Quick Pitch: SiriusPoint (SPNT)

Potential Takeover – 15%-20% Upside

Insurance/reinsurance services provider SiriusPoint has received a privatization interest from its director and major shareholder Dan Loeb (9.3% stake). Loeb is the founder of Third Point Reinsurance that has merged with SiriusPoint in 2020. He is one of SPNT’s investment managers through this hedge fund. Loeb expects SPNT board to form a special committee to review the takeover option. The potential offer has not been announced yet, however, the buyer said it would be ‘generally consistent with recent precedent transactions’ in the industry. It is a bit of a guesswork and my confidence for this case is low, but based on recent insurance transaction multiples, I would expect the bid to come at a 15-20% premium to current prices. The downside to pre-announcement levels is around 4%. The risk-reward seems attractive to wait for the announcement of the offer.

Using the 166m diluted share count provided in 10K, SPNT currently trades at 0.79x fully diluted BV of $11.32/share. The historical valuation range since 2018 has been 0.6x-0.9x BV. M&A multiples in the insurance industry have been fluctuating around 1x BV (check Deloitte’s insurance M&A overview for 2022 and 2023). One comparable example is Apollo’s acquisition of Aspen Insurance Holdings in 2018/2019, done at 1.12x BV. However, since then the transaction multiples have come down. Given the combination of remaining overhangs at SPNT (bad business track record so far, ongoing turnaround, unprofitable reinsurance business, etc), I think it would be reasonable to expect an offer at 0.9x-0.95x BV or 15%-20% upside to current prices.

The buyout interest comes amid an ongoing multi-year turnaround at SiriusPoint, which started after the merger between TPRE and SG (covered by SSI here) formed the current SPNT in 2021. The company has been trying to focus on more traditional underwriting and investment strategies while minimizing volatile catastrophe line exposure and reducing the fund allocations to Third Point’s hedge fund strategies. Slow and partial changes did not help much. Over the last couple of years, SPNT incurred high losses from both the catastrophe underwriting and hedge fund investment portfolio. Last year, the company finally made the critical step and almost completely eliminated portfolio allocation to hedge fund strategies – the allocation went down from 14% to 2% of the investment portfolio. Exposure to the property catastrophe sector was reduced from 27% GWP to 17% GWP. SPNT intends to continue focusing on fixed-income investments and shifting the book towards other, less volatile lines such as Specialty, Casualty, and A&H. Management is guiding to double-digit positive ROE vs the negative -19% in 2022 and 2.3% in 2021. Daniel Loeb supports the change but thinks the company is best to continue the turnaround as a private entity.

Loeb is a billionaire hedge fund manager, whose main vehicle is the Third Point fund. While his investing track record is great, he has been less fortunate in managing the insurance business. The largest SPNT shareholder is a Chinese PE giant CM Bermuda, which used to be a controlling shareholder of SG and now owns 41% of SPNT (although the voting power has been restricted to only 10%). Another 26.6% of SPNT is owned by 4 large institutional holders (BlackRock, Vanguard, Wellington Management and Capital Research Global Investors).