Enstar Group Limited (ESGR) has reported a positive start to 2024, maintaining strong momentum from the previous year into the first quarter. The company announced a solid performance in its investment portfolio and positive results from its run-off liability earnings, leading to a Return on Equity (ROE) of 2.4% and a growth in book value per share of 1.7%. The first quarter also saw Enstar entering a significant loss portfolio transfer agreement with SiriusPoint, reinforcing its position in the workers' compensation business. With a robust capital position affirmed by an 'A' rating from S&P, Enstar looks forward to leveraging opportunities throughout the year.
Key Takeaways
- Enstar's Q1 2024 ROE stood at 2.4%, with adjusted ROE at 2.6%.
- Book value per share increased by 1.7% to $349.41, and fully diluted book value per share grew by 1.4% to $341.53.
- A loss portfolio transfer agreement with SiriusPoint was announced, involving $400 million of workers' compensation business.
- S&P assigned Enstar's primary reinsurer, Cavello Bay, an Insurer Financial Strength Rating of 'A' with a stable outlook.
- The company's capital and liquidity position remains strong, with a group solvency ratio of 195% as of March 31st.
Company Outlook
- Enstar remains focused on meeting the risk management needs of the re/insurance sector.
- The company is optimistic about its pipeline of M&A opportunities, maintaining a disciplined approach to growth.
Bearish Highlights
- Enstar reported a cumulative unrealized loss of $789 million in other comprehensive income and fair value changes, impacting book value by approximately $54 per share.
- Adverse development in environmental and casualty lines due to larger losses on excess policies.
Bullish Highlights
- Positive total investment returns of $222 million were driven by strong global equity market performance and favorable credit spread tightening.
- Net investment income was $160 million, benefiting from past transactions and a fixed income portfolio with interest rates above 5%.
Misses
- The company experienced some adverse development in its environmental and casualty lines of business.
Q&A Highlights
- Enstar's executives emphasized the company's strategic progress and solid financial performance.
- The Q&A session reinforced the company's confidence in its business model and approach to future transactions.
Enstar's Q1 2024 results demonstrate a continuation of the company's strategic momentum, with the management team expressing confidence in their ability to navigate the persistent macro and geopolitical challenges while pursuing growth. The company's disciplined approach towards legacy solutions and its capacity to provide bespoke solutions to its partners were highlighted as key drivers of its success. With a strong capital and liquidity position, Enstar Group Limited is well-prepared to capitalize on future opportunities and deliver long-term value to its shareholders.
InvestingPro Insights
Enstar Group Limited (ESGR) has shown a noteworthy performance as we move through 2024, with a combination of strategic maneuvers and solid financial metrics that suggest a strong position within the industry. With the backdrop of the company's recent Q1 achievements, certain real-time data and InvestingPro Tips offer a deeper understanding of Enstar's current market standing and potential outlook.
InvestingPro Data indicates that Enstar's market capitalization stands at a robust $4.39 billion. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is attractively low at 4.35, hinting at potential undervaluation. Adjusted for the last twelve months as of Q1 2024, this ratio is slightly higher at 5.65, yet still suggests affordability. This is complemented by a PEG ratio for the same period at an almost negligible 0.02, which could signal that the stock's price is in line with expected earnings growth, making it an intriguing option for value investors.
InvestingPro Tips further enrich the narrative. Management's aggressive share buybacks demonstrate confidence in the company's valuation and future prospects. A high shareholder yield is indicative of Enstar's commitment to returning value to its investors, which is further underscored by the company's trading at a low earnings multiple. These factors, combined with the company's profitability over the last twelve months, paint a picture of a company that is not only performing well but also appears to be recognized by its management as a solid investment.
It's also notable that Enstar is trading near its 52-week high, reflecting investor confidence and market momentum. Additionally, the company's liquid assets exceed its short-term obligations, providing financial stability and the ability to navigate short-term market fluctuations.
For readers looking to delve deeper into Enstar Group's financial health and strategic positioning, there are additional InvestingPro Tips available at https://www.investing.com/pro/ESGR. These insights could be particularly valuable for those considering investment opportunities with Enstar. Plus, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable investment tips – there are 6 more tips listed in InvestingPro to help guide your investment decisions.
Full transcript - Enstar Group Ltd (ESGR) Q1 2024:
Note: Transcript and audio provided by the company to Seeking Alpha:
Peter Kalaev: Hello everyone, I’m Peter Kalaev, Group Treasurer. Thank you for listening to Enstar’s First Quarter 2024 Earnings Audio Review with CEO Dominic Silvester and CFO Matt Kirk. Before we begin, I’d like to remind everyone that this presentation contains forward- looking statements and non-GAAP financial measures. Forward-looking statements in this presentation include, but are not limited to, statements about Enstar’s expectations for future and pending transactions, run-off liability earnings, the performance of its investment portfolio and the impact of changing interest rates on Enstar’s business. These statements are inherently subject to risks, uncertainties and assumptions that may cause actual results to differ materially from the statements being made as of the date of this update or in the future. Additional information regarding these statements and our non-GAAP financial measures is outlined in the text that appears below the link to this recording. With that, I will turn it over to Dominic.
Dominic Silvester: Thank you, Peter. After a strong end to 2023, we maintained our momentum into the first quarter. We delivered solid results from our investment portfolio and generated positive performance from our run-off liability earnings. This led to a Return on Equity of 2.4% and growth in book value per share of 1.7%. Matt will cover our financial performance in more detail shortly, but in summary the results reflect continued progress against our strategy as we stay focused on meeting the growing risk management needs of the re/insurance sector and creating long-term value for our shareholders. Turning to some strategic highlights: Following the end of the quarter, we announced a loss portfolio transfer agreement with SiriusPoint to reinsure $400 million of workers’ compensation business for the underwriting years 2018 through 2023. SiriusPoint will cede net reserves of approximately $400 million and Enstar will provide $200 million of cover in excess of the ceded reserves. This transaction expands our industry leading workers’ compensation line of business – one of our largest, and one where we have deep experience and proven success in managing. Further, it is another example of Enstar’s versatility in providing bespoke legacy and strategic solutions for our partners. Our strong capital position was endorsed by S&P during the quarter, as our primary reinsurer, Cavello Bay, was assigned an Insurer Financial Strength Rating of ‘A’ with stable outlook. S&P recognized our status as a leader in the legacy market, while citing our world- class claims management capabilities. The rating was a welcome validation of the resilience of our business model, and we believe it will provide us with additional flexibility to structure future legacy transactions. We remain optimistic about the continuing growth of our pipeline of M&A opportunities but maintain our highly disciplined approach to ensure we continue to deliver attractive risk-adjusted return for Enstar and our shareholders. We remain mindful of the persistent macro and geopolitical challenges and continue to take them into account as we pursue growth. In summary, we have had a good start to the year and look forward to taking advantage of opportunities across our business through 2024. Over to you Matt.
Matthew Kirk: Thanks, Dominic. We had a positive first quarter, recording $119 million of net income attributable to Enstar ordinary shareholders, with a return on equity, or ROE, of 2.4% and adjusted ROE of 2.6%. Adjusted ROE is a performance measure that primarily excludes net realized gains and losses and fair value changes on fixed maturity investments and funds held (which we previously called unrealized gains and losses in the income statement). In addition, we continued to deliver on our history of strong book value accretion. We grew book value by 1.7% and fully diluted book value per share growth by 1.4%, to $349.41 and $341.53, respectively. First quarter results were largely driven by positive total investment returns of $222 million. We generated $160 million of net investment income, due to the considerations received from the QBE, RACQ and AIG (NYSE:AIG) transactions, as well as our existing fixed income portfolio, which includes floating rate assets tied to SOFR with interest rates currently above 5%. We also experienced favorable returns on our other investments, including non-core equity, of $104 million, primarily driven by continued strong global equity market performance and the tightening of high yield and leveraged loan credit spreads. Our cumulative unrealized loss in other comprehensive income and fair value changes in our fixed maturity portfolio and funds held stands at $789 million, which has adversely impacted book value by approximately $54 dollars per share. As these assets provide liquidity for the settlement of our claims liabilities, we generally hold them to maturity with a view that the unrealized losses and fair value changes will naturally reverse as the securities approach maturity. We recorded Run-off Liability Earnings, or RLE, of $24 million, driven primarily from favorable claims experience across a number of classes, including general liability, asbestos, professional indemnity and director and officers lines of business. Partially offsetting this was adverse development in our environmental and casualty lines of business driven by a small number of larger losses on excess policies across multiple portfolios. Consistent with prior years, most of our annual reserve reviews occur in the fourth quarter, and this is where we have historically seen the largest movements in our RLE and adjusted RLE metrics. Our capital and liquidity position remains strong to support future transactions. Our $800 million revolving credit agreement remains fully unutilized and available to us as of March 31st. We continue to maintain a solid group solvency ratio after allocating to recent transactions and we closed Q1 with an estimated group capital solvency ratio of 195%. In conclusion, we continue to execute on our core strategy of delivering attractive and innovative legacy solutions to first-class partners across the globe. We maintain our disciplined approach toward acquiring and completing profitable legacy solutions, and our best-in-class team of experts remain well-positioned to take advantage of our robust pipeline and create additional long-term value for our shareholders. Thank you for your time and your continued interest in Enstar.
End of Q&A:
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