Fitch outlook on SiriusPoint remains negative
Fitch Ratings has maintained its negative outlook on the ratings of SiriusPoint Ltd. (SPNT).
Fitch affirmed SPNT ratings, including its BBB Long-Term Issuer Default Rating (IDR), BBB senior debt rating and A- (Strong) Insurer Financial Strength (IFS) rating of SPNT's operating subsidiaries.
Fitch has also assigned a BBB rating to $115 million of 7.0 per cent senior unsecured notes due 2025 originally issued by ThirdPoint (USA) Holdings Inc. that have been legally assumed by SPNT. This issuance ranks equally with SPNT's currently outstanding senior notes and is thus rated equivalently.
The ratings affirmation reflects the offset of SPNT's recent weak operating performance and low fixed-charge coverage on positive factors.
The positives include the company's moderate company profile, very strong capitalisation, reasonable financial leverage and manageable investment risk.
SPNT is the combination resulting from Third Point Reinsurance Ltd's (TPRE) purchase of Sirius International Insurance Group, Ltd (SG) a year ago, with TPRE renamed to SPNT.
Fitch views the continued integration risk from the transaction as a near-term negative.
Longer term, successful execution of the merger could provide positive credit benefits relating to greater size and scale and a stronger moderate company profile.
The negative outlook reflects operating performance pressure as catastrophe and pandemic losses have resulted in underwriting losses since 2017, with an additional underwriting loss expected for 2021.
These results are inconsistent with SG's very strong historical performance, as well as Fitch's expectations for the rating of combined ratios below 104 per cent and are worse than Fitch's credit factor scores for SPNT's rating.
The revamped SPNT management team has been repositioning the (re)insurance underwriting portfolio to improve profitability and reduce overall volatility. This includes reducing its modelled catastrophe probable maximum loss after recent catastrophe losses were above peers.
SPNT posted a combined ratio of 118.1 per cent in the first three quarters of 2021, which included 24.7 points from catastrophes, including European floods/windstorms, Hurricane Ida and winter storm Uri.
This was partially offset by favourable reserve development of 2.1 points in the same period, primarily from the property segment due to better than expected loss reserve emergence, mainly on European-related exposures.
SG posted a 2020 combined ratio of 113.6 per cent, reflecting the impact of catastrophes and estimated net ultimate coronavirus losses.
Fitch considers SPNT to have a moderate business profile, with net premiums written of $1.3 billion in the first nine months and GAAP shareholders' equity of $2.6 billion at September 30, 2021.
Although SPNT is relatively small compared with most (re)insurers, the company has a strong and established reinsurance franchise from SG, writing a diversified platform of non-life (re)insurance.
Overall capitalisation is viewed as very strong with a score of“very strong” on Fitch's Prism factor-based capital model and conservative operating leverage ratios. SPNT's financial leverage ratio of 25.0 per cent at September 30 was reasonable.
The combination with TPRE increased overall investment risk, but is still viewed by Fitch as supportive of the rating, with high-quality, fixed-maturity investments and cash and short-term investments balanced by hedge fund investments.
SPNT's risky asset ratio of 76 per cent at September 30, 2021, is up from 38 per cent for SG at December 31, 2020.
This increase reflects the investments in Third Point LLC hedge funds (20 per cent of SPNT investment portfolio at September 30, 2021), primary of which is in Third Point Enhanced LP.
SPNT expects to reduce its exposure in Third Point funds and reinvest into less volatile investments.