Notes to the Condensed Consolidated Financial Statements (UNAUDITED)
(Expressed in United States 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.
On February 26, 2021, the Company completed the acquisition of Sirius International Insurance Group, Ltd. (“Sirius” or “Sirius Group”) and changed its name from Third Point Reinsurance Ltd. to SiriusPoint Ltd. (“SiriusPoint”). All references to SiriusPoint throughout this Form 10-Q refer to legacy Third Point Reinsurance Ltd., unless otherwise indicated. The results of operations and cash flows of Sirius Group are included from the acquisition date of February 26, 2021 forward. For additional information, see Note 3 to our condensed consolidated financial statements.
On May 27, 2021, in connection with an internal reorganization, Sirius International Group, Ltd. (“SIG”), Sirius International Holdings Ltd. and Sirius International Insurance Group, Ltd., wholly-owned subsidiaries of the Company, merged with and into the Company, with the Company being the surviving entity. In addition, on May 27, 2021, Third Point Reinsurance Company Ltd. (“Third Point Re BDA”) merged with and into Sirius Bermuda Insurance Company Ltd. (“Sirius Bermuda”), with Sirius Bermuda being the surviving entity. Upon the effectiveness of the merger, Sirius Bermuda changed its name to SiriusPoint Bermuda Insurance Company Ltd. (“SiriusPoint Bermuda”). All references to SiriusPoint Bermuda refer to legacy Third Point Re BDA and Sirius Bermuda, unless otherwise indicated.
These unaudited condensed 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 balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. This Quarterly Report 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, 2020 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 23, 2021 (the “2020 Form 10-K”) and revised sections of the 2020 Form 10-K included in the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2021 (the “Recast Form 10-K”).
In the opinion of management, these unaudited condensed 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.
Effective January 1, 2021, the Company changed its reportable segments to: Accident & Health (“A&H”), Specialty, Property, and Runoff & Other. This reflects our larger and expanded operations subsequent to the acquisition of Sirius Group. The change in reportable segments had no impact on the Company’s historical consolidated financial positions, results of operations or cash flows as previously reported. Where applicable, all prior periods presented have been revised to conform to this new presentation.
The results for the six months ended June 30, 2021 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
Other than described below, there have been no material changes to the Company’s significant accounting policies as described in its 2020 Form 10-K.
Written premium recognition
Effective January 1, 2021, the Company changed its accounting policy for assumed written premium recognition. Previously, the Company estimated ultimate premium written for the entire contract period and recorded this estimate at inception of the
contract. For contracts where the full premium written was not estimable at inception, the Company recorded premium written for the portion of the contract period for which the amount was estimable.
The Company changed its accounting policy to recognize premiums written ratably over the term of the related policy or reinsurance treaty consistent with the timing of when the ceding company has recognized the written premiums. Premiums written include amounts reported by brokers and ceding companies, supplemented by the Company's own estimates of premiums where reports have not been received. The determination of premium estimates requires a review of the Company's experience with the ceding companies, managing general underwriters, familiarity with each market, the timing of the reported information, an analysis and understanding of the characteristics of each class of business and management's judgment of the impact of various factors, including premium or loss trends, on the volume of business written and ceded to the Company. On an ongoing basis, the Company's underwriters review the amounts reported by these third parties for reasonableness based on their experience and knowledge of the subject class of business, taking into account the Company's historical experience with the brokers or ceding companies.
The change in policy has been made because it is management’s opinion that the revised policy reflects the timing of when premiums are written by the cedent and reduces uncertainty regarding the assets and liabilities recorded.
The following tables provide a summary of the retrospective impact from the change in accounting policy on the Company’s condensed consolidated financial statements:
Condensed consolidated balance sheet
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December 31, 2020
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As previously reported
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Adjustment
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As adjusted
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Insurance and reinsurance balances receivable, net
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$
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559.4
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$
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(117.5)
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$
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441.9
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Deferred acquisition costs, net and value of business acquired
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134.3
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(65.7)
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68.6
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Unearned premiums ceded
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27.7
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(7.2)
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20.5
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Total assets
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3,725.6
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(190.4)
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3,535.2
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Reinsurance balances payable
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80.4
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(2.3)
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78.1
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Unearned premium reserves
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472.9
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(188.1)
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284.8
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Total liabilities
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2,160.3
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(190.4)
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1,969.9
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Shareholders’ equity attributable to SiriusPoint common shareholders
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$
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1,563.9
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$
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—
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$
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1,563.9
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Condensed consolidated statement of income (loss)
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Three months ended June 30, 2020
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Six months ended June 30, 2020
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As previously reported
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Adjustment
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As adjusted
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As previously reported
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Adjustment
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Restated amount
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Gross premiums written
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$
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157.6
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$
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(9.9)
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$
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147.7
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$
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361.7
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$
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(88.3)
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$
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273.4
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Gross premiums ceded
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(30.5)
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12.1
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(18.4)
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(30.2)
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9.3
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(20.9)
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Net premiums written
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127.1
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2.2
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129.3
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331.5
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(79.0)
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252.5
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Change in net unearned premium reserves
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13.7
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(2.2)
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11.5
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(44.4)
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79.0
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34.6
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Net premiums earned
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$
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140.8
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$
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—
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$
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140.8
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$
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287.1
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$
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—
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$
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287.1
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Net income (loss) available to SiriusPoint common shareholders
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$
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124.0
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$
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—
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$
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124.0
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$
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(59.6)
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$
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—
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$
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(59.6)
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Condensed consolidated statement of cash flows
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Six months ended June 30, 2020
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As previously reported
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Adjustment
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As adjusted
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Insurance and reinsurance balances receivable
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$
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(18.4)
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$
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50.9
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$
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32.5
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Deferred acquisition costs, net and value of business acquired
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(17.6)
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33.8
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16.2
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Unearned premiums ceded
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(18.9)
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9.3
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(9.6)
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Unearned premium reserves
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63.2
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(88.3)
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(25.1)
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Reinsurance balances payable
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12.9
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(5.7)
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7.2
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Net cash provided by operating activities
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$
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30.4
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$
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—
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$
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30.4
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The change in accounting policy had no impact on the previously reported net income (loss) or shareholders’ equity attributable to SiriusPoint common shareholders.
While not part of the change in written premium accounting policy described above, premiums earned also include service fee revenue from the Company’s managing general underwriting (“MGU”) subsidiaries.
Business combinations and intangible assets
The Company accounts for business combinations in accordance with Accounting Standards Codification ("ASC") Topic 805 Business Combinations, and intangible assets that arise from business combinations in accordance with ASC Topic 350 Intangibles – Goodwill and Other.
The difference between the fair value of net assets acquired and the purchase price is recorded as a bargain purchase gain in other revenues in the condensed consolidated statements of income (loss).
Intangible assets arising from our business acquisitions are classified as either finite or indefinite-lived intangible assets. Finite-lived intangible assets are amortized over their useful lives with the amortization expense being recognized in the condensed consolidated statements of income (loss). The amortization periods approximate the period over which the Company expects to generate future net cash inflows from the use of these assets. All of these assets are subject to impairment testing for the impairment or disposal of long-lived assets when events or conditions indicate that the carrying value of an asset may not be fully recoverable from future cash flows. Indefinite-lived intangible assets are however not subject to amortization. The carrying values of intangible assets are reviewed for indicators of impairment at least annually. The Company initially evaluates indefinite-lived intangible assets using a qualitative approach to determine whether it is more likely than not that the fair value is greater than its carrying value. If the results of the qualitative evaluation indicate that it is more likely than not that the carrying value exceeds its fair value, the Company performs the quantitative test for impairment. If indefinite-lived intangible assets are impaired, such assets are written down to their fair values with the related expense recognized in the condensed consolidated statements of income (loss).
Liability-classified capital instruments
As part of the consideration transferred in the acquisition of Sirius Group, the Company issued various instruments that were classified as liabilities based on their terms, notably the settlement features for each and any potential adjustments to the exercise price for the warrants issued. Liability-classified capital instruments reported in the condensed consolidated balance sheets include Series A preference shares, Merger warrants, Private warrants, Sirius Group Public Warrants, Upside Rights and CVRs. See Note 3 for additional information on each of these instruments. The liability-classified capital instruments are carried at fair value with changes in fair value included in other revenues in the condensed consolidated statements of income (loss).
Defined benefit plans
Certain SiriusPoint employees in Europe participate in defined benefit plans. The liability for the defined benefit plans that is reported on the condensed consolidated balance sheets is the current value of the defined benefit obligation at the end of the period, reduced by the fair value of the plan's assets, with adjustments for actuarial gains and losses. The defined benefit pension plan obligation is calculated annually by independent actuaries. The current value of the defined benefit obligation is determined through discounting of expected future cash flows, using interest rates determined by current market interest rates. The service costs and actuarial gains and losses on the defined benefit obligation and the fair value on the plan assets are recognized in the condensed consolidated statements of income (loss).
Deferred software costs
The Company capitalizes costs related to computer software developed for internal use during the application development stage of software development projects. These costs generally consist of certain external, payroll, and payroll-related costs. The Company begins amortization of these costs once the project is completed and ready for its intended use. Amortization is on a straight-line basis and over a useful life of three to five years.
Loan participations
Loan participations that qualify for sale accounting under ASC Topic 860 Transfers and Servicing of Financial Assets, are carried at fair value. The fair value of loan participations is estimated using discounted cash flow analysis. The Company includes loan participations in other assets in the condensed consolidated balance sheets.
Foreign currency exchange
The U.S. dollar is the functional currency for the Company’s businesses except for the Canadian reinsurance operations of Sirius America Insurance Company. The Company invests in securities denominated in foreign currencies. Assets and liabilities recorded in these foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are translated using the average exchange rates for the period. Net foreign exchange gains and losses arising from the translation of functional currencies are reported in shareholder's equity, in accumulated other comprehensive income. As of June 30, 2021, the Company had net unrealized foreign currency translation gains of $1.5 million recorded in accumulated other comprehensive income on its condensed consolidated balance sheet.
Assets and liabilities relating to foreign operations are translated into the functional currency using current exchange rates; revenues and expenses are remeasured into the functional currency using the average exchange rate for the period. The resulting exchange gains and losses are reported as a component of net income (loss) in the period in which they arise within net realized and unrealized gains (losses) and net foreign exchange gains (losses).
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no impact on the previously reported net income (loss) or shareholders’ equity attributable to SiriusPoint common shareholders.
Short-term investments
The Company previously included short-term investments within debt securities on the condensed consolidated balance sheets. As a result of the acquisition of Sirius Group, these balances have significantly grown and are now disclosed as a separate line item in the condensed consolidated balance sheets in accordance with Rule 7-03 of Regulation S-X. 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. This balance sheet reclassification had no impact on the previously reported total investments, total assets or shareholders’ equity attributable to SiriusPoint common shareholders.
Recently issued accounting standards
Issued and effective as of June 30, 2021
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company has fully adopted all provisions of the guidance with consideration of the various transition methods. The Company also adopted all other provisions in the guidance, including the requirement for an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax through a cumulative-effect adjustment to retained earnings. These provisions did not have a material impact on the Company’s condensed consolidated financial statements or were not applicable to the Company.
In January 2020, the FASB issued Accounting Standards Update 2020-01, Investments—Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (“ASU 2020-01”). The amendments in ASU 2020-01 clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative for a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. ASU 2020-01 is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Adoption of ASU 2020-01 did not have a material impact on the Company’s condensed consolidated financial statements.
In October 2020, the FASB issued Accounting Standards Update 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762 (“ASU 2020-09”). The amendments in ASU 2020-09 amend and supersede SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No. 33-10762 related to financial disclosure requirements for subsidiary issuers and guarantors of registered debt securities and affiliates whose securities are pledged as collateral for registered securities. SEC Release No. 33-10762 simplifies the disclosure requirements related to certain registered securities under Rules 3-10 and 3-16 of Regulation S-X, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities if certain conditions are met. The amendments in ASU 2020-09 are generally effective for filings on or after January 4, 2021, with early application permitted. The Company adopted the new disclosure requirements permitted under ASU 2020-09 effective for the quarter ended March 31, 2021.
Issued but not yet effective as of June 30, 2021
In May 2021, the FASB issued Accounting Standards Update 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). The amendments in ASU 2021-04 affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. ASU 2021-04 is effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. This new pronouncement is not expected to have a material impact on the Company’s condensed consolidated financial statements.
Other accounting pronouncements issued during the six months ended June 30, 2021 were either not relevant to the Company or did not impact the Company’s condensed consolidated financial statements.
3. Acquisition of Sirius Group
Overview
On February 26, 2021, the Company completed its acquisition of Sirius Group. Prior to the closing of the acquisition of Sirius Group, Sirius Group was a publicly listed company and traded on the Nasdaq Global Select Market under the symbol “SG”. Sirius Group, through its wholly owned subsidiaries, provides multi-line insurance and reinsurance on a worldwide basis. The acquisition of Sirius Group is expected to benefit the Company through expanded underwriting capabilities, geographic footprint and product offerings.
Pursuant to the terms of the acquisition, each common share, par value $0.01 per share, of Sirius Group (each, a “Sirius Share”) that was issued and outstanding immediately prior to the closing date of the acquisition was canceled and converted into the right to receive one of the following three consideration options at the shareholder’s election:
•$9.50 in cash;
•a combination of common shares, par value $0.10 per share, of the Company (“Company shares”), and CVR consideration comprising (1) 0.743 of a Company share and (2) one contractual contingent value right (each, a “CVR”), which represents the right to receive a contingent cash payment, which, taken together with the fraction of the Company share received, guarantee that on the second anniversary of the acquisition, the electing shareholder will have received equity and cash valued at least $13.73 per Sirius Share; should SiriusPoint shares trade at or
above $18.50 over any 14 consecutive trading day period up to the second anniversary of the acquisition, the CVR component will be automatically extinguished (4.7 million CVRs were issued under this consideration option); or
•a combination of cash, Company shares, Series A preference shares, warrants and Upside Rights (a “Mixed Election”) comprising (1) $0.905 in cash, (2) 0.496 Company shares, (3) 0.106 Series A preference shares, par value $0.10 per share, of the Company (the “Series A preference shares”), (4) 0.190 of a warrant (each, a “Merger warrant”) and (5) $0.905 aggregate principal amount of an “upside right” issued by the Company (collectively, the “Upside Rights”). Pursuant to the Company Voting and Support Agreement, CM Bermuda Limited (“CM Bermuda”), whose parent company is CMIG International Holdings Pte. Ltd. (“CMIG International”), made the Mixed Election.
The aggregate consideration for the transaction included the issuance of 58,331,196 SiriusPoint common shares valued at $595.6 million and $100.4 million of cash. In addition to the SiriusPoint common shares and the cash, the aggregate consideration for the transaction also consisted of the issuance of preference shares, warrants, and other contingent value components, as discussed below. The cash consideration portion was funded from available cash resources and $48.6 million from the issuance of SiriusPoint common shares pursuant to the equity commitment letter between the Company, Third Point Opportunities Master Fund Ltd. and Daniel S. Loeb, pursuant to which Third Point Opportunities Master Fund Ltd. committed to purchase up to 9.5% of the Company’s shares in connection with closing of the acquisition of Sirius Group.
Series A Preference Shares
On February 26, 2021, certain holders of Sirius Group shares elected to receive Series A preference shares with respect to the consideration price of the Sirius Group acquisition. The Company issued 11,720,987 of designated Series A preference shares, with a par value of $0.10 per share. 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.
During the six months ended June 30, 2021, the Company did not declare or pay dividends to Series A preference shareholders.
Upon the third anniversary of the closing date of the Sirius Group acquisition, as described in the Series A Certificate of Designation and pursuant to the analysis of an independent actuarial team, the Company will calculate the total amount of Third Point Reinsurance Ltd.’s (“TPRE”) COVID-19 losses in excess of $51.1 million (the “TPRE Net COVID Loss”) and the total amount of Sirius Group’s COVID-19 losses in excess of $150.0 million (the “Sirius Net COVID Loss”). If TPRE’s COVID-19 losses are less than or equal to $51.1 million, the TPRE Net COVID Loss will equal $0, and if Sirius Group’s COVID-19 losses are less than or equal to $150.0 million, the Sirius Net COVID Loss will equal $0. Should the Sirius Net COVID Loss be greater than the TPRE Net COVID Loss, then a number of Series A preference shares will be forfeited equal to (x) the lesser of (i) the Sirius Net COVID Loss minus the TPRE Net COVID Loss and (ii) $100.0 million divided by (y) the volume weighted average price (“VWAP”) measured over the 30 business day (where normal trading occurs on U.S. national and regional exchanges) (“Trading Day”) period prior to the date five business days after the calculation of the TPRE Net COVID Loss and Sirius Net COVID Loss (the “Final Adjustment Determination Date”). Should the TPRE Net COVID Loss be greater than the Sirius Net COVID Loss, then a number of Series A preference shares will be issued equal to (x) the TPRE Net COVID Loss minus the Sirius Net COVID Loss divided by (y) the 30-Trading Day VWAP during the period prior to the Final Adjustment Determination Date. After either such adjustment occurs, the Series A preference shares will convert into common shares based on the conversion ratio of one Series A preference share to one common share, subject to the adjustment as set forth in the Series A Certificate of Designation.
Series A preference shares are recorded at fair value in the liability-classified capital instruments line of the condensed consolidated balance sheets. During the three and six months ended June 30, 2021, the Company recorded $2.4 million of gains from the change in fair value of the Series A preference shares. As of June 30, 2021, the fair value of the Series A preference shares is estimated to be $38.4 million.
Merger Warrants
On February 26, 2021, the Company entered into a warrant agreement (the “Warrant Agreement”) with respect to the consideration price of the Sirius Group acquisition. Pursuant to the Warrant Agreement, each warrant (“Merger warrant”) permits the holder thereof to purchase one common share for $11.00, subject to adjustment as set forth in the Warrant Agreement. The warrants are exercisable at any time after February 26, 2021 through the fifth anniversary of the closing date
of the acquisition of Sirius Group. If the warrants are not exercised prior to the fifth anniversary, the warrants will expire without value. As of June 30, 2021, 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.
The Merger warrants are recorded at fair value in the liability-classified capital instruments line of the condensed consolidated balance sheets. During the three and six months ended June 30, 2021, the Company recorded $3.0 million of gains from the change in fair value of the Merger warrants. As of June 30, 2021, the estimated fair value of the Merger warrants is $50.4 million.
Sirius Group Private Warrants
On February 26, 2021, the Company entered into an assumption agreement (the “Assumption Agreement”) by and among (i) the Company, (ii) Bain Capital Special Situations Asia, L.P., a Cayman Islands limited partnership (“Bain”), (iii) CCOF Master, L.P., a Delaware limited partnership (“Carlyle”), (iv) Centerbridge Credit Partners Master, LP, a Delaware limited partnership, and Centerbridge Special Credit Partners III, LP, a Delaware limited partnership (collectively, “Centerbridge”), and (v) GPC Partners Investments (Canis) LP, a Delaware limited partnership (“Gallatin” and, together with Bain, Carlyle and Centerbridge, collectively, the “Sirius Warrant Holders”). Pursuant to the terms of the Assumption Agreement, 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 the Sirius Warrant Holders.
Prior to February 26, 2021, the Private warrants were exercisable for an aggregate of 5,418,434 Sirius Group shares. On February 26, 2021, each Private warrant ceased to represent the right to purchase Sirius Group shares and each Sirius Warrant Holder was instead granted the right to receive, upon exercise of a Private warrant, a contingent cash payment which, taken together with the fraction of the Company common share received, guarantees that on the second anniversary of February 26, 2021, the electing shareholder will have received equity and cash valued at least $13.73 per Sirius Group common share. The exercise price was also adjusted in accordance with the terms of the merger and the Private warrants to $13.00.
The Private warrants are recorded at fair value in the liability-classified capital instruments line of the condensed consolidated balance sheets. During the three and six months ended June 30, 2021, the Company recorded $1.0 million of gains from the change in fair value of the Private warrants. As of June 30, 2021, the estimated fair value of the Private warrants is $6.3 million.
Sirius Group Public Warrants
Under the merger agreement between Sirius Group and Easterly Acquisition Corporation, 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”). From February 26, 2021, holders of the Sirius Group Public Warrants have the right to receive the merger consideration that the holder of the Sirius Group Public Warrants would have received if such holder had exercised his, her or its warrants immediately prior to February 26, 2021. Because the exercise price of such Sirius Group Public Warrants of $18.89 was greater than the per share merger consideration, no such warrants were exercised prior to the completion of the merger and therefore no merger consideration was paid to holders of such warrants. The Sirius Group Public Warrants are no longer listed on any public exchange and will terminate in accordance with their terms. The Sirius Group Public Warrants are recorded at fair value in the liability-classified capital instruments line of the condensed consolidated balance sheets. As of June 30, 2021, the estimated fair value of the Sirius Group Public Warrants is $2.6 million.
Upside Rights
On February 26, 2021, the Company issued Upside Rights with respect to the consideration price of the Sirius Group acquisition. Pursuant to the Upside Rights, if (i) the last reported sales price of the Company’s common shares for each of 30 consecutive trading days exceeds the target price of $20.00 (the “Target Price”), subject to adjustment, prior to the first anniversary of February 26, 2021, or (ii) the Company enters into a definitive agreement to consummate a change of control transaction and the per share consideration in such transaction exceeds the Target Price, the principal amount of the Upside Rights will become immediately due and payable. Settlement of the Upside Rights will be in a number of Company common shares equal to $100,070,726 divided by the Company’s average share price determined using a 30-day VWAP, or in the case of a change of control transaction, the lesser of the per share consideration being offered in such change of control transaction and the Company’s average share price determined using a 30-day VWAP.
The Upside Rights are recorded at fair value in the liability-classified capital instruments line of the condensed consolidated balance sheets. During the three and six months ended June 30, 2021, the Company recorded $4.9 million of gains from the change in fair value of the Upside Rights. As of June 30, 2021, the estimated fair value of the Upside Rights is $1.6 million.
Contingent Value Rights
On February 26, 2021, the Company entered into a contingent value rights agreement (the “CVR Agreement”) with respect to the consideration price of the Sirius Group acquisition. Pursuant to the CVR Agreement, the Company issued CVRs representing the right to receive a contingent cash payment of (1) in the case of acceleration upon certain breaches of the CVR Agreement, $13.73 minus the VWAP of the Company shares measured over the 14 consecutive trading day period beginning on the date a breach is declared, multiplied by 0.743, (2) on the second anniversary (the “Maturity Date”) of the merger, $13.73 minus the VWAP of the Company’s common shares measured over the 14 consecutive trading day period prior to the Maturity Date multiplied by 0.743 and (3) in the case of redemption by the Company prior to the Maturity Date, the discounted present value of $13.73, discounted from the Maturity Date to the last day of the 14 consecutive trading day period beginning on the date of the redemption notice (“Redemption Valuation Period”), minus the VWAP of the Company shares measured over the Redemption Valuation Period multiplied by 0.743.
The CVRs are recorded at fair value in the liability-classified capital instruments line of the condensed consolidated balance sheets. During the three and six months ended June 30, 2021, the Company recorded $4.1 million of gains from the change in fair value of the CVRs. As of June 30, 2021, the fair value of the CVRs is $22.9 million. The CVRs became publicly traded on the OTCQX Best Market during the quarter ended June 30, 2021.
Purchase Price
The components of the Company's total purchase price for Sirius Group at February 26, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
|
|
|
Sirius Group shares acquired for cash
|
|
|
$
|
100.4
|
|
|
Common Shares
|
|
|
|
|
Common Shares issued by SiriusPoint
|
58,331,196
|
|
|
|
|
SiriusPoint share price as of February 26, 2021
|
$
|
10.21
|
|
|
595.6
|
|
|
Preference Shares
|
|
|
|
|
Series A Preference Shares issued, at fair value
|
|
|
40.8
|
|
|
Series B Preference Shares issued, at fair value (1)
|
|
|
200.0
|
|
|
Warrants
|
|
|
|
|
Merger warrants issued, at fair value
|
|
|
53.4
|
|
|
Private warrants issued, at fair value
|
|
|
7.3
|
|
|
Sirius Group Public Warrants, at fair value
|
|
|
2.6
|
|
|
Upside Rights
|
|
|
|
|
Upside Rights issued, at fair value
|
|
|
6.5
|
|
|
Contingent value rights (CVRs)
|
|
|
|
|
CVRs issued, at fair value
|
|
|
27.0
|
|
|
CVR waiver restricted shares
|
|
|
0.7
|
|
|
Other
|
|
|
|
|
Fair value of the replaced Sirius Group equity awards attributable to pre-combination services
|
|
|
37.5
|
|
|
Transaction fee reimbursement
|
|
|
8.0
|
|
|
Total purchase price
|
|
|
$
|
1,079.8
|
|
(1)See Note 16 for additional information.
Fair Value of Net Assets Acquired and Liabilities Assumed
The following table summarizes the estimated fair values of major classes of identifiable assets acquired and liabilities assumed of Sirius Group as of February 26, 2021, the date the transaction closed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable net assets:
|
|
|
|
|
Cash and investments
|
|
|
$
|
3,944.1
|
|
|
Insurance and reinsurance balances receivable, net
|
|
|
1,201.0
|
|
|
Reinsurance assets
|
|
|
649.7
|
|
|
Value of business acquired
|
|
|
147.9
|
|
|
Deferred tax asset
|
|
|
231.6
|
|
|
Intangible assets
|
|
|
178.8
|
|
|
Other assets
|
|
|
181.9
|
|
|
Loss and loss adjustment expense reserves
|
|
|
(2,928.5)
|
|
|
Unearned premium reserves
|
|
|
(900.0)
|
|
|
Deferred tax liability
|
|
|
(192.4)
|
|
|
Debt
|
|
|
(728.2)
|
|
|
Other liabilities
|
|
|
(695.2)
|
|
|
Total identifiable net assets acquired
|
|
|
1,090.7
|
|
|
Total purchase price
|
|
|
1,079.8
|
|
|
Bargain purchase gain
|
|
|
$
|
10.9
|
|
|
|
|
|
|
The bargain purchase gain represents the excess of the fair value of the underlying net assets acquired and liabilities assumed over the purchase price. The gain from bargain purchase is included in other revenues in the condensed consolidated statements of income (loss). The bargain purchase determination is consistent with the fact that Sirius Group’s shares traded at a discount to book value and the need for Sirius Group to quickly diversify its ownership base.
An explanation of the significant fair value adjustments is as follows:
•Goodwill and intangibles - to eliminate the goodwill and intangible assets in Sirius Group net assets acquired as part of the purchase accounting;
•Loss and loss adjustment expense reserves - to record loss and loss adjustment expense reserves at fair value, reflecting an increase for a market based risk margin, which represents the cost of capital required by a market participant to assume the loss and loss adjustment expense reserves of Sirius Group, partially offset by a deduction which represents the discount due to the present value calculation of the loss and loss adjustment expense reserves based on the expected payout of the net unpaid loss and loss adjustment expense reserves. In addition, management increased certain casualty loss reserves by $70.0 million in order to reflect a consistent reserving approach between the two companies. The increase was in response to accumulated loss experience and the broader industry trends of social inflation;
•Deferred acquisition costs - to eliminate Sirius Group’s deferred acquisition costs asset;
•Value of business acquired (“VOBA”) - the expected future losses and expenses associated with the policies that were in-force as of the closing date of the transaction were estimated and compared to the future premium remaining expected to be earned. The difference between the risk-adjusted future loss and expenses, discounted to present value and the unearned premium reserve, was estimated to be the VOBA;
•Finite-lived insurance intangible assets - to establish the fair value of identifiable finite-lived insurance intangible assets acquired, including customer and other relationships, trade names and technology. The Company recognized identifiable finite lived intangible assets of $130.0 million, which will be amortized over their estimated useful lives;
•Indefinite-lived insurance intangible assets - to establish the fair value of identifiable indefinite-lived insurance intangible assets acquired (Lloyd’s capacity and insurance licenses). The Company recognized identifiable indefinite lived intangible assets of $48.8 million; and
•Deferred tax - to reflect adjustments to net deferred tax assets and liabilities related to the fair value adjustments above.
Identifiable intangible assets at February 26, 2021 and at June 30, 2021, consisted of the following, and are included in intangible assets on the Company’s condensed consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Economic Useful Life
|
|
Distribution relationships
|
$
|
75.0
|
|
|
17 years
|
|
MGA relationships
|
34.0
|
|
|
13 years
|
|
Lloyd’s Capacity - Syndicate 1945
|
41.8
|
|
|
Indefinite
|
|
Insurance licenses
|
7.0
|
|
|
Indefinite
|
|
Trade name
|
16.0
|
|
|
16 years
|
|
Internally developed and used computer software
|
5.0
|
|
|
5 years
|
|
Identifiable intangible assets, before amortization, at February 26, 2021
|
178.8
|
|
|
|
|
Amortization (from February 26, 2021 through June 30, 2021)
|
(2.1)
|
|
|
|
|
Net identifiable intangible assets at June 30, 2021 related to the acquisition of Sirius Group
|
$
|
176.7
|
|
|
|
An explanation of the identifiable intangible assets is as follows:
•Distribution relationships - refers to the relationships Sirius Group has established with external independent distributors and brokers to facilitate the distribution of its products in the marketplace. As a result of owning the distribution relationships, management will not have to duplicate historical marketing, training, and start-up expenses to redevelop comparable relationships to support business operations;
•MGA relationships - refers to relationships with managing general agents on the direct insurance business. Through the MGA relationships, Sirius Group generates a predictable and recurring stream of service fee revenue;
•Lloyd’s Capacity - Syndicate 1945 - relates to relationships associated with the right to distribute and market policies underwritten through Lloyd’s Syndicate 1945;
•Insurance licenses - Sirius Group, like other insurance providers, is required to maintain licenses to produce and service insurance contracts. Insurance licenses are estimated to have an indefinite life and are therefore not amortized but will be subject to periodic impairment testing;
•Trade name - represents the value of the Sirius Group brand acquired; and
•Internally developed and used computer software - represents the value of internally developed and used computer software to be utilized by the Company.
Financial results
The following table summarizes the results of Sirius Group since February 26, 2021 that have been included in the Company's condensed consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
For the period from
February 26, 2021 to June 30, 2021
|
|
Total revenues
|
$
|
390.3
|
|
|
$
|
536.5
|
|
|
Net income
|
$
|
51.2
|
|
|
$
|
74.0
|
|
Supplemental Pro Forma Information
Sirius Group’s results have been included in the Company's condensed consolidated financial statements from February 26, 2021 to June 30, 2021. The following table presents unaudited pro forma consolidated financial information for the three and six months ended June 30, 2021 and 2020 and assumes the acquisition of Sirius Group occurred on January 1, 2020. The unaudited pro forma consolidated financial information is provided for informational purposes only and is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of January 1, 2020 or that may be achieved in the future. The unaudited pro forma consolidated financial information does not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies or asset dispositions that may result from the acquisition of Sirius Group. In addition, unaudited pro forma consolidated financial information does not include the effects of costs associated with any restructuring or integration activities resulting from the acquisition of Sirius Group, as such costs cannot be determined at this time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Total revenues
|
$
|
561.5
|
|
|
$
|
688.6
|
|
|
$
|
1,226.2
|
|
|
$
|
1,078.9
|
|
|
Net income (loss)
|
$
|
76.7
|
|
|
$
|
122.1
|
|
|
$
|
242.5
|
|
|
$
|
(339.4)
|
|
Among other adjustments, and in addition to the fair value adjustments and recognition of identifiable intangible assets noted above, other material nonrecurring pro forma adjustments directly attributable to the acquisition of Sirius Group principally included certain adjustments to recognize transaction related costs, align reserving approach, amortize fair value adjustments, amortize identifiable indefinite lived intangible assets and recognize related tax impacts.
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 four operating segments: Accident & Health (“A&H”), Specialty, Property, and Runoff & Other. Non-underwriting income and expenses are presented as a reconciliation to the Company’s income (loss) before income tax expense. The Company does not manage its assets by segment; accordingly, total assets are not allocated to the segments.
Accident & Health (“A&H”)
A&H consists of the Company’s insurance, reinsurance, and MGUs (which include ArmadaCorp Capital, LLC ("Armada") and International Medical Group, Inc. (“IMG”) that offer accident and health products on a worldwide basis):
Accident and Health insurance and reinsurance
The Company is an insurer of accident and health insurance business in the United States and internationally, on either an admitted or surplus lines basis, as well as a reinsurer of medical expense, travel and personal accident on a treaty or facultative basis worldwide. The MGU unit writes health insurance business worldwide through IMG and within the United States via Armada.
Specialty
Specialty consists of the Company’s insurance and reinsurance underwriting units which offer specialty & casualty product lines on a worldwide basis. Specialty lines represent unique risks where the more difficult and unusual risks are underwritten, and much of the market is characterized by a high degree of specialization. The following provides details of Specialty by product line:
Aviation & Space
Aviation insurance covers loss of or damage to an aircraft and the aircraft operations' liability to passengers, cargo and hull as well as to third parties. Additionally, liability arising out of non-aircraft operations such as hangars, airports and aircraft products can be covered. Space insurance primarily covers loss of or damage to a satellite during launch and in orbit. The book consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business.
Marine & Energy
The Company provides marine & energy reinsurance, primarily written on an excess of loss and proportional basis. Coverage offered includes damage to ships and goods in transit, marine liability lines, and offshore energy industry insurance. The Company also writes yacht business, both on reinsurance and a primary basis. The marine & energy portfolio is diversified across many countries and regions.
Credit
The Company writes credit and bond reinsurance worldwide. The bulk of the business is traditional short-term commercial credit insurance, covering pre-agreed domestic and export sales of goods and services with typical coverage periods of 60 to 120 days. Losses under these policies are correlated to adverse changes in a respective country's gross national product.
Contingency
The Company’s contingency insurance book covers event cancellation and non-appearance. The Company offers this class on a treaty reinsurance basis on a selective basis for a few key clients.
Casualty
Casualty represents a cross section of all casualty lines, including general liability, umbrella, auto, workers compensation, professional liability, and other specialty classes, written on a proportional and excess of loss basis.
Environmental
The Company underwrites a pure environmental insurance book in the U.S. consisting of four core products that revolve around pollution coverage, which are premises pollution liability, contractor's pollution liability, contractor's pollution and professional liability.
Mortgage
The Company underwrites mortgage risks both as reinsurance and by retrocession. Mortgage insurance is an insurance policy that compensates lenders or investors for losses arising from the default of a mortgage loan. Mortgage insurance can refer to private mortgage insurance, mortgage life insurance or insurance provided under the credit risk sharing transactions from Fannie Mae and Freddie Mac.
Property
Property consists of the Company’s underwriting lines of business which offer Property Catastrophe Excess Reinsurance, Agriculture Reinsurance and Property Risk and Pro Rata on a worldwide basis. The following provides details of Property by product line:
Property Catastrophe Excess Reinsurance
Property catastrophe excess of loss reinsurance treaties cover losses from catastrophic events. The Company writes a worldwide book with the largest concentration of exposure in Europe and the United States. The U.S. book has a national account focus supporting principally the lower and/or middle layers of large capacity programs and also consists of select small regional and standard lines carriers. The exposures written in the international book are diversified across many countries, regions, perils and layers.
Agriculture Reinsurance
The Company provides stop-loss reinsurance coverage to companies writing U.S. government-sponsored multi-peril crop insurance ("MPCI"). The Company’s participation is net of the government's stop-loss reinsurance protection. The Company also provides coverage for crop-hail and certain named perils when bundled with MPCI business. The Company also writes agriculture business outside of the United States.
Property Risk and Pro Rata
The Company participates in the broker market for property reinsurance treaties written 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. In the United States, the book predominantly centers on significant participations on proportional and excess of loss treaties mostly in the excess and surplus lines of the market.
Runoff & Other
Runoff & Other consists of asbestos risks, environmental risks and other long-tailed liability exposures, and results from SiriusPoint Global Solutions, including the acquisition and management of runoff liabilities for insurance and reinsurance companies, both in the United States and internationally. Runoff & Other also includes retroactive reinsurance contracts consisting of loss portfolio transfers, adverse development covers and other forms of reserve reinsurance providing indemnification of loss and loss adjustment expense reserves with respect to past loss events.
The following is a summary of the Company’s operating segment results for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
|
A&H
|
|
Specialty
|
|
Property
|
|
Runoff &
Other
|
|
Total
|
|
Gross premiums written (1)
|
$
|
90.6
|
|
|
$
|
289.3
|
|
|
$
|
213.2
|
|
|
$
|
(30.4)
|
|
|
$
|
562.7
|
|
|
Net premiums written (1)
|
75.8
|
|
|
241.1
|
|
|
173.3
|
|
|
(31.2)
|
|
|
459.0
|
|
|
Net premiums earned (1)
|
103.7
|
|
|
231.1
|
|
|
154.4
|
|
|
(22.9)
|
|
|
466.3
|
|
|
Loss and loss adjustment expenses incurred, net (2)
|
52.1
|
|
|
151.2
|
|
|
74.3
|
|
|
(22.5)
|
|
|
255.1
|
|
|
Acquisition costs, net
|
19.8
|
|
|
60.8
|
|
|
27.6
|
|
|
(2.6)
|
|
|
105.6
|
|
|
Other underwriting expenses (2)
|
28.7
|
|
|
19.2
|
|
|
22.3
|
|
|
2.1
|
|
|
72.3
|
|
|
Net underwriting income (loss)
|
$
|
3.1
|
|
|
$
|
(0.1)
|
|
|
$
|
30.2
|
|
|
$
|
0.1
|
|
|
33.3
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
17.8
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
77.4
|
|
|
Net corporate and other expenses
|
|
|
|
|
|
|
|
|
(25.7)
|
|
|
Intangible asset amortization
|
|
|
|
|
|
|
|
|
(1.3)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(9.8)
|
|
|
Foreign exchange losses
|
|
|
|
|
|
|
|
|
(12.0)
|
|
|
Income before income tax expense
|
|
|
|
|
|
|
|
|
$
|
79.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting Ratios: (3)
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
50.2
|
%
|
|
65.4
|
%
|
|
48.1
|
%
|
|
NM
|
|
54.7
|
%
|
|
Acquisition cost ratio
|
19.1
|
%
|
|
26.3
|
%
|
|
17.9
|
%
|
|
NM
|
|
22.6
|
%
|
|
Other underwriting expenses ratio
|
27.7
|
%
|
|
8.3
|
%
|
|
14.4
|
%
|
|
NM
|
|
15.5
|
%
|
|
Combined ratio (4)
|
97.0
|
%
|
|
100.0
|
%
|
|
80.4
|
%
|
|
NM
|
|
92.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
|
A&H
|
|
Specialty
|
|
Property
|
|
Runoff &
Other
|
|
Total
|
|
Gross premiums written (1)
|
$
|
1.3
|
|
|
$
|
73.8
|
|
|
$
|
72.6
|
|
|
$
|
—
|
|
|
$
|
147.7
|
|
|
Net premiums written (1)
|
1.3
|
|
|
70.7
|
|
|
57.3
|
|
|
—
|
|
|
129.3
|
|
|
Net premiums earned (1)
|
0.7
|
|
|
98.5
|
|
|
41.0
|
|
|
0.6
|
|
|
140.8
|
|
|
Loss and loss adjustment expenses incurred, net (2)
|
2.3
|
|
|
67.8
|
|
|
19.2
|
|
|
(0.2)
|
|
|
89.1
|
|
|
Acquisition costs, net
|
—
|
|
|
33.8
|
|
|
9.8
|
|
|
0.1
|
|
|
43.7
|
|
|
Other underwriting expenses (2)
|
0.1
|
|
|
4.8
|
|
|
1.6
|
|
|
1.3
|
|
|
7.8
|
|
|
Net underwriting income (loss)
|
$
|
(1.7)
|
|
|
$
|
(7.9)
|
|
|
$
|
10.4
|
|
|
$
|
(0.6)
|
|
|
0.2
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
137.2
|
|
|
Net corporate and other expenses
|
|
|
|
|
|
|
|
|
(8.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(2.0)
|
|
|
Foreign exchange gains
|
|
|
|
|
|
|
|
|
0.8
|
|
|
Income before income tax expense
|
|
|
|
|
|
|
|
|
$
|
127.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting Ratios: (3)
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
328.6
|
%
|
|
68.8
|
%
|
|
46.8
|
%
|
|
NM
|
|
63.3
|
%
|
|
Acquisition cost ratio
|
—
|
%
|
|
34.3
|
%
|
|
23.9
|
%
|
|
NM
|
|
31.0
|
%
|
|
Other underwriting expenses ratio
|
14.3
|
%
|
|
4.9
|
%
|
|
3.9
|
%
|
|
NM
|
|
5.5
|
%
|
|
Combined ratio (4)
|
342.9
|
%
|
|
108.0
|
%
|
|
74.6
|
%
|
|
NM
|
|
99.8
|
%
|
(1)Includes service fee revenue from the Company’s MGUs of $14.0 million for the three months ended June 30, 2021 (2020 - $nil).
(2)Loss and loss adjustment expenses incurred, net and other underwriting expenses include expenses associated with the Company’s MGUs of $3.5 million and $23.6 million, respectively, for the three months ended June 30, 2021 (2020 - $nil and $nil, respectively).
(3)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
(4)Ratios considered not meaningful ("NM") to Runoff & Other.
(5)In the first quarter of 2021, the Company modified the presentation of its operating segments to better align with the manner in which management monitors the performance of its operations. This change was primarily due to the Company’s acquisition of Sirius Group (See Note 3 for additional information). Prior period segment results have been adjusted to conform to the current period presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021
|
|
|
A&H
|
|
Specialty
|
|
Property
|
|
Runoff &
Other
|
|
Total
|
|
Gross premiums written (1)
|
$
|
225.4
|
|
|
$
|
457.0
|
|
|
$
|
275.3
|
|
|
$
|
(28.4)
|
|
|
$
|
929.3
|
|
|
Net premiums written (1)
|
179.4
|
|
|
385.6
|
|
|
233.6
|
|
|
(29.3)
|
|
|
769.3
|
|
|
Net premiums earned (1)
|
138.7
|
|
|
370.1
|
|
|
234.6
|
|
|
(21.1)
|
|
|
722.3
|
|
|
Loss and loss adjustment expenses incurred, net (2)
|
66.1
|
|
|
238.3
|
|
|
119.7
|
|
|
(20.9)
|
|
|
403.2
|
|
|
Acquisition costs, net
|
24.9
|
|
|
103.1
|
|
|
48.8
|
|
|
(2.2)
|
|
|
174.6
|
|
|
Other underwriting expenses (2)
|
39.3
|
|
|
29.1
|
|
|
30.5
|
|
|
3.6
|
|
|
102.5
|
|
|
Net underwriting income (loss)
|
$
|
8.4
|
|
|
$
|
(0.4)
|
|
|
$
|
35.6
|
|
|
$
|
(1.6)
|
|
|
42.0
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
26.4
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
263.9
|
|
|
Net corporate and other expenses
|
|
|
|
|
|
|
|
|
(94.0)
|
|
|
Intangible asset amortization
|
|
|
|
|
|
|
|
|
(2.1)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(14.7)
|
|
|
Foreign exchange gains
|
|
|
|
|
|
|
|
|
0.4
|
|
|
Income before income tax expense
|
|
|
|
|
|
|
|
|
$
|
221.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting Ratios: (3)
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
47.7
|
%
|
|
64.4
|
%
|
|
51.0
|
%
|
|
NM
|
|
55.8
|
%
|
|
Acquisition cost ratio
|
18.0
|
%
|
|
27.9
|
%
|
|
20.8
|
%
|
|
NM
|
|
24.2
|
%
|
|
Other underwriting expenses ratio
|
28.3
|
%
|
|
7.9
|
%
|
|
13.0
|
%
|
|
NM
|
|
14.2
|
%
|
|
Combined ratio (4)
|
94.0
|
%
|
|
100.2
|
%
|
|
84.8
|
%
|
|
NM
|
|
94.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
A&H
|
|
Specialty
|
|
Property
|
|
Runoff &
Other
|
|
Total
|
|
Gross premiums written (1)
|
$
|
2.6
|
|
|
$
|
153.2
|
|
|
$
|
117.6
|
|
|
$
|
—
|
|
|
$
|
273.4
|
|
|
Net premiums written (1)
|
2.6
|
|
|
147.6
|
|
|
102.3
|
|
|
—
|
|
|
252.5
|
|
|
Net premiums earned (1)
|
1.9
|
|
|
197.9
|
|
|
86.1
|
|
|
1.2
|
|
|
287.1
|
|
|
Loss and loss adjustment expenses incurred, net (2)
|
3.3
|
|
|
135.2
|
|
|
37.3
|
|
|
1.1
|
|
|
176.9
|
|
|
Acquisition costs, net
|
0.2
|
|
|
67.3
|
|
|
25.7
|
|
|
(0.3)
|
|
|
92.9
|
|
|
Other underwriting expenses (2)
|
0.1
|
|
|
9.3
|
|
|
3.1
|
|
|
2.5
|
|
|
15.0
|
|
|
Net underwriting income (loss)
|
$
|
(1.7)
|
|
|
$
|
(13.9)
|
|
|
$
|
20.0
|
|
|
$
|
(2.1)
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
|
|
|
|
|
|
|
(47.8)
|
|
|
Net corporate and other expenses
|
|
|
|
|
|
|
|
|
(15.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(4.1)
|
|
|
Foreign exchange gains
|
|
|
|
|
|
|
|
|
9.0
|
|
|
Loss before income tax expense
|
|
|
|
|
|
|
|
|
$
|
(55.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting Ratios: (3)
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
173.7
|
%
|
|
68.3
|
%
|
|
43.3
|
%
|
|
NM
|
|
61.6
|
%
|
|
Acquisition cost ratio
|
10.5
|
%
|
|
34.0
|
%
|
|
29.8
|
%
|
|
NM
|
|
32.4
|
%
|
|
Other underwriting expenses ratio
|
5.3
|
%
|
|
4.7
|
%
|
|
3.6
|
%
|
|
NM
|
|
5.2
|
%
|
|
Combined ratio (4)
|
189.5
|
%
|
|
107.0
|
%
|
|
76.7
|
%
|
|
NM
|
|
99.2
|
%
|
(1)Includes service fee revenue from the Company’s MGUs of $24.8 million for the six months ended June 30, 2021 (2020 - $nil).
(2)Loss and loss adjustment expenses incurred, net and other underwriting expenses include expenses associated with the Company’s MGUs of $4.4 million and $30.9 million, respectively, for the six months ended June 30, 2021 (2020 - $nil and $nil).
(3)Underwriting ratios are calculated by dividing the related expense by net premiums earned.
(4)Ratios considered not meaningful ("NM") to Runoff & Other.
(5)In the first quarter of 2021, the Company modified the presentation of its operating segments to better align with the manner in which management monitors the performance of its operations. This change was primarily due to the Company’s acquisition of Sirius Group (See Note 3 for additional information). Prior period segment results have been adjusted to conform to the current period presentation.
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 June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31, 2020
|
|
Cash and cash equivalents
|
$
|
1,032.6
|
|
|
$
|
526.0
|
|
|
Restricted cash securing letter of credit facilities (1)
|
613.6
|
|
|
306.0
|
|
|
Restricted cash securing reinsurance contracts (2)
|
923.9
|
|
|
881.9
|
|
|
Restricted cash held by managing general underwriters
|
16.9
|
|
|
—
|
|
|
Total cash, cash equivalents and restricted cash (3)
|
2,587.0
|
|
|
1,713.9
|
|
|
Restricted investments securing reinsurance contracts (2)
|
944.6
|
|
|
86.4
|
|
|
Total cash, cash equivalents, restricted cash and restricted investments
|
$
|
3,531.6
|
|
|
$
|
1,800.3
|
|
(1)Restricted cash 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 condensed consolidated statements of cash flows.
6. 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, short-term investments, equity securities, and other-long term investments which are all classified as trading securities. Realized and unrealized investment gains and losses on trading securities are reported in pre-tax revenues.
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 June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Cost or
amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Net foreign
currency
gains
(losses)
|
|
Fair value
|
|
Asset-backed securities
|
|
$
|
541.4
|
|
|
$
|
2.3
|
|
|
$
|
(0.1)
|
|
|
$
|
—
|
|
|
$
|
543.6
|
|
|
Residential mortgage-backed securities
|
|
368.8
|
|
|
1.1
|
|
|
(2.1)
|
|
|
—
|
|
|
367.8
|
|
|
Commercial mortgage-backed securities
|
|
123.8
|
|
|
1.1
|
|
|
(1.3)
|
|
|
—
|
|
|
123.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
592.5
|
|
|
5.1
|
|
|
(0.3)
|
|
|
(2.3)
|
|
|
595.0
|
|
|
U.S. government and government agency (1)
|
|
263.7
|
|
|
2.0
|
|
|
(1.4)
|
|
|
—
|
|
|
264.3
|
|
|
Non-U.S. government and government agency
|
|
102.7
|
|
|
0.1
|
|
|
(0.1)
|
|
|
(1.2)
|
|
|
101.5
|
|
|
U.S. states, municipalities and political subdivision
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
Preferred stocks
|
|
12.7
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
12.8
|
|
|
Total debt securities
|
|
$
|
2,006.3
|
|
|
$
|
11.8
|
|
|
$
|
(5.3)
|
|
|
$
|
(3.5)
|
|
|
$
|
2,009.3
|
|
(1)The Company had $10.0 million of short positions in long duration U.S. Treasuries as of June 30, 2021. These amounts are included in securities sold, not yet purchased in the condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Cost or
amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Net foreign
currency
gains
(losses)
|
|
Fair value
|
|
Asset-backed securities
|
|
$
|
1.2
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
Residential mortgage-backed securities
|
|
8.1
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank debt
|
|
0.3
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
Corporate debt securities
|
|
29.4
|
|
|
8.4
|
|
|
(0.1)
|
|
|
—
|
|
|
37.7
|
|
|
U.S. government and government agency (1)
|
|
52.4
|
|
|
1.7
|
|
|
(0.9)
|
|
|
—
|
|
|
53.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
91.4
|
|
|
$
|
10.9
|
|
|
$
|
(1.0)
|
|
|
$
|
—
|
|
|
$
|
101.3
|
|
(1)The Company had $12.0 million of short positions in long duration U.S. Treasuries as of December 31, 2020. These amounts are included in securities sold, not yet purchased in the condensed consolidated balance sheets.
The weighted average duration of the Company's debt securities as of June 30, 2021 was approximately 1.7 years, including short-term investments, and approximately 2.4 years excluding short-term investments (December 31, 2020 - 10.5 years and 10.5 years, respectively).
The following table provides the cost or amortized cost and fair value of the Company's debt securities as of June 30, 2021 and December 31, 2020 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
Cost or
amortized cost
|
|
Fair value
|
|
Cost or
amortized cost
|
|
Fair value
|
|
Due in one year or less
|
|
$
|
238.9
|
|
|
$
|
238.9
|
|
|
$
|
50.0
|
|
|
$
|
50.6
|
|
|
Due after one year through five years
|
|
570.1
|
|
|
568.0
|
|
|
2.8
|
|
|
3.0
|
|
|
Due after five years through ten years
|
|
103.3
|
|
|
103.2
|
|
|
—
|
|
|
—
|
|
|
Due after ten years
|
|
47.3
|
|
|
51.4
|
|
|
29.4
|
|
|
37.7
|
|
|
Mortgage-backed and asset-backed securities
|
|
1,034.0
|
|
|
1,035.0
|
|
|
9.2
|
|
|
10.0
|
|
|
Preferred stocks
|
|
12.7
|
|
|
12.8
|
|
|
—
|
|
|
—
|
|
|
Total debt securities
|
|
$
|
2,006.3
|
|
|
$
|
2,009.3
|
|
|
$
|
91.4
|
|
|
$
|
101.3
|
|
The following table summarizes the ratings and fair value of debt securities held in the Company's investment portfolio as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31, 2020
|
|
AAA
|
|
$
|
727.1
|
|
|
$
|
53.2
|
|
|
AA
|
|
751.7
|
|
|
—
|
|
|
A
|
|
264.5
|
|
|
9.1
|
|
|
BBB
|
|
164.1
|
|
|
37.7
|
|
|
Other
|
|
101.9
|
|
|
1.3
|
|
|
Total debt securities (1)
|
|
$
|
2,009.3
|
|
|
$
|
101.3
|
|
(1)Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor's ("S&P") and 2) Moody's Investors Service.
As of June 30, 2021, the above totals included $26.6 million of sub-prime securities. Of this total, $7.5 million was rated AAA, $10.2 million rated AA and $8.9 million rated A. As of December 31, 2020, the above totals included $8.7 million of A rated sub-prime securities.
Equity securities and other long-term investments
The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains, and fair values of the Company’s equity securities and other long-term investments as of June 30, 2021 and December 31, 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Cost or
amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Net foreign
currency
gains
|
|
Fair value
|
|
Equity securities
|
|
$
|
4.9
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5.0
|
|
|
Other long-term investments
|
|
$
|
414.9
|
|
|
$
|
53.0
|
|
|
$
|
(4.4)
|
|
|
$
|
0.2
|
|
|
$
|
463.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Cost or
amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Net foreign
currency
gains
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.0
|
|
Equity securities at fair value consisted of the following as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
|
Fixed income mutual funds
|
|
$
|
1.9
|
|
|
|
|
Common stocks
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
5.0
|
|
|
|
Other long-term investments at fair value consisted of the following as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31, 2020
|
|
Hedge funds and private equity funds (1)
|
|
$
|
223.7
|
|
|
$
|
—
|
|
|
Limited liability companies and private equity securities (2)
|
|
240.0
|
|
|
4.0
|
|
|
Total other long-term investments
|
|
$
|
463.7
|
|
|
$
|
4.0
|
|
(1)Includes $141.2 million of investments valued at NAV and $82.5 million of investments valued at Level 3.
(2)As of June 30, 2021, the Company had $27.8 million of unfunded commitments relating to investments in limited liability companies and private equity securities.
Hedge funds and private equity funds
The Company holds investments in hedge funds and private equity funds, which are included in other long-term investments. As of June 30, 2021, the Company held investments in 8 hedge funds and 19 private equity funds. The largest investment in a single fund was $46.7 million as of June 30, 2021.
The following table summarizes investments in hedge funds and private equity interests by investment objective and sector as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
Fair value
|
|
Unfunded
commitments
|
|
|
|
|
|
Hedge funds
|
|
|
|
|
|
|
|
|
|
Long/short multi-sector
|
|
$
|
26.9
|
|
|
$
|
—
|
|
|
|
|
|
|
Distressed mortgage credit
|
|
46.7
|
|
|
—
|
|
|
|
|
|
|
Private credit
|
|
23.7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
1.2
|
|
|
—
|
|
|
|
|
|
|
Total hedge funds
|
|
98.5
|
|
|
—
|
|
|
|
|
|
|
Private equity funds
|
|
|
|
|
|
|
|
|
|
Energy infrastructure & services
|
|
52.4
|
|
|
23.6
|
|
|
|
|
|
|
Multi-sector
|
|
10.4
|
|
|
6.5
|
|
|
|
|
|
|
Healthcare
|
|
29.9
|
|
|
2.2
|
|
|
|
|
|
|
Life settlement
|
|
13.1
|
|
|
—
|
|
|
|
|
|
|
Manufacturing/Industrial
|
|
14.2
|
|
|
—
|
|
|
|
|
|
|
Private equity secondaries
|
|
0.6
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
4.6
|
|
|
0.8
|
|
|
|
|
|
|
Total private equity funds
|
|
125.2
|
|
|
33.8
|
|
|
|
|
|
|
Total hedge and private equity funds included in other long-term investments
|
|
$
|
223.7
|
|
|
$
|
33.8
|
|
|
|
|
|
Redemption of investments in certain hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency, and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period.
The following summarizes the June 30, 2021 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notice Period
|
|
Redemption Frequency
|
|
1-29 days
notice
|
|
30-59 days
notice
|
|
60-89 days
notice
|
|
90-119 days
notice
|
|
120+ days
notice
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
26.9
|
|
|
$
|
46.7
|
|
|
$
|
—
|
|
|
$
|
74.2
|
|
|
Semi-annual
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
Annual
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
23.7
|
|
|
24.0
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
27.2
|
|
|
$
|
47.0
|
|
|
$
|
23.7
|
|
|
$
|
98.5
|
|
Certain of the hedge fund and private equity fund investments in which the Company is invested are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund's underlying investments are liquidated. As of June 30, 2021, $11.7 million in distributions were outstanding from these investments.
Investments in private equity funds are generally subject to a "lock-up" period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund's underlying investments. In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors.
As of June 30, 2021, investments in private equity funds were subject to lock-up periods as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 - 3 years
|
|
3 – 5 years
|
|
5 – 10 years
|
|
Total
|
|
Private equity funds – expected lock-up period remaining
|
|
$
|
48.3
|
|
|
$
|
27.9
|
|
|
$
|
49.0
|
|
|
$
|
125.2
|
|
Investment in related party investment funds
The following table provides the cost and fair value of the Company's investments in related party investment funds as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
Cost
|
|
Fair value
|
|
Cost
|
|
Fair value
|
|
Third Point Enhanced LP
|
|
$
|
867.9
|
|
|
$
|
1,229.4
|
|
|
$
|
891.9
|
|
|
$
|
1,055.6
|
|
|
Third Point Venture Offshore Fund I LP
|
|
24.0
|
|
|
25.0
|
|
|
—
|
|
|
—
|
|
|
Investment in related party investment funds, at fair value
|
|
$
|
891.9
|
|
|
$
|
1,254.4
|
|
|
$
|
891.9
|
|
|
$
|
1,055.6
|
|
Investment in Third Point Enhanced LP
On August 6, 2020, SiriusPoint, SiriusPoint Bermuda and Third Point Reinsurance (USA) Ltd. (“Third Point Re USA”) entered into the Third Amended and Restated Exempted Limited Partnership Agreement (“2020 LPA”) of Third Point Enhanced LP (“TP Enhanced Fund”) which became effective on February 26, 2021, except for the amendment to the calculation of the loss recovery account which became effective on December 31, 2020. In accordance with the 2020 LPA, Third Point Advisors LLC (“TP GP”) serves as the general partner of TP Enhanced Fund.
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.
Under the 2020 LPA, the Company has the right to withdraw funds monthly from TP Enhanced Fund to meet capital adequacy requirements and to satisfy financing obligations. The Company may also withdraw its investment upon the occurrence of certain events specified in the 2020 LPA, including, to meet capital adequacy requirements, to prevent a negative credit rating, for risk management purposes or to satisfy financing obligations, subject to certain limitations on such withdrawals as specified in the 2020 LPA, and may withdraw its investment in full on the first quarter end date after the five-year anniversary of the closing date of the acquisition of Sirius Group (i.e. March 31, 2026) and each successive two-year anniversary of such date. The Company is also entitled to withdraw funds from the TP Enhanced Fund in order to satisfy its risk management guidelines, upon prior written notice to the TP GP, in an amount not to exceed 20% of the sum of (x) the aggregate opening balances of our capital account and (y) the aggregate amount of capital contributions credited to our capital account.
As of June 30, 2021, 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 Third Point Venture Offshore Fund I LP (“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 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 June 30, 2021, the Company had $16.0 million of unfunded commitments related to TP Venture Fund.
7. 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 June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in active markets
|
|
Significant other observable inputs
|
|
Significant unobservable inputs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
—
|
|
|
$
|
543.6
|
|
|
$
|
—
|
|
|
$
|
543.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
—
|
|
|
367.8
|
|
|
—
|
|
|
367.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
—
|
|
|
123.6
|
|
|
—
|
|
|
123.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
—
|
|
|
595.0
|
|
|
—
|
|
|
595.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government agency
|
204.9
|
|
|
59.4
|
|
|
—
|
|
|
264.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government and government agency
|
24.5
|
|
|
77.0
|
|
|
—
|
|
|
101.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states, municipalities and political subdivision
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stocks
|
—
|
|
|
—
|
|
|
12.8
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
229.4
|
|
|
1,767.1
|
|
|
12.8
|
|
|
2,009.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income mutual funds
|
1.9
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
3.1
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
5.0
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
742.3
|
|
|
24.4
|
|
|
—
|
|
|
766.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
—
|
|
|
—
|
|
|
322.1
|
|
|
322.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
—
|
|
|
—
|
|
|
5.2
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan participation
|
—
|
|
|
—
|
|
|
36.5
|
|
|
36.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
976.7
|
|
|
$
|
1,791.5
|
|
|
$
|
376.6
|
|
|
3,144.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in funds valued at NAV
|
|
|
|
|
|
|
1,395.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
$
|
4,540.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government agency
|
$
|
—
|
|
|
$
|
10.0
|
|
|
$
|
—
|
|
|
$
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities sold, not yet purchased
|
—
|
|
|
10.0
|
|
|
—
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability-classified capital instruments
|
—
|
|
|
22.9
|
|
|
99.3
|
|
|
122.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
1.5
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
—
|
|
|
—
|
|
|
3.7
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
32.9
|
|
|
$
|
104.5
|
|
|
$
|
137.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Quoted prices in active markets
|
|
Significant other observable inputs
|
|
Significant unobservable inputs
|
|
Total
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
Residential mortgage-backed securities
|
—
|
|
|
8.7
|
|
|
—
|
|
|
8.7
|
|
|
Bank debt
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
|
Corporate debt securities
|
—
|
|
|
37.7
|
|
|
—
|
|
|
37.7
|
|
|
U.S. Government and government agency
|
—
|
|
|
53.2
|
|
|
—
|
|
|
53.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
—
|
|
|
101.3
|
|
|
—
|
|
|
101.3
|
|
|
Short-term investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other long-term investments
|
—
|
|
|
—
|
|
|
4.0
|
|
|
4.0
|
|
|
Derivative assets
|
—
|
|
|
—
|
|
|
1.2
|
|
|
1.2
|
|
|
|
$
|
—
|
|
|
$
|
101.3
|
|
|
$
|
5.2
|
|
|
106.5
|
|
|
Investments in funds valued at NAV
|
|
|
|
|
|
|
1,055.6
|
|
|
Total assets
|
|
|
|
|
|
|
$
|
1,162.1
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
U.S. Government and government agency
|
$
|
—
|
|
|
$
|
12.0
|
|
|
$
|
—
|
|
|
$
|
12.0
|
|
|
Total securities sold, not yet purchased
|
—
|
|
|
12.0
|
|
|
—
|
|
|
12.0
|
|
|
Derivative liabilities
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
12.0
|
|
|
$
|
1.0
|
|
|
$
|
13.0
|
|
During the six months ended June 30, 2021, the Company made $nil (December 31, 2020 - $nil) of reclassifications of assets or liabilities between Levels 2 and 3.
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. The outside pricing services the Company uses have indicated that they will only provide prices where observable inputs are available. 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 quarterly or semi-annual partnership capital statements with a three or six 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. In these circumstances, the Company estimates the return of the current period and uses all credible information available. 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. They are carried at fair value and in the case of 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.
See Note 8 for additional information on the fair values of derivative financial instruments used for both risk management and investment purposes.
Underwriting-related derivatives
The Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of the embedded derivative reported in other expenses. The Company’s embedded derivatives relate to interest crediting features in certain reinsurance and deposit contracts that vary based on the Company’s investment returns. The Company determines the fair value of the embedded derivatives using models developed by the Company.
Other 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 and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1,
2021
|
|
Transfers in to (out of) Level 3
|
|
Purchases
|
|
Assets Acquired (1)
|
|
Sales
|
|
Realized and Unrealized Gains (Losses) (2)
|
|
June 30,
2021
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stocks
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
10.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12.8
|
|
|
Other long-term investments
|
311.2
|
|
|
—
|
|
|
14.1
|
|
|
—
|
|
|
(4.9)
|
|
|
1.7
|
|
|
322.1
|
|
|
Derivative assets
|
3.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3)
|
|
|
2.3
|
|
|
5.2
|
|
|
Loan participation
|
32.8
|
|
|
—
|
|
|
3.9
|
|
|
—
|
|
|
(0.2)
|
|
|
—
|
|
|
36.5
|
|
|
Total assets
|
$
|
350.0
|
|
|
$
|
—
|
|
|
$
|
28.0
|
|
|
$
|
—
|
|
|
$
|
(5.4)
|
|
|
$
|
4.0
|
|
|
$
|
376.6
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability-classified capital instruments
|
$
|
(135.0)
|
|
|
$
|
27.0
|
|
|
$
|
(2.6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.3
|
|
|
$
|
(99.3)
|
|
|
Contingent consideration
|
(1.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.5)
|
|
|
Derivative liabilities
|
(3.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
(3.7)
|
|
|
Total liabilities
|
$
|
(140.0)
|
|
|
$
|
27.0
|
|
|
$
|
(2.6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.1
|
|
|
$
|
(104.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2021
|
|
Transfers in to (out of) Level 3
|
|
Purchases
|
|
Assets Acquired (1)
|
|
Sales
|
|
Realized and Unrealized Gains (Losses) (2)
|
|
June 30,
2021
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stocks
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10.0
|
|
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12.8
|
|
|
Other long-term investments
|
4.0
|
|
|
—
|
|
|
27.7
|
|
|
259.0
|
|
|
(5.9)
|
|
|
37.3
|
|
|
322.1
|
|
|
Derivative assets
|
1.2
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
(0.3)
|
|
|
4.0
|
|
|
5.2
|
|
|
Loan participation
|
—
|
|
|
—
|
|
|
3.9
|
|
|
32.8
|
|
|
(0.2)
|
|
|
—
|
|
|
36.5
|
|
|
Total assets
|
$
|
5.2
|
|
|
$
|
—
|
|
|
$
|
41.6
|
|
|
$
|
294.9
|
|
|
$
|
(6.4)
|
|
|
$
|
41.3
|
|
|
$
|
376.6
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability-classified capital instruments
|
$
|
—
|
|
|
$
|
27.0
|
|
|
$
|
(137.6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.3
|
|
|
$
|
(99.3)
|
|
|
Contingent consideration liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.7)
|
|
|
—
|
|
|
(0.8)
|
|
|
(1.5)
|
|
|
Derivative liabilities
|
(1.0)
|
|
|
—
|
|
|
—
|
|
|
(2.0)
|
|
|
—
|
|
|
(0.7)
|
|
|
(3.7)
|
|
|
Total liabilities
|
$
|
(1.0)
|
|
|
$
|
27.0
|
|
|
$
|
(137.6)
|
|
|
$
|
(2.7)
|
|
|
$
|
—
|
|
|
$
|
9.8
|
|
|
$
|
(104.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1,
2020
|
|
Transfers in to (out of) Level 3
|
|
Purchases
|
|
Assets Acquired
|
|
Sales
|
|
Realized and Unrealized Gains (Losses) (2)
|
|
June 30,
2020
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
4.4
|
|
|
$
|
(4.4)
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
1.2
|
|
|
Other long-term investments
|
4.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
|
Total assets
|
$
|
8.4
|
|
|
$
|
(4.4)
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2020
|
|
Transfers in to (out of) Level 3
|
|
Purchases
|
|
Assets Acquired
|
|
Sales
|
|
Realized and Unrealized Gains (Losses) (2)
|
|
June 30,
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
1.2
|
|
|
Other long-term investments
|
4.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes amounts acquired as a result of the Sirius Group acquisition.
(2)Total change in realized and unrealized gains (losses) recorded on Level 3 financial instruments is included in net investment income (loss) in the condensed 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 condensed 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.
Significant unobservable inputs
The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments as of June 30, 2021, and includes only those instruments for which information about the inputs is reasonably available to the Company, such as data from independent third-party valuation service providers and from internal valuation models.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Assets (Liability)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable input
|
|
Private equity securities (4)
|
|
$
|
152.0
|
|
|
Subject company transaction approach
|
|
Share price range
|
|
19.84 - 23.34
|
|
Private equity funds (3)
|
|
82.6
|
|
|
Net asset value discount
|
|
Discount range
|
|
50% - 95%
|
|
Private equity securities (1)
|
|
39.6
|
|
|
Share price of recent transaction
|
|
Purchase share price
|
|
50.79
|
|
|
Loan participations (5)
|
|
36.5
|
|
|
Share price of recent transaction
|
|
Comparable yields
|
|
Range - 4.91%-7.82%
Median - 5.92%
|
|
Private equity securities (1)
|
|
15.3
|
|
|
Multiple of GAAP book value
|
|
Book value multiple
|
|
Range - 0.73x-0.91x
Median - 0.82x
|
|
Preferred stock (1)
|
|
10.0
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
10.0
|
|
|
Common stock (1)
|
|
10.0
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
10.0
|
|
|
Partnership interest (1)
|
|
6.1
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
6.1
|
|
|
Private debt instrument (1)
|
|
6.1
|
|
|
Discounted cash flow
|
|
Discount yield
|
|
Range - 4.74%-5.70%
Median - 5.14%
|
|
Preferred stock (1)
|
|
4.3
|
|
|
Share price of recent transaction
|
|
Purchase price
|
|
4.3
|
|
|
Promissory note (1)
|
|
3.5
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
3.5
|
|
|
Preferred stocks (5)
|
|
2.8
|
|
|
Share price of recent transaction
|
|
Share price
|
|
2.8
|
|
|
Weather derivatives (2)
|
|
1.3
|
|
|
Third party appraisal
|
|
Broker quotes
|
|
1.3
|
|
|
Preferred stock (1)
|
|
1.1
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
1.1
|
|
|
Membership Interest (1)
|
|
1.0
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
1.0
|
|
|
Equity warrants (2)
|
|
0.5
|
|
|
Option pricing model
|
|
Strike price
|
|
0.3
|
|
|
Private equity securities (1)
|
|
0.3
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
0.3
|
|
|
Promissory note (1)
|
|
0.2
|
|
|
Purchase price of recent transaction
|
|
Purchase price
|
|
0.2
|
|
|
Currency forwards (2)
|
|
0.1
|
|
|
Third party appraisal
|
|
Broker quotes
|
|
0.1
|
|
|
Contingent consideration (1)
|
|
(1.5)
|
|
|
External valuation model
|
|
Discounted future payments
|
|
(1.5)
|
|
|
Upside rights (1)
|
|
(1.6)
|
|
|
External valuation model
|
|
Share price
|
|
(1.6)
|
|
|
Public warrants (1)
|
|
(2.6)
|
|
|
Black Scholes pricing model
|
|
Share price
|
|
0.72
|
|
|
Currency swaps (2)
|
|
(3.0)
|
|
|
Third party appraisal
|
|
Broker quotes
|
|
(3.0)
|
|
|
Private warrants (1)
|
|
(6.3)
|
|
|
Black Scholes pricing model
|
|
Share price
|
|
1.57
|
|
|
Series A preference shares (1)
|
|
(38.4)
|
|
|
External valuation model
|
|
Share price
|
|
(38.4)
|
|
|
Merger warrants (1)
|
|
$
|
(50.4)
|
|
|
External valuation model
|
|
Share price
|
|
2.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Each asset type consists of one security except as indicated below.
(2)See Note 8 for discussion of derivative instruments.
(3)Represents multiple private equity funds where a discount on net asset value was taken.
(4)Represents various tranches of the Company's investment in Pie Insurance Holdings, Inc. (“Pie Insurance”).
(5)Represents multiple securities held under the same Investment Management Agreement.
Financial instruments disclosed, but not carried at fair value
The Company uses various financial instruments in the normal course of its business. The carrying values of cash, accrued investment income, certain other assets, certain other liabilities, and other financial instruments not included in the table below approximated their fair values at June 30, 2021 and December 31, 2020, due to their respective short maturities. The following table includes financial instruments for which the carrying value differs from the estimated fair values at June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
2017 SEK Subordinated Notes (1)
|
|
$
|
320.6
|
|
|
$
|
315.5
|
|
|
n/a
|
|
n/a
|
|
2016 SIG Senior Notes (1)
|
|
410.4
|
|
|
406.6
|
|
|
n/a
|
|
n/a
|
|
2015 TPRUSA Senior Notes (1)
|
|
118.6
|
|
|
114.4
|
|
|
117.8
|
|
|
114.3
|
|
|
Series B preference shares (1)
|
|
$
|
220.1
|
|
|
$
|
200.0
|
|
|
n/a
|
|
n/a
|
(1)Fair value based on observable inputs and considered a Level 2 measurement.
8. Derivatives
As a result of the acquisition of Sirius Group, the Company now holds derivative financial instruments for both risk management and investment purposes.
Interest rate cap
The Company entered into an interest rate swap ("Interest Rate Cap") with two financial institutions where it paid an upfront premium and in return receives a series of quarterly payments based on the 3-month London Interbank Offered Rate at the time of payment. The Interest Rate Cap does not qualify for hedge accounting. Changes in fair value are recognized as unrealized gains or losses and are presented within other revenues. The fair value of the Interest Rate Cap has been estimated using a single broker quote and, accordingly, has been classified as a Level 3 measurement as of June 30, 2021. Collateral held is recorded with an equal amount recognized as a liability to return collateral. The Company’s liability to return that collateral is based on the amounts provided by the counterparties and investment earnings thereon. As of June 30, 2021, the Company held collateral balances of $0.1 million.
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 recognized as unrealized gains or losses and 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. The Company did not provide or hold any collateral associated with the foreign currency risk derivatives.
Equity warrants
The Company holds restricted equity warrants as part of its investment strategy. The equity warrants are not designated or accounted for under hedge accounting. Changes in fair value are presented within net realized and unrealized investment gains. The fair value of the equity warrants is estimated using a single broker quote and accordingly, classified as a Level 3 measurement. The Company did not provide or hold any collateral associated with the equity warrants.
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 condensed consolidated balance sheets as at June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
Derivatives not designated as hedging instruments
|
|
Derivative assets
at fair value(1)(3)
|
|
Derivative liabilities
at fair value(2)(3)
|
|
Notional Value
|
|
|
|
|
|
|
|
Interest rate cap
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
250.0
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
—
|
|
|
3.0
|
|
|
40.0
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
0.1
|
|
|
—
|
|
|
15.7
|
|
|
|
|
|
|
|
|
Weather derivatives
|
|
1.3
|
|
|
—
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency futures contracts
|
|
—
|
|
|
—
|
|
|
112.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity warrants
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
(1)Derivative assets are classified within other assets in the Company's condensed consolidated balance sheets at June 30, 2021.
(2)Derivative liabilities are classified within accounts payable, accrued expenses and other liabilities in the Company's condensed consolidated balance sheets at June 30, 2021.
(3)The Company did not hold the above derivative instruments as of December 31, 2020.
The following table summarizes information on the classification and net impact on earnings, recognized in the Company's condensed consolidated statements of income (loss) relating to derivatives during the three and six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
Derivatives not designated as hedging instruments
|
|
Classification of gains (losses) recognized in earnings
|
|
June 30, 2021
|
|
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
Foreign exchange (gains) losses
|
|
$
|
(0.7)
|
|
|
|
|
$
|
(1.1)
|
|
|
|
|
|
Foreign currency forwards
|
|
Foreign exchange (gains) losses
|
|
0.1
|
|
|
|
|
0.1
|
|
|
|
|
|
Weather derivatives
|
|
Net corporate and other expenses
|
|
1.5
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency futures contracts
|
|
Foreign exchange (gains) losses
|
|
1.8
|
|
|
|
|
(1.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency call options
|
|
Foreign exchange (gains) losses
|
|
2.0
|
|
|
|
|
0.4
|
|
|
|
|
|
Equity warrants
|
|
Net realized and unrealized investment gains
|
|
$
|
0.1
|
|
|
|
|
$
|
0.1
|
|
|
|
|
Underwriting-related derivatives
The following tables identify the listing currency, fair value and notional amounts of underwriting-related derivatives included in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Derivative assets
|
|
Listing currency (1)
|
|
Fair Value
|
|
Notional Amounts (2)
|
|
Fair Value
|
|
Notional Amounts (2)
|
|
Reinsurance contracts accounted for as derivative assets
|
|
GBP
|
|
$
|
3.3
|
|
|
$
|
22.5
|
|
|
$
|
1.2
|
|
|
$
|
4.2
|
|
|
|
|
|
|
$
|
3.3
|
|
|
$
|
22.5
|
|
|
$
|
1.2
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Derivative liabilities
|
|
Listing currency (1)
|
|
Fair Value
|
|
Notional Amounts (2)
|
|
Fair Value
|
|
Notional Amounts (2)
|
|
Reinsurance contracts accounted for as derivative liabilities
|
|
GBP
|
|
$
|
0.7
|
|
|
$
|
13.5
|
|
|
$
|
1.0
|
|
|
$
|
15.7
|
|
|
|
|
|
|
$
|
0.7
|
|
|
$
|
13.5
|
|
|
$
|
1.0
|
|
|
$
|
15.7
|
|
(1)GBP = British Pound.
(2)The absolute notional exposure represents the Company’s derivative activity as of June 30, 2021 and December 31, 2020, which is representative of the volume of derivatives held during the period.
9. Loss and loss adjustment expense reserves
The following table represents the activity in the loss and loss adjustment expense reserves for the six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Gross reserves for loss and loss adjustment expenses, beginning of period
|
$
|
1,310.1
|
|
|
$
|
1,111.7
|
|
|
Less: loss and loss adjustment expenses recoverable, beginning of period
|
(14.4)
|
|
|
(5.5)
|
|
|
Less: deferred charges on retroactive reinsurance contracts
|
(6.0)
|
|
|
(6.7)
|
|
|
Net reserves for loss and loss adjustment expenses, beginning of period
|
1,289.7
|
|
|
1,099.5
|
|
|
Increase (decrease) in net loss and loss adjustment expenses incurred in respect of losses occurring in:
|
|
|
|
|
Current year
|
412.9
|
|
|
176.7
|
|
|
Prior years
|
(9.7)
|
|
|
0.2
|
|
|
Total incurred loss and loss adjustment expenses
|
403.2
|
|
|
176.9
|
|
|
Net loss and loss adjustment expenses paid in respect of losses occurring in:
|
|
|
|
|
Current year
|
(80.1)
|
|
|
(24.9)
|
|
|
Prior years
|
(366.4)
|
|
|
(123.9)
|
|
|
Total net paid losses
|
(446.5)
|
|
|
(148.8)
|
|
|
Foreign currency translation
|
(1.6)
|
|
|
(10.7)
|
|
|
Amounts acquired as a result of Sirius Group acquisition (1)
|
2,467.8
|
|
|
—
|
|
|
Net reserves for loss and loss adjustment expenses, end of period
|
3,712.6
|
|
|
1,116.9
|
|
|
Plus: loss and loss adjustment expenses recoverable, end of period
|
516.6
|
|
|
10.1
|
|
|
Plus: deferred charges on retroactive reinsurance contracts (2)
|
3.1
|
|
|
7.0
|
|
|
Gross reserves for loss and loss adjustment expenses, end of period
|
$
|
4,232.3
|
|
|
$
|
1,134.0
|
|
(1)Represents the fair value of Sirius Group’s reserves for claims and claim expenses, net of reinsurance recoverables, acquired at February 26, 2021. See Note 3 for additional information related to the acquisition of Sirius Group.
(2)Deferred charges on retroactive contracts are recorded in other assets on the Company’s condensed 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 June 30, 2021, the Company recorded $10.1 million of net favorable prior year loss reserve development. The change from the prior period was driven by net favorable loss reserve development of $12.0 million from the legacy Sirius Group companies, primarily due to favorable loss reserve development of $8.9 million relating to the Property segment based on better than expected loss reserve emergence, primarily on European-related exposures.
For the six months ended June 30, 2021, the Company recorded $9.7 million of net favorable prior year loss reserve development. The change from the prior period was driven by net favorable loss reserve development of $12.0 million from the legacy Sirius Group companies, primarily due to favorable loss reserve development relating to the Property segment based on better than expected loss reserve emergence, primarily on European-related exposures.
The Company underwrites reinsurance contracts that have sliding scale or profit commissions whereby loss reserve development could be offset by changes in acquisition costs that vary inversely with loss experience, which are not reflected in these loss reserve-related amounts.
For the three months ended June 30, 2020, the Company recorded $4.6 million of net adverse prior year loss reserve development. The $4.6 million net increase in prior years’ reserves for the three months ended June 30, 2020 includes a $3.7 million increase in loss reserves resulting from increases in premium earnings estimates on certain contracts and a $0.9 million increase of net adverse reserve development related to increases in loss reserve estimates. In total, the change in net underwriting results for prior periods due to loss reserve development and adjustments to premium earnings estimates, after the impact of any offsetting changes in acquisition costs as a result of sliding scale or profit commissions, resulted in a $0.2 million improvement in the net underwriting results.
For the six months ended June 30, 2020, the Company recorded $0.2 million of net adverse prior year loss reserve development. The $0.2 million net increase in prior years’ reserves for the six months ended June 30, 2020 includes $10.3
million increase in loss reserves resulting from increases in premium earnings estimates on certain contracts, partially offset by a $10.1 million decrease of net favorable reserve development related to decreases in loss reserve estimates. In total, the change in net underwriting results for prior periods due to loss reserve development and adjustments to premium earnings estimates, after the impact of any offsetting changes in acquisition costs as a result of sliding scale or profit commissions, resulted in a $3.4 million improvement in the net underwriting results.
10. Third party reinsurance
In the normal course of business, the Company seeks to protect its businesses from losses due to concentration of risk and losses arising from catastrophic events by reinsuring with third-party reinsurers. Additionally, retrocession can be used as a mechanism to share the risks and rewards of business written and therefore can be used as a tool to align the Company’s interests with those of its counterparties. The Company remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts.
Premiums ceded for the three and six months ended June 30, 2021 were $103.7 million and $160.0 million, respectively (2020 - $18.4 million and $20.9 million, respectively). Loss and loss adjustment expenses recoverable from the retrocessionaire are recorded as assets. As of June 30, 2021, the Company had loss and loss adjustment expenses recoverable of $516.6 million (December 31, 2020 - $14.4 million).
Because retrocessional reinsurance contracts do not relieve the Company of its obligation to its insureds, the collectability of balances due from the Company's reinsurers is important to its financial strength. The Company monitors the financial strength and ratings of retrocessionaires on an ongoing basis. See Note 11 for additional information.
11. Allowance for expected credit losses
The Company is exposed to credit losses primarily 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 June 30, 2021 and December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31, 2020
|
|
Insurance and reinsurance balances receivable, net
|
$
|
1,515.3
|
|
|
$
|
441.9
|
|
|
Loss and loss adjustment expenses recoverable, net
|
516.6
|
|
|
14.4
|
|
|
Other assets (1)
|
19.8
|
|
|
—
|
|
|
Total assets in scope
|
$
|
2,051.7
|
|
|
$
|
456.3
|
|
|
|
|
|
|
|
|
|
|
|
(1)Relates to MGU trade receivables included in other assets in the Company’s condensed consolidated balance sheets.
The Company’s allowance for expected credit losses was $16.3 million and $0.6 million as of June 30, 2021 and December 31, 2020, respectively. For the three and six months ended June 30, 2021, the Company recorded current expected credit (gains) losses of $(1.8) million and $15.6 million, respectively (2020 - $nil and $0.2 million, respectively). The Company recognized the allowance for credit losses in accordance with ASC 326 upon initial recognition of the Sirius Group assets within the scope of the standard. An allowance of $16.8 million was re-established in the first quarter ended March 31, 2021 as related to Sirius Group assets. These amounts are included in net corporate and other expenses in the condensed 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 June 30, 2021, approximately 65% of the total gross assets in scope were balances with counterparties rated by either AM Best or S&P and, of the total rated, 84% were rated A- or better.
12. Deposit accounted contracts
The following table represents activity for the deposit contracts for the six months ended June 30, 2021 and year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31, 2020
|
|
Balance, beginning of period
|
$
|
153.0
|
|
|
$
|
172.3
|
|
|
Consideration received
|
0.4
|
|
|
0.5
|
|
|
|
|
|
|
|
Net investment expense allocation
|
1.8
|
|
|
0.9
|
|
|
Payments
|
(6.6)
|
|
|
(20.8)
|
|
|
Foreign currency translation
|
—
|
|
|
0.1
|
|
|
Balance, end of period
|
$
|
148.6
|
|
|
$
|
153.0
|
|
13. Debt and letter of credit facilities
Debt obligations
The following table represents a summary of the Company’s debt obligations on its condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
Amount
|
|
Effective rate (1)
|
|
Amount
|
|
Effective rate (1)
|
|
2017 SEK Subordinated Notes, at face value (2)
|
|
$
|
322.9
|
|
|
4.3
|
%
|
|
n/a
|
|
n/a
|
|
Unamortized discount
|
|
(7.4)
|
|
|
|
|
n/a
|
|
|
|
2017 SEK Subordinated Notes, carrying value
|
|
315.5
|
|
|
|
|
n/a
|
|
|
|
2016 SIG Senior Notes, at face value (2)
|
|
400.0
|
|
|
4.5
|
%
|
|
n/a
|
|
n/a
|
|
Unamortized premium
|
|
6.6
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 SIG Senior Notes, carrying value
|
|
406.6
|
|
|
|
|
n/a
|
|
|
|
2015 TPRUSA Senior Notes, at face value
|
|
115.0
|
|
|
7.0
|
%
|
|
115.0
|
|
|
7.0
|
%
|
|
Unamortized issuance costs
|
|
(0.6)
|
|
|
|
|
(0.7)
|
|
|
|
|
2015 TPRUSA Senior Notes, carrying value
|
|
114.4
|
|
|
|
|
114.3
|
|
|
|
|
Total debt
|
|
$
|
836.5
|
|
|
|
|
$
|
114.3
|
|
|
|
(1)Effective rate considers the effect of the debt issuance costs, discount, and premium.
(2)In connection with the acquisition of Sirius Group, SiriusPoint assumed the outstanding debt of Sirius Group.
2017 SEK Subordinated Notes
On September 22, 2017, Sirius Group, through SIG, issued floating rate callable subordinated notes denominated in Swedish kronor ("SEK") in the amount of SEK 2,750.0 million (or $346.1 million on date of issuance) at a 100% issue price ("2017 SEK Subordinated Notes"). The 2017 SEK Subordinated Notes were issued in an offering that was exempt from the registration requirements of the Securities Act of 1933 (the "Securities Act"). The 2017 SEK Subordinated Notes bear interest on their principal amount at a floating rate equal to the applicable Stockholm Interbank Offered Rate for the relevant interest period plus an applicable margin, payable quarterly in arrears on March 22, June 22, September 22 and December 22 of each year until maturity in September 2047. Beginning on September 22, 2022, the 2017 SEK Subordinated Notes may be redeemed, in whole or in part, at the Company’s option.
As a result of the Company’s merger with SIG, the Company acquired the existing and outstanding aggregate principal amount of the 2017 SEK Subordinated Notes pursuant to the First Supplemental Subordinated Indenture, dated May 27, 2021, among SIG, the Company and The Bank of New York Mellon, as trustee (the “Trustee”). The Company was in compliance with all debt covenants as of and for the period ended June 30, 2021.
For the three and six months ended June 30, 2021, the Company recorded $3.4 million and $4.6 million, respectively, of interest expense, inclusive of amortization of discount, on the 2017 SEK Subordinated Notes. For the three and six months
ended June 30, 2021, the Company also recognized $(7.5) million and $5.9 million, respectively, of foreign exchange (losses) gains of the 2017 SEK Subordinated Notes into USD from SEK.
2016 SIG Senior Notes
On November 1, 2016, Sirius Group, through SIG, issued $400.0 million face value of senior unsecured notes ("2016 SIG Senior Notes") at an issue price of 99.2% for net proceeds of $392.4 million after taking into effect both deferrable and non-deferrable issuance costs. The 2016 SIG Senior Notes were issued in an offering that was exempt from the registration requirements of the Securities Act. The 2016 SIG Senior Notes bear an annual interest rate of 4.6%, payable semi-annually in arrears on May 1 and November 1 of each year until maturity in November 2026.
As a result of the Company’s merger with SIG, the Company acquired the existing and outstanding aggregate principal amount of the 2016 SIG Senior Notes pursuant to the Third Supplemental Senior Indenture, dated May 27, 2021, among SIG, the Company and the Trustee. The Company was in compliance with all debt covenants as of and for the period ended June 30, 2021.
For the three and six months ended June 30, 2021, the Company recorded $4.3 million and $6.0 million, respectively, of interest expense, inclusive of amortization of premium, on the 2016 SIG Senior Notes.
2015 TPRUSA Senior Notes
As of June 30, 2021, Third Point Re (USA) Holdings, Inc. (“TPRUSA”) had outstanding debt obligations consisting of an aggregate principal amount of $115.0 million of senior unsecured notes (the “2015 TPRUSA Senior Notes”) due February 13, 2025. The 2015 TPRUSA Senior Notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year. The 2015 TPRUSA Senior Notes are fully and unconditionally guaranteed by SiriusPoint and, in certain circumstances specified in the indenture governing the 2015 TPRUSA Senior Notes, certain existing or future subsidiaries of the Company may be required to guarantee the 2015 TPRUSA Senior Notes. The Company was in compliance with all debt covenants as of and for the periods ended June 30, 2021 and December 31, 2020.
For the three and six months ended June 30, 2021, the Company recorded $2.1 million and $4.1 million, respectively, of interest expense, inclusive of amortization of issuance costs, on the 2015 TPRUSA Senior Notes (2020 - $2.0 million and $4.1 million, respectively).
Interest expense
Total interest expense incurred by the Company for its indebtedness for the three and six months ended June 30, 2021 was $9.8 million and $14.7 million, respectively (2020 - $2.0 million and $4.1 million, respectively).
Standby letter of credit facilities
As of June 30, 2021, the Company had entered into the following letter of credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of Credit
|
|
Collateral
|
|
|
Committed Capacity
|
|
Issued
|
|
Cash and Cash Equivalents
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
Committed - Secured letters of credit facilities
|
$
|
330.0
|
|
|
$
|
221.0
|
|
|
$
|
126.5
|
|
|
$
|
—
|
|
|
Uncommitted - Secured letters of credit facilities
|
n/a
|
|
857.0
|
|
|
487.1
|
|
|
609.9
|
|
|
|
|
|
$
|
1,078.0
|
|
|
$
|
613.6
|
|
|
$
|
609.9
|
|
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
Effective February 26, 2021, 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. 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 June 30, 2021, there were no outstanding borrowings under the Facility.
14. Net investment income (loss)
Net investment income (loss) for the three and six months ended June 30, 2021 and 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Debt securities
|
$
|
18.1
|
|
|
$
|
39.1
|
|
|
$
|
10.2
|
|
|
$
|
58.9
|
|
|
Short-term investments
|
1.6
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
Equity securities
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other long-term investments
|
13.2
|
|
|
—
|
|
|
61.9
|
|
|
—
|
|
|
Net investment income (loss) from investments in related party investment funds
|
45.6
|
|
|
98.6
|
|
|
198.8
|
|
|
(102.2)
|
|
|
Net investment income (loss) before other investment expenses and investment loss on cash and cash equivalents
|
78.3
|
|
|
137.7
|
|
|
272.3
|
|
|
(43.3)
|
|
|
Other investment expenses
|
(3.5)
|
|
|
(0.5)
|
|
|
(4.5)
|
|
|
(0.8)
|
|
|
Net investment income (loss) on cash and cash equivalents
|
2.6
|
|
|
—
|
|
|
(3.9)
|
|
|
(3.7)
|
|
|
Net investment income (loss)
|
$
|
77.4
|
|
|
$
|
137.2
|
|
|
$
|
263.9
|
|
|
$
|
(47.8)
|
|
Net realized and unrealized gains on investments
Net realized and unrealized investment gains for the three and six months ended June 30, 2021 and 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Gross realized gains
|
$
|
5.2
|
|
|
$
|
44.9
|
|
|
$
|
22.9
|
|
|
$
|
47.7
|
|
|
Gross realized losses
|
(6.8)
|
|
|
(5.1)
|
|
|
(5.4)
|
|
|
(6.8)
|
|
|
Net realized (losses) gains on investments (1)
|
(1.6)
|
|
|
39.8
|
|
|
17.5
|
|
|
40.9
|
|
|
Net unrealized gains (losses) on investments (2)
|
25.5
|
|
|
(3.8)
|
|
|
37.9
|
|
|
6.7
|
|
|
Net realized and unrealized gains on investments (3)
|
$
|
23.9
|
|
|
$
|
36.0
|
|
|
$
|
55.4
|
|
|
$
|
47.6
|
|
(1)Includes realized gains (losses) due to foreign currency of $(3.6) million and $(1.4) million for the three and six months ended June 30, 2021, respectively (2020 - $1.4 million and $1.2 million, respectively).
(2)Includes unrealized gains (losses) due to foreign currency of $10.7 million and $(6.2) million for the three and six months ended June 30, 2021, respectively (2020 - $(0.7) million and $(9.2) million, respectively).
(3)Excludes realized and unrealized gains (losses) on the Company’s investments in related party investment funds.
Net realized investment (losses) gains
Net realized investment (losses) gains for the three and six months ended June 30, 2021 and 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Debt securities
|
$
|
1.7
|
|
|
$
|
39.8
|
|
|
$
|
8.1
|
|
|
$
|
39.1
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
(0.4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
0.7
|
|
|
—
|
|
|
10.7
|
|
|
—
|
|
|
Net investment income (loss) on cash and cash equivalents
|
(3.6)
|
|
|
—
|
|
|
(1.3)
|
|
|
1.8
|
|
|
Net realized investment (losses) gains
|
$
|
(1.6)
|
|
|
$
|
39.8
|
|
|
$
|
17.5
|
|
|
$
|
40.9
|
|
Net unrealized investment gains (losses)
Net unrealized investment gains (losses) for the three and six months ended June 30, 2021 and 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Debt securities
|
$
|
8.7
|
|
|
$
|
(3.3)
|
|
|
$
|
(8.3)
|
|
|
$
|
16.0
|
|
|
Short-term investments
|
0.5
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Equity securities
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
9.8
|
|
|
—
|
|
|
48.6
|
|
|
—
|
|
|
Net investment income (loss) on cash and cash equivalents
|
6.2
|
|
|
(0.5)
|
|
|
(2.7)
|
|
|
(9.3)
|
|
|
Net unrealized investment gains (losses)
|
$
|
25.5
|
|
|
$
|
(3.8)
|
|
|
$
|
37.9
|
|
|
$
|
6.7
|
|
The following table summarizes the amount of total gains included in earnings attributable to unrealized investment gains – Level 3 investments for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Debt securities
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
2.7
|
|
|
—
|
|
|
38.3
|
|
|
—
|
|
|
Total unrealized investment gains – Level 3 investments
|
$
|
2.7
|
|
|
$
|
0.2
|
|
|
$
|
38.3
|
|
|
$
|
0.2
|
|
15. Income taxes
The Company provides for income tax expense or benefit based upon pre-tax income or loss reported in the condensed consolidated statements of income (loss) and the provisions of currently enacted tax laws. The Company and its Bermuda 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 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 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.
Prior to the acquisition of Sirius Group on February 26, 2021, the Company had one operating subsidiary incorporated in Bermuda, Third Point Re USA, which made an election to pay tax in the United States of America under Section 953(d) of the U.S. Internal Revenue Code of 1986, as amended. Subsequent to the acquisition of Sirius Group, 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 Australia, Belgium, Canada, Germany, Gibraltar, Hong Kong (China), Ireland, Luxembourg, Malaysia, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
For the three and six months ended June 30, 2021, the Company recorded income tax expense of $9.6 million and $19.4 million, respectively (2020 - $3.3 million and $3.7 million, respectively) on pre-tax income (loss) of $79.7 million and $221.9 million, respectively (2020 - $127.3 million and $(55.9) million, respectively). The effective tax rate for the three and six months ended June 30, 2021 was 12.0% and 8.7%, respectively. The difference between the effective tax rate on income from continuing operations and the Swedish statutory tax rate of 20.6% (the rate at which the majority of the Company's worldwide operations are taxed after the acquisition of Sirius Group) is primarily because of income recognized in jurisdictions with lower tax rates than Sweden and adjustments required under applicable U.S. GAAP guidance, which are based on the annual estimated effective tax rate.
In arriving at the estimated annual effective tax rate for the six months ended June 30, 2021 and 2020, 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.
The Tax Cuts and Jobs Act ("TCJA") includes a Base Erosion and Anti-Abuse Minimum Tax ("BEAT") provision, which is essentially a minimum tax on certain otherwise deductible payments made by U.S. entities to non-U.S. affiliates, including cross-border interest payments and reinsurance premiums paid or ceded. The statutory BEAT rate is 10% through 2025, and then rises to 12.5% in 2026 and thereafter. The TCJA also includes provisions for Global Intangible Low-Taxed Income ("GILTI") under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries. Consistent with accounting guidance, the Company will treat BEAT as an in period tax charge when incurred in future periods for which no deferred taxes need to be provided and has made an accounting policy election to treat GILTI taxes in a similar manner. No provision for income taxes related to BEAT or GILTI was recorded as of June 30, 2021 and December 31, 2020.
The Company has capital and liquidity in many of its subsidiaries, some of which may reflect undistributed earnings. If such capital or liquidity were to be paid or distributed to the Company or to one of its intermediary subsidiaries as dividends or otherwise, they may be subject to withholding tax by the source country and/or income tax by the recipient country. The Company generally intends to operate, and manage its capital and liquidity, in a tax-efficient manner. However, the applicable tax laws in relevant countries are still evolving, including in connection with guidance and proposals from the Organisation for Economic Cooperation and Development (OECD). Accordingly, such payments or distributions may be subject to income or withholding tax in jurisdictions where they are not currently taxed or at higher rates of tax than currently taxed, and the applicable tax authorities could attempt to apply income or withholding tax to past earnings or payments.
Deferred tax asset, net of valuation allowance
As of June 30, 2021, the Company has recorded net deferred tax asset, net of valuation allowance, of $26.1 million. $70.1 million relates to net deferred tax assets in U.S. subsidiaries, $148.7 million relates to net deferred tax assets in Luxembourg subsidiaries, $5.1 million relates to net deferred tax liabilities in UK subsidiaries, $178.0 million relates to net deferred tax liabilities in Sweden subsidiaries, and $9.6 million relates to other net deferred tax liabilities.
The Company records a valuation allowance against deferred tax assets if it becomes more likely than not that all or a portion of deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in income tax expense in the period of change. In determining whether or not a valuation allowance, or change therein, is warranted, the Company considers factors such as prior earnings history, expected future earnings, carryback and carryforward periods and strategies that if executed would result in the realization of a deferred tax asset. It is possible that certain planning strategies or projected earnings in certain subsidiaries may not be feasible to utilize the entire deferred tax asset, which could result in material changes to the Company's deferred tax assets and tax expense.
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.
As of June 30, 2021, the total reserve for unrecognized tax benefits is $3.2 million. 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 $2.5 million of such reserves as of June 30, 2021 would be recorded as an income tax benefit and would impact the effective tax rate. If the Company determines in the future that its reserves for unrecognized tax benefits on temporary differences are not needed, the reversal of $0.7 million of such reserves as of June 30, 2021 would not impact the effective tax rate due to deferred tax accounting but would accelerate the payment of cash to the taxing authority.
With few exceptions, which are not material, the Company is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2016.
16. Shareholders' equity
Common shares
The following table presents a summary of the common shares issued and outstanding as of and for the six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Common shares issued, beginning of period
|
95,582,733
|
|
|
94,225,498
|
|
|
Options exercised
|
220,000
|
|
|
—
|
|
|
Issuance of common shares, net of forfeitures and shares withheld
|
3,182,511
|
|
|
350,409
|
|
|
Performance restricted shares granted, net of forfeitures and shares withheld
|
(1,464,532)
|
|
|
344,296
|
|
|
Issuance of common shares for Sirius Group acquisition
|
58,331,196
|
|
|
—
|
|
|
Issuance of common shares to related party
|
6,093,842
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued, end of period
|
161,945,750
|
|
|
94,920,203
|
|
The Company’s authorized share capital consists of 300,000,000 common shares with a par value of $0.10 each. During the six months ended June 30, 2021 and 2020, 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
On February 26, 2021, the previous Sirius Group preference shareholders exchanged their existing Series B preference shares of Sirius Group in return for 8,000,000 new Series B preference shares, par value $0.10, of the Company. Dividends on the Series B preference shares will be cumulative and payable quarterly in arrears at an initial rate of 8.0% per annum. The preference shareholders will 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 will 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%.
On June 28, 2021, the Company entered into an Underwriting Agreement with the Series B preference shareholders (the “Selling Shareholders”) pursuant to which the Selling Shareholders sold to the public market 5,000,000 Series B preference shares (the “Offering”). The Company did not receive any proceeds from the sale of the Series B preference shares by the Selling Shareholders. The transaction did not change the underlying conditions of the Series B preference shares. The underwriters had the option to purchase an additional 750,000 Series B preference shares from the Selling Shareholders for 30 days after the Offering. The Series B preference shares are listed on the New York Stock Exchange under the symbol “SPNT PB”. The Company has continuing obligations to register for resale the Series B preference shares on behalf of the Selling Shareholders so long as (a) a shelf registration statement remains in effect and (b) the expected gross cash proceeds of the offering will exceed $25 million in the aggregate.
During the six months ended June 30, 2021, the Company declared and paid dividends of $4.1 million to Series B preference shareholders.
17. Share-based compensation
As of June 30, 2021, the Company’s share-based awards consisted of Restricted Share Units (“RSUs”), Performance Share Units (“PSUs”), restricted share awards with service condition and options.
During the three months ended June 30, 2021, as part of the 2021-2023 annual long-term incentive award cycle, the Company granted to its employees a number of RSUs and PSUs pursuant to the terms and conditions of the SiriusPoint Ltd. 2013 Omnibus Incentive Plan. The RSUs vest over three years in equal, one-third installments on each anniversary of the award grant date subject to continued provision of services through the applicable vesting date. The PSUs are subject to a service condition as well as a performance condition.
During the three months ended June 30, 2021, the Company modified its 2019 and 2020 restricted share awards with service and performance conditions to convert them at the most recent forecasted performance percentage to restricted shares with a service condition only. Further, the Company supplemented these awards with additional restricted shares with extended vesting periods.
As a result and at the time of the acquisition of Sirius Group, Sirius Group's outstanding restricted share units were converted to Company RSUs.
The total share-based compensation expense incurred during the three and six months ended June 30, 2021 and 2020 was $7.0 million and $9.3 million, respectively, and $1.6 million and $3.2 million, respectively.
As of June 30, 2021, the Company had $53.0 million (December 31, 2020 - $14.2 million) of unamortized share compensation expense, which is expected to be amortized over a weighted average period of 2.7 years (December 31, 2020 - 1.9 years).
Restricted share awards with service condition
Restricted share award activity for the six months ended June 30, 2021 and year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of non-
vested restricted
shares
|
|
Weighted
average grant
date fair value
|
|
Balance as of January 1, 2020
|
340,767
|
|
|
$
|
11.83
|
|
|
Granted
|
1,029,373
|
|
|
8.30
|
|
|
Forfeited
|
(16,434)
|
|
|
9.77
|
|
|
Vested
|
(182,648)
|
|
|
10.10
|
|
|
Balance as of January 1, 2021
|
1,171,058
|
|
|
8.80
|
|
|
Granted
|
2,123,811
|
|
|
10.32
|
|
|
Forfeited
|
(23,809)
|
|
|
10.50
|
|
|
Vested
|
(391,873)
|
|
|
9.95
|
|
|
Balance as of June 30, 2021
|
2,879,187
|
|
|
$
|
10.00
|
|
Restricted share awards with service condition vest either ratably or at the end of the required service period and contain certain restrictions during the vesting period, relating to, among other things, forfeiture in the event of termination of employment or service and transferability.
Restricted Share Units
RSU activity for the six months ended June 30, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of non-
vested restricted
shares
|
|
Weighted
average grant
date fair value
|
|
Balance as of January 1, 2021
|
—
|
|
|
$
|
—
|
|
|
Granted
|
5,882,000
|
|
|
10.25
|
|
|
Forfeited
|
(6,190)
|
|
|
10.21
|
|
|
Vested
|
(2,294,557)
|
|
|
10.21
|
|
|
|
|
|
|
|
Balance as of June 30, 2021
|
3,581,253
|
|
|
$
|
10.27
|
|
RSUs with service condition vest either ratably or at the end of the required service period and contain certain restrictions during the vesting period, relating to, among other things, forfeiture in the event of termination of employment or service and transferability.
Performance Share Units
PSU activity for the six months ended June 30, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of non-
vested PSUs
|
|
Number of non-
vested PSUs probable of vesting
|
|
Weighted average grant date fair value of PSUs probable of vesting
|
|
Balance as of January 1, 2021
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
1,041,201
|
|
|
1,041,201
|
|
|
10.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2021
|
1,041,201
|
|
|
1,041,201
|
|
|
$
|
10.44
|
|
PSUs vest over four distinct performance periods subject to participant’s continued provision of services to the Company until the vesting date.
Options
The options activity for the six months ended June 30, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
Weighted average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2021
|
8,255,810
|
|
|
$
|
13.45
|
|
|
Granted
|
2,772,215
|
|
|
10.69
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
(220,000)
|
|
|
10.00
|
|
Balance as of June 30, 2021
|
10,808,025
|
|
|
$
|
12.81
|
|
The share options issued to management under the Share Incentive Plan are subject to a service condition. The fair value of share options issued were estimated on the grant date using the Black-Scholes option-pricing model.
The following table summarizes information about the Company’s management share options outstanding and exercisable as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
Options exercisable
|
|
Range of exercise prices
|
Number of
options
|
|
Weighted average
exercise price
|
|
Remaining contractual life
|
|
Number of
options
|
|
Weighted average
exercise price
|
|
$9.83 - $10.89
|
6,896,401
|
|
|
$
|
10.01
|
|
|
1.9 years
|
|
6,308,039
|
|
|
$
|
9.98
|
|
|
$15.00 - $16.89
|
2,190,696
|
|
|
15.75
|
|
|
2.4 years
|
|
1,790,696
|
|
|
15.92
|
|
|
$20.00 - $25.05
|
1,720,928
|
|
|
20.28
|
|
|
0.7 years
|
|
1,720,928
|
|
|
20.28
|
|
|
|
10,808,025
|
|
|
$
|
12.81
|
|
|
1.8 years
|
|
9,819,663
|
|
|
$
|
12.87
|
|
18. Variable 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
As a result of the acquisition of Sirius Group, the Company has consolidated the results of Alstead Re Insurance Company (“Alstead Re”) in its condensed consolidated financial statements beginning February 26, 2021. Alstead Re is considered a VIE as it has insufficient equity capital to finance its activities without additional financial support. The Company determined that Alstead Re is a VIE for which the Company is the primary beneficiary as it has power over the activities that most significantly impact the economic performance. As of June 30, 2021, Alstead Re’s assets and liabilities included in the Company’s condensed consolidated balance sheets were $6.9 million and $2.5 million, respectively.
Arcadian
In September 2020, the Company co-founded Arcadian Risk Capital Ltd. (“Arcadian”), a managing general agent incorporated in Bermuda writing business on behalf of the Company. Arcadian commenced operations on October 1, 2020. The Company’s ownership in Arcadian as of June 30, 2021 was 49%, representing 980,000 common shares at $1.00 par value. Arcadian is considered a VIE as it has insufficient equity capital to finance its activities without additional financial support. The Company concluded that it is the primary beneficiary of Arcadian as it has power 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 condensed consolidated financial statements. The Company’s 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 June 30, 2021, Arcadian’s assets and liabilities included in the Company’s condensed consolidated balance sheets were $7.3 million and $1.1 million, respectively (December 31, 2020 - $3.3 million and $0.6 million, respectively).
Non-controlling interests
Non-controlling 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 and six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
1.8
|
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
Sirius Group acquisition (1)
|
|
—
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests
|
|
1.6
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemptions
|
|
(0.1)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
3.3
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
(1)See Note 3 for additional information related to the acquisition of Sirius Group.
Non-consolidated variable interest entities
As a result of the acquisition of Sirius Group, 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 June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
Maximum Exposure to Loss
|
|
|
Total VIE Assets
|
|
On-Balance Sheet
|
|
Off-Balance Sheet
|
|
Total
|
|
Other long-term investments (1)
|
$
|
322.5
|
|
|
$
|
212.3
|
|
|
$
|
2.3
|
|
|
$
|
214.6
|
|
|
|
$
|
322.5
|
|
|
$
|
212.3
|
|
|
$
|
2.3
|
|
|
$
|
214.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Comprised primarily of hedge funds and private equity funds.
Third Point Enhanced LP
TP Enhanced Fund meets the definition of a variable interest entity principally because of the existence of disproportionate rights in the partnership compared to the obligations to absorb the expected losses and right to receive the expected residual returns of TP Enhanced Fund’s results. As of June 30, 2021, the Company and TP GP hold interests of approximately 88.8% and 11.2%, 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.
As a result of the Company’s holding in TP Enhanced Fund and its contribution to the Company’s overall financial results, the Company includes the following summarized income statement of the TP Enhanced Fund for the three and six months ended June 30, 2021 and 2020, and summarized balance sheet as of June 30, 2021 and December 31, 2020.
This summarized income (loss) statement of TP Enhanced Fund reflects the main components of total investment income (loss) and expenses of TP Enhanced Fund. This summarized income (loss) statement is not a breakdown of the Company’s proportional investment income (loss) in TP Enhanced Fund as presented in the Company’s condensed consolidated statements of income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
TP Enhanced Fund summarized income (loss) statement
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Investment income (loss)
|
|
|
|
|
|
|
|
|
|
Net realized gain from securities, derivative contracts and foreign currency translations
|
|
$
|
111.7
|
|
|
$
|
2.5
|
|
|
$
|
260.1
|
|
|
$
|
18.1
|
|
|
Net change in unrealized gain (loss) on securities, derivative contracts and foreign currency translations
|
|
(47.4)
|
|
|
113.3
|
|
|
24.1
|
|
|
(138.1)
|
|
|
Net income (loss) from currencies
|
|
(1.1)
|
|
|
0.1
|
|
|
(0.3)
|
|
|
(0.2)
|
|
|
Dividend and interest income
|
|
9.3
|
|
|
9.0
|
|
|
14.6
|
|
|
13.4
|
|
|
Other income
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.7
|
|
|
Total investment income (loss)
|
|
72.5
|
|
|
125.0
|
|
|
298.5
|
|
|
(106.1)
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
4.0
|
|
|
3.2
|
|
|
8.0
|
|
|
7.0
|
|
|
Interest
|
|
1.4
|
|
|
1.8
|
|
|
2.9
|
|
|
4.5
|
|
|
Dividends on securities sold, not yet purchased
|
|
1.5
|
|
|
1.1
|
|
|
3.0
|
|
|
2.4
|
|
|
Administrative and professional fees
|
|
0.7
|
|
|
0.3
|
|
|
1.4
|
|
|
0.8
|
|
|
Other expenses
|
|
2.2
|
|
|
0.5
|
|
|
3.4
|
|
|
1.0
|
|
|
Total expenses
|
|
9.8
|
|
|
6.9
|
|
|
18.7
|
|
|
15.7
|
|
|
Net income (loss)
|
|
$
|
62.7
|
|
|
$
|
118.1
|
|
|
$
|
279.8
|
|
|
$
|
(121.8)
|
|
The following table is a summarized balance sheet of TP Enhanced Fund as of June 30, 2021 and December 31, 2020 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
|
June 30,
2021
|
|
December 31, 2020
|
|
Assets
|
|
|
|
|
Total investments in securities and affiliated funds
|
$
|
2,417.1
|
|
|
$
|
2,200.9
|
|
|
Cash and cash equivalents
|
40.3
|
|
|
40.1
|
|
|
|
|
|
|
|
Due from brokers
|
178.5
|
|
|
124.6
|
|
|
|
|
|
|
|
Derivative assets, at fair value
|
30.5
|
|
|
37.0
|
|
|
Interest and dividends receivable
|
3.2
|
|
|
3.2
|
|
|
|
|
|
|
|
Other assets
|
1.5
|
|
|
3.9
|
|
|
Total assets
|
$
|
2,671.1
|
|
|
$
|
2,409.7
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
1.7
|
|
|
$
|
1.0
|
|
|
Securities sold, not yet purchased, at fair value
|
385.6
|
|
|
183.0
|
|
|
Securities sold under agreement to repurchase
|
10.0
|
|
|
5.5
|
|
|
Due to brokers
|
822.6
|
|
|
894.0
|
|
|
Derivative liabilities, at fair value
|
17.8
|
|
|
23.7
|
|
|
Withdrawals payable to General Partner
|
—
|
|
|
75.0
|
|
|
|
|
|
|
|
Interest and dividends payable
|
0.9
|
|
|
0.7
|
|
|
|
|
|
|
|
Management fee payable
|
0.1
|
|
|
0.2
|
|
|
Total liabilities
|
1,238.7
|
|
|
1,183.1
|
|
|
Total partners' capital
|
$
|
1,432.4
|
|
|
$
|
1,226.6
|
|
19. 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 ("equity method eligible unconsolidated entities"). Such investments may be accounted for under either the equity method or, alternatively, the Company may elect to account for them under the fair value option.
The following table presents the components of other long-term investments as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31, 2020
|
|
Equity method eligible unconsolidated entities, at fair value
|
$
|
223.5
|
|
|
$
|
—
|
|
|
Other unconsolidated investments, at fair value (1)
|
240.2
|
|
|
4.0
|
|
|
Total other long-term investments (2)
|
$
|
463.7
|
|
|
$
|
4.0
|
|
(1)Includes other long-term investments that are not equity method eligible.
(2)There were no investments accounted for using the equity method as of June 30, 2021 and December 31, 2020.
The Company has elected the fair value option to account for its equity method eligible investments accounted for as part of other long-term investments for consistency of presentation with the rest of its investment portfolio. The following table presents the Company’s ownership interests in investments in equity method eligible unconsolidated entities as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investee
|
June 30,
2021
|
|
|
|
Instrument Held
|
|
BE Reinsurance Limited
|
24.9
|
%
|
|
|
|
Common shares
|
|
BioVentures Investors (Offshore) IV LP
|
73.0
|
%
|
|
|
|
Units
|
|
Camden Partners Strategic Fund V (Cayman), LP
|
39.4
|
%
|
|
|
|
Units
|
|
Diamond LS I LP
|
15.4
|
%
|
|
|
|
Units
|
|
Gateway Fund LP
|
22.9
|
%
|
|
|
|
Units
|
|
Monarch
|
12.8
|
%
|
|
|
|
Units
|
|
New Energy Capital Infrastructure Credit Fund LP
|
29.7
|
%
|
|
|
|
Units
|
|
New Energy Capital Infrastructure Offshore Credit Fund LP
|
29.7
|
%
|
|
|
|
Units
|
|
Pie Preferred Stock (1)
|
9.6
|
%
|
|
|
|
Preferred shares
|
|
Pie Series B Preferred Stock (1)
|
6.9
|
%
|
|
|
|
Preferred shares
|
|
Pie Series C Preferred Stock (1)
|
0.5
|
%
|
|
|
|
Preferred shares
|
|
Quintana Energy Partners
|
21.8
|
%
|
|
|
|
Units
|
|
Tuckerman Capital V LP
|
46.9
|
%
|
|
|
|
Units
|
|
Tuckerman Capital V Co-Investment I LP
|
47.9
|
%
|
|
|
|
Units
|
(1)The Company holds investments in several financing instruments of Pie Insurance.
20. 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 and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
Basic number of common shares outstanding
|
158,832,629
|
|
|
92,593,599
|
|
|
137,912,915
|
|
|
92,392,718
|
|
|
|
Dilutive effect of options
|
313,758
|
|
|
—
|
|
|
444,053
|
|
|
—
|
|
|
|
Dilutive effect of warrants
|
160,075
|
|
|
—
|
|
|
163,255
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of restricted share units
|
1,587,754
|
|
|
144,694
|
|
|
1,040,973
|
|
|
—
|
|
|
|
Diluted number of common shares outstanding
|
160,894,216
|
|
|
92,738,293
|
|
|
139,561,196
|
|
|
92,392,718
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to SiriusPoint common shareholders
|
$
|
64.5
|
|
|
$
|
124.0
|
|
|
$
|
195.4
|
|
|
$
|
(59.6)
|
|
|
|
Net income allocated to SiriusPoint participating common shareholders
|
(5.4)
|
|
|
(0.7)
|
|
|
(13.5)
|
|
|
—
|
|
|
|
Net income (loss) allocated to SiriusPoint common shareholders
|
$
|
59.1
|
|
|
$
|
123.3
|
|
|
$
|
181.9
|
|
|
$
|
(59.6)
|
|
|
|
Basic earnings (loss) per share available to SiriusPoint common shareholders
|
$
|
0.37
|
|
|
$
|
1.33
|
|
|
$
|
1.32
|
|
|
$
|
(0.65)
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to SiriusPoint common shareholders
|
$
|
64.5
|
|
|
$
|
124.0
|
|
|
$
|
195.4
|
|
|
$
|
(59.6)
|
|
|
|
Net income allocated to SiriusPoint participating common shareholders
|
(5.4)
|
|
|
(0.7)
|
|
|
(13.5)
|
|
|
—
|
|
|
|
Net income (loss) allocated to SiriusPoint common shareholders
|
$
|
59.1
|
|
|
$
|
123.3
|
|
|
$
|
181.9
|
|
|
$
|
(59.6)
|
|
|
|
Diluted earnings (loss) per share available to SiriusPoint common shareholders
|
$
|
0.37
|
|
|
$
|
1.33
|
|
|
$
|
1.30
|
|
|
$
|
(0.65)
|
|
For the three and six months ended June 30, 2021, options of 4,120,926 and 3,990,539, respectively, warrants of 25,035,220 and 25,035,220, respectively, and Upside Rights of 10,000,000 and 10,000,000, respectively, were excluded from the
computation of diluted earnings per share as the average share price for the quarter was below the exercise price or reference price for the respective security.
For the three months ended June 30, 2020, anti-dilutive options of 3,741,266 were excluded from the computation of diluted earnings per share. As a result of the net loss for the six months ended June 30, 2020, dilutive options, warrants and restricted shares with service and performance conditions totaling 5,214,310 were considered anti-dilutive and were excluded from the computation of diluted loss per common share. No allocation of the net loss has been made to participating shares in the calculation of diluted net loss per common share.
21. Related party transactions
In addition to the transactions disclosed in Notes 6, 14 and 18 to these condensed 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
Subsequent to the Sirius Group acquisition, insurance and reinsurance contracts with certain of the Company’s insurance and MGU affiliates resulted in gross written premiums of $46.7 million and $66.9 million during the three and six months ended June 30, 2021, respectively. As of June 30, 2021, the Company had total receivables from affiliates of $46.0 million and no payables.
Equity Commitment Letter
Pursuant to the equity commitment letter by and among the Company, Third Point Opportunities Master Fund L.P. and Daniel S. Loeb, entered into on August 6, 2020, Third Point Opportunities Master Fund L.P. purchased 6,093,842 of the Company’s common shares at a price of $7.9828 per share upon closing of the Company’s acquisition of Sirius Group.
Transaction Matters Letter Agreement
On August 6, 2020, CM Bermuda, Sirius Group, the Company and CMIG International entered into a Transaction Matters Letter Agreement (the “Transaction Matters Agreement”), pursuant to which, among other things and subject to the terms and conditions thereof, Sirius Group agreed to pay for and reimburse CMIG International and CM Bermuda for certain legal expenses incurred in connection with the Sirius Group sales process or other discussions between CMIG International, CM Bermuda and the Sirius Group occurring on or after March 6, 2020, and the Company has agreed to assume such remaining payment obligations of Sirius Group following the closing of the acquisition of Sirius Group. The Company has also agreed to pay for the fees and expenses payable by CMIG International and CM Bermuda to its financial advisor, Goldman Sachs (Asia) L.L.C., relating to the acquisition of Sirius Group. During the three and six months ended June 30, 2021, the Company did not pay any legal expenses incurred by CM Bermuda and CMIG International in connection with the Transaction Matters Agreement.
Management and performance fees to related parties
The total management and performance fees to related parties for the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Management fees
|
$
|
4.7
|
|
|
$
|
3.2
|
|
|
$
|
8.8
|
|
|
$
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
Performance fees (before loss carryforward)
|
11.3
|
|
|
19.7
|
|
|
49.4
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
Performance fees - loss carryforward utilized
|
—
|
|
|
(19.7)
|
|
|
—
|
|
|
(0.7)
|
|
|
Total management and performance fees to related parties
|
$
|
16.0
|
|
|
$
|
3.2
|
|
|
$
|
58.2
|
|
|
$
|
7.0
|
|
Management fees
Third Point Enhanced LP
Effective January 1, 2019, SiriusPoint, SiriusPoint Bermuda and Third Point Re USA entered into the Second Amended and Restated Exempted Limited Partnership Agreement (the “2019 LPA”) of TP Enhanced Fund. Pursuant to the 2019 LPA, 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% of the investment in TP Enhanced Fund and multiplied by an exposure multiplier computed by dividing the average daily investment exposure leverage of the TP Enhanced Fund by the average daily investment exposure leverage of the Third Point Offshore Master Fund L.P. (“Offshore Master Fund”). Third Point LLC also serves as the investment manager for the Offshore Master Fund.
The 2020 LPA, effective February 26, 2021, removed the adjustment for investment exposure leverage in the management fee calculation, as previously adjusted for under the 2019 LPA. The 2020 LPA did not amend the management fee rate of 1.25% per annum.
Third Point Venture Offshore Fund I LP
No management fees are payable by the Company under the 2021 Venture LPA.
Third Point Insurance Portfolio Solutions
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).
Performance fees
Third Point Enhanced LP
Pursuant to the 2019 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 “Investment in related party investment fund” on the Company’s condensed consolidated balance sheet 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 2019 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.
Pursuant to the 2020 LPA, the performance of certain fixed income and other investments managed by Third Point LLC were included when calculating the performance fee allocation and loss recovery account amounts under the terms of the 2019 LPA for the year ended December 31, 2020 only. There are no other changes to the performance fee calculation under the 2020 LPA.
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 Insurance Portfolio Solutions
No performance-based compensation is payable by the Company under the TPIPS IMA.
22. 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
See Note 3 for additional information related to the contingent value consideration components of the Sirius Group acquisition.
Founder and Advisor Warrants
As of June 30, 2021, the Company had reserved for issuance common shares underlying warrants to purchase, in the aggregate, up to 3,494,979 common shares, to founding investors and advisors. The warrants expire on December 22, 2021, and are exercisable at a price per share of $10.00.
Promissory Note
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 June 30, 2021.
Litigation
From time to time in the normal course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation, the outcomes of which determine the rights and obligations under the Company’s reinsurance 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 procedures that do not arise from, or are not directly related to, claims activity. The Company is not currently involved in any formal or informal dispute resolution procedures that it considers to be material.
Leases
Subsequent to the acquisition of Sirius Group, the Company now operates in new locations with additional facilities, including the United States, Canada, Europe and Asia. The Company leases office space under various non-cancelable operating lease agreements.
During the three and six months ended June 30, 2021, the Company recognized operating lease expense of $3.3 million and $4.5 million, respectively, (2020 - $0.2 million and $0.4 million, respectively), including property taxes and routine maintenance expense as well as rental expenses related to short term leases. As of June 30, 2021 and December 31, 2020, the Company had $17.3 million and $0.8 million of operating lease right-of-use assets, respectively, included in other assets. As of June 30, 2021 and December 31, 2020, the Company had $23.0 million and $0.8 million, respectively, of operating lease liabilities included in accounts payable, accrued expenses and other liabilities.
The following table presents the lease balances within the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020:
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June 30,
2021
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December 31, 2020
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Operating lease right-of-use assets
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$
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17.3
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$
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0.8
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Operating lease liabilities
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$
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23.0
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$
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0.8
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Weighted average lease term (years)
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2.8
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1.0
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Weighted average discount rate
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3.3
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%
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7.0
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%
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Future minimum rental commitments as of June 30, 2021 under these leases are expected to be as follows:
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Future Payments
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Remainder of 2021
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$
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5.5
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2022
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9.3
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2023
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5.8
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2024
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2.4
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2025 and thereafter
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1.2
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Total future annual minimum rental payments
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24.2
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Less: present value discount
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(1.2)
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Total lease liability as of June 30, 2021
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$
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23.0
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As of June 30, 2021, the Company's future operating lease obligations that have not yet commenced are immaterial.
23. Subsequent event
Loss portfolio transfer
On July 30, 2021, the Company reached an agreement to enter into a loss portfolio transfer transaction with Pallas Reinsurance Company Ltd., a subsidiary of Compre, an insurance and reinsurance legacy specialist. The loss portfolio transfer, which is subject to regulatory approval, covers $417 million of loss reserves subject to or associated with the transaction, including much of the legacy Sirius Group Runoff business, including asbestos and environmental, for a premium of $430 million.