TPRE - Earnings call transcript Q2 2018

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Operator

Greetings, and welcome to the Third Point Reinsurance Second Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Chris Coleman, CFO. ahead. go Please

Chris Coleman

statements which will Welcome as President call certain operator. results the to you you night, today cause Third Reinsurance from will begin, differ those will uncertainties. like the financial Point forward-looking issued www.thirdpointre.bm. would public earnings our Thank current today’s differ I CEO. may Leading that other the including actual to factors many Actual results But forward-looking find refer second to that remarks earnings company’s XXXX filings, based expectations. call in a supplement, and release for company’s on earnings Rob the press Last remind available quarter Limited XX-K, materially from of the Factors these materially could release on an website, statements. contain Bredahl, the Please you, risks where projected be second press the is and quarter of of and to we we XXXX. result and before Risk

as or the Forward-looking in only or of them and future obligation to of assumes speak date update revise made they light information, new the otherwise. statements company events are no

to call earnings certain the will I over most In of in a measures At more management comparable reconciliation the the A presented non-GAAP addition, complete release. Bredahl. GAAP is company’s company’s refer the to management believes Rob? this will to turn these of understanding which measure measures, allow for press financial Rob time, results.

Rob Bredahl

Chris. you, Thank

restructuring impact explain quarter, the last I night. of Before to we discuss for announced results the account investment we the the that operating want

The this investment separately call, on restructure new our were and to August limited fund been and of from agreements agreement structure. last begin structure to that transitioning our previous assets We’ll attached managed a XX night reporting we we by our account we’ll structure. September filing have related a this. to we XX, fund as structure expect sheet our new be part mentioned partnership As new earnings under working X-K account that on our accomplished balance

represents presentation with with of liquidity portfolio. statements financial change, redemption similar structural guidelines, the reflection provisions similar exposure financial rights creating significant fund how investment we operational other and a efficiencies, this we’ll and that results under company our about into investment better level sheet remaining balance believe think this investors structure. in and of reporting a new investment Although users a Along of our the broadly manage already

expected consistent to a year-end of to impact we operations. at returns company assets XX% this As recent the PFIC with threshold as tax definition of reserves the in and result passive change expect investment foreign to defined total minimal and or with prior loss comments, exceed shareholder

move results. I’ll our financial on Now to

During million on a return beginning the equity quarter, generated net we X.X%. for income of of $XX

quarter combined from XXXX to Our from of quarter the second XXXX. XXX.X% in improved XXX.X% first for the ratio XXX.X% of and

senior months, the pricing improved combined on to manage business covers. relationships as well market very of for our covers higher-margin and includes excess into event-type lines, our lines driving this writing carefully past effort. experienced shorter-tail quota the writings some two lower ratio staff underwriters our to In forms we’ve layer higher-margin in to help strong lower and continuing added with to expenses, share renewals increasing reinsurance. of contracts, writing on with addition We of carefully are by pushing support couple specialty focus as increased of and ratings The committed expanding business

several Ceding more than trends. and modest in decreased ratio offset market some renewal was ratio in commissions also loss pricing. combined cases Our improvement from at benefiting

part in call, leading up earnings last is years non-cat been historically industry due cat losses activity the underpricing in cat to XXXX. lines the of to As our I had and cat by mentioned low Outsized on of business. believe profits heavy XXXX we the experienced improvement masking the rampant

expected LLCs underwriting peers, Point continued at results improvement their Third our hedge attractive are fund our of in the outperformance that shares an level. and we Given trading believe

share common $XX we of we the the approximately And $XX quarter, the During million. year, half of or repurchased common shares the $XX.XX for repurchased for X.X million million million open first shares X.X in our for of market our average. per approximately on

to use buying believe an our shares back book that continue appropriate below is We of capital.

available when below As buy share windows to back during of we’ve of or we agency currently, million past, under subject, I’ll existing we to hand our Daniel book shares and open in who and diluted at course, per our rating plan XX% requirements to noted trade we will the plan. the purchase regulatory value investment discuss call $XXX share Loeb over results. have now capital

Daniel Loeb

and Third Point in XXXX quarter-end, our Reinsurance emerging approximately when sectors exited XX% of XXXX. by same XXX declines equity’s QX, X% various Thanks, The was region bringing Argentine of masks comparison, several long our investments X.X% performance into primarily recoup and shorts. performance profitable banks. strong strength positions initiated overstayed Losses of currencies net adjustments Unfortunately, losses. morning. we a made and of on several up outweighed periods fees direct weakened up Third in our account XXXX, had dramatically. In Rob, represents small in quarter assets the of any portfolio Reinsurance to in debt for positive equity was losses to mark-to-market markets In we second the portfolio. returns the realized list emerging Slightly some Point long-equity portfolio names investment EM short of welcome and Point returns Point expenses, several single our our X.X% generating between good quarter managed and name their we’ve the we S&P At for quarter during securities will positions. last expect the core Point year-to-date We second LLC. from Third portfolio net XXXX across X.X%. LLC of territory respectively. managed to sovereign hedge The a largest profits took pushed by The Third into recycled that markets. in the in Argentine we After Third for gains

continue to We and several over focus on to dedicated selling shorts several the months. team members short added last

by our and consumer in equity the TMT X.X% book. Strong quarter, and returns partially exposure. financials, across negative performance our our During portfolio portfolio on average returned healthcare offset was short in

generation XXXX, the Our portfolio short an alpha dedicated of suggesting year. for ROA of X% in X.X% has generated

the have and performance on Our this little made current set modest limited investments year. and credit impact reflect opportunity strategies

that and mortgage, the We’ve credit returned QX, for been Our sovereign some the index opportunities structured to and returned compelling corporate X.X% favorably comparing X.X% credit returns period. in hedge portfolios X.X% and for quarter in finding of fund same for HFN, X.X% book respectively. the investment

decisively remains stay gives because to Still, of bottoms market important us only to and shifts is performance ability in and it global studying rarely doing driven developments than data of so we investing the while low While impending by are few primarily more little half macro abreast sign particularly positive up a dynamics events good markets first with our the and by risk heavily economic modest pace. every the we coming and of with years concern levels. people spend many policy, our fundamental to three, chance political ball. we four, companies buoyed backdrop rate; without believe shape, our a remain go expensive unemployment earnings. acceleration the crystal while strong extend time a the will believe as spending U.S. debt times fiscal in level should is year and only longer in of forecast, remain many weighing stable core asset extremely into in coming two, view One, positions at positioning volatile With higher, remain at remained And others a forward portfolio this with We are the We in sides. the can XX the actively carrying our on is due equity think but consumer recognize recession off current described, is: in the anticipate points markets in moderate our U.S. classes increases record-low system: and has this engaged of a shift equities to the not turning growth have impulse stimulus despite when high months. economic mind, year in we the of the system; from in cycle tailwinds read equity next inflation

the over our turn discuss Chris call to like I’d to to financial Now, results.

Chris Coleman

Daniel. Thanks,

for the quarter second detail. Our the increase March income at which for value from discussed diluted end which Daniel was was $X.XX which X.X% quarter million, per book or XX, investment the of returns an share was the $XX reflects XXXX. Net of the in quarter, $XX.XX,

$XX the the reflects year’s only in year’s contracts million prior last primarily decrease to in $XXX written second increased quarter. amount million, premiums retroactive for current reinsurance were the which million was XXXX. to was the second quarter written compared XX% of or Gross gross second from first lower $XXX premium $XXX Our million second quarter. The gross the half $XXX a in premiums for that written quarter or small from a of by XX% quarter million

our loss generated combined we be net comparisons renewals premiums a for of for certain As year’s XXX.X% first of XXX.X% We and the have XXXX. in can types contracts. times, ratio was second timing million XXX.X% quarter-to-quarter quarter to the and given the quarter difficult second many underwriting and prior stated of of quarter compared $X

period, $XX loss the and in million was XXX.X% of six-month we underwriting prior-year our the million to generated XXX.X%. underwriting to net compared $XX ratio an combined For loss an compared period

we changes the $X.X ended loss impact net acquisition costs. in reserves quarter of the results related XXXX, the underwriting improvement related of estimates net net For recorded to million a of year’s XX, in prior June

combined period. and that improve. half compared quarter improvement the conditions were mentioned and $XX we ratio some the We improvement The lower of our compared continue in to in period. the to a reflects several $XX see ratio prior-year As second terms Rob to renewed G&A first gradually XXXX administrative for earlier, that expenses to million ratio general our expect of year. also combined would expense million, the will for the prior in year’s contracts continue on Total

was related million incentive period. expense. compensation based the certain to The primarily decrease For were period, payroll metrics. due $XX the million and lower in due expense $XX costs lower financial and annual prior-year The is stock from to costs performance formula related lower general plan compared compensation a lower payroll which derived were six-month accruals, expenses to administrative on

performance to gains exchange foreign in in company Our accrual lower was this the British lower in to current dollar denominated of periods periods. due to the the revaluation year period. prior reflect were The year and year current compared the of compared the the the period loss foreign current in adjustment reserves, where year the the to loss pounds U.S. primarily currency expense prior-year period strengthened

net foreign reinsurance liabilities. a to with assets As movements exposure currency net a contracts as reinsurance minimal foreign accounts currency as have foreign from of have the collateral our we reminder, amount typically currency similar we

losses However, these net offsetting foreign income. investment collateral currency flow on the through

call night. pleased of our of support and letters of we collateral your for of We year closed we’ll we X-K parties. that The disclosed in provide the letter flexibility Lastly, business million, business. us Operator? for to part to have now credit credit open our filing give to last $XXX to one for reinsurance will unsecured restructuring reinsurance questions. issuance are time This as you facility facility our thank details counter additional investment announce were our a the

Operator

[Operator with the Stanley. from comes line Morgan Pan Kai Instructions] first Our question of

now is line Your live.

Kai Pan

then morning. a few have Rob. and a good first couple I and question for you Thank for Dan

both as Dan, the performance with result you is months compared First well short in than X%. the with up S&P detail side last July in about side? as with announced Could flattish more more night describe the long

Daniel Loeb

Sure.

had investment NIMs we and to NXP, which there. disappointing a a a were we and exposure – So had obviously a NASDAQ disappointing big some outcome underperformed in bunch had was the of

Kai Pan

Okay.

sort quarter, is view but top your in second coming haven’t just mentioned in – on the letter, here. what’s have of down. like movements we been like of winners the going forward stock Facebook wonder the You one stock I the from your

Daniel Loeb

we and quarter disappointing very a was NIM. that the exited Yes,

Kai Pan

like because value also of wonder your you set be skill investment value And the would how and change growth in from might you mentioned it just a situation are different mentality stock shifting like And Okay. or stock. investing versus into mentality term also investment process growth I gradually stocks? specialty investment, for it

Daniel Loeb

Yes.

our in flyers. wouldn’t look, by the companies. So, growth, plus when we a have it companies, I mean, the I portfolio we names. Around industrial in this just And the shift isn’t of growth talk about as XX% in we the in at letter. super-high is – way, still made our financial non-tech point I look focus. describe in

that we traditional might So to value I looking businesses strength pay guess the a little we’re of at up more point than was the and the otherwise really metrics. bit have using willing

Kai Pan

Okay, sort how your your And at then you bit last a position letter. that’s for I you do trade explained is just the war, to great. are portfolio, Point in one situation of going wonder tariff on Third reduce you international exposure? you

Daniel Loeb

with we thought going is this that we what’s the I that’s day-to-day. Qualcomm handled and it there’s tough made probably the don’t in a bet going this miscalculated we think is function function much I But a also the had knows function degree answer. think on what a we mean, it to we really reason follow a way situation. that was good the management and not teams we it’s the don’t to uncertainty. we whatever say on Yes, direction a a trade was Obviously, follow one is, there. I mean, of going wars; – was on which mean, think losing of higher entirely NXP I was – handle anyone I that of – of there. safe

Kai Pan

Thank more on a underwriting Dan. Rob you, side. for Okay, have great. I few the

period. the reduction the points was like First quarterly year-ago is one the the quarter, from is ratio expense at – coming basis Mostly the XXX G&A from combined at ratio. down

just like million run wonder the You second explained I expense G&A going forward? little like your bit. a quarter, $X is rate

Rob Bredahl

Yes. I’ll let Chris take this.

Chris Coleman

which the movement a ratio, it year It’s on expense to lower accruals, primarily very driven formula return overall is first average Yes. our to year. tied last of fairly compared in was our significantly highly Kai. half to The was and equity, answer, which simple G&A the the bonus of function

equity run And than constant. in so kind G&A overall a average tied of accrual the be period other go-forward remainder in the in the to movements going forward, rate terms should the of return bonus through year, relatively of

Rob Bredahl

I’ll against add returns, Kai that worked very the expense last compensation investment high of with because And accruals. year G&A us Yes. the ratio

Kai Pan

loss laws, ratio haven’t seen in I would yet. And of to lines going will ratio, carry – ratio but some now assuming combined Okay. you’re layers those shifting forward, benefits excess your specialty and combined you lower lower reported that

Rob Bredahl

We’ve little seen a benefit.

the it the incrementally you towards lines. We’re shifting those to portfolio as written in. And premium know, for takes a earn while

improvement that in a down share So combined really We ratio loss surplus adverse down. the They’re coming we little the ratio receiving about. commissions. I believe is are seeing trends. than in some improvement think the talked our we bit G&A also, quota coming they’re more But

Kai Pan

still or profitability you underwriting XXXX? Do targeting break even in

Rob Bredahl

are. We

Kai Pan

explain sort there assignment and are more because that of on the reserve little that other Okay. Irma to from Last just some benefits, one, the issue, lines. quarter, seen we related up loss on our from offset you interim bit of wonder expenses could upward on I Florida you looks made and estimates a revision in some – releases and have some like it creep than losses.

Rob Bredahl

attorney system sort fees had, I And them in is and are in development Florida bad remaining two AOB. related AOB adverse covering, losses, general, one accounts. We some basket think what the a one-way homeowner of of And had just legal to Florida.

increase us bad a on so reflects one And that trend recognizing contract.

Kai Pan

that going sort a some forward? be rates still think you do And of potential will there

Rob Bredahl

of any we it in try we just expect don’t but to think I further and potential, some increases it. really there’s the properly have ahead We mean No. reserves. reserved we stay

Kai Pan

time. for the much so you Thank great. Okay,

Operator

next is from KBW. The Meyer from Shields coming question

now Your live. line is

Meyer Shields

questions. Two ceding maybe seeing I hoping offsetting One, trends Rob, versus bit loss a improvements casualty guess mentioned talk more little could you quick trends, commission I what loss property versus in was you specialty? you’re about

Rob Bredahl

any commissions lines. And I three covers are are, general that across-the-board. specialty. stable and Specialty And say, can’t think the last? particular casualty really mean was about trend is points to I ceding we talk on it. really trends what The I slightly then in the worse about in average, probably down would

Daniel Loeb

Property.

Rob Bredahl

Yes, really big property. AOB. our exposure about That’s We talked there.

Chris Coleman

accounts there we in on talked you’ll line renewed bit we then there recall, were on the of for the that, was pretty of, property little probably business. of remaining the and about on when XXXX, fourth improvements that that in Yes, adverse trends and we two particular a structures loss quarter seeing main those felt, kind the dramatic commission compensated

Rob Bredahl

Yes, Meyer, auto quite and bit. the been about have trends talked a

auto a but nonstandard had in larger that, pricing we there off – improvement of so is And most portfolio. come We’ve largest across-the-board.

Meyer Shields

Thank very was hoping like looks retro it a bit, talk could ones. that’s and One, quick little spend helpful. Okay, protections buying? picked about for you. up you Two the I

Rob Bredahl

quota The we risk shared – with more back management, mortgage portfolio. we a reinsurer, yes, a also our from it – And bought was and partnership received business them. portion we of of part think so I another distribution some but it’s in

Meyer Shields

rate. know Anything quarter? Okay. And the half? second for how unusual then just I guidance difficult to the we should finally, tax think predict. in Or it’s back

Chris Coleman

I rate. the withholding income investment expense flows through just is unusual in our income the in taxes mean U.S. tax account. of certain is tax the statement the rate tax related normal the along there’s it on our No. activities with to also some line nothing operation What within

an the company the unusual can type bit, a effective but our you less for withholding going rate really nothing going of primarily outlook there’s forward. little on So tax of really and investment-related effective in it effective a no have if change or there the rate tax the more rate little given is, which tax, small how activity, is tax bit off throw

Meyer Shields

it so me. Thank much. that’s you from Okay,

Operator

Lynch. from question of Merrill Bank Jay from Instructions] is [Operator coming Cohen America Our next

live. is now Your line

Jay Cohen

you. my of Thank answered. been questions Most have

Just and business big that talk what other lines I new about far exactly one how that market event short-tail Can covers. one you’re is, targeting, as that had you of And mentioned you is? as that is?

Rob Bredahl

get our we for example actually event-driven one liability financial wildfire covers as business utilities, in some but is which Well, that wrote labeled certainly statement covers.

is other that We time. marine marine, write wrap up. some we’ve The written might for example

cat and and We’re terrorism comp looking workers at aviation.

any we’re it. eye We it, on but written of keeping our haven’t

Jay Cohen

all for Got Thank it. you. That’s Rob.

Operator

comments. of We’ve over I’d question-and-answer for any session. of back the to to closing our end turn reached management the like or further floor

Rob Bredahl

Thank everybody for joining us.

If you you forward give next. with ring. us talking have follow-up Thanks. questions, any a look to We please

Operator

That you. teleconference. today’s conclude Thank does

at may We thank wonderful You and disconnect for your have line day. today. this time participation a you

SiriusPoint (SPNT) 1 Aug 182018 Q2 Earnings call transcript