Mount Logan Capital Inc. (Cboe Canada: MLC) (“Mount Logan” or the
“Company”) announced today its financial results for the quarter
ended September 30, 2024. All amounts are stated in United States
dollars, unless otherwise indicated.
Third Quarter 2024
Highlights
- Total revenue for the asset
management segment of the Company of $3.8 million, an
increase of $0.6 million, or 20%, as compared to the third quarter
of 2023. The increase is primarily due to growth in fees
attributable to the increase in Opportunistic Credit Interval Fund
("SOFIX"), CLOs and sub-advisory fees. Third quarter asset
management revenues exclude $1.5 million of management fees
associated with Mount Logan’s management of the assets of Ability
Insurance Company (“Ability”), a wholly-owned subsidiary of the
Company, during the third quarter of 2024. These Ability management
fees represent an increase of $0.4 million, or 35% as compared to
third quarter 2023 of $1.1 million.
- Total net investment income
for the insurance segment was $23.7 million for the three
months ended September 30, 2024, a decrease of $2.5 million, or
10%, as compared to the third quarter of 2023, driven primarily by
the write-off of $1.1 million of accrued investment income.
Excluding the funds withheld under reinsurance contracts and Modco,
insurance segment’s net investment income was $13.5 million, a
decrease of $1.7 million, or 11%, as compared to the third quarter
of 2023.
- 8.3%1 yield on the
insurance investment portfolio as of September 30, 2024,
due to ongoing portfolio and capital optimization across the
insurance solutions portfolio alongside the benefit of higher base
rates. Excluding the funds withheld under reinsurance contracts and
Modco, the yield was 8.7%.
- Ability’s total assets
managed by Mount Logan increased to $628.5 million as of
September 30, 2024, up $218.9 million from third quarter 2023 of
$409.6 million. As of September 30, 2024, the insurance segment
included $1.1 billion in total investment assets, up $93.8 million
or 10% from third quarter 2023 investment assets of $1.0
billion.
- Book value of the insurance
segment as of September 30, 2024 was $73.7 million, an
increase of $8.6 million as compared to $65.1 million for third
quarter 2023, driven by higher insurance net income.
- SRE for the insurance
segment increased to $10.7 million for the trailing twelve
months ended September 30, 2024, up $9.7 million from trailing
twelve months ended September 30, 2023 of $1.0 million primarily
driven by an increase in net investment income, lower cost of funds
and lower operating expenses. SRE is a non-IFRS financial measure
used to assess the insurance segment’s generation of profits
excluding the impact of certain market volatility and other
one-time, non-core components of insurance segment income (loss).
The Company believes this measure is useful to shareholders as it
provides additional insight into the underlying economics of the
insurance segment.
- FRE for the asset
management segment was $1.6 million for the three months
ended September 30, 2024, an increase of 126% compared to third
quarter 2023. FRE was $7.5 million for the trailing twelve months
ended September 30, 2024, an increase of $2.0 million, or 37%,
compared to the trailing twelve months ended September 30, 2023 of
$5.5 million primarily driven by growth in fees across Ability,
CLOs, Ovation, SOFIX and sub-advisory fees.
- Mount Logan announced the
hiring of Scott Chan, previously a Managing Director at
Canaccord Genuity, to expand its Canadian and Investor Relations
presence.
Subsequent Events
- Declared a shareholder
distribution in the amount of C$0.02 per common share for
the quarter ended September 30, 2024, payable on November 29, 2024
to shareholders of record at the close of business on November 22,
2024. This cash dividend marks the twenty-first consecutive quarter
of the Company issuing a C$0.02 distribution to its shareholders.
This dividend is designated by the Company as an eligible dividend
for the purpose of the Income Tax Act (Canada) and any similar
provincial or territorial legislation. An enhanced dividend tax
credit applies to eligible dividends paid to Canadian
residents.
- Announced Mount Logan has
agreed to purchase a minority stake in Runway Growth Capital LLC
(“Runway”), an SEC registered investment adviser, managing
approximately $1.4 billion in private credit assets. Mount Logan is
acquiring the minority stake alongside BC Partners Credit, who is
acquiring the majority stake in the platform. There will be no
change to Runway’s management team or day-to-day operations
following close of the transaction. The closing of the transaction,
which is expected to occur in the fourth quarter of 2024, is
subject to customary closing conditions, including approval of the
new investment advisory agreement with Runway by Runway Growth
Finance’s stockholders and the approval of the Cboe for the
issuance of common shares of the Company to the selling members of
Runway.
Management Commentary
- Ted Goldthorpe, Chief
Executive Officer and Chairman of Mount Logan stated, “We
are excited to announce our third quarter 2024 results, which
demonstrate the earnings power of both our asset management and
insurance segments. Fee Related Earnings, or FRE, of the asset
management segment was up significantly year-over-year and
highlights the growing profitability of our asset management
business. Additionally, our Spread Related Earnings, or SRE,
highlights the continued profitability of our insurance segment.
The integration of our businesses and focus on profitability are
driving consistent improvements in operating performance, while we
focus on creating scale through organic and inorganic growth
initiatives, which includes the recent Runway announcement.”
_______________________________
1The yield is calculated based on the net investment income
excluding reinsured portfolio income less management fees paid to
Mount Logan divided by the average of investments in financial
assets for the current and prior period, and then is
annualized.
Selected Financial
Highlights
- Total Capital of the Company was $132 million
as at September 30, 2024, an increase of $2.1 million as compared
to December 31, 2023. Total capital consists of debt obligations
and total shareholders’ equity.
- Consolidated net income (loss) before taxes
was $(17.4 million) for the three months ended September 30, 2024,
a decrease of $33.6 million from $16.2 million for third quarter
2023. The decrease was primarily attributable to the increase in
net insurance finance expenses resulting from significant decreases
in risk-adjusted market interest rates. This decrease was partially
offset by revenue growth in both asset management and insurance
segments. Asset management revenue increased due to higher
management fees, and improvement in insurance segment revenue
resulting from better insurance service results and higher net
gains from investment activities. Additionally, the decrease was
also offset by reduced administrative expenses under the Insurance
segment.
- Basic Earnings per share (“EPS”) was $(0.68)
for the three months ended September 30, 2024, a decrease of $1.30
from $0.62 for the third quarter 2023.
- Adjusted basic EPS was $(0.67) for the third
quarter 2024, a decrease of $1.35 from $0.68 for the third quarter
2023.
Results of Operations by Segment
($ in Thousands)
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30, 2024 |
|
|
June 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
Reported
Results (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
3,826 |
|
|
$ |
3,394 |
|
|
$ |
3,186 |
|
|
$ |
11,250 |
|
|
$ |
8,108 |
|
Expenses |
|
7,481 |
|
|
|
6,651 |
|
|
|
6,868 |
|
|
|
21,747 |
|
|
|
18,841 |
|
Net income (loss) - asset
management |
|
(3,655 |
) |
|
|
(3,257 |
) |
|
|
(3,682 |
) |
|
|
(10,497 |
) |
|
|
(10,733 |
) |
Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (2) |
|
31,476 |
|
|
|
15,746 |
|
|
|
18,443 |
|
|
|
64,777 |
|
|
|
38,296 |
|
Expenses |
|
45,199 |
|
|
|
8,642 |
|
|
|
(1,482 |
) |
|
|
54,663 |
|
|
|
41,410 |
|
Net
income (loss) - insurance |
|
(13,723 |
) |
|
|
7,104 |
|
|
|
19,925 |
|
|
|
10,114 |
|
|
|
(3,114 |
) |
Income before income
taxes |
|
(17,378 |
) |
|
|
3,847 |
|
|
|
16,243 |
|
|
|
(383 |
) |
|
|
(13,847 |
) |
Provision for income taxes |
|
(266 |
) |
|
|
(265 |
) |
|
|
(331 |
) |
|
|
(587 |
) |
|
|
(348 |
) |
Net income
(loss) |
$ |
(17,644 |
) |
|
$ |
3,582 |
|
|
$ |
15,912 |
|
|
$ |
(970 |
) |
|
$ |
(14,195 |
) |
Basic EPS |
$ |
(0.68 |
) |
|
$ |
0.14 |
|
|
$ |
0.62 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.61 |
) |
Diluted
EPS |
$ |
(0.68 |
) |
|
$ |
0.14 |
|
|
$ |
0.61 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.61 |
) |
Adjusting
Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs (3) |
|
(2 |
) |
|
|
— |
|
|
|
(872 |
) |
|
|
(253 |
) |
|
|
(2,308 |
) |
Acquisition integration costs
(4) |
|
— |
|
|
|
— |
|
|
|
(375 |
) |
|
|
(250 |
) |
|
|
(1,125 |
) |
Non-cash items (5) |
|
(346 |
) |
|
|
(346 |
) |
|
|
(139 |
) |
|
|
(1,038 |
) |
|
|
(419 |
) |
Impact
of adjusting items on expenses |
|
(348 |
) |
|
|
(346 |
) |
|
|
(1,386 |
) |
|
|
(1,541 |
) |
|
|
(3,852 |
) |
Adjusted
Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
3,826 |
|
|
$ |
3,394 |
|
|
$ |
3,186 |
|
|
$ |
11,250 |
|
|
$ |
8,108 |
|
Expenses |
|
7,133 |
|
|
|
6,305 |
|
|
|
5,482 |
|
|
|
20,206 |
|
|
|
14,989 |
|
Net
income (loss) - asset management |
|
(3,307 |
) |
|
|
(2,911 |
) |
|
|
(2,296 |
) |
|
|
(8,956 |
) |
|
|
(6,881 |
) |
Income before income
taxes |
|
(17,030 |
) |
|
|
4,193 |
|
|
|
17,629 |
|
|
|
1,158 |
|
|
|
(9,995 |
) |
Provision for income taxes |
|
(266 |
) |
|
|
(265 |
) |
|
|
(331 |
) |
|
|
(587 |
) |
|
|
(348 |
) |
Net income
(loss) |
$ |
(17,296 |
) |
|
$ |
3,928 |
|
|
$ |
17,298 |
|
|
$ |
571 |
|
|
$ |
(10,343 |
) |
Basic EPS |
$ |
(0.67 |
) |
|
$ |
0.15 |
|
|
$ |
0.68 |
|
|
$ |
0.02 |
|
|
$ |
(0.44 |
) |
Diluted
EPS |
$ |
(0.67 |
) |
|
$ |
0.15 |
|
|
$ |
0.67 |
|
|
$ |
0.02 |
|
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Certain comparative figures have been reclassified to
conform with the current year’s presentation, including the
reclassification of “Net realized and unrealized gain (loss)” to
“Revenue”(2) Insurance Revenue line item is presented net of
insurance service expenses and net expenses from reinsurance
contracts held.(3) Transaction costs are related to business
acquisitions and strategic initiatives transacted by the
Company.(4) Acquisition integration costs are consulting and
administration services fees related to integrating a business into
the Company. Acquisition integration costs are recorded in general,
administrative and other expenses.(5) Non-cash items include
amortization of acquisition-related intangible assets and
impairment of goodwill, if any.
Asset Management
Total Revenue – Asset Management
($ in
Thousands) |
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
Management and incentive fee |
$ |
3,576 |
|
$ |
2,531 |
|
|
$ |
10,902 |
|
$ |
5,914 |
|
Equity investment earning |
|
74 |
|
|
221 |
|
|
|
241 |
|
|
1,141 |
|
Interest income |
|
274 |
|
|
274 |
|
|
|
817 |
|
|
813 |
|
Dividend income |
|
71 |
|
|
166 |
|
|
|
296 |
|
|
331 |
|
Net
gains (losses) from investment activities |
|
(169 |
) |
|
(6 |
) |
|
|
(1,006 |
) |
|
(91 |
) |
Total revenue — asset management |
$ |
3,826 |
|
$ |
3,186 |
|
|
$ |
11,250 |
|
$ |
8,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended Fee Related Earnings (“FRE”)
FRE is a non-IFRS financial measure used to assess the asset
management segment’s generation of profits from revenues that are
measured and received on a recurring basis and are not dependent on
future realization events. The Company calculates FRE, and
reconciles FRE to net income from its asset management activities,
as follows:
($ in Thousands)
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
Net income (loss) and comprehensive income
(loss) |
$ |
(17,644 |
) |
$ |
15,912 |
|
|
$ |
(970 |
) |
$ |
(14,195 |
) |
|
|
|
|
|
|
|
|
|
|
Adjustment to net
income (loss) and comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Total revenue - insurance
(1) |
|
(31,476 |
) |
|
(18,443 |
) |
|
|
(64,777 |
) |
|
(38,296 |
) |
Total
expenses - insurance |
|
45,199 |
|
|
(1,482 |
) |
|
|
54,663 |
|
|
41,410 |
|
Net income - asset management
(2) |
|
(3,921 |
) |
|
(4,013 |
) |
|
$ |
(11,084 |
) |
$ |
(11,081 |
) |
Adjustments to non-fee
generating asset management business and other recurring revenue
stream: |
|
|
|
|
|
|
|
|
|
Management fee from Ability |
|
1,501 |
|
|
1,110 |
|
|
|
4,459 |
|
|
2,902 |
|
Interest income |
|
— |
|
|
— |
|
|
|
(1 |
) |
|
— |
|
Dividend income |
|
(71 |
) |
|
(166 |
) |
|
|
(296 |
) |
|
(331 |
) |
Net gains (losses) from investment activities |
|
169 |
|
|
6 |
|
|
|
1,006 |
|
|
91 |
|
Administration and servicing fees |
|
451 |
|
|
215 |
|
|
|
1,246 |
|
|
702 |
|
Transaction costs |
|
2 |
|
|
872 |
|
|
|
253 |
|
|
2,308 |
|
Amortization of intangible assets |
|
346 |
|
|
139 |
|
|
|
1,038 |
|
|
419 |
|
Interest and other credit facility expenses |
|
1,664 |
|
|
1,555 |
|
|
|
5,027 |
|
|
4,212 |
|
General, administrative and other |
|
1,501 |
|
|
1,009 |
|
|
|
3,239 |
|
|
4,387 |
|
Fee Related Earnings |
$ |
1,642 |
|
$ |
727 |
|
|
$ |
4,887 |
|
$ |
3,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes add-back of management fees paid to ML Management
(as defined below).(2) Represents net income for asset management,
as presented in the Interim Consolidated Statement of Comprehensive
Income (Loss).
The following table presents FRE, the performance measure of our
asset management segment for the trailing twelve month period ended
September 30, 2024 and September 30, 2023 respectively:
Trailing Twelve Month FRE
($ in Thousands)
|
Trailing Twelve Months Ended |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
Net income (loss) and comprehensive income
(loss) |
$ |
(3,231 |
) |
$ |
(9,528 |
) |
|
|
|
|
|
Adjustment to net
income (loss) and comprehensive income (loss): |
|
|
|
|
Total revenue - insurance
(1) |
|
(95,624 |
) |
|
(55,702 |
) |
Total
expenses - insurance |
|
83,340 |
|
|
52,434 |
|
Net income - asset management
(2) |
|
(15,515 |
) |
|
(12,796 |
) |
Adjustments to non-fee
generating asset management business and other recurring revenue
stream: |
|
|
|
|
Management fee from Ability |
|
5,804 |
|
|
3,642 |
|
Interest income |
|
(1 |
) |
|
— |
|
Dividend income |
|
(549 |
) |
|
(331 |
) |
Net gains (losses) from investment activities |
|
1,104 |
|
|
25 |
|
Administration and servicing fees |
|
1,580 |
|
|
853 |
|
Transaction costs |
|
1,666 |
|
|
2,493 |
|
Amortization of intangible assets |
|
1,591 |
|
|
381 |
|
Interest and other credit facility expenses |
|
6,792 |
|
|
5,382 |
|
General, administrative and other |
|
5,057 |
|
|
5,855 |
|
Fee Related Earnings |
$ |
7,529 |
|
$ |
5,504 |
|
|
|
|
|
|
|
|
(1) Includes add-back of management fees paid to ML
Management.(2) Represents net income for asset management, as
presented in the Interim Consolidated Statement of Comprehensive
Income (Loss).
Insurance
IFRS 17 Insurance Contracts (“IFRS 17”) is
effective for years beginning as of January 1, 2023, and has been
applied retrospectively with a transition date of January 1, 2022.
IFRS 17 does not impact the underlying economics of the business,
nor does it impact the Company’s business strategies.
Total Revenue – Insurance
($ in Thousands)
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
Insurance service result |
$ |
(1,428 |
) |
$ |
(6,455 |
) |
|
$ |
(6,950 |
) |
$ |
(20,144 |
) |
Net investment income |
|
23,704 |
|
|
26,233 |
|
|
|
68,996 |
|
|
67,804 |
|
Net gains (losses) from
investment activities |
|
19,976 |
|
|
574 |
|
|
|
21,107 |
|
|
4,751 |
|
Realized and unrealized gains
(losses) on embedded derivative — funds withheld |
|
(10,786 |
) |
|
(2,033 |
) |
|
|
(18,392 |
) |
|
(14,396 |
) |
Other
income |
|
10 |
|
|
124 |
|
|
|
16 |
|
|
281 |
|
Total revenue — net of insurance services expenses and net
expenses from reinsurance |
$ |
31,476 |
|
$ |
18,443 |
|
|
$ |
64,777 |
|
$ |
38,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spread Related Earnings (“SRE”)
Effective March 31, 2024, the Company has introduced a new
non-IFRS measure, SRE. The Company uses SRE to assess the
performance of the insurance segment, excluding the impact of
certain market volatility and other one-time, non-core components
of insurance segment income (loss). Excluded items under SRE are
investment gains (losses), effects of discount rates and other
financial variables on the value of insurance obligations (which is
a component of “net insurance finance income/(expense)”), other
income and certain general, administrative & other
expenses. The Company believes this measure is useful to
securityholders as it provides additional insight into the
underlying economics of the insurance segment, as further discussed
below.
For the insurance segment, SRE equals the sum of (i) the net
investment income on the insurance segment’s net invested assets
(excluding investment income earned on funds held under reinsurance
contracts) less (ii) cost of funds (as described below) and (iii)
certain operating expenses.
Cost of funds includes the impact of interest accretion on
insurance and investment contract liabilities and amortization of
losses recognized for new insurance contracts that are deemed
onerous at initial recognition. It also includes experience
adjustments which represents the difference between actual and
expected cashflows and includes the impact of certain changes to
non-financial assumptions.
The Company reconciles SRE to net income (loss) before tax from
its insurance segment activities, as follows:
|
Three Months Ended |
|
|
Q3-2024 |
|
Q2-2024 |
|
Q1-2024 |
|
Q4-2023 |
|
Q3-2023 |
|
Q2-2023 |
|
Q1-2023 |
|
Q4-2022 |
|
Q3-2022 |
|
Net income (loss) and comprehensive income (loss) before
tax |
$ |
(17,379 |
) |
$ |
3,847 |
|
$ |
13,148 |
|
$ |
(1,946 |
) |
$ |
16,243 |
|
$ |
(903 |
) |
$ |
(29,187 |
) |
$ |
4,901 |
|
$ |
14,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to net
income (loss) and comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue - asset
management (1) |
|
(3,826 |
) |
|
(3,394 |
) |
|
(4,030 |
) |
|
(3,723 |
) |
|
(3,186 |
) |
|
(2,996 |
) |
|
(1,926 |
) |
|
(2,651 |
) |
|
(2,139 |
) |
Total
expenses - asset management |
|
7,482 |
|
|
6,651 |
|
|
7,615 |
|
|
7,839 |
|
|
6,868 |
|
|
6,133 |
|
|
5,840 |
|
|
4,132 |
|
|
3,401 |
|
Net income - insurance
(2) |
|
(13,723 |
) |
|
7,104 |
|
|
16,733 |
|
|
2,170 |
|
|
19,925 |
|
|
2,234 |
|
|
(25,273 |
) |
|
6,382 |
|
|
15,752 |
|
Adjustments to Insurance
segment business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees to ML
Management |
|
(1,501 |
) |
|
(1,529 |
) |
|
(1,429 |
) |
|
(1,345 |
) |
|
(1,110 |
) |
|
(969 |
) |
|
(823 |
) |
|
(740 |
) |
|
(607 |
) |
Net (gains) losses from
investment activities(3) |
|
(13,267 |
) |
|
887 |
|
|
(2,995 |
) |
|
(10,116 |
) |
|
(2,113 |
) |
|
(1,454 |
) |
|
1,493 |
|
|
(3,418 |
) |
|
12,439 |
|
Other Income(4) |
|
— |
|
|
— |
|
|
— |
|
|
(7,353 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Net insurance finance
(income)/expense(5) |
|
30,940 |
|
|
(5,442 |
) |
|
(11,769 |
) |
|
14,399 |
|
|
(17,684 |
) |
|
(5,275 |
) |
|
20,650 |
|
|
(924 |
) |
|
(31,286 |
) |
Loss on onerous
contracts(6) |
|
(822 |
) |
|
945 |
|
|
6,884 |
|
|
286 |
|
|
2,451 |
|
|
4,214 |
|
|
490 |
|
|
— |
|
|
— |
|
General, administrative and other(7) |
|
239 |
|
|
464 |
|
|
447 |
|
|
502 |
|
|
1,289 |
|
|
1,546 |
|
|
144 |
|
|
— |
|
|
— |
|
Spread Related Earnings |
$ |
1,866 |
|
$ |
2,429 |
|
$ |
7,871 |
|
$ |
(1,457 |
) |
$ |
2,758 |
|
$ |
296 |
|
$ |
(3,319 |
) |
$ |
1,300 |
|
$ |
(3,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes add-back of management fees paid by Ability to ML
Management.(2) Represents net income for insurance segment, as
presented in the Interim Consolidated Statement of Comprehensive
Income (Loss).(3) Excludes net (gains) losses from investment
activities on assets retained by the Company under funds withheld
arrangement with Front Street Re and Vista.(4) Represents
non-operating income.(5) Includes the impact of changes in interest
rates and other financials assumptions and excludes interest
accretion on insurance contract liabilities and reinsurance
contract assets.(6) Represents the unamortized portion of future
interest accretion and ceded commissions paid at the time of issue
of new MYGA insurance contracts. Future interest accretion and
ceded commissions are amortized over the average duration of MYGA
contracts reinsured which aligns with the recognition of insurance
service revenue. Loss on onerous contracts are part of Insurance
service expense.(7) Represents certain costs incurred by the
insurance segment for purposes of IFRS reporting but not the day to
day operations of the insurance company.
The following table presents SRE, the performance measure of the
insurance segment:
($ in Thousands)
|
Trailing Twelve Months Ended |
|
|
September 30, 2024 |
|
September 30, 2023 |
|
Fixed Income and other investment income, net(1) |
$ |
50,431 |
|
$ |
45,106 |
|
Cost of
funds |
|
(30,402 |
) |
|
(32,885 |
) |
Net Investment
spread |
|
20,029 |
|
|
12,220 |
|
Other
operating expenses |
|
(9,320 |
) |
|
(11,186 |
) |
Spread Related Earnings |
$ |
10,709 |
|
$ |
1,035 |
|
SRE % of Average Net
Investments |
|
1.8 |
% |
|
0.2 |
% |
|
|
|
|
|
|
|
(1) Excludes net investment income from investment activities on
assets retained by the Company under funds withheld arrangement
with Front Street Re and Vista Life and Casualty Reinsurance
Company (“Vista”).
Spread related earnings ("SRE") was $10.7 million for the
trailing twelve months ended September 30, 2024 compared with $1.0
million for the trailing twelve months ended September 30, 2023, an
increase of $9.7 million. SRE increased year over year due to
increased investment income, lower cost of funds, and lower other
operating expenses. Investment income increased primarily due to an
increase in total insurance investment assets as a result of new
MYGA business and improvements in yield across the investment
portfolio. Cost of funds decreased primarily because of a decrease
in the amortization of reinsurance CSM in the current period due to
change in the CSM amortization methodology, as well as the one-time
benefit of $4.8 million in the first quarter of 2024 as a result of
an in-force update to Long Term Care business. Other operating
expenses decreased as a result of efforts to reduce overall
operating costs.
SRE as a percentage of average net invested assets was 1.8% for
the trailing twelve months ended September 30, 2024 compared with
0.2% for the trailing twelve months ended September 30, 2023.
Liquidity and Capital Resources
As of September 30, 2024, the asset management
segment had $71.8 million (par value) of borrowings outstanding, of
which $33.8 million had a fixed rate and $38 million had a floating
rate. As of September 30, 2024, the insurance segment had $14.3
million (par value) of borrowings outstanding. Liquid assets,
including high-quality assets that are marketable, can be pledged
as security for borrowings, and can be converted to cash in a time
frame that meets liquidity and funding requirements. As of
September 30, 2024 and December 31, 2023, the total liquid assets
of the Company were as follows:
($ in Thousands)
As at |
September 30, 2024 |
|
December 31, 2023 |
|
Cash and cash equivalents |
$ |
106,309 |
|
$ |
90,220 |
|
Restricted cash posted as
collateral |
|
6,820 |
|
|
— |
|
Investments |
|
654,355 |
|
|
643,578 |
|
Management fee receivable |
|
2,537 |
|
|
2,599 |
|
Receivable for investments
sold |
|
7,822 |
|
|
6,511 |
|
Accrued
interest and dividend receivable |
|
20,013 |
|
|
19,340 |
|
Total
liquid assets |
$ |
797,856 |
|
$ |
762,248 |
|
|
|
|
|
|
|
|
The Company defines working capital as the sum
of cash, restricted cash, investments that mature within one year
of the reporting date, management fees receivable, receivables for
investments sold, accrued interest and dividend receivables, and
premium receivables, less the sum of debt obligations, payables for
investments purchased, amounts due to affiliates, reinsurance
liabilities, and other liabilities that are payable within one year
of the reporting date.
As at September 30, 2024, the Company had
working capital of $227 million, reflecting current assets of $244
million, offset by current liabilities of $17.2 million, as
compared with working capital of $183 million as at December 31,
2023, reflecting current assets of $231 million, offset by current
liabilities of $47.4 million. The increase in working capital was
attributed to an increase in cash and cash equivalents from new
MYGA business in the first half of 2024, as well as the settlement
of payables related to MYGA against the new MYGA policies assumed.
Additionally, there was an increase in cash within the asset
management segment from increased management and incentive fee
receipts, the redemption of SOFIX shares, and net proceeds from the
issuance of debenture units, as well as a decrease in due to
affiliates and accrued expenses. The decrease in due to affiliates
is due to a reclassification of the maturity of these balances from
current to unspecified, and the decrease in accrued expenses was
driven by lower transaction costs, transition services agreement
costs, and legal fee accruals.
Interest Rate Risk
The Company has obligations to policyholders and
other debt obligations that expose it to interest rate risk. The
Company also owns debt assets and interest rate swaps that are
exposed to interest rate risk. The fair value of these obligations
and assets may change if base rate changes in interest rates
occur.
The following table summarizes the potential
impact on net assets of hypothetical base rate changes in interest
rates assuming a parallel shift in the yield curve, with all other
variables remaining constant.
As at |
September 30, 2024 |
|
December 31, 2023 |
|
50 basis point increase (1) |
$ |
19,580 |
|
$ |
20,186 |
|
50
basis point decrease (1) |
|
(11,362 |
) |
|
(21,860 |
) |
|
|
|
|
|
|
|
(1) Losses are presented in brackets and gains are presented as
positive numbers.
Actual results may differ significantly from
this sensitivity analysis. As such, the sensitivities should only
be viewed as directional estimates of the underlying sensitivities
for the respective factors based on the assumptions outlined
above.
Conference Call
The Company will hold a conference call on
Tuesday, November 12, 2024 at 12:00 p.m. Eastern Time to discuss
the third quarter 2024 financial results. Shareholders, prospective
shareholders, and analysts are welcome to listen to the call. To
join the call, please use the dial-in information below. A
recording of the conference call will be available on our Company’s
website www.mountlogancapital.ca in the ‘Investor Relations’
section under “Events”.
Canada Dial-in Toll Free: 1-833-950-0062US
Dial-in Toll Free: 1-833-470-1428International Dial-insAccess Code:
672430
About Mount Logan Capital Inc.
Mount Logan Capital Inc. is an alternative asset
management and insurance solutions company that is focused on
public and private debt securities in the North American market and
the reinsurance of annuity products, primarily through its
wholly-owned subsidiaries Mount Logan Management LLC (“ML
Management”) and Ability Insurance Company (“Ability”),
respectively. The Company also actively sources, evaluates,
underwrites, manages, monitors and primarily invests in loans, debt
securities, and other credit-oriented instruments that present
attractive risk-adjusted returns and present low risk of principal
impairment through the credit cycle.
Ability is a Nebraska domiciled insurer and
reinsurer of long-term care policies acquired by Mount Logan in the
fourth quarter of fiscal year 2021. Ability is unique in the
insurance industry in that its long-term care portfolio’s morbidity
risk has been largely re-insured to third parties, and Ability is
no longer insuring or re-insuring new long-term care risk.
Non-IFRS Financial Measures
This press release makes reference to certain
non-IFRS financial measures. These measures are not recognized
measures under IFRS, do not have a standardized meaning prescribed
by IFRS and may not be comparable to similar measures presented by
other companies. Rather, these measures are provided as additional
information to complement IFRS financial measures by providing
further understanding of the Company’s results of operations from
management’s perspective. The Company’s definitions of non-IFRS
measures used in this press release may not be the same as the
definitions for such measures used by other companies in their
reporting. Non-IFRS measures have limitations as analytical tools
and should not be considered in isolation nor as a substitute for
analysis of the Company’s financial information reported under
IFRS. The Company believes that securities analysts, investors and
other interested parties frequently use non-IFRS financial measures
in the evaluation of issuers. The Company’s management also uses
non-IFRS financial measures in order to facilitate operating
performance comparisons from period to period.
Opportunistic Credit Interval Fund Important
Disclosures
An investor should consider the investment objectives, risks,
charges, and expenses of SOFIX carefully before investing. To
obtain a copy of the prospectus containing this and other
information, please call (833) 404-4103 or download the file from
www.opportunisticcreditintervalfund.com. Read the prospectus
carefully before you invest.
Investing involves risk. Investment return and the principal
value of an investment will fluctuate, and an Investor’s shares,
when redeemed, may be worth more or less than their original cost.
SOFIX is subject to the general risks associated with investing in
debt and loan instruments, including market, credit, liquidity, and
interest rate risk. The Fund is subject to management and other
expenses, which will be paid by SOFIX. Because of the risks
associated with SOFIX’s ability to use leverage, an investment in
SOFIX should be considered speculative and involving a high degree
of risk, including the risk of a substantial loss of
investment.
There currently is no secondary market for SOFIX 's shares and
SOFIX expects that no secondary market will develop. Shares of
SOFIX will not be listed on any securities exchange, which makes
them inherently illiquid. An investment in SOFIX 's shares is not
suitable for investors who cannot tolerate risk of loss or who
require liquidity, other than the liquidity provided through the
SOFIX 's repurchase policy. Limited liquidity is provided to
shareholders only through SOFIX's quarterly repurchase offers,
regardless of how SOFIX performs. SOFIX 's distributions policy
may, under certain circumstances, have certain adverse consequences
to SOFIX and its shareholders because it may result in a return of
capital, resulting in less of a shareholder's assets being invested
in SOFIX, and, over time, increase SOFIX 's expense ratio. Any
invested capital that is returned to the shareholder will be
reduced by the SOFIX's fees and expenses, as well as the applicable
sales load. Investments in lesser-known, small and medium
capitalization companies may be more vulnerable than larger, more
established organizations. The sales of securities to fund
repurchases could reduce the market price of those securities,
which in turn would reduce the SOFIX's NAV.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains forward-looking
statements and information within the meaning of applicable
securities legislation. Forward-looking statements can be
identified by the expressions “seeks”, “expects”, “believes”,
“estimates”, “will”, “target” and similar expressions. The
forward-looking statements are not historical facts but reflect the
current expectations of the Company regarding future results or
events and are based on information currently available to it.
Certain material factors and assumptions were applied in providing
these forward-looking statements. The forward-looking statements
discussed in this release include, but are not limited to,
statements relating to the Company’s continued transition to an
asset management and insurance platform business and the entering
into of further strategic transactions to diversify the Company’s
business and further grow recurring management fee and other income
and increasing Ability’s assets; the Company’s plans to focus
Ability’s business on the reinsurance of annuity products; the
potential benefits of combining Mount Logan’s and Ovation’s
platform including an increase in fee-related earnings as a result
of the acquisition; the decrease in expenses in the asset
management segment; the historical growth in the asset management
segment and insurance segment being an indicator for future growth;
the growth and scalability of the Company’s business the Company’s
business strategy, model, approach and future activities; portfolio
composition and size, asset management activities and related
income, capital raising activities, future credit opportunities of
the Company, portfolio realizations, the protection of stakeholder
value; the expansion of the Company’s loan portfolio; synergies to
be achieved by both the Company and Runway through the Company’s
strategic minority investment in Runway and the satisfaction of the
conditions upon which closing of the Runway transaction is
conditional; and the expansion of Mount Logan’s capabilities. All
forward-looking statements in this press release are qualified by
these cautionary statements. The Company believes that the
expectations reflected in forward-looking statements are based upon
reasonable assumptions; however, the Company can give no assurance
that the actual results or developments will be realized by certain
specified dates or at all. These forward-looking statements are
subject to a number of risks and uncertainties that could cause
actual results or events to differ materially from current
expectations, including that the Company has a limited operating
history with respect to an asset management oriented business
model; Ability may not generate recurring asset management fees,
increase its assets or strategically benefit the Company as
expected; the expected synergies by combining the business of Mount
Logan with the business of Ability may not be realized as expected;
the risk that Ability may require a significant investment of
capital and other resources in order to expand and grow the
business; the Company does not have a record of operating an
insurance solutions business and is subject to all the risks and
uncertainties associated with a broadening of the Company’s
business; the risk that the expected synergies of the acquisition
of Ovation may not be realized as expected and the matters
discussed under “Risks Factors” in the most recently filed annual
information form and management discussion and analysis for the
Company. Readers, therefore, should not place undue reliance on any
such forward-looking statements. Further, a forward-looking
statement speaks only as of the date on which such statement is
made. The Company undertakes no obligation to publicly update any
such statement or to reflect new information or the occurrence of
future events or circumstances except as required by securities
laws. These forward-looking statements are made as of the date of
this press release.
This press release is not, and under no
circumstances is it to be construed as, a prospectus or an
advertisement and the communication of this release is not, and
under no circumstances is it to be construed as, an offer to sell
or an offer to purchase any securities in the Company or in any
fund or other investment vehicle. This press release is not
intended for U.S. persons. The Company’s shares are not and will
not be registered under the U.S. Securities Act of 1933, as
amended, and the Company is not and will not be registered under
the U.S. Investment Company Act of 1940 (the “1940 Act”). U.S.
persons are not permitted to purchase the Company’s shares absent
an applicable exemption from registration under each of these Acts.
In addition, the number of investors in the United States, or which
are U.S. persons or purchasing for the account or benefit of U.S.
persons, will be limited to such number as is required to comply
with an available exemption from the registration requirements of
the 1940 Act.
Contacts:Mount Logan Capital
Inc.
365 Bay Street, Suite 800Toronto, ON M5H
2V1info@mountlogancapital.ca
Nikita KlassenChief Financial
OfficerNikita.Klassen@mountlogancapital.ca
MOUNT LOGAN CAPITAL INC. |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
(in thousands of United States dollars, except share and
per share amounts) |
|
As at |
Notes |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
ASSETS |
|
|
|
|
|
|
|
Asset Management: |
|
|
|
|
|
|
|
Cash |
|
|
$ |
2,119 |
|
|
$ |
990 |
|
Investments |
6 |
|
|
22,809 |
|
|
|
26,709 |
|
Intangible assets |
9 |
|
|
27,742 |
|
|
|
28,779 |
|
Other assets |
|
|
|
6,732 |
|
|
|
6,593 |
|
Total assets — asset management |
|
|
|
59,402 |
|
|
|
63,071 |
|
Insurance: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
104,190 |
|
|
|
89,230 |
|
Restricted cash posted as collateral |
18 |
|
|
6,820 |
|
|
|
- |
|
Investments |
6 |
|
|
1,058,768 |
|
|
|
1,008,637 |
|
Derivatives |
18 |
|
|
4,568 |
|
|
|
- |
|
Reinsurance contract assets |
13 |
|
|
446,998 |
|
|
|
442,673 |
|
Intangible assets |
9 |
|
|
2,444 |
|
|
|
2,444 |
|
Goodwill |
9 |
|
|
55,015 |
|
|
|
55,015 |
|
Other assets |
|
|
|
28,521 |
|
|
|
27,508 |
|
Total assets — insurance |
|
|
|
1,707,324 |
|
|
|
1,625,507 |
|
Total assets |
|
|
$ |
1,766,726 |
|
|
$ |
1,688,578 |
|
LIABILITIES |
|
|
|
|
|
|
|
Asset Management |
|
|
|
|
|
|
|
Due to affiliates |
10 |
|
$ |
14,840 |
|
|
$ |
12,113 |
|
Debt obligations |
12 |
|
|
65,383 |
|
|
|
62,030 |
|
Derivatives - debt warrants |
12 |
|
|
195 |
|
|
|
- |
|
Accrued expenses and other liabilities |
|
|
|
1,775 |
|
|
|
3,494 |
|
Total liabilities — asset management |
|
|
|
82,193 |
|
|
|
77,637 |
|
Insurance |
|
|
|
|
|
|
|
Debt obligations |
12 |
|
|
14,250 |
|
|
|
14,250 |
|
Insurance contract liabilities |
13 |
|
|
1,135,999 |
|
|
|
1,107,056 |
|
Investment contract liabilities |
14 |
|
|
225,598 |
|
|
|
169,314 |
|
Funds held under reinsurance contracts |
|
|
|
244,004 |
|
|
|
238,253 |
|
Accrued expenses and other liabilities |
|
|
|
13,753 |
|
|
|
30,116 |
|
Total liabilities — insurance |
|
|
|
1,633,604 |
|
|
|
1,558,989 |
|
Total liabilities |
|
|
|
1,715,797 |
|
|
|
1,636,626 |
|
EQUITY |
|
|
|
|
|
|
|
Common shares |
11 |
|
|
115,897 |
|
|
|
115,607 |
|
Warrants |
11 |
|
|
1,129 |
|
|
|
1,129 |
|
Contributed surplus |
|
|
|
8,030 |
|
|
|
7,240 |
|
Surplus (Deficit) |
|
|
|
(52,269 |
) |
|
|
(50,166 |
) |
Cumulative translation adjustment |
|
|
|
(21,858 |
) |
|
|
(21,858 |
) |
Total equity |
|
|
|
50,929 |
|
|
|
51,952 |
|
Total liabilities and equity |
|
|
$ |
1,766,726 |
|
|
$ |
1,688,578 |
|
MOUNT LOGAN CAPITAL INC. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS) |
(in thousands of United States dollars, except share and
per share amounts) |
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
Notes |
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
Management and incentive fee |
7 |
$ |
3,576 |
|
|
$ |
2,531 |
|
|
$ |
10,902 |
|
|
$ |
5,914 |
|
Equity investment earning |
|
|
74 |
|
|
|
221 |
|
|
|
241 |
|
|
|
1,141 |
|
Interest income |
|
|
274 |
|
|
|
274 |
|
|
|
817 |
|
|
|
813 |
|
Dividend income |
|
|
71 |
|
|
|
166 |
|
|
|
296 |
|
|
|
331 |
|
Net
gains (losses) from investment activities |
4 |
|
(169 |
) |
|
|
(6 |
) |
|
|
(1,006 |
) |
|
|
(91 |
) |
Total revenue — asset management |
|
|
3,826 |
|
|
|
3,186 |
|
|
|
11,250 |
|
|
|
8,108 |
|
Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
Insurance revenue |
8 |
|
22,927 |
|
|
|
21,901 |
|
|
|
68,555 |
|
|
|
65,721 |
|
Insurance service
expenses |
8 |
|
(25,415 |
) |
|
|
(26,391 |
) |
|
|
(72,606 |
) |
|
|
(70,779 |
) |
Net
expenses from reinsurance contracts held |
8 |
|
1,060 |
|
|
|
(1,965 |
) |
|
|
(2,899 |
) |
|
|
(15,086 |
) |
Insurance service result |
|
|
(1,428 |
) |
|
|
(6,455 |
) |
|
|
(6,950 |
) |
|
|
(20,144 |
) |
Net investment income |
5 |
|
23,704 |
|
|
|
26,233 |
|
|
|
68,996 |
|
|
|
67,804 |
|
Net gains (losses) from
investment activities |
4 |
|
19,976 |
|
|
|
574 |
|
|
|
21,107 |
|
|
|
4,751 |
|
Realized and unrealized gains
(losses) on embedded derivative — funds withheld |
|
|
(10,786 |
) |
|
|
(2,033 |
) |
|
|
(18,392 |
) |
|
|
(14,396 |
) |
Other
income |
|
|
10 |
|
|
|
124 |
|
|
|
16 |
|
|
|
281 |
|
Total revenue, net of insurance service expenses and net
expenses from reinsurance contracts held — insurance |
|
|
31,476 |
|
|
|
18,443 |
|
|
|
64,777 |
|
|
|
38,296 |
|
Total revenue |
|
|
35,302 |
|
|
|
21,629 |
|
|
|
76,027 |
|
|
|
46,404 |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
Administration and servicing
fees |
10 |
|
1,372 |
|
|
|
1,108 |
|
|
|
4,748 |
|
|
|
2,496 |
|
Transaction costs |
|
|
2 |
|
|
|
872 |
|
|
|
253 |
|
|
|
2,308 |
|
Amortization of intangible
assets |
9 |
|
346 |
|
|
|
139 |
|
|
|
1,038 |
|
|
|
419 |
|
Interest and other credit
facility expenses |
12 |
|
1,664 |
|
|
|
1,555 |
|
|
|
5,027 |
|
|
|
4,212 |
|
General, administrative and other |
|
|
4,097 |
|
|
|
3,194 |
|
|
|
10,681 |
|
|
|
9,406 |
|
Total expenses — asset management |
|
|
7,481 |
|
|
|
6,868 |
|
|
|
21,747 |
|
|
|
18,841 |
|
Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
Net insurance finance (income)
expenses |
5 |
|
35,463 |
|
|
|
(13,432 |
) |
|
|
27,247 |
|
|
|
9,758 |
|
Increase (decrease) in
investment contract liabilities |
14 |
|
2,600 |
|
|
|
1,986 |
|
|
|
7,366 |
|
|
|
4,400 |
|
(Increase) decrease in
reinsurance contract assets |
|
|
4,588 |
|
|
|
6,326 |
|
|
|
12,293 |
|
|
|
15,897 |
|
General, administrative and other |
|
|
2,548 |
|
|
|
3,638 |
|
|
|
7,757 |
|
|
|
11,355 |
|
Total expenses — insurance |
|
|
45,199 |
|
|
|
(1,482 |
) |
|
|
54,663 |
|
|
|
41,410 |
|
Total expenses |
|
|
52,680 |
|
|
|
5,386 |
|
|
|
76,410 |
|
|
|
60,251 |
|
Income (loss) before taxes |
|
|
(17,378 |
) |
|
|
16,243 |
|
|
|
(383 |
) |
|
|
(13,847 |
) |
Income tax (expense) benefit — asset management |
15 |
|
(266 |
) |
|
|
(331 |
) |
|
|
(587 |
) |
|
|
(348 |
) |
Net income (loss) and comprehensive income
(loss) |
|
$ |
(17,644 |
) |
|
$ |
15,912 |
|
|
$ |
(970 |
) |
|
$ |
(14,195 |
) |
Earnings per
share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.68 |
) |
|
$ |
0.62 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.61 |
) |
Diluted |
|
$ |
(0.68 |
) |
|
$ |
0.61 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.61 |
) |
Dividends per common
share — USD |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.05 |
|
|
$ |
0.04 |
|
Dividends per common
share — CAD |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
Mount Logan Capital (NEO:MLC)
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From Nov 2024 to Dec 2024
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From Dec 2023 to Dec 2024