.5 % 94.2 % 4.3 %
(1)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
Premium Volume Gross premiums written in the Insurance & Services segment increased by$284.3 million , or 118.2%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by growth in our property & casualty strategic partnerships withCorvus Insurance ,Pie Insurance and Arcadian, as well as growth in A&H. Gross premiums written in the Insurance & Services segment increased by$814.3 million , or 129.7%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by growth across Insurance & Services and growth in premiums from strategic partnerships, mainlyArcadian and Corvus Insurance , and A&H, as well as the nine months endedSeptember 30, 2021 reflecting only a partial quarter in the first quarter of 2021 from the legacySirius Group companies.
Underwriting Results
The Insurance & Services segment incurred an underwriting loss of$8.7 million and a combined ratio of 102.8% for the three months endedSeptember 30, 2022 , compared to underwriting income of$18.0 million and a combined ratio of 88.8% for the three months endedSeptember 30, 2021 . The decline in underwriting results for the 2022 period was primarily driven by the adverse loss development. The Insurance & Services segment generated underwriting income of$10.7 million and a combined ratio of 98.5% for the nine months endedSeptember 30, 2022 , compared to underwriting income of$19.5 million and a combined ratio of 94.2% for the nine months endedSeptember 30, 2021 . The decline in underwriting results for the 2022 period was primarily driven by the adverse loss development. 63 -------------------------------------------------------------------------------- Net adverse prior year loss reserve development was$18.9 million for the three months endedSeptember 30, 2022 , compared to favorable prior year loss reserve development of$8.2 million for the three months endedSeptember 30, 2021 , which was primarily driven by worse than expected reported loss emergence in the direct Workers' Compensation line of business. Net adverse prior year loss reserve development was$7.9 million for the nine months endedSeptember 30, 2022 , compared to favorable prior year loss reserve development of$9.7 million for the nine months endedSeptember 30, 2021 , which was primarily driven by worse than expected reported loss emergence in the direct Workers' Compensation line of business. Services Results Services revenue was$52.5 million for the three months endedSeptember 30, 2022 compared to$37.8 million for the three months endedSeptember 30, 2021 . The increase was primarily due to higher services revenue in IMG, which benefited from increased demand for its travel products and services.
Services revenue was
We generated net services income of
We generated net services income of$33.8 million for the nine months endedSeptember 30, 2022 compared to net services income of$52.0 million for the nine months endedSeptember 30, 2021 . The decrease is primarily driven by the gain from our investment inPie Insurance included in the nine months endedSeptember 30, 2021 , partially offset by higher margins achieved in our IMG business for the nine months endedSeptember 30, 2022 .
Corporate
Corporate includes the results of all runoff business, which represent certain classes of business that we no longer actively underwrite, including those that have asbestos and environmental and other latent liability exposures and certain reinsurance contracts that have interest crediting features. The following table sets forth underwriting results and the period over period changes for the three and nine months endedSeptember 30, 2022 and 2021: Three months ended Nine months ended September 30, September 30, September 30, September 30, 2022 2021 Change 2022 2021 Change ($ in millions) Gross premiums written$ 0.5 $ 5.3 $ (4.8) $ 2.9 $ (13.9) $ 16.8 Net premiums written 0.6 5.3 (4.7) 2.2 (19.0) 21.2 Net premiums earned 2.7 12.6 (9.9) 16.6 (0.4) 17.0 Loss and loss adjustment expenses incurred, net (4.7) 15.6 (20.3) 10.0 4.5 5.5 Acquisition costs, net - 1.1 (1.1) 0.9 2.3 (1.4) Other underwriting expenses 1.5 11.4 (9.9) 4.5 19.0 (14.5) Underwriting income (loss)$ 5.9 $ (15.5) $ 21.4 $ 1.2 $ (26.2) $ 27.4 Underwriting income for the three months endedSeptember 30, 2022 is primarily due to favorable loss development of$7.9 million due to runoff surety exposures compared to an underwriting loss for the three months endedSeptember 30, 2021 driven by accelerated expenses related to interest crediting features in certain reinsurance and deposit contracts. Underwriting income for the nine months endedSeptember 30, 2022 is primarily due to favorable loss development of$13.3 million , due to runoff surety exposures and property losses partially offset by the Russian/Ukraine conflict losses of$5.3 million , compared to an underwriting loss for the nine months endedSeptember 30, 2021 driven by the non-recurring impact of the restructuring of one retroactive reinsurance contract, which was previously written and earned, and accelerated expenses related to interest crediting features in certain reinsurance and deposit contracts. 64 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
We have included certain financial measures that are not calculated under standards or rules that compriseU.S. GAAP. Such measures, including Core underwriting income, Core net services income, Core income, Core combined ratio, basic book value per share, tangible basic book value per share, diluted book value per share and tangible diluted book value per share, are referred to as non-GAAP financial measures. These non-GAAP financial measures may be defined or calculated differently by other companies. We believe these measures allow for a more complete understanding of our underlying business. These measures are used by management to monitor our results and should not be viewed as a substitute for those determined in accordance withU.S. GAAP. Reconciliations of non-GAAP measures to the most comparableU.S. GAAP measures are included below.
Core Results
Collectively, the sum of the Company's two segments, Reinsurance and Insurance & Services, constitute "Core" results. Core underwriting income, Core net services income, Core income and Core combined ratio are non-GAAP financial measures. We believe it is important to review Core results as it better reflects how management views the business and reflects our decision to exit the runoff business. The sum of Core results and Corporate results are equal to the consolidated results of operations. Core underwriting income - calculated by subtracting loss and loss adjustment expenses incurred, net, acquisition costs, net, and other underwriting expenses from net premiums earned. Core net services income - consists of services revenues which include commissions, brokerage and fee income related to consolidated MGAs, and other revenues, services expenses which include direct expenses related to consolidated MGAs, services noncontrolling income which represent minority ownership interests in consolidated MGAs, and net investment gains from Strategic Investments which are net investment gains/losses from investment in our strategic partners. Net services income is a key indicator of the profitability of the Company's services provided, including investment returns on non-consolidated investment positions held.
Core income - consists of two components, core underwriting income and core net services income. Core income is a key measure of our segment performance.
Core combined ratio - calculated by dividing the sum of Core loss and loss adjustment expenses incurred, net, acquisition costs, net and other underwriting expenses by Core net premiums earned. This ratio is a key indicator of our underwriting profitability.
See Note 4 "Segment reporting" to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information and a calculation of Core income (loss).
Basic Book Value Per Share, Tangible Basic Book Value Per Share, Diluted Book Value Per Share, Tangible Diluted Book Value Per Share
Basic book value per share, as presented, is a non-GAAP financial measure and is calculated by dividing common shareholders' equity attributable toSiriusPoint common shareholders by the number of common shares outstanding, excluding the total number of issued unvested restricted shares, at period end. While restricted shares are outstanding, they are excluded from Basic book value per share because they are unvested. Tangible basic book value per share, as presented, is a non-GAAP financial measure and is calculated by dividing tangible common shareholders' equity attributable toSiriusPoint common shareholders by the number of common shares outstanding, excluding the total number of unvested restricted shares, at period end. Management believes that effects of intangible assets are not indicative of underlying underwriting results or trends and make book value comparisons to less acquisitive peer companies less meaningful. The Company's management believes tangible book value per share is useful to investors because it provides a more accurate measure of the realizable value of shareholder returns, excluding the impact of intangible assets. Diluted book value per share and tangible diluted book value per share, as presented, are non-GAAP financial measures and are calculated similar to the treasury stock method. Under the treasury stock method, we assume that proceeds received from in-the-money options and/or warrants exercised are used to repurchase common shares in the market. The dilutive effect of restricted shares, restricted share units and options are calculated in a manner consistent with how dilution is calculated using the treasury stock method for earnings per share. We have also followed a similar approach for calculating dilution for warrants, Series A preference shares, Upside Rights and other potentially dilutive securities issued as part of our acquisition 65
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ofSirius Group . Management believes these measures are useful to investors because they measure the realizable value of shareholder returns in a manner consistent with how dilution is calculated using the treasury stock method for earnings per share. Management believes that effects of intangible assets are not indicative of underlying underwriting results or trends and make book value comparisons to less acquisitive peer companies less meaningful. Also, the tangible diluted book value per share is useful because it provides a more accurate measure of the realizable value of shareholder returns, excluding intangible assets. The following table sets forth the computation of basic book value per share, tangible basic book value per share, diluted book value per share and tangible diluted book value per share as ofSeptember 30, 2022 andDecember 31, 2021 :
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