Notes to the Consolidated Financial Statements (UNAUDITED)
(Expressed in U.S. Dollars)
1. Organization
SiriusPoint Ltd. (together with its consolidated subsidiaries, “SiriusPoint” or the “Company”) was incorporated under the laws of Bermuda on October 6, 2011. Through its subsidiaries, the Company is a provider of global multi-line reinsurance and insurance products and services.
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 in Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. In addition, the year-end consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. This Quarterly Report on Form 10-Q (“Form 10-Q”) should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2023.
In the opinion of management, these unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the Company’s financial position and results of operations as at the end of and for the periods presented. All significant intercompany accounts and transactions have been eliminated.
The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the full calendar year.
Tabular amounts are in U.S. Dollars in millions, except share amounts, unless otherwise noted.
2. Significant accounting policies
There have been no material changes to the Company’s significant accounting policies as described in its 2022 Form 10-K.
Recently issued accounting standards
Accounting pronouncements issued during the three months ended March 31, 2023 were either not relevant to the Company or did not impact the Company’s consolidated financial statements.
3. Significant transactions
SiriusPoint International Loss Portfolio Transfer
On March 2, 2023, the Company agreed, subject to applicable regulatory approvals and other closing conditions, to enter into a loss portfolio transfer transaction (“2023 LPT”), on a funds withheld basis, with Pallas Reinsurance Company Ltd., a subsidiary of the Compre Group, an insurance and reinsurance legacy specialist. The 2023 LPT covers approximately $1.3 billion of loss reserves as of September 30, 2022. The transaction is expected to close and incept on or around June 30, 2023. The actual ceded reserves and premium paid will be based on the aforementioned September 30, 2022 amounts, decreased by the amount of paid losses between September 30, 2022 and June 30, 2023. The Company expects this transaction to result in a gain upon closing, which will be deferred and amortized over the claim payout period of the subject business, and the final amount of the gain will be dependent upon factors including reserve development and claim payments through June 30, 2023. The 2023 LPT comprises several classes of business from 2021 and prior underwriting years. The aggregate limit under the 2023 LPT is 130% of the booked reserves as of the inception of the contract.
4. Segment reporting
The determination of the Company’s business segments is based on the manner in which management monitors the performance of its operations. The Company reports two operating segments: Reinsurance and Insurance & Services. The Company’s segments each have managers who are responsible for the overall profitability of their segments and who are directly accountable to the Company’s chief operating decision maker, the Chief Executive Officer ("CEO"). The CEO assesses segment operating performance, allocates capital, and makes resource allocation decisions based on Segment income (loss). The Company does not manage its assets by segment; accordingly, total assets are not allocated to the segments.
Reinsurance
The Company is a leading global (re)insurer, which offers both treaty and facultative reinsurance worldwide through its network of local branches. The Company participates in the broker market for reinsurance treaties written in the United States and Bermuda primarily on a proportional and excess of loss basis. For the Company’s international business, the book consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business, primarily in Europe, Asia and Latin America.
The Reinsurance segment provides coverage in the following product lines:
Aviation & Space – Aviation covers loss of or damage to an aircraft and the aircraft operations' liability to passengers, cargo and hull as well as to third parties, and Space covers damage to a satellite during launch and in orbit.
Casualty – covers a cross section of all casualty lines, including general liability, umbrella, auto, workers’ compensation, professional liability, and other specialty classes.
Contingency – covers event cancellation and non-appearance.
Credit & Bond – covers traditional short-term commercial credit insurance, including pre-agreed domestic and export sales of goods and services with typical coverage periods of 60 to 120 days.
Marine & Energy – Marine covers damage to ships and goods in transit, marine liability lines as well as yacht-owner perils. Energy covers offshore energy industry insurance.
Mortgage – covers credit risks that compensates insureds for losses arising from mortgage loan defaults.
Property – consists of the Company’s underwriting lines of business that offer property catastrophe excess of loss, proportional property reinsurance, per risk property reinsurance, and agriculture reinsurance and property risk and pro rata on a worldwide basis. Property catastrophe excess of loss reinsurance treaties cover losses to a pool of risks from catastrophic events. Proportional property covers both attritional and catastrophic risks, per risk property covers loss to individual risk, and agriculture provides stop-loss reinsurance coverage, including to companies writing U.S. government-sponsored multi-peril crop insurance.
Insurance & Services
The Company provides insurance products to individuals and corporations directly, through agents/brokers or through delegated underwriting agreements with managing general agents (“MGAs”). The Company seeks to work with MGAs that have strong underwriting expertise, deep understanding of the customer/product niches and/or technology-driven approaches, and a sustainable competitive moat.
Insurance & Services offers a comprehensive set of services for startup MGAs and insurance services companies including risk capital and equity and debt financing. Furthermore, the Company offers expertise in underwriting, pricing and product development to businesses it partners with. The Company’s process to identify and approve partner companies includes alignment of interests, disciplined management and strong oversight, which are believed to be critical for success. The Insurance & Services segment predominantly provides insurance coverage in addition to receiving fees for services provided within Insurance & Services and to third parties.
The Company makes both controlling and non-controlling equity investments and debt investments in MGAs and other insurance-related business (collectively, “Strategic Investments”).
The Insurance & Services segment provides coverage in the following product lines:
Accident and Health (“A&H”) – consists of life, accident and health coverage, and MGA units (which include ArmadaCorp Capital, LLC (“Armada”) and International Medical Group, Inc. (“IMG”)). Armada’s products are offered in the United States while IMG offers accident, health and travel products on a worldwide basis.
Environmental – consists of an environmental insurance book in the U.S. comprised of four core products that revolve around pollution coverage, which are premises pollution liability, contractor's pollution/pollution liability and professional liability.
Workers’ Compensation – consists of state-mandated insurance coverage that provides medical, disability, survivor, burial, and rehabilitation benefits to employees who are injured or killed due to a work-related injury or illness.
Other – consists of a cross section of property and casualty lines, including but not limited to property, general liability, excess liability, commercial auto, professional liability, directors and officers, cyber and other specialty classes.
Management uses segment income (loss) as the primary basis for assessing segment performance. Segment income (loss) is comprised of two components, underwriting income (loss) and net services income (loss). The Company calculates underwriting income (loss) by subtracting loss and loss adjustment expenses incurred, net, acquisition costs, net, and other underwriting expenses from net premiums earned. Net services income (loss) consists of services revenues (fee for service revenues), services expenses, services non-controlling (income) loss and net investment gains (losses) from Strategic Investments. This definition of segment income (loss) aligns with how business performance is managed and monitored. We continue to evaluate our segments as our business evolves and may further refine our segments and segment income (loss) measures. Certain items are presented in a different manner for segment reporting purposes than in the consolidated statements of income (loss). These items are reconciled to the consolidated presentation in the segment measure reclass column below and include net investment gains (losses) from Strategic Investments where Insurance & Services holds private equity investments. Also included in Insurance & Services segment income (loss) are services noncontrolling loss (income) attributable to minority shareholders on non-wholly-owned subsidiaries. In addition, services revenues and services expenses are reconciled to other revenues and net corporate and other expenses, respectively.
Segment results are shown prior to corporate eliminations. Corporate eliminations are included in the elimination column below as necessary to reconcile to underwriting income (loss), net services income (loss), and segment income (loss) to the consolidated statements of income (loss).
Corporate includes the results of all runoff business, which represent certain classes of business that the Company no longer actively underwrites, including those that have asbestos and environmental and other latent liability exposures and certain reinsurance contracts that have interest crediting features. In addition, revenue and expenses managed at the corporate level, including realized gains and losses (excluding net investment gains (losses) from Strategic Investments, which are allocated to the segment results), net realized and unrealized investment gains (losses) from related party investment funds, other investment income, non-services related other revenues, non-services related net corporate and other expenses, intangible asset amortization, interest expense, foreign exchange (gains) losses and income tax (expense) benefit are reported within Corporate. The CEO does not manage segment results or allocate resources to segments when considering these items and they are therefore excluded from our definition of segment income (loss).
The following is a summary of the Company’s operating segment results for the three months ended March 31, 2023 and 2022:
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| Three months ended March 31, 2023 |
| Reinsurance | | Insurance & Services | | Core | | Eliminations (2) | | Corporate | | Segment Measure Reclass | | Total |
Gross premiums written | $ | 396.2 | | | $ | 664.0 | | | $ | 1,060.2 | | | $ | — | | | $ | 50.3 | | | $ | — | | | $ | 1,110.5 | |
| Net premiums written | 311.0 | | | 452.6 | | | 763.6 | | | — | | | 28.1 | | | — | | | 791.7 | |
| Net premiums earned | 259.5 | | | 291.2 | | | 550.7 | | | — | | | 44.8 | | | — | | | 595.5 | |
| Loss and loss adjustment expenses incurred, net | 85.6 | | | 172.5 | | | 258.1 | | | (1.3) | | | 10.3 | | | — | | | 267.1 | |
| Acquisition costs, net | 66.0 | | | 71.7 | | | 137.7 | | | (32.5) | | | 14.5 | | | — | | | 119.7 | |
| Other underwriting expenses | 28.2 | | | 19.3 | | | 47.5 | | | — | | | 4.7 | | | — | | | 52.2 | |
| Underwriting income | 79.7 | | | 27.7 | | | 107.4 | | | 33.8 | | | 15.3 | | | — | | | 156.5 | |
| Services revenue | 0.2 | | | 63.6 | | | 63.8 | | | (34.3) | | | — | | | (29.5) | | | — | |
| Services expenses | — | | | 45.5 | | | 45.5 | | | — | | | — | | | (45.5) | | | — | |
| Net services fee income | 0.2 | | | 18.1 | | | 18.3 | | | (34.3) | | | — | | | 16.0 | | | — | |
| Services noncontrolling income | — | | | (1.6) | | | (1.6) | | | — | | | — | | | 1.6 | | | — | |
| Net investment losses from Strategic Investments | — | | | (3.9) | | | (3.9) | | | — | | | — | | | 3.9 | | | — | |
| Net services income | 0.2 | | | 12.6 | | | 12.8 | | | (34.3) | | | — | | | 21.5 | | | — | |
| Segment income | 79.9 | | | 40.3 | | | 120.2 | | | (0.5) | | | 15.3 | | | 21.5 | | | 156.5 | |
| Net realized and unrealized investment gains (losses) | | 15.2 | | | (3.9) | | | 11.3 | |
| Net realized and unrealized investment gains from related party investment funds | | 0.8 | | | — | | | 0.8 | |
| Net investment income | | | | | | | | | 61.5 | | | — | | | 61.5 | |
| Other revenues | | | | | | | | | (13.7) | | | 29.5 | | | 15.8 | |
| Net corporate and other expenses | | | | | | | | | (16.3) | | | (45.5) | | | (61.8) | |
| Intangible asset amortization | | | | | | | | | (2.4) | | | — | | | (2.4) | |
| Interest expense | | | | | | | | | (10.8) | | | — | | | (10.8) | |
| Foreign exchange losses | | | | | | | | | (0.1) | | | — | | | (0.1) | |
| Income before income tax expense | $ | 79.9 | | | $ | 40.3 | | | 120.2 | | | (0.5) | | | 49.5 | | | 1.6 | | | 170.8 | |
| Income tax expense | | | | | — | | | — | | | (25.8) | | | — | | | (25.8) | |
| Net income | | | | | 120.2 | | | (0.5) | | | 23.7 | | | 1.6 | | | 145.0 | |
| Net income attributable to noncontrolling interest | | — | | | — | | | (0.8) | | | (1.6) | | | (2.4) | |
| Net income available to SiriusPoint | | $ | 120.2 | | | $ | (0.5) | | | $ | 22.9 | | | $ | — | | | $ | 142.6 | |
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Underwriting Ratios: (1) | | | | | | | | | | | | | |
| Loss ratio | 33.0 | % | | 59.2 | % | | 46.9 | % | | | | | | | | 44.9 | % |
| Acquisition cost ratio | 25.4 | % | | 24.6 | % | | 25.0 | % | | | | | | | | 20.1 | % |
| Other underwriting expenses ratio | 10.9 | % | | 6.6 | % | | 8.6 | % | | | | | | | | 8.8 | % |
Combined ratio | 69.3 | % | | 90.4 | % | | 80.5 | % | | | | | | | | 73.8 | % |
(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 March 31, 2022 |
| Reinsurance | | Insurance & Services | | Core | | Eliminations (2) | | Corporate | | Segment Measure Reclass | | Total |
Gross premiums written | $ | 524.2 | | | $ | 483.5 | | | $ | 1,007.7 | | | $ | — | | | $ | 2.0 | | | $ | — | | | $ | 1,009.7 | |
| Net premiums written | 374.9 | | | 337.5 | | | 712.4 | | | — | | | 1.5 | | | — | | | 713.9 | |
| Net premiums earned | 307.6 | | | 212.8 | | | 520.4 | | | — | | | 8.9 | | | — | | | 529.3 | |
| Loss and loss adjustment expenses incurred, net | 194.5 | | | 134.0 | | | 328.5 | | | (1.2) | | | 12.8 | | | — | | | 340.1 | |
| Acquisition costs, net | 79.9 | | | 53.5 | | | 133.4 | | | (25.6) | | | 0.7 | | | — | | | 108.5 | |
| Other underwriting expenses | 30.1 | | | 15.7 | | | 45.8 | | | — | | | 1.4 | | | — | | | 47.2 | |
| Underwriting income (loss) | 3.1 | | | 9.6 | | | 12.7 | | | 26.8 | | | (6.0) | | | — | | | 33.5 | |
| Services revenue | — | | | 56.8 | | | 56.8 | | | (30.8) | | | — | | | (26.0) | | | — | |
| Services expenses | — | | | 43.3 | | | 43.3 | | | — | | | — | | | (43.3) | | | — | |
| Net services fee income | — | | | 13.5 | | | 13.5 | | | (30.8) | | | — | | | 17.3 | | | — | |
| Services noncontrolling loss | — | | | 0.8 | | | 0.8 | | | — | | | — | | | (0.8) | | | — | |
| Net investment losses from Strategic Investments | — | | | (0.3) | | | (0.3) | | | — | | | — | | | 0.3 | | | — | |
| Net services income | — | | | 14.0 | | | 14.0 | | | (30.8) | | | — | | | 16.8 | | | — | |
| Segment income (loss) | 3.1 | | | 23.6 | | | 26.7 | | | (4.0) | | | (6.0) | | | 16.8 | | | 33.5 | |
| Net realized and unrealized investment losses | | (81.6) | | | (0.3) | | | (81.9) | |
| Net realized and unrealized investment losses from related party investment funds | | (131.0) | | | — | | | (131.0) | |
| Net investment income | | | | | | | | | 7.8 | | | — | | | 7.8 | |
| Other revenues | | | | | | | | | 11.2 | | | 26.0 | | | 37.2 | |
| Net corporate and other expenses | | | | | | | | | (34.1) | | | (43.3) | | | (77.4) | |
| Intangible asset amortization | | | | | | | | | (1.9) | | | — | | | (1.9) | |
| Interest expense | | | | | | | | | (9.3) | | | — | | | (9.3) | |
| Foreign exchange gains | | | | | | | | | 19.4 | | | — | | | 19.4 | |
| Income (loss) before income tax benefit | $ | 3.1 | | | $ | 23.6 | | | 26.7 | | | (4.0) | | | (225.5) | | | (0.8) | | | (203.6) | |
| Income tax expense | | | | | — | | | — | | | (9.7) | | | — | | | (9.7) | |
| Net income (loss) | | | | | 26.7 | | | (4.0) | | | (235.2) | | | (0.8) | | | (213.3) | |
| Net loss attributable to noncontrolling interest | | — | | | — | | | — | | | 0.3 | | | 0.3 | |
| Net income (loss) available to SiriusPoint | | $ | 26.7 | | | $ | (4.0) | | | $ | (235.2) | | | $ | (0.5) | | | $ | (213.0) | |
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Underwriting Ratios: (1) | | | | | | | | | | | | | |
| Loss ratio | 63.2 | % | | 63.0 | % | | 63.1 | % | | | | | | | | 64.3 | % |
| Acquisition cost ratio | 26.0 | % | | 25.1 | % | | 25.6 | % | | | | | | | | 20.5 | % |
| Other underwriting expenses ratio | 9.8 | % | | 7.4 | % | | 8.8 | % | | | | | | | | 8.9 | % |
| Combined ratio | 99.0 | % | | 95.5 | % | | 97.5 | % | | | | | | | | 93.7 | % |
(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.
5. Cash, cash equivalents, restricted cash and restricted investments
The following table provides a summary of cash and cash equivalents, restricted cash and restricted investments as of March 31, 2023 and December 31, 2022:
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| March 31, 2023 | | December 31, 2022 |
| Cash and cash equivalents | $ | 763.6 | | | $ | 705.3 | |
| Restricted cash securing letter of credit facilities (1) | 138.7 | | | 34.3 | |
| Restricted cash securing reinsurance contracts (2) | 49.7 | | | 148.9 | |
| Restricted cash held by managing general underwriters | 22.6 | | | 25.2 | |
| Total cash, cash equivalents and restricted cash (3) | 974.6 | | | 913.7 | |
| Restricted investments securing reinsurance contracts and letter of credit facilities (1) (2) (4) | 2,072.7 | | | 2,202.2 | |
| Total cash, cash equivalents, restricted cash and restricted investments | $ | 3,047.3 | | | $ | 3,115.9 | |
(1)Restricted cash and restricted investments securing letter of credit facilities primarily pertains to letters of credit that have been issued to the Company’s clients in support of our obligations under reinsurance contracts. The Company will not be released from the obligation to provide these letters of credit until the reserves underlying the reinsurance contracts have been settled. The time period for which the Company expects each letter of credit to be in place varies from contract to contract, but can last several years.
(2)Restricted cash and restricted investments securing reinsurance contracts pertain to trust accounts securing the Company’s contractual obligations under certain reinsurance contracts that the Company will not be released from until the underlying risks have expired or have been settled. Restricted investments include certain investments in debt securities, short-term investments and limited partnership interests in Third Point Enhanced LP. The time period for which the Company expects these trust accounts to be in place varies from contract to contract, but can last several years.
(3)Cash, cash equivalents and restricted cash as reported in the Company’s consolidated statements of cash flows.
(4)Restricted investments include required deposits with certain insurance state regulatory agencies in order to maintain insurance licenses.
6. Fair value measurements
U.S. GAAP disclosure requirements establish a framework for measuring fair value, including a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-level hierarchy of inputs is summarized below:
•Level 1 – Quoted prices available in active markets/exchanges for identical investments as of the reporting date.
•Level 2 – Observable inputs to the valuation methodology other than unadjusted quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include, but are not limited to, prices quoted for similar assets or liabilities in active markets/exchanges, prices quoted for identical or similar assets or liabilities in markets that are not active and fair values determined through the use of models or other valuation methodologies.
•Level 3 – Inputs are based all or in part on significant unobservable inputs for the investment, and include situations where there is little, if any, market activity for the investment. The inputs applied in the determination of fair value require significant management judgment and estimation.
Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. For example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources other than those of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and considers factors specific to the investment.
The following tables present the Company’s investments, categorized by the level of the fair value hierarchy as of March 31, 2023 and December 31, 2022:
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| March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | |
| Quoted prices in active markets | | Significant other observable inputs | | Significant unobservable inputs | | Total | | | | | | | | | | | | | | | | | | | | | | | |
| (Level 1) | | (Level 2) | | (Level 3) | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities | $ | — | | | $ | 414.4 | | | $ | — | | | $ | 414.4 | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | — | | | 417.8 | | | — | | | 417.8 | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial mortgage-backed securities | — | | | 92.8 | | | — | | | 92.8 | | | | | | | | | | | | | | | | | | | | | | | | |
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| Corporate debt securities | — | | | 943.4 | | | — | | | 943.4 | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. government and government agency | 1,632.9 | | | 4.2 | | | — | | | 1,637.1 | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-U.S. government and government agency | 3.5 | | | 56.9 | | | — | | | 60.4 | | | | | | | | | | | | | | | | | | | | | | | | |
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| Total debt securities, available for sale | 1,636.4 | | | 1,929.5 | | | — | | | 3,565.9 | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities | — | | | 443.5 | | | — | | | 443.5 | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | — | | | 132.4 | | | — | | | 132.4 | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial mortgage-backed securities | — | | | 111.2 | | | — | | | 111.2 | | | | | | | | | | | | | | | | | | | | | | | | |
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| Corporate debt securities | — | | | 294.4 | | | — | | | 294.4 | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. government and government agency | 84.8 | | | 6.4 | | | — | | | 91.2 | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-U.S. government and government agency | 5.8 | | | 38.5 | | | — | | | 44.3 | | | | | | | | | | | | | | | | | | | | | | | | |
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| Preferred stocks | — | | | — | | | 3.2 | | | 3.2 | | | | | | | | | | | | | | | | | | | | | | | | |
| Total debt securities, trading | 90.6 | | | 1,026.4 | | | 3.2 | | | 1,120.2 | | | | | | | | | | | | | | | | | | | | | | | | |
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| Total equity securities | 1.6 | | | — | | | — | | | 1.6 | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term investments | 583.5 | | | 10.5 | | | — | | | 594.0 | | | | | | | | | | | | | | | | | | | | | | | | |
| Other long-term investments | — | | | 0.4 | | | 227.4 | | | 227.8 | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative assets | — | | | — | | | 11.3 | | | 11.3 | | | | | | | | | | | | | | | | | | | | | | | | |
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| $ | 2,312.1 | | | $ | 2,966.8 | | | $ | 241.9 | | | 5,520.8 | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost and equity method investments | | | | | | | 95.0 | | | | | | | | | | | | | | | | | | | | | | | | |
| Investments in funds valued at NAV | | | | | | | 157.0 | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | | | | | | $ | 5,772.8 | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Total securities sold, not yet purchased | $ | 19.4 | | | $ | — | | | $ | — | | | $ | 19.4 | | | | | | | | | | | | | | | | | | | | | | | | |
| Securities sold under an agreement to repurchase | — | | | 20.3 | | | — | | | 20.3 | | | | | | | | | | | | | | | | | | | | | | | | |
| Liability-classified capital instruments | — | | | — | | | 47.0 | | | 47.0 | | | | | | | | | | | | | | | | | | | | | | | | |
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| Derivative liabilities | — | | | — | | | 8.4 | | | 8.4 | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities | $ | 19.4 | | | $ | 20.3 | | | $ | 55.4 | | | $ | 95.1 | | | | | | | | | | | | | | | | | | | | | | | | |
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| December 31, 2022 |
| Quoted prices in active markets | | Significant other observable inputs | | Significant unobservable inputs | | Total |
| (Level 1) | | (Level 2) | | (Level 3) | |
| Assets | | | | | | | |
| Asset-backed securities | $ | — | | | $ | 230.7 | | | $ | — | | | $ | 230.7 | |
| Residential mortgage-backed securities | — | | | 340.7 | | | — | | | 340.7 | |
| Commercial mortgage-backed securities | — | | | 61.2 | | | — | | | 61.2 | |
| | | | | | | |
| Corporate debt securities | — | | | 415.7 | | | — | | | 415.7 | |
| U.S. government and government agency | 1,546.2 | | | 4.4 | | | — | | | 1,550.6 | |
| Non-U.S. government and government agency | 5.0 | | | 31.6 | | | — | | | 36.6 | |
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| Total debt securities, available for sale | 1,551.2 | | | 1,084.3 | | | — | | | 2,635.5 | |
| Asset-backed securities | — | | | 553.7 | | | — | | | 553.7 | |
| Residential mortgage-backed securities | — | | | 133.6 | | | — | | | 133.6 | |
| Commercial mortgage-backed securities | — | | | 113.4 | | | — | | | 113.4 | |
| Corporate debt securities | — | | | 363.5 | | | — | | | 363.5 | |
| U.S. Government and government agency | 264.1 | | | 6.3 | | | — | | | 270.4 | |
| Non-U.S. government and government agency | 8.7 | | | 79.5 | | | — | | | 88.2 | |
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| Preferred stocks | — | | | — | | | 3.2 | | | 3.2 | |
| Total debt securities, trading | 272.8 | | | 1,250.0 | | | 3.2 | | | 1,526.0 | |
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| Total equity securities | 1.6 | | | — | | | — | | | 1.6 | |
| Short-term investments | 972.8 | | | 11.8 | | | — | | | 984.6 | |
| Other long-term investments | — | | | — | | | 227.3 | | | 227.3 | |
| Derivative assets | — | | | — | | | 9.5 | | | 9.5 | |
| $ | 2,798.4 | | | $ | 2,346.1 | | | $ | 240.0 | | | 5,384.5 | |
| Cost and equity method investments | | | | | | | 104.8 | |
| Investments in funds valued at NAV | | | | | | | 173.9 | |
| Total assets | | | | | | | $ | 5,663.2 | |
| Liabilities | | | | | | | |
| Total securities sold, not yet purchased | $ | 27.0 | | | $ | — | | | $ | — | | | $ | 27.0 | |
| Securities sold under an agreement to repurchase | — | | | 18.0 | | | — | | | 18.0 | |
| Liability-classified capital instruments | — | | | 39.0 | | | 21.4 | | | 60.4 | |
| Derivative liabilities | — | | | — | | | 8.6 | | | 8.6 | |
| Total liabilities | $ | 27.0 | | | $ | 57.0 | | | $ | 30.0 | | | $ | 114.0 | |
During the three months ended March 31, 2023, the Company did not reclassify its assets or liabilities between Levels 2 and 3 (December 31, 2022 - no reclassifications).
Valuation techniques
The Company uses outside pricing services to assist in determining fair values for its investments. For investments in active markets, the Company uses the quoted market prices provided by outside pricing services to determine fair value. In circumstances where quoted market prices are unavailable or are not considered reasonable, the Company estimates the fair value using industry standard pricing models and observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, prepayment speeds, reference data including research publications, and other relevant inputs. Given that many debt securities do not trade on a daily basis, the outside pricing services evaluate a wide range of fixed maturity investments by regularly drawing parallels from recent trades and quotes of comparable securities with similar features. The characteristics used to identify comparable debt securities vary by asset type and take into account market convention.
The techniques and inputs specific to asset classes within the Company’s debt securities and short-term investments for Level 2 securities that use observable inputs are as follows:
Asset-backed and mortgage-backed securities
The fair value of mortgage and asset-backed securities is primarily priced by pricing services using a pricing model that uses information from market sources and leveraging similar securities. Key inputs include benchmark yields, reported trades, underlying tranche cash flow data, collateral performance, plus new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including issuer, vintage, loan type, collateral attributes, prepayment speeds, default rates, recovery rates, cash flow stress testing, credit quality ratings and market research publications.
Corporate debt securities
Corporate debt securities consist primarily of investment-grade debt of a wide variety of U.S. and non-U.S. corporate issuers and industries. The corporate fixed maturity investments are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources regarding the issuer of the security and obtain credit data, as well as other observations, from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The pricing services also consider the specific terms and conditions of the securities, including any specific features which may influence risk.
U.S. government and government agency
U.S. government and government agency securities consist primarily of debt securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. Fixed maturity investments included in U.S. government and government agency securities are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources and integrate other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The fair value of each security is individually computed using analytical models which incorporate option adjusted spreads and other daily interest rate data.
Non-U.S. government and government agency
Non-U.S. government and government agency securities consist of debt securities issued by non-U.S. governments and their agencies along with supranational organizations (also known as sovereign debt securities). Securities held in these sectors are primarily priced by pricing services who employ proprietary discounted cash flow models to value the securities. Key quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high issuance credits. The pricing services then apply a credit spread for each security which is developed by in-depth and real time market analysis. For securities in which trade volume is low, the pricing services utilize data from more frequently traded securities with similar attributes. These models may also be supplemented by daily market and credit research for international markets.
U.S. states, municipalities, and political subdivisions
The U.S. states, municipalities and political subdivisions portfolio contains debt securities issued by U.S. domiciled state and municipal entities. These securities are generally priced by independent pricing services using the techniques for U.S. government and government agency securities.
Preferred stocks
The fair value of preferred stocks is generally priced by independent pricing services using an evaluated pricing model that calculates the appropriate spread over a comparable security for each issue. Key inputs include exchange prices (underlying and common stock of same issuer), benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including sector, coupon, credit quality ratings, duration, credit enhancements, early redemption features and market research publications.
Short-term investments
Short-term investments consist of U.S. treasury bills, certificates of deposit and other securities, which, at the time of purchase, mature within a period of greater than three months but less than one year. These investments are generally priced
by independent pricing services using the techniques described for U.S. government and government agency securities and Corporate debt securities described above.
Investments measured using Net Asset Value
The Company values its investments in limited partnerships, including its investments in related party investment funds, at fair value. The Company has elected the practical expedient for fair value for these investments which is estimated based on the Company’s share of the net asset value (“NAV”) of the limited partnerships, as provided by the independent fund administrator, as the Company believes it represents the most meaningful measurement basis for the investment assets and liabilities. The NAV represents the Company’s proportionate interest in the members’ equity of the limited partnerships.
The fair value of the Company's investments in certain hedge funds and certain private equity funds are also determined using NAV. The hedge fund's administrator provides quarterly updates of fair value in the form of the Company's proportional interest in the underlying fund's NAV, which is deemed to approximate fair value, generally with a three month delay in valuation. The private equity funds provide monthly, quarterly, or semi-annual partnership capital statements primarily with a one or three month delay which are used as a basis for valuation. These private equity investments vary in investment strategies and are not actively traded in any open markets. Due to a lag in reporting, some of the fund managers, fund administrators, or both, are unable to provide final fund valuations as of the Company's reporting date. This includes utilizing preliminary estimates reported by its fund managers and using other information that is available to the Company with respect to the underlying investments, as necessary.
In order to assess the reasonableness of the NAVs, the Company performs a number of monitoring procedures on a monthly, quarterly and annual basis, to assess the quality of the information provided by the investment manager and fund administrator underlying the preparation of the NAV. These procedures include, but are not limited to, regular review and discussion of the fund’s performance with the investment manager.
These investments are included in investment in funds valued at NAV and excluded from the presentation of investments categorized by the level of the fair value hierarchy.
Level 3 Investments
Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable assumptions reflect the Company's assumptions, that market participants would use in valuing the investment. Generally, certain securities may start out as Level 3 when they are originally issued but as observable inputs become available in the market, they may be reclassified to Level 2.
The Company employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing the audited annual financial statements of hedge funds and private equity funds and periodically discussing each fund's pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable.
The fair values of the Company's investments in private equity securities, private debt instruments, certain private equity funds, and certain hedge funds have been classified as Level 3 measurements. Private equity securities and private debt instruments are initially valued based on transaction price and their valuation is subsequently estimated based on available evidence such as a market transaction in similar instruments and other financial information for the issuer.
For Strategic Investments carried at fair value, management either engages a third-party valuation specialist to assist in determination of the fair value based on commonly accepted valuation methods (i.e., income approach, market approach) as of the valuation date or performs valuation internally. In addition, investors fair value analyses prepared by third party valuation specialists working with Strategic Investment operating management are referenced where available.
See Note 9 for additional information on the fair values of derivative financial instruments used for both risk management and investment purposes.
Underwriting-related derivatives
Underwriting-related derivatives include reinsurance contracts that are accounted for as derivatives. These derivative contracts are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of
these derivatives are determined using internally developed discounted cash flow models. As the significant inputs used to price these derivatives are unobservable, the fair values of these contracts are classified as Level 3.
The following table presents the reconciliation of all investments measured at fair value using Level 3 inputs for the three months ended March 31, 2023:
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| January 1, 2023 | | Transfers in to (out of) Level 3 | | Purchases | | Sales & Settlements | | Realized and Unrealized Gains (Losses) (1) | | | | March 31, 2023 |
| Assets | | | | | | | | | | | | | |
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| Preferred stocks | $ | 3.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | 3.2 | |
| Other long-term investments | 227.3 | | | — | | | 0.4 | | | — | | | (0.3) | | | | | 227.4 | |
| Derivative assets | 9.5 | | | — | | | 2.5 | | | (2.1) | | | 1.4 | | | | | 11.3 | |
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| Total assets | $ | 240.0 | | | $ | — | | | $ | 2.9 | | | $ | (2.1) | | | $ | 1.1 | | | | | $ | 241.9 | |
| Liabilities | | | | | | | | | | | | | |
| Liability-classified capital instruments | $ | (21.4) | | | $ | — | | | $ | — | | | $ | — | | | $ | (25.6) | | | | | $ | (47.0) | |
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| Derivative liabilities | (8.6) | | | — | | | (3.2) | | | 1.5 | | | 1.9 | | | | | (8.4) | |
| Total liabilities | $ | (30.0) | | | $ | — | | | $ | (3.2) | | | $ | 1.5 | | | $ | (23.7) | | | | | $ | (55.4) | |
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(1)Total change in realized and unrealized gains (losses) recorded on Level 3 financial instruments is included in total realized and unrealized investment gains (losses) and net investment income in the consolidated statements of income (loss). Realized and unrealized gains (losses) related to underwriting-related derivative assets and liabilities are included in other revenue net of foreign exchange (gains) losses, in the consolidated statements of income (loss).
The following table presents the reconciliation of all investments measured at fair value using Level 3 inputs for the three months ended March 31, 2022:
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| January 1, 2022 | | Transfers in to (out of) Level 3 | | Purchases | | | | Sales & Settlements | | Realized and Unrealized Gains (Losses) (1) | | | | March 31, 2022 |
| Assets | | | | | | | | | | | | | | | |
| Preferred stocks | $ | 2.8 | | | $ | — | | | $ | — | | | | | $ | — | | | $ | 0.5 | | | | | $ | 3.3 | |
| Other long-term investments | 336.9 | | | (40.6) | | | 34.2 | | | | | (10.0) | | | (5.2) | | | | | 315.3 | |
| Derivative assets | 0.4 | | | — | | | — | | | | | (1.7) | | | (1.1) | | | | | (2.4) | |
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| Total assets | $ | 340.1 | | | $ | (40.6) | | | $ | 34.2 | | | | | $ | (11.7) | | | $ | (5.8) | | | | | $ | 316.2 | |
| Liabilities | | | | | | | | | | | | | | | |
| Liability-classified capital instruments | $ | (57.2) | | | $ | — | | | $ | — | | | | | $ | — | | | $ | 15.1 | | | | | $ | (42.1) | |
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| Derivative liabilities | (3.2) | | | — | | | (1.9) | | | | | — | | | 0.3 | | | | | (4.8) | |
| Total liabilities | $ | (60.4) | | | $ | — | | | $ | (1.9) | | | | | $ | — | | | $ | 15.4 | | | | | $ | (46.9) | |
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(1)Total change in realized and unrealized gains (losses) recorded on Level 3 financial instruments is included in total realized and unrealized investment gains (losses) and net investment income in the consolidated statements of income (loss). Realized and unrealized gains (losses) related to underwriting-related derivative assets and liabilities are included in other underwriting expenses, net of foreign exchange (gains) losses, in the consolidated statements of income (loss).
For assets and liabilities that were transferred into Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred into Level 3 at the beginning of the period; similarly, for assets and liabilities that were transferred out of Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred out of Level 3 at the beginning of the period.
The following table includes financial instruments for which the carrying value differs from the estimated fair values at March 31, 2023 and December 31, 2022. The fair values of the below financial instruments are based on observable inputs and are considered Level 2 measurements.
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| | March 31, 2023 | | December 31, 2022 |
| | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| 2017 SEK Subordinated Notes | | $ | 238.6 | | | $ | 260.1 | | | $ | 259.0 | | | $ | 258.6 | |
| 2016 Senior Notes | | 336.0 | | | 404.5 | | | 343.7 | | | 404.8 | |
| 2015 Senior Notes | | 107.0 | | | 114.6 | | | 112.6 | | | 114.6 | |
| Series B preference shares | | $ | 182.4 | | | $ | 200.0 | | | $ | 186.0 | | | $ | 200.0 | |
7. Investments
The Company’s invested assets consist of investment securities and other long-term investments held for general investment purposes. The portfolio of investment securities includes debt securities held for trading, debt securities available for sale, short-term investments, equity securities, and other long-term investments which are classified as trading securities with the exception of debt securities held as available for sale. Realized investment gains and losses on debt securities are reported in pre-tax revenues. Unrealized investment gains and losses on debt securities are reported based on classification. Trading securities flow through pre-tax revenues, whereas securities classified as available for sale flow through other comprehensive income (loss).
For debt securities classified as available for sale for which a decline in the fair value between the amortized cost is due to credit-related factors, an allowance is established for the difference between the estimated recoverable value and amortized cost with a corresponding impact to the consolidated statements of income (loss). The allowance is limited to the difference between amortized cost and fair value. A credit losses impairment assessment is performed on securities using both quantitative and qualitative factors. Qualitative factors include significant declines in fair value below amortized cost. Additionally, a qualitative assessment is also performed over debt securities to evaluate potential credit losses. Examples of qualitative indicators include issuer credit downgrades as well as changes to credit spreads.
Declines in fair value related to a debt security that do not relate to a credit loss are recorded as a component of accumulated other comprehensive income (loss).
Debt securities
The following tables provide the cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and fair value of the Company's debt securities as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Cost or
amortized
cost | | Gross
unrealized
gains | | Gross unrealized losses (2) | | Net foreign
currency
gains (losses) | | | | Fair value |
| Debt securities, available for sale | | | | | | | | | | | |
| Asset-backed securities | $ | 419.9 | | | $ | 2.0 | | | $ | (7.5) | | | $ | — | | | | | $ | 414.4 | |
| Residential mortgage-backed securities | 428.3 | | | 2.1 | | | (12.6) | | | — | | | | | 417.8 | |
| Commercial mortgage-backed securities | 93.4 | | | 0.2 | | | (0.8) | | | — | | | | | 92.8 | |
| | | | | | | | | | | |
| Corporate debt securities | 945.8 | | | 7.5 | | | (9.7) | | | (0.2) | | | | | 943.4 | |
U.S. government and government agency(1) | 1,637.6 | | | 8.1 | | | (8.6) | | | — | | | | | 1,637.1 | |
| Non-U.S. government and government agency | 60.9 | | | 0.1 | | | (0.5) | | | (0.1) | | | | | 60.4 | |
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Total debt securities, available for sale (2)(3) | $ | 3,585.9 | | | $ | 20.0 | | | $ | (39.7) | | | $ | (0.3) | | | | | $ | 3,565.9 | |
| Debt securities, trading | | | | | | | | | | | |
| Asset-backed securities | $ | 461.3 | | | $ | — | | | $ | (17.8) | | | $ | — | | | | | $ | 443.5 | |
| Residential mortgage-backed securities | 151.5 | | | — | | | (19.1) | | | — | | | | | 132.4 | |
| Commercial mortgage-backed securities | 127.8 | | | — | | | (16.6) | | | — | | | | | 111.2 | |
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| Corporate debt securities | 314.6 | | | — | | | (19.8) | | | (0.4) | | | | | 294.4 | |
U.S. government and government agency (1) | 94.9 | | | — | | | (3.7) | | | — | | | | | 91.2 | |
| Non-U.S. government and government agency | 47.4 | | | — | | | (3.1) | | | — | | | | | 44.3 | |
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| Preferred stocks | 2.4 | | | 0.8 | | | — | | | — | | | | | 3.2 | |
| Total debt securities, trading | $ | 1,199.9 | | | $ | 0.8 | | | $ | (80.1) | | | $ | (0.4) | | | | | $ | 1,120.2 | |
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| December 31, 2022 |
| Cost or
amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Net foreign
currency
losses | | Fair value |
| Debt securities, available for sale | | | | | | | | | |
| Asset-backed securities | $ | 234.1 | | | $ | 0.9 | | | $ | (4.3) | | | $ | — | | | $ | 230.7 | |
| Residential mortgage-backed securities | 354.3 | | | 0.3 | | | (13.9) | | | — | | | 340.7 | |
| Commercial mortgage-backed securities | 62.1 | | | — | | | (0.9) | | | — | | | 61.2 | |
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| Corporate debt securities | 428.5 | | | 0.5 | | | (13.1) | | | (0.2) | | | 415.7 | |
U.S. government and government agency (1) | 1,561.9 | | | 3.2 | | | (14.5) | | | — | | | 1,550.6 | |
| Non-U.S. government and government agency | 37.2 | | | — | | | (0.7) | | | 0.1 | | | 36.6 | |
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Total debt securities, available for sale (2)(3) | $ | 2,678.1 | | | $ | 4.9 | | | $ | (47.4) | | | $ | (0.1) | | | $ | 2,635.5 | |
| Debt securities, trading | | | | | | | | | |
| Asset-backed securities | $ | 575.5 | | | $ | 0.1 | | | $ | (21.9) | | | $ | — | | | $ | 553.7 | |
| Residential mortgage-backed securities | 155.9 | | | — | | | (22.3) | | | — | | | 133.6 | |
| Commercial mortgage-backed securities | 130.5 | | | — | | | (17.1) | | | — | | | 113.4 | |
| | | | | | | | | |
| Corporate debt securities | 391.4 | | | — | | | (27.2) | | | (0.7) | | | 363.5 | |
U.S. government and government agency (1) | 278.6 | | | — | | | (8.2) | | | — | | | 270.4 | |
| Non-U.S. government and government agency | 95.8 | | | — | | | (4.0) | | | (3.6) | | | 88.2 | |
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| Preferred stocks | 2.4 | | | 0.8 | | | — | | | — | | | 3.2 | |
| Total debt securities, trading | $ | 1,630.1 | | | $ | 0.9 | | | $ | (100.7) | | | $ | (4.3) | | | $ | 1,526.0 | |
(1)The Company had $19.4 million of short positions in long duration U.S. Treasuries as of March 31, 2023 (December 31, 2022 - $27.0 million). These amounts are included in securities sold, not yet purchased in the consolidated balance sheets.
(2)As of March 31, 2023 and December 31, 2022, all debt securities classified as available for sale that are in a gross unrealized loss position have been in a gross unrealized loss position for less than 12 months.
(3)As of March 31, 2023 and December 31, 2022, the Company did not record an allowance for credit losses on the available for sale (“AFS”) portfolio.
The weighted average duration of the Company's debt securities, net of short positions in U.S. treasuries, as of March 31, 2023 was approximately 2.1 years, including short-term investments (December 31, 2022 - approximately 1.8 years).
The following table provides the cost or amortized cost and fair value of the Company's debt securities bifurcated into debt securities held for trading (“trading”) and AFS as of March 31, 2023 and December 31, 2022 by contractual maturity. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.
| | | | | | | | | | | | | | | | | | | | | | | |
| Debt securities, trading | | Debt securities, AFS |
| Cost or
amortized cost | | Fair value | | Cost or
amortized cost | | Fair value |
| March 31, 2023 | | | | | | | |
| Due in one year or less | $ | 161.5 | | | $ | 158.9 | | | $ | 348.3 | | | $ | 346.8 | |
| Due after one year through five years | 206.9 | | | 193.9 | | | 2,125.7 | | | 2,124.5 | |
| Due after five years through ten years | 53.2 | | | 47.7 | | | 167.5 | | | 167.0 | |
| Due after ten years | 35.3 | | | 29.4 | | | 2.8 | | | 2.6 | |
| Mortgage-backed and asset-backed securities | 740.6 | | | 687.1 | | | 941.6 | | | 925.0 | |
| Preferred stocks | 2.4 | | | 3.2 | | | — | | | — | |
| Total debt securities | $ | 1,199.9 | | | $ | 1,120.2 | | | $ | 3,585.9 | | | $ | 3,565.9 | |
| December 31, 2022 | | | | | | | |
| Due in one year or less | $ | 240.4 | | | $ | 230.9 | | | $ | 104.2 | | | $ | 104.0 | |
| Due after one year through five years | 426.5 | | | 407.0 | | | 1,822.7 | | | 1,802.0 | |
| Due after five years through ten years | 63.4 | | | 55.7 | | | 95.8 | | | 92.3 | |
| Due after ten years | 35.5 | | | 28.5 | | | 4.9 | | | 4.6 | |
| Mortgage-backed and asset-backed securities | 861.9 | | | 800.7 | | | 650.5 | | | 632.6 | |
| Preferred stocks | 2.4 | | | 3.2 | | | — | | | — | |
| Total debt securities | $ | 1,630.1 | | | $ | 1,526.0 | | | $ | 2,678.1 | | | $ | 2,635.5 | |
The following table summarizes the ratings and fair value of debt securities held in the Company's investment portfolio as of March 31, 2023 and December 31, 2022. Credit ratings are assigned based on Standard & Poor’s Rating Services (“S&P”). In the absence of an S&P rating, Moody’s Investors Service (“Moody’s”) ratings are used.
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Debt securities, trading | | Debt securities, AFS | | Debt securities, trading | | Debt securities, AFS |
| AAA | $ | 469.7 | | | $ | 325.0 | | | $ | 564.4 | | | $ | 172.8 | |
| AA | 282.3 | | | 2,153.8 | | | 523.2 | | | 1,907.6 | |
| A | 144.2 | | | 546.4 | | | 181.1 | | | 188.9 | |
| BBB | 141.2 | | | 275.7 | | | 158.1 | | | 149.9 | |
| Other | 82.8 | | | 265.0 | | | 99.2 | | | 216.3 | |
| Total debt securities | $ | 1,120.2 | | | $ | 3,565.9 | | | $ | 1,526.0 | | | $ | 2,635.5 | |
As of March 31, 2023, the above totals included $115.6 million of sub-prime securities. Of this total, $60.2 million was rated AAA, $24.2 million rated AA, $2.9 million rated BBB and $28.3 million were unrated. As of December 31, 2022, the above totals included $95.3 million of sub-prime securities. Of this total, $56.1 million were rated AAA, $20.0 million rated AA and $19.2 million were unrated.
Equity securities and other long-term investments
The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains (losses), and fair values of the Company’s equity securities and other long-term investments as of March 31, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Cost or
amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Net foreign
currency
gains (losses) | | Fair value |
| March 31, 2023 | | | | | | | | | | |
| Equity securities | | $ | 1.6 | | | $ | — | | | $ | (0.2) | | | $ | 0.2 | | | $ | 1.6 | |
| Other long-term investments | | $ | 372.9 | | | $ | 31.0 | | | $ | (46.9) | | | $ | 4.9 | | | $ | 361.9 | |
| December 31, 2022 | | | | | | | | | | |
| Equity securities | | $ | 1.8 | | | $ | — | | | $ | (0.2) | | | $ | — | | | $ | 1.6 | |
| Other long-term investments | | $ | 392.0 | | | $ | 27.5 | | | $ | (41.8) | | | $ | (0.5) | | | $ | 377.2 | |
The Company holds investments in hedge funds and private equity funds, which are included in other long-term investments. The carrying value of other long-term investments as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Hedge funds and private equity funds (1) | | $ | 80.9 | | | $ | 84.9 | |
Strategic Investments (2) | | 250.5 | | | 262.0 | |
Other investments (2) | | 30.5 | | | 30.3 | |
| Total other long-term investments | | $ | 361.9 | | | $ | 377.2 | |
(1)Includes $55.7 million of investments carried at NAV (December 31, 2022 - $45.1 million) and $25.2 million of investments classified as Level 3 (December 31, 2022 - $25.1 million) within the fair value hierarchy.
(2)As of March 31, 2023, the Company had $11.8 million of unfunded commitments relating to these investments (December 31, 2022 - $16.0 million).
Investments in unconsolidated entities
The Company’s investments in unconsolidated entities are included within other long-term investments and consist of investments in common equity securities or similar instruments, which give the Company the ability to exert significant influence over the investee's operating and financial policies. Such investments may be accounted for under either the equity method (“equity method investments”) or, alternatively, the Company may elect to account for them under the fair value option (“equity method eligible unconsolidated entities”).
The following table presents the components of other long-term investments as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31,
2022 |
| Equity method eligible unconsolidated entities, using the fair value option | $ | 146.4 | | | $ | 147.9 | |
| Equity method investments | 45.2 | | | 41.8 | |
Other unconsolidated investments, at fair value (1) | 120.5 | | | 124.5 | |
Other unconsolidated investments, at cost (2) | 49.8 | | | 63.0 | |
| Total other long-term investments | $ | 361.9 | | | $ | 377.2 | |
(1)Includes other long-term investments that are not equity method eligible and are measured at fair value.
(2)The Company has elected to apply the cost adjusted for market observable events impairment measurement alternative to investments that do not meet the criteria to be accounted for under the equity method, in which the investment is measured at cost and remeasured to fair value when impaired or upon observable transaction prices.
Equity method eligible unconsolidated entities, using the fair value option, exclude the Company’s investment in Third Point Enhanced LP (“TP Enhanced Fund”), Third Point Venture Offshore Fund I LP (“TP Venture Fund”), Third Point Venture Offshore Fund II LP (“TP Venture Fund II”), collectively, the “Related Party Investment Funds.” Refer to “Investments in related party investment funds” discussed below.
Investments in related party investment funds
The following table provides the fair value of the Company's investments in related party investment funds as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Third Point Enhanced LP | | $ | 89.4 | | | $ | 100.3 | |
| Third Point Venture Offshore Fund I LP | | 26.1 | | | 26.0 | |
| Third Point Venture Offshore Fund II LP | | 2.4 | | | 2.5 | |
| Investments in related party investment funds, at fair value | | $ | 117.9 | | | $ | 128.8 | |
Investment in Third Point Enhanced LP
On February 23, 2022, the Company entered into the Fourth Amended and Restated Exempted Limited Partnership Agreement of Third Point Enhanced LP with Third Point Advisors LLC (“TP GP”) and the other parties thereto (the “2022 LPA”), which amended and restated the Third Amended and Restated Exempted Limited Partnership Agreement dated August 6, 2020 (the “2020 LPA”).
The TP Enhanced Fund investment strategy, as implemented by Third Point LLC, is intended to achieve superior risk-adjusted returns by deploying capital in both long and short investments with favorable risk/reward characteristics across select asset classes, sectors and geographies. Third Point LLC identifies investment opportunities via a bottom-up, value-oriented approach to single security analysis supplemented by a top-down view of portfolio and risk management. Third Point LLC seeks dislocations in certain areas of the capital markets or in the pricing of particular securities and supplements single security analysis with an approach to portfolio construction that includes sizing each investment based on upside/downside calculations, all with a view towards appropriately positioning and managing overall exposures.
The 2020 LPA was amended and restated to, among other things:
•add the right to withdraw the Company’s capital accounts in TP Enhanced Fund as of any month-end in accordance with an agreed withdrawal schedule to be reinvested in, or contractually committed to, the Third Point Optimized Credit portfolio (the “TPOC Portfolio”), or other Third Point strategies (“TPE Withdrawn Amounts”);
•remove restrictions on the Company’s withdrawal rights following a change of control with respect to the Company;
•authorize the Company’s Chief Investment Officer to exercise all decisions under the 2022 LPA, without the need for separate approval from the Investment Committee of the Company’s Board of Directors;
•provide that the Company may amend the investment guidelines of the 2022 LPA from time to time for risk management purposes in consultation with TP GP;
•provide that the Company and TP GP may discuss the adoption of new risk parameters for TP Enhanced Fund from time to time, and TP GP will work with the Company to create additional risk management guidelines responsive to the Company’s needs that do not fundamentally alter the general investment strategy or investment approach of TP Enhanced Fund;
•provide that the Company may increase or decrease TP Enhanced Fund’s leverage targets upon reasonable prior notice to meet the business needs of the Company; and
•revise the “cause event” materiality qualifier with respect to violations of law related to Third Point LLC’s investment-related business and Third Point LLC being subject to regulatory proceedings to include events that will likely have a material adverse effect on Third Point LLC’s ability to provide investment management services to TP Enhanced Fund and/or the TPOC Portfolio.
All other material terms of the 2022 LPA remain consistent with the 2020 LPA.
Amended and Restated Investment Management Agreement
On February 23, 2022, the Company entered into an Amended and Restated Investment Management Agreement (the “2022 IMA”) with Third Point LLC and the other parties thereto, which amended and restated the Investment Management Agreement dated August 6, 2020.
Pursuant to the 2022 IMA, Third Point LLC provides discretionary investment management services with respect to a newly established TPOC Portfolio, subject to investment and risk management guidelines, and continues to provide certain non-discretionary investment advisory services to the Company. The Company agreed to contribute to the TPOC Portfolio amounts withdrawn from TP Enhanced Fund on January 31, 2022 that were not invested or committed for investment in other Third Point strategies. The 2022 IMA contains revised term and termination rights, withdrawal rights, incentive fees, management fees, investment guidelines and advisory fees.
For the investment management services provided in respect of the TPOC Portfolio, the Company will pay Third Point LLC, from the assets of each sub-account, an annual incentive fee equal to 15% of outperformance over a specified benchmark. The Company will also pay Third Point LLC a monthly management fee equal to one twelfth of 0.50% (0.50% per annum) of the TPOC Portfolio, net of any expenses, and a fixed advisory fee for the advisory services equal to 1/4 of $1,500,000 per quarter.
Under the 2022 IMA, the Company may withdraw any amount from the TPOC Portfolio as of any month-end up to (i) the full balance of any sub-account established in respect of any capital contribution not in respect of TPE Withdrawn Amounts and (ii) any net profits in respect of any other sub-account. The Company may withdraw the TPOC Portfolio in full on March 31, 2026, and each successive anniversary of such date. The Company will have the right to withdraw funds monthly from the TPOC Portfolio upon the occurrence of certain events specified in the 2022 IMA, including, within 120 days following the occurrence of a Cause Event (as defined in the 2022 LPA), to meet capital adequacy requirements, to prevent a negative credit rating, for risk management purposes, underperformance of the TPOC Portfolio relative to investment funds managed by third-party managers and pursuing the same or substantially similar investment strategy as the TPOC Portfolio (i.e., which measure performance relative to the benchmark) for two or more consecutive calendar years or a Key Person Event (as defined in the 2022 LPA), subject to certain limitations on such withdrawals as specified in the 2022 IMA. The Company is also entitled to withdraw funds from the TPOC Portfolio in order to satisfy its risk management guidelines, upon prior written notice to Third Point LLC, in an amount not to exceed the Risk Management Withdrawable Amount (as defined in the 2022 LPA).
As of March 31, 2023, the Company had no unfunded commitments related to TP Enhanced Fund.
Investment in Third Point Venture Offshore Fund I LP
On March 1, 2021, SiriusPoint Bermuda entered into the Amended and Restated Exempted Limited Partnership Agreement (“2021 Venture LPA”) of TP Venture Fund which became effective on March 1, 2021. In accordance with the 2021 Venture LPA, Third Point Venture GP LLC (“TP Venture GP”) serves as the general partner of TP Venture Fund.
The TP Venture Fund investment strategy, as implemented by Third Point LLC, is to generate attractive risk-adjusted returns through a concentrated portfolio of investments in privately-held companies, primarily in the expansion through late/pre-IPO stage. The TP Venture Fund may also invest in early stage companies. Due to the nature of the fund, withdrawals are not permitted. Distributions prior to the expected termination date of the fund include, but are not limited to, dividends or proceeds arising from the liquidation of the fund's underlying investments.
As of March 31, 2023, the Company had $9.5 million of unfunded commitments related to TP Venture Fund. As of March 31, 2023, the Company holds interests of approximately 16.8% of the net asset value of TP Venture Fund.
Investment in Third Point Venture Offshore Fund II LP
On June 30, 2022, SiriusPoint Bermuda entered into the Amended and Restated Exempted Limited Partnership Agreement (“2022 Venture II LPA”) of TP Venture Fund II. In accordance with the 2022 Venture II LPA, Third Point Venture GP II LLC (“TP Venture GP II”) serves as the general partner of TP Venture Fund II.
The TP Venture Fund II investment strategy, as implemented by Third Point LLC, is to generate attractive risk-adjusted returns through a concentrated portfolio of investments in privately-held companies, primarily in the expansion through late/pre-IPO stage. The TP Venture Fund may also invest in early stage companies. Due the nature of the fund, withdrawals are not permitted. Distributions prior to the expected termination date of the fund include, but are not limited to, dividends or proceeds arising from the liquidation of the fund's underlying investments.
As of March 31, 2023, the Company had $22.5 million of unfunded commitments related to TP Venture Fund II. As of March 31, 2023, the Company holds interests of approximately 17.8% of the net asset value of TP Venture Fund II.
8. Total realized and unrealized investment gains (losses) and net investment income
Net realized and unrealized investment gains (losses) and net investment income for the three months ended March 31, 2023 and 2022 consisted of the following:
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
| Debt securities, available for sale | $ | 35.1 | | | $ | — | | | | | |
| Debt securities, trading | 29.1 | | | (59.3) | | | | | |
| Short-term investments | 8.4 | | | (1.7) | | | | | |
| Other long-term investments | 4.4 | | | (1.0) | | | | | |
| Equity securities | — | | | (0.1) | | | | | |
| Net realized and unrealized investment gains (losses) from related party investment funds | 0.8 | | | (131.0) | | | | | |
| Realized and unrealized investment gains (losses) and net investment income before other investment expenses and investment loss on cash and cash equivalents | 77.8 | | | (193.1) | | | | | |
| Investment expenses | (5.4) | | | (4.2) | | | | | |
| Net investment income (loss) on cash and cash equivalents | 1.2 | | | (7.8) | | | | | |
| Total realized and unrealized investment gains (losses) and net investment income | $ | 73.6 | | | $ | (205.1) | | | | | |
Net realized and unrealized gains (losses) on investments
Net realized and unrealized investment gains (losses) for the three months ended March 31, 2023 and 2022 consisted of the following:
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
| Gross realized gains | $ | 5.8 | | | $ | 11.2 | | | | | |
| Gross realized losses | (15.6) | | | (13.8) | | | | | |
| Net realized (losses) on investments | (9.8) | | | (2.6) | | | | | |
| Net unrealized gains (losses) on investments | 21.1 | | | (79.3) | | | | | |
| Net realized and unrealized gains (losses) on investments (1)(2) | $ | 11.3 | | | $ | (81.9) | | | | | |
(1)Excludes realized and unrealized gains (losses) on the Company’s investments in related party investment funds and unrealized gains from available for sale investments, net of tax.
(2)Includes net realized and unrealized gains (losses) of $1.8 million from related party investments included in other-long term investments for the three months ended March 31, 2023 (2022 - $1.6 million).
Net realized investment (losses)
Net realized investment (losses) for the three months ended March 31, 2023 and 2022 consisted of the following:
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
| Debt securities, available for sale | $ | (0.6) | | | $ | — | | | | | |
| Debt securities, trading | (7.4) | | | (4.2) | | | | | |
| Short-term investments | (0.2) | | | (0.2) | | | | | |
| Equity securities | — | | | (2.3) | | | | | |
| | | | | | | |
| Other long-term investments | (0.4) | | | 0.3 | | | | | |
| Net investment income (loss) on cash and cash equivalents | (1.2) | | | 3.8 | | | | | |
| Net realized investment (losses) | $ | (9.8) | | | $ | (2.6) | | | | | |
Net unrealized investment gains (losses)
Net unrealized investment gains (losses) for the three months ended March 31, 2023 and 2022 consisted of the following:
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
| Debt securities, trading | $ | 23.0 | | | $ | (64.1) | | | | | |
| Short-term investments | (0.4) | | | (2.0) | | | | | |
| Equity securities | — | | | 2.1 | | | | | |
| | | | | | | |
| Other long-term investments | (3.0) | | | (3.2) | | | | | |
| Net investment income (loss) on cash and cash equivalents | 1.5 | | | (12.1) | | | | | |
| Net unrealized investment gains (losses) | $ | 21.1 | | | $ | (79.3) | | | | | |
The following table summarizes the amount of total (losses) included in earnings attributable to unrealized investment (losses) – Level 3 investments for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
| Debt securities, trading | $ | 0.1 | | | $ | 0.5 | | | | | |
| | | | | | | |
| Other long-term investments | (4.8) | | | (3.9) | | | | | |
| Total unrealized investment (losses) – Level 3 investments | $ | (4.7) | | | $ | (3.4) | | | | | |
9. Derivatives
The Company holds derivative financial instruments for both risk management and investment purposes.
Foreign currency risk derivatives
The Company executes foreign currency forwards, call options, swaps, and futures to manage foreign currency exposure. The foreign currency risk derivatives are not designated or accounted for under hedge accounting. Changes in fair value are presented within foreign exchange (gains) losses. The fair value of the swaps and forwards are estimated using a single broker quote, and accordingly, are classified as a Level 3 measurement. The fair value of the futures is widely available and have quoted prices in active markets, and accordingly, were classified as a Level 1 measurement. As of March 31, 2023, the Company holds $14.2 million in collateral associated with the foreign currency derivatives (December 31, 2022 - $15.2 million).
Weather derivatives
The Company holds assets and assumes liabilities related to weather and weather contingent risk management products. Weather and weather contingent derivative contracts are entered into with the objective of generating profits in normal climatic conditions. Accordingly, the Company’s weather and weather contingent derivatives are not designed to meet the criteria for hedge accounting under U.S. GAAP. The Company receives payment of premium at the contract inception in exchange for bearing the risk of variations in a quantifiable weather index. Changes in fair value are presented within other revenues. Management uses available market data and internal pricing models based upon consistent statistical methodologies to estimate the fair value. Because of the significance of the unobservable inputs used to estimate the fair value of the Company's weather risk contracts, the fair value measurements of the contracts are deemed to be Level 3 measurements in the fair value hierarchy as of March 31, 2023. The Company does not provide or hold any collateral associated with the weather derivatives.
The following table summarizes information on the classification and amount of the fair value of derivatives not designated as hedging instruments within the Company's consolidated balance sheets as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Derivatives not designated as hedging instruments | | Derivative assets at fair value(1) | | Derivative liabilities at fair value(2) | | Notional
Value | | Derivative assets at fair value(1) | | Derivative liabilities at fair value(2) | | Notional
Value |
| Foreign currency forwards | | $ | 8.0 | | | $ | — | | | $ | 558.0 | | | $ | 9.0 | | | $ | — | | | $ | 425.1 | |
| Foreign currency swaps | | 2.8 | | | 1.9 | | | 552.4 | | | — | | | 1.5 | | | 264.6 | |
| Weather derivatives | | $ | — | | | $ | 4.6 | | | $ | 30.6 | | | $ | — | | | $ | 4.9 | | | $ | 30.6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)Derivative assets are classified within other assets in the Company’s consolidated balance sheets.
(2)Derivative liabilities are classified within accounts payable, accrued expenses and other liabilities in the Company’s consolidated balance sheets.
The following table summarizes information on the classification and net impact on earnings, recognized in the Company’s consolidated statements of income (loss) relating to derivatives during the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Derivatives not designated as hedging instruments | | Classification of gains (losses) recognized in earnings | | 2023 | | 2022 | | | | | |
| | | | | | | | | | | |
| Foreign currency forwards | | Foreign exchange gains | | $ | (1.6) | | | $ | (1.0) | | | | | | |
| Foreign currency futures contracts | | Foreign exchange gains | | — | | | (5.9) | | | | | | |
| Weather derivatives | | Other revenues | | 3.5 | | | (0.5) | | | | | | |
| Equity warrants | | Net realized and unrealized investment gains (losses) | | — | | | (0.1) | | | | | | |
| Foreign currency swaps | | Foreign exchange gains | | $ | (1.6) | | | $ | — | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
10. Variable and voting interest entities
The Company consolidates the results of operations and financial position of every voting interest entity ("VOE") in which it has a controlling financial interest and variable interest entities (“VIE”) in which it is considered to be the primary beneficiary in accordance with guidance in ASC 810, Consolidation. The consolidation assessment, including the determination as to whether an entity qualifies as a VOE or VIE, depends on the facts and circumstances surrounding each entity.
Consolidated variable interest entities
Alstead Re
Alstead Reinsurance Ltd. (“Alstead Re”) is considered a VIE and the Company has concluded that it is the primary beneficiary of Alstead Re because the Company can exercise control over the activities that most significantly impact the economic performance of Alstead Re. As a result, the Company has consolidated the results of Alstead Re in its consolidated financial statements. As of March 31, 2023, Alstead Re’s assets and liabilities included in the Company’s consolidated balance sheets were $15.8 million and $10.0 million, respectively (December 31, 2022 - $14.0 million and $9.0 million, respectively).
Arcadian
Arcadian Risk Capital Ltd. (“Arcadian”) is considered a VIE and the Company has concluded that it is the primary beneficiary of Arcadian because the Company can exercise control over the activities that most significantly impact the economic performance of Arcadian. As a result, the Company has consolidated the results of Arcadian in its consolidated financial statements. The Company’s ownership in Arcadian as of March 31, 2023 was 49%, and its financial exposure to Arcadian is limited to its investment in Arcadian’s common shares and other financial support up to $18.0 million through an unsecured promissory note. As of March 31, 2023, Arcadian’s assets and liabilities, after intercompany eliminations, included in the Company’s consolidated balance sheets were $35.6 million and $6.6 million, respectively (December 31, 2022 - $32.3 million and $9.7 million, respectively).
Banyan
In January 2023, Banyan Risk Ltd. (“Banyan”) completed the recapitalization in which the Company’s ownership decreased from 100% to 49%. Banyan was consolidated through the year ended December 31, 2022 as the Company was its sole owner. As a result of the recapitalization, new investors obtained equity ownership and the Company reevaluated the criteria for consolidation. Banyan is considered a VIE and the Company is the primary beneficiary of Banyan because the Company can
exercise control over the activities that most significantly impact the economic performance of Banyan. As a result, the Company has continued to consolidate the results of Banyan in its consolidated financial statements. As of March 31, 2023, Banyan’s assets and liabilities, after intercompany eliminations, included in the Company’s consolidated balance sheets were $8.9 million and $0.8 million, respectively (December 31, 2022 - $8.0 million and $1.1 million, respectively).
Joyn
Joyn Insurance Services Inc. (“Joyn”) was considered a VIE through the third quarter of 2022 and the Company concluded that it was the primary beneficiary of Joyn because the Company could have exercised control over the activities that most significantly impacted the economic performance of Joyn. As a result, the Company had consolidated the results of Joyn in its consolidated financial statements. During the fourth quarter of 2022, an additional investment was made in Joyn by third parties, after which Joyn no longer met the criterion for consolidation. As of March 31, 2023, the investment in Joyn is recorded in other long-term investments in the Company’s consolidated balance sheets utilizing cost adjusted for market observable events less impairment method.
Consolidated voting interest entities
Alta Signa
On June 30, 2022, the Company entered into a strategic partnership with Alta Signa Holdings (“Alta Signa”), a European MGA specializing in financial and professional lines insurance. The Company’s ownership in Alta Signa as of March 31, 2023 was 75.1%. Alta Signa is considered a VOE and the Company holds a majority of the voting interests through its seats on Alta Signa’s board of directors. As a result, the Company has consolidated the results of Alta Signa in its consolidated financial statements. As of March 31, 2023, Alta Signa’s assets and liabilities, after intercompany eliminations, included in the Company’s consolidated balance sheets were $8.6 million and $1.6 million, respectively (December 31, 2022 - $8.0 million and $2.1 million, respectively).
Noncontrolling interests
Noncontrolling interests represent the portion of equity in consolidated subsidiaries not attributable, directly or indirectly, to the Company. The following table is a reconciliation of the beginning and ending carrying amount of noncontrolling interests for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | |
| | | | | |
| | 2023 | | 2022 | | | | | |
| | | | | | | | | |
| Balance, beginning of period | | $ | 7.9 | | | $ | (0.4) | | | | | | |
| | | | | | | | | |
| Net income (loss) attributable to noncontrolling interests | | 2.4 | | | (0.3) | | | | | | |
| Contributions (Redemptions) | | 1.1 | | | — | | | | | | |
| | | | | | | | | |
| Balance, end of period | | $ | 11.4 | | | $ | (0.7) | | | | | | |
Non-consolidated variable interest entities
The Company is a passive investor in certain third-party-managed hedge and private equity funds, some of which are VIEs. The Company is not involved in the design or establishment of these VIEs, nor does it actively participate in the management of the VIEs. The exposure to loss from these investments is limited to the carrying value of the investments at the balance sheet date.
The Company calculates maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of VIE assets or liabilities where the Company has also provided credit protection to the VIE with the VIE as the referenced obligation, and (iii) other commitments and guarantees to the VIE. The Company does not have any VIEs that it sponsors nor any VIEs where it has recourse to it or has provided a guarantee to the VIE interest holders.
The following table presents total assets of unconsolidated VIEs in which the Company holds a variable interest, as well as the maximum exposure to loss associated with these VIEs as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | Maximum Exposure to Loss |
| Total VIE Assets | | On-Balance Sheet | | Off-Balance Sheet | | Total |
| March 31, 2023 | | | | | | | |
Other long-term investments (1) | $ | 211.5 | | | $ | 144.0 | | | $ | 2.0 | | | $ | 146.0 | |
| | | | | | | |
| December 31, 2022 | | | | | | | |
| |
| | | |
| | | | | | | |
Other long-term investments (1) | $ | 211.5 | | | $ | 144.0 | | | $ | 2.0 | | | $ | 146.0 | |
| | | | | | | |
(1)Excludes the Company’s investments in Related Party Investment Funds which are also VIEs and are discussed separately below.
Third Point Enhanced LP
As of March 31, 2023, the Company and TP GP hold interests of approximately 89.4% and 10.6%, respectively, of the net asset value of TP Enhanced Fund. As a result, both entities hold significant financial interests in TP Enhanced Fund. However, TP GP controls all of the investment decision-making authority and the Company does not have the power to direct the activities which most significantly impact the economic performance of TP Enhanced Fund. As a result, the Company is not considered the primary beneficiary and does not consolidate TP Enhanced Fund. The Company’s maximum exposure to loss corresponds to the value of its investments in TP Enhanced Fund.
The following is a summarized income statement of the TP Enhanced Fund for the three months ended March 31, 2023 and 2022, and summarized balance sheet as of March 31, 2023 and December 31, 2022.
This summarized income statement of TP Enhanced Fund reflects the main components of total investment income and expenses of TP Enhanced Fund. This summarized income statement is not a breakdown of the Company’s proportional investment income in TP Enhanced Fund as presented in the Company’s consolidated statements of income (loss).
| | | | | | | | | | | | | | | | | | |
| | | | |
TP Enhanced Fund summarized income statement | | 2023 | | 2022 | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total investment income (loss) | | $ | 2.1 | | | $ | (137.7) | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total expenses | | 0.9 | | | 5.4 | | | | | |
| Net income (loss) | | $ | 1.2 | | | $ | (143.1) | | | | | |
The following table is a summarized balance sheet of TP Enhanced Fund as of March 31, 2023 and December 31, 2022 and reflects the underlying assets and liabilities of TP Enhanced Fund. This summarized balance sheet is not a breakdown of the Company’s proportional interests in the underlying assets and liabilities of TP Enhanced Fund.
| | | | | | | | | | | |
TP Enhanced Fund summarized balance sheet | March 31,
2023 | | December 31, 2022 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total assets | $ | 114.1 | | | $ | 260.6 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total liabilities | 13.9 | | | 148.6 | |
| Total partners' capital | $ | 100.2 | | | $ | 112.0 | |
Investment in Third Point Venture Offshore Fund I LP
TP Venture GP controls all of the investment decision-making authority of the TP Venture Fund. The Company does not have the power to direct the activities which most significantly impact the economic performance of the TP Venture Fund. The Company’s maximum exposure to loss corresponds to the value of its investment in the TP Venture Fund. See Note 7 for additional information on the Company’s investment in the TP Venture Fund.
Investment in Third Point Venture Offshore Fund II LP
TP Venture GP II controls all of the investment decision-making authority of the TP Venture Fund II. The Company does not have the power to direct the activities which most significantly impact the economic performance of the TP Venture Fund II. The Company’s maximum exposure to loss corresponds to the value of its investment in TP Venture Fund II. See Note 7 for additional information on the Company’s investment in TP Venture Fund II.
11. Loss and loss adjustment expense reserves
The following table represents the activity in the loss and loss adjustment expense reserves for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Gross reserves for loss and loss adjustment expenses, beginning of period | $ | 5,268.7 | | | $ | 4,841.4 | |
| Less: loss and loss adjustment expenses recoverable, beginning of period | (1,376.2) | | | (1,215.3) | |
| Less: deferred charges on retroactive reinsurance contracts | (1.0) | | | (1.4) | |
| Net reserves for loss and loss adjustment expenses, beginning of period | 3,891.5 | | | 3,624.7 | |
| Increase (decrease) in net loss and loss adjustment expenses incurred in respect of losses occurring in: | | | |
| Current year | 372.5 | | | 345.6 | |
| Prior years | (105.4) | | | (5.5) | |
| Total incurred loss and loss adjustment expenses | 267.1 | | | 340.1 | |
| Net loss and loss adjustment expenses paid in respect of losses occurring in: | | | |
| Current year | (36.4) | | | (38.3) | |
| Prior years | (202.1) | | | (254.1) | |
| Total net paid losses | (238.5) | | | (292.4) | |
| Foreign currency translation | 6.0 | | | (16.3) | |
| | | |
| Net reserves for loss and loss adjustment expenses, end of period | 3,926.1 | | | 3,656.1 | |
| Plus: loss and loss adjustment expenses recoverable, end of period | 1,392.0 | | | 1,278.6 | |
Plus: deferred charges on retroactive reinsurance contracts (1) | 0.8 | | | 1.3 | |
| Gross reserves for loss and loss adjustment expenses, end of period | $ | 5,318.9 | | | $ | 4,936.0 | |
(1)Deferred charges on retroactive contracts are recorded in other assets on the Company’s consolidated balance sheets.
The Company's prior year reserve development arises from changes to estimates of losses and loss adjustment expenses related to loss events that occurred in previous calendar years.
For the three months ended March 31, 2023, the Company recorded $105.4 million of net favorable prior year loss reserve development driven by decreases in the domestic and international property and casualty lines of business in the Reinsurance segment and Accident & Health in the Insurance & Service segment. This increase in favorable prior year loss reserve development was primarily the result of management reflecting the continued favorable reported loss emergence through March 31, 2023 in its best estimate of reserves, which was further validated by the pricing of the 2023 LPT from external reinsurers.
For the three months ended March 31, 2022, the Company recorded $5.5 million of net favorable prior year loss reserve development driven by favorable development on COVID-19 reserves of $23.5 million due to better than expected loss experience, with the most significant offsetting movement being reserve strengthening in the property lines that was driven by the current elevated level of inflation.
12. Allowance for expected credit losses
The Company is exposed to credit losses through sales of its insurance and reinsurance products and services. The financial assets in scope of the current expected credit losses impairment model primarily include the Company’s insurance and reinsurance balances receivable and loss and loss adjustment expenses recoverable. The Company pools these amounts by counterparty credit rating and applies a credit default rate that is determined based on the studies published by the rating agencies (e.g., AM Best, S&P). In circumstances where ratings are unavailable, the Company applies an internally developed default rate based on historical experience, reference data including research publications, and other relevant inputs.
The Company's assets in scope of the current expected credit loss assessment as of March 31, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Insurance and reinsurance balances receivable, net | $ | 2,261.0 | | | $ | 1,876.9 | |
| Loss and loss adjustment expenses recoverable, net | 1,392.0 | | | 1,376.2 | |
Other assets (1) | 71.1 | | | 52.4 | |
| Total assets in scope | $ | 3,724.1 | | | $ | 3,305.5 | |
| | | |
| | | |
(1)Relates to MGA trade receivables (included in other assets in the Company’s consolidated balance sheets), loans receivables (included in other long-term investments in the Company’s consolidated balance sheets) and interest and dividend receivables.
The Company’s allowance for expected credit losses was $34.3 million as of March 31, 2023 (December 31, 2022 - $34.3 million). For the three months ended March 31, 2023, the Company did not record any change to current expected credit losses (2022 - $12.5 million). These amounts are included in net corporate and other expenses in the consolidated statements of income (loss).
The Company monitors counterparty credit ratings and macroeconomic conditions, and considers the most current AM Best and S&P credit ratings to determine the allowance each quarter. As of March 31, 2023, approximately 60% of the total gross assets in scope were balances with counterparties rated by either AM Best or S&P and, of the total rated, 79% were rated A- or better.
13. Debt and letter of credit facilities
Debt obligations
The following table represents a summary of the Company’s debt obligations on its consolidated balance sheets as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Amount | | Effective rate (1) | | Amount | | Effective rate (1) |
| 2017 SEK Subordinated Notes, at face value | | $ | 265.7 | | | 6.7 | % | | $ | 264.3 | | | 6.0 | % |
| Unamortized discount | | (5.6) | | | | | (5.7) | | | |
| 2017 SEK Subordinated Notes, carrying value | | 260.1 | | | | | 258.6 | | | |
| 2016 Senior Notes, at face value | | 400.0 | | | 4.5 | % | | 400.0 | | | 4.5 | % |
| Unamortized premium | | 4.5 | | | | | 4.8 | | | |
| | | | | | | | |
| 2016 Senior Notes, carrying value | | 404.5 | | | | | 404.8 | | | |
| 2015 Senior Notes, at face value | | 115.0 | | | 7.0 | % | | 115.0 | | | 7.0 | % |
| Unamortized issuance costs | | (0.4) | | | | | (0.4) | | | |
| 2015 Senior Notes, carrying value | | 114.6 | | | | | 114.6 | | | |
| Total debt | | $ | 779.2 | | | | | $ | 778.0 | | | |
(1)Effective rate considers the effect of the debt issuance costs, discount, and premium.
The Company was in compliance with all debt covenants as of and for the periods ended March 31, 2023 and December 31, 2022.
Standby letter of credit facilities
As of March 31, 2023, the Company had entered into the following letter of credit facilities:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Letters of Credit | | Collateral |
| Committed Capacity | | Issued | | Cash and Cash Equivalents | | Debt securities |
| | | | | | | |
| Committed - Secured letters of credit facilities | $ | 380.0 | | | $ | 295.0 | | | $ | 16.3 | | | $ | 241.3 | |
| Uncommitted - Secured letters of credit facilities | n/a | | 973.0 | | | 122.4 | | | 1,035.5 | |
| | | $ | 1,268.0 | | | $ | 138.7 | | | $ | 1,276.8 | |
The Company’s secured letter of credit facilities are bilateral agreements that generally renew on an annual basis. The letters of credit issued under the secured letter of credit facilities are fully collateralized. The above referenced facilities are subject to various affirmative, negative and financial covenants that the Company considers to be customary for such borrowings, including certain minimum net worth and maximum debt to capitalization standards. See Note 5 for additional information.
Revolving credit facility
In addition to the letter of credit facilities above, the Company entered into a three-year, $300.0 million senior unsecured revolving credit facility (the “Facility”) with JPMorgan Chase Bank, N.A. as administrative agent, effective February 26, 2021. The Facility includes an option, subject to satisfaction of certain conditions including agreement of lenders representing greater than a majority of commitments, for the Company to request an extension by such lenders of the maturity date of the Facility by an additional 12 months. The Facility provides access to loans for working capital and general corporate purposes, and letters of credit to support obligations under insurance and reinsurance agreements, retrocessional agreements and for general corporate purposes. Loans and letters of credit under the Facility will become available, subject to customary conditions precedent. As of March 31, 2023, there were no outstanding borrowings under the Facility.
14. Income taxes
The Company is subject to income tax expense or benefit based upon pre-tax income or loss reported in the consolidated statements of income (loss) and the provisions of currently enacted tax laws. The Company and its Bermuda-domiciled subsidiaries are incorporated under the laws of Bermuda and are subject to Bermuda law with respect to taxation. Under current Bermuda law, the Company and its Bermuda-domiciled subsidiaries are not subject to any income or capital gains taxes in Bermuda. In the event that such taxes are imposed, the Company and its Bermuda-domiciled subsidiaries would be exempted from any such taxes until March 2035 under the Tax Assurance Certificates issued to such entities pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966, as amended.
The Company has subsidiaries and branches that operate in various other jurisdictions around the world that are subject to tax in the jurisdictions in which they operate. The jurisdictions in which the Company's subsidiaries and branches are subject to tax are Belgium, Canada, Germany, Gibraltar, Hong Kong (China), Luxembourg, Singapore, Sweden, Switzerland, the United Kingdom, and the United States.
For the three months ended March 31, 2023, the Company recorded income tax expense of $25.8 million (2022 - $9.7 million) on pre-tax income (loss) of $170.8 million (2022 - $(203.6) million). The effective tax rate for the three months ended March 31, 2023 was 15.1%. The difference between the effective tax rate on income (losses) from continuing operations and the Bermuda statutory tax rate of 0.0% is primarily because of income recognized in jurisdictions with higher tax rates than Bermuda, and adjustments pursuant to applicable U.S. GAAP guidance on interim period financial reporting of taxes, which are based on the annual estimated effective tax rate.
In arriving at the estimated annual effective tax rate for the three months ended March 31, 2023 and 2022, the Company took into consideration all year-to-date income and expense items including the change in unrealized investment gains (losses) and realized investment gains (losses) and such items on a forecasted basis for the remainder of each year. Based on applicable U.S. GAAP guidance, jurisdictions with a projected loss for the full year where no tax benefit can be recognized are excluded from the estimation of the annual effective tax rate.
Uncertain tax positions
Recognition of the benefit of a given tax position is based upon whether a company determines that it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. In evaluating the more likely than not recognition threshold, the Company must presume that the tax position will be subject to examination by a taxing authority with full knowledge of all relevant information. If the recognition threshold is met, then the tax position is measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement.
The total reserve for unrecognized tax benefits as of March 31, 2023 did not materially change compared to December 31, 2022. The total reserve is $2.3 million as of March 31, 2023. If the Company determines in the future that its reserves for unrecognized tax benefits on permanent differences and interest and penalties are not needed, the reversal of $1.6 million of such reserves as of March 31, 2023 would be recorded as an income tax benefit and would impact the effective tax rate. The remaining balance is accrued interest and penalties.
15. Shareholders' equity
Common shares
The following table presents a summary of the common shares issued and outstanding and shares repurchased as of and for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Common shares issued and outstanding, beginning of period | 162,177,653 | | | 161,929,777 | |
| Issuance of common shares, net of forfeitures and shares withheld | 189,520 | | | 656,822 | |
| Shares repurchased | — | | | (645,047) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Common shares issued and outstanding, end of period | 162,367,173 | | | 161,941,552 | |
The Company’s authorized share capital consists of 300,000,000 common shares with a par value of $0.10 each. During the three months ended March 31, 2023 and 2022, the Company did not pay any dividends to its common shareholders.
Preference shares
The Company’s authorized share capital also consists of 30,000,000 preference shares with a par value of $0.10 each.
Series B preference shares
The Series B preference shares are listed on the New York Stock Exchange under the symbol “SPNT PB”. The Company has 8,000,000 of Series B preference shares outstanding, par value $0.10. Dividends on the Series B preference shares are cumulative and payable quarterly in arrears at an initial rate of 8.0% per annum. The preference shareholders have no voting rights with respect to the Series B preference shares unless dividends have not been paid for six dividend periods, whether or not consecutive, in which case the holders of the Series B preference shares will have the right to elect two directors.
The dividend rate will reset on each five-year anniversary of issuance at a rate equal to the five-year U.S. treasury rate at such time plus 7.298%. The Series B preference shares are perpetual and have no fixed maturity date. The Series B preference shares provide for redemption rights by the Company (i) in whole, or in part, on each five-year anniversary of issuance at 100%, (ii) in whole, but not in part, (a) upon certain rating agency events, at 102%, (b) upon certain capital disqualification events, at 100%, and (c) upon certain tax events, at 100%.
During the three months ended March 31, 2023, the Company declared and paid dividends of $4.0 million to the Series B preference shareholders (2022 - $4.0 million).
Share repurchases
As of March 31, 2023, the Company was authorized to repurchase up to an aggregate of $56.3 million of outstanding common shares and warrants under its repurchase program.
During the three months ended March 31, 2023, the Company did not repurchase any of its common shares in the open market. During the three months ended March 31, 2022, the Company repurchased 645,047 of its common shares in the open market for $4.7 million at a weighted average cost, including commissions, of $7.26 per share. Common shares repurchased by the Company during the period were retired.
16. Earnings (loss) per share available to SiriusPoint common shareholders
The following sets forth the computation of basic and diluted earnings (loss) per share available to SiriusPoint common shareholders for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | | | |
| | 2023 | | 2022 | | | | |
| Weighted-average number of common shares outstanding: | |
| Basic number of common shares outstanding | 160,905,860 | | | 159,867,593 | | | | | |
| Dilutive effect of options | 138,464 | | | — | | | | | |
| Dilutive effect of warrants | — | | | — | | | | | |
| Dilutive effect of restricted share awards and units | 3,086,622 | | | — | | | | | |
| Dilutive effect of Series A preference shares | — | | | — | | | | | |
| Diluted number of common shares outstanding | 164,130,946 | | | 159,867,593 | | | | | |
| Basic earnings (loss) per common share: | | | | | | | |
| Net income (loss) available to SiriusPoint common shareholders | $ | 138.6 | | | $ | (217.0) | | | | | |
| Net income allocated to SiriusPoint participating shareholders | (10.5) | | | — | | | | | |
| Net income (loss) allocated to SiriusPoint common shareholders | $ | 128.1 | | | $ | (217.0) | | | | | |
| Basic earnings (loss) per share available to SiriusPoint common shareholders | $ | 0.80 | | | $ | (1.36) | | | | | |
| Diluted earnings (loss) per common share: | | | | | | | |
| Net income (loss) available to SiriusPoint common shareholders | $ | 138.6 | | | $ | (217.0) | | | | | |
| Net income allocated to SiriusPoint participating shareholders | (10.5) | | | — | | | | | |
| | | | | | | | |
| Net income (loss) allocated to SiriusPoint common shareholders | $ | 128.1 | | | $ | (217.0) | | | | | |
| Diluted earnings (loss) per share available to SiriusPoint common shareholders | $ | 0.78 | | | $ | (1.36) | | | | | |
For the three months ended March 31, 2023, options of 3,910,700, warrants of 32,516,293 and restricted share units of 48,900 were excluded from the computation of diluted earnings per share available to SiriusPoint common shareholders.
For the three months ended March 31, 2022, options of 3,469,887, warrants of 31,123,755 and Upside Rights of 10,000,000 were excluded from the computation of diluted loss per share available to SiriusPoint common shareholders.
17. Related party transactions
In addition to the transactions disclosed in Notes 7 and 10 to these consolidated financial statements, the following transactions are classified as related party transactions, as the counterparties have either a direct or indirect shareholding in the Company or the Company has an investment in such counterparty.
(Re)insurance contracts
Insurance and reinsurance contracts with certain of the Company’s insurance and MGA affiliates resulted in gross written premiums of $67.5 million during the three months ended March 31, 2023 (2022 - $61.2 million). As of March 31, 2023, the Company had total receivables from these related parties of $41.0 million and payables of $4.0 million (December 31, 2022 - $59.6 million and $4.6 million, respectively).
Investments managed by related parties
The following table provides the fair value of the Company's investments managed by related parties as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | |
| March 31, 2023 | | | December 31, 2022 |
| Third Point Enhanced LP | $ | 89.4 | | | | $ | 100.3 | |
| Third Point Venture Offshore Fund I LP | 26.1 | | | | 26.0 | |
| Third Point Venture Offshore Fund II LP | 2.4 | | | | 2.5 | |
| Investments in related party investment funds, at fair value | 117.9 | | | | 128.8 | |
Third Point Optimized Credit Portfolio (1) | 549.2 | | | | 530.7 | |
| Total investments managed by related parties | $ | 667.1 | | | | $ | 659.5 | |
(1)The Third Point Optimized Credit Portfolio is reported in debt securities available for sale and trading in the consolidated balance sheets.
Management, advisory and performance fees to related parties
The total management, advisory and performance fees to related parties for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | |
| | | |
| 2023 | | 2022 | | | | |
| Management and advisory fees | $ | 1.7 | | | $ | 2.7 | | | | | |
| Performance fees | — | | | 0.2 | | | | | |
| | | | | | | |
| | | | | | | |
Total management, advisory and performance fees to related parties (1) | $ | 1.7 | | | $ | 2.9 | | | | | |
(1)Management, advisory and performance fees for the Related Party Investment Funds, where applicable, are presented within net realized and unrealized investment gains from related party investment funds in the consolidated statements of income (loss).
Management and advisory fees
Third Point Enhanced LP
Pursuant to the 2020 LPA, effective February 26, 2021, and the 2022 LPA, effective February 23, 2022, Third Point LLC is entitled to receive monthly management fees. Management fees are charged at the TP Enhanced Fund level and are calculated based on 1.25% per annum of the investment in TP Enhanced Fund.
Third Point Venture Offshore Fund I LP
No management fees are payable by the Company under the 2021 Venture LPA.
Third Point Venture Offshore Fund II LP
Pursuant to the 2022 Venture II LPA, management fees are charged at the TP Venture Fund II level and are calculated based on 0.1875% per quarter (0.75% per annum).
Third Point Insurance Portfolio Solutions and Third Point Optimized Credit
Effective February 26, 2021, Third Point LLC, Third Point Insurance Portfolio Solutions (“TPIPS”) and the Company entered into an Investment Management Agreement (the “TPIPS IMA”), pursuant to which TPIPS will serve as investment manager to the Company and provide investment advice with respect to the investable assets of the Company, other than assets that the Company may withdraw from time to time as working capital. The Amended and Restated Collateral Assets Investment Management Agreement was terminated at the effective date of the TPIPS IMA.
Pursuant to the TPIPS IMA, the Company will pay Third Point LLC a fixed management fee, payable monthly in advance, equal to 1/12 of 0.06% of the fair value of assets managed (other than assets invested in TP Enhanced Fund).
On February 23, 2022, the Company entered into the 2022 IMA with Third Point LLC and the other parties thereto, which amended and restated the TPIPS IMA.
Pursuant to the 2022 IMA, effective February 23, 2022, the Company will also pay Third Point LLC a monthly management fee equal to one twelfth of 0.50% (0.50% per annum) of the TPOC Portfolio, net of any expenses, and a fixed advisory fee of $1,500,000 per annum.
Performance fees
Third Point Enhanced LP
Pursuant to the 2020 LPA, TP GP receives a performance fee allocation equal to 20% of the Company’s investment income in the related party investment fund. The performance fee is included as part of “Investments in related party investment fund, at fair value” on the Company’s consolidated balance sheets since the fees are charged at the TP Enhanced Fund level.
The performance fee is subject to a loss carryforward provision pursuant to which TP GP is required to maintain a loss recovery account, which represents the sum of all prior period net loss amounts and not subsequently offset by prior year net profit amounts, and that is allocated to future profit amounts until the loss recovery account has returned to a positive balance. Until such time, no performance fees are payable, provided that the loss recovery account balance shall be reduced proportionately to reflect any withdrawals from TP Enhanced Fund. The 2020 LPA preserves the loss carryforward attributable to our investment in TP Enhanced Fund when contributions to TP Enhanced Fund are made within nine months of certain types of withdrawals from TP Enhanced Fund.
The 2022 LPA did not amend the performance fee calculation.
Third Point Venture Offshore Fund I LP
Pursuant to the 2021 Venture LPA, TP Venture GP receives a performance fee allocation equal to 20% of the Company’s investment income in the related party investment fund.
Third Point Venture Offshore Fund II LP
Pursuant to the 2022 Venture II LPA, TP Venture GP II receives a performance fee allocation equal to 20% of the Company’s investment income in the related party investment fund.
Third Point Optimized Credit
Pursuant to the 2022 IMA, the Company will pay Third Point LLC, from the assets of each sub-account, an annual incentive fee equal to 15% of outperformance over a specified benchmark. The performance fee is included as part of “Net investment income” on the Company’s consolidated statements of income (loss).
18. Commitments and contingencies
Financing
See Note 13 for additional information related to the Company’s debt obligations.
Letters of credit
See Note 13 for additional information related to the Company’s letter of credit facilities.
Liability-classified capital instruments
On February 26, 2021, the Company completed its acquisition of Sirius International Insurance Group, Ltd. (“Sirius Group”). The aggregate consideration for the transaction included the issuance of preference shares, warrants, and other contingent value components, which are recorded at fair value in the liability-classified capital instruments line of the consolidated balance sheets.
Series A Preference Shares
On February 26, 2021, certain holders of Sirius Group shares elected to receive Series A preference shares, par value $0.10 per share (“Series A Preference Shares”), with respect to the consideration price of the Sirius Group acquisition. The
Company issued 11,720,987 Series A Preference Shares. The Series A Preference Shares rank pari passu with the Company’s common shares with respect to the payment of dividends or distributions. Each Series A Preference Share has voting power equal to the number of Company shares into which it is convertible, and the Series A Preference Shares and Company shares shall vote together as a single class with respect to any and all matters. Upon the third anniversary of the closing date of the Sirius Group acquisition, the Series A Preference Shares will be subject to a conversion ratio calculation, which will be based on ultimate COVID-19 losses along with other measurement criteria, to convert to the Company’s common shares.
During the three months ended March 31, 2023, the Company did not declare or pay dividends to holders of Series A Preference Shares.
During the three months ended March 31, 2023, the Company recorded a loss of $5.3 million from the change in fair value of the Series A Preference Shares. As of March 31, 2023, the fair value of the Series A Preference Shares is $7.1 million.
Merger Warrants
On February 26, 2021, the Company issued certain warrants with respect to the consideration price of the Sirius Group acquisition (the “Merger warrants”). As of March 31, 2023, the Company had reserved for issuance common shares underlying warrants to purchase, in the aggregate, up to 21,009,324 common shares, to previous Sirius Group common shareholders.
During the three months ended March 31, 2023, the Company recorded a loss of $16.0 million from the change in fair value of the Merger warrants. As of March 31, 2023, the estimated fair value of the Merger warrants is $30.7 million.
Sirius Group Private Warrants
On February 26, 2021, the Company entered into an assumption agreement pursuant to which the Company agreed to assume all of the warrants issued on November 5, 2018 and November 28, 2018 (the “Private warrants”) by Sirius Group to certain counterparties.
During the three months ended March 31, 2023, the Company recorded a loss of $4.3 million from the change in fair value of the Private warrants. As of March 31, 2023, the estimated fair value of the Private warrants is $9.2 million.
Sirius Group Public Warrants
Under the merger agreement between Sirius Group and Easterly Acquisition Corporation (“Easterly”), each of Easterly’s existing issued and outstanding public warrants was converted into a warrant exercisable for Sirius Group common shares (“Sirius Group Public Warrants”).
During the three months ended March 31, 2023, there was no change in the fair value of the Sirius Group Public Warrants. The Sirius Group Public Warrants have no estimated fair value as of March 31, 2023.
Upside Rights
On February 26, 2021, the Company issued Upside Rights with respect to the consideration price of the Sirius Group acquisition. The Upside Rights expired without any value on February 26, 2022.
Contingent Value Rights
On February 26, 2021, the Company entered into a contingent value rights agreement with respect to the consideration price of the Sirius Group acquisition. The contingent value rights (“CVRs”) became publicly traded on the OTCQX Best Market during the quarter ended June 30, 2021. The CVRs matured on February 26, 2023 and were settled for $38.5 million.
Promissory notes & loan agreement
On September 16, 2020, the Company entered into an Unsecured Promissory Note agreement with Arcadian, pursuant to which the Company has committed to loan up to $18.0 million. Interest shall accrue and be computed on the aggregate principal amount drawn and outstanding at a rate of 8.0% per annum. No amounts were drawn as of March 31, 2023.
On March 7, 2022, the Company entered into an Unsecured Convertible Promissory Note agreement with Player’s Health, pursuant to which the Company has lent $8.0 million. Interest shall accrue and be computed on the aggregate principal amount drawn and outstanding at a rate of 6.0% per annum.
Litigation
From time to time in the normal course of business, the Company may be involved in formal and informal dispute resolution processes, which may include arbitration or litigation, the outcomes of which determine the rights and obligations under the Company’s reinsurance and insurance contracts and other contractual agreements. In some disputes, the Company may seek to enforce its rights under an agreement or to collect funds owed to it. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. The Company may also be involved, from time to time in the normal course of business, in formal and informal dispute resolution processes that do not arise from, or are not directly related to, claims activity. The Company believes that no individual litigation or arbitration to which it is presently a party is likely to have a material adverse effect on its results of operations, financial condition, business or operations.
Leases
The Company operates in Bermuda, the United States, Canada, Europe and Asia, and leases office space under various non-cancelable operating lease agreements.
During the three months ended March 31, 2023, the Company recognized operating lease expense of $2.5 million (2022 - $2.9 million) including property taxes and routine maintenance expense as well as rental expenses related to short term leases.
The following table presents the lease balances within the consolidated balance sheets as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Operating lease right-of-use assets(1) | $ | 24.1 | | | $ | 25.9 | |
Operating lease liabilities(2) | $ | 28.1 | | | $ | 30.3 | |
| | | |
| Weighted average lease term (years) | 5.5 | | 5.5 |
| Weighted average discount rate | 3.1 | % | | 3.1 | % |
(1) Operating lease right-of-use assets are included in other assets on the Company’s consolidated balance sheets.(2) Operating lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.
Future minimum rental commitments as of March 31, 2023 under these leases are expected to be as follows:
| | | | | |
| Future Payments |
| Remainder of 2023 | $ | 6.7 | |
| 2024 | 5.9 | |
| 2025 | 4.6 | |
| 2026 | 3.8 | |
| 2027 and thereafter | 9.7 | |
| Total future annual minimum rental payments | 30.7 | |
| Less: present value discount | (2.6) | |
| Total lease liability as of March 31, 2023 | $ | 28.1 | |
19. Subsequent event
Indication of Interest
On April 12, 2023, the Company acknowledged that Dan Loeb, and certain of his affiliates, disclosed in a Schedule 13D/A filing an indication of interest to explore a potential acquisition of all, or substantially all, of the outstanding common shares of the Company.
