Enstar Group Limited (ESGR), a global insurance group, reported a robust financial performance for the fourth quarter and full year of 2023, highlighted by a significant return on equity (ROE) and growth in book value per share. CEO Dominic Silvester emphasized the company's solid delivery throughout the year, attributing success to the positive performance of their investment portfolio, strong technical savings, and a new tax benefit. CFO Matt Kirk detailed the financial achievements, including a net income attributable to Enstar ordinary shareholders of $1.1 billion and an adjusted ROE of 18.8%. The company's strategic transactions, disciplined asset allocation, and upgraded credit rating from S&P were also underscored as key contributors to the successful year.
Key Takeaways
- Enstar's full year ROE stood at 24.2%, with a book value per share growth of 31.0%.
- The company benefited from strong investment returns, favorable run-off liability earnings, and a Bermuda tax benefit.
- Noteworthy transactions included a $2 billion loss portfolio transfer with QBE and an agreement with AIG (NYSE:AIG).
- Enstar repurchased $532 million of shares, seen as value accretive to shareholders.
- The company received an S&P credit rating upgrade to BBB+.
Company Outlook
- Enstar enters 2024 with a strong position in the legacy market, expecting deal sizes to grow and more demand from primary insurance companies.
- The company remains confident despite macro-economic challenges, supported by a sustainable business model and robust risk management.
Bearish Highlights
- The company acknowledged the need to strengthen reserves on its general casualty line of business in response to industry trends.
- Enstar's cumulative unrealized loss position as of December 31, 2023, stands at $725 million, impacting book value by approximately $50 per share.
Bullish Highlights
- The fourth quarter saw a total investment return of $683 million, contributing to over $1.3 billion for the full year.
- Enstar's long-term performance remains strong, with a five-year average annual growth in book value per share of 18%.
Misses
- While Enstar's performance was strong, the company noted fluctuations in results due to market conditions and the need for reserve adjustments in certain business lines.
Q&A Highlights
- The Q&A section of the earnings call was not provided in the summary, thus no highlights can be reported.
Enstar's financial results for 2023 demonstrate the company's ability to navigate a complex market environment effectively. The company's leadership expressed confidence in Enstar's strategic direction and its capacity to maintain its status as a legacy leader in the insurance industry. With a disciplined approach to transactions and capital management, Enstar is well-positioned to capitalize on market opportunities and continue delivering value to its shareholders.
InvestingPro Insights
Enstar Group Limited (ESGR) has displayed a commendable financial performance that is reflected in its recent metrics. With a market capitalization of $4.33 billion USD and a striking P/E ratio of 5.86 for the last twelve months as of Q3 2023, the company is trading at a value that may catch the attention of value investors. This low earnings multiple is one of the InvestingPro Tips, suggesting that the stock could be undervalued relative to its earnings.
Another notable metric is the company's revenue growth of 182.35% for the same period, which underscores the aggressive expansion and robust top-line performance of Enstar. This growth is in alignment with the company's strategic transactions and disciplined asset allocation mentioned in the article, which have been pivotal in driving the company's success.
InvestingPro Tips also highlight that Enstar's management has been actively buying back shares, which is typically a signal of confidence in the company's future prospects and a commitment to delivering shareholder value. This aligns with the article's mention of Enstar repurchasing $532 million of shares, further reinforcing the bullish sentiment.
For readers interested in a deeper dive into Enstar's financial health and strategic positioning, there are additional InvestingPro Tips available at https://www.investing.com/pro/ESGR. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and unlock a total of 6 exclusive tips that could further inform your investment decisions.
Full transcript - Enstar Group Ltd (ESGR) Q4 2023:
Note: Transcript and audio provided by the company.:
Peter Kalaev: Hello everyone, I’m Peter Kalaev, Group Treasurer. Thank you for listening to Enstar’s Fourth Quarter and Full Year 2023 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 rising 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. 2023 was a year of solid delivery for Enstar - we built on our 30-year history as the dominant legacy player through our partnerships with QBE and AIG and achieved profitable growth while maintaining balance sheet strength. As a result, we entered 2024 ideally placed to continue our significant contributions to the market and drive long-term shareholder value. Before Matt takes you through our 2023 performance in detail, I want to call out a few notable achievements: We finished 2023 with an excellent quarter driven largely by the positive performance of our investment portfolio, in addition to recording strong technical savings and a tax benefit related to the enactment of Bermuda's new corporate income tax. This led to a Return on Equity for the full year of 24.2% and growth in book value per share of 31.0%. Our ability to drive better outcomes through our excellent claims management known as the “Enstar Effect” – continues to pay dividends, and we completed our sixteenth straight year of generating favorable run-off liability earnings since going public in 2007 - which reflects outstanding efforts from the entire team. As I noted, the fourth quarter was a favourable period for investments as our portfolio continued to benefit from high interest rates, resulting in total investment return, or TIR, in the fourth quarter of $683 million, and over $1.3 billion for the full year. We remain disciplined towards asset allocation to maximise returns over the long-term whilst managing asset specific short-term volatility. One of the best ways to measure our performance is over the longer term horizon of five years, which more closely aligns with the lifespan of our transactions and their underlying patterns of profitability. Over the most recent five years, the average annual growth in book value per share was 18% and we achieved an average adjusted ROE of 17.7%. Along with our strong operational results, we completed high-quality transactions during the year, proving again that we can play a major part in the strategic planning for many successful insurance businesses. We completed a $2 billion loss portfolio transfer with QBE, our longstanding partner, as well as an approximate $180 million loss portfolio transfer with RACQ Insurance. The QBE transaction speaks particularly well to our expertise in creating innovative solutions - in addition to covering QBE’s discontinued business, it was the first time we delivered a tailored solution for seasoned liabilities within active lines of business, which we consider a unique and emerging opportunity. We also completed a bespoke transaction with AIG, providing protection on their retained exposure to adverse development on Validus Re’s loss reserves, following AIG’s sale of the business to RenRe. The agreement came together quickly and again demonstrates our versatility in creating solutions to support our partners’ strategic goals. Active capital management remains a top priority. We repurchased a total of $532 million of shares in 2023 at a price that was value accretive to shareholders. Finally, we received an upgrade from S&P on our long-term issuer credit rating to BBB+, which further validates our outstanding performance, leadership, and strong capitalization. As we progress through 2024, the legacy market continues to provide opportunities and we see the pipeline deal size growing. Further, as the market evolves in response to client needs, there is more demand from primary insurance companies as they look to us as strategic, long-term partners. We know from our 30-year history that legacy isn’t a short-term game, and the barriers to entry are very high. Given the strength of our business model and our unrivalled track record, we remain confident in our position in the market, and will succeed by staying highly disciplined and focused on the management of existing liabilities and how we assess potential transactions. Despite the macro-economic challenges the world faces, our sustainable business model, robust risk management and strong capital and liquidity base, position us well. With so many talented and dedicated global colleagues, we are confident of remaining the legacy partner of choice, whilst creating significant value for our shareholders in the years ahead. Before turning to Matt, I wanted to welcome Brent Hoffman to Enstar as our new Chief Claims Officer. Brent joined us in January, taking over from Paul Brockman, who continues in his role as Chief Operating Officer. Paul has been a tremendous leader of our claims function and we are pleased to be able to transition this position to someone of Brent’s caliber - he has distinguished leadership experience in claims, coming to us from Everest, and prior to that serving for nearly a decade as Global Head of Claims at AXA XL. Paul and Brent will work closely together, and I have no doubt that their collective strengths will support our continued ability to deliver superior claims management and outcomes. Over to you Matt.
Matthew Kirk: Thanks, Dominic. We had a strong fourth quarter to cap off a solid 2023, recording $599 million of net income attributable to Enstar ordinary shareholders, with a return on equity, or ROE, of 13.7% and adjusted ROE of 9.0%. As a reminder, Adjusted ROE is a performance measure that excludes net realized and unrealized gains and losses on fixed maturity investments and funds held-directly managed, as well as other adjustments as detailed in our Form 10-K. For the full year, we recorded net income attributable to Enstar ordinary shareholders of $1.1 billion, ROE of 24.2% and adjusted ROE of 18.8%. In addition, we registered book value and fully diluted book value per share growth of 31.0% and 30.0%, respectively. Our full year results were driven by: Total investment returns of over $1.1 billion; favourable Run-off Liability Earnings, or RLE, of $131 million – which was $227 million on an adjusted basis; a $205 million tax benefit from the enactment of a Bermuda corporate income tax, which I will touch on later; and a $194 million non-recurring gain from the completion of our unwind of Enhanzed Re and the novation of its business. Diving into our investment return, we generated $647 million of net investment income, or NII, due to the investment return from consideration received from the QBE, RACQ and AIG transactions, as well as our existing fixed income portfolio, which includes floating rate assets with term SOFR rates above 5%, which comprise approximately 17% of our total investable assets. We also experienced favourable returns on our non-core equity investments of $410 million, primarily driven by strong global equity market performance and the tightening of high yield and leveraged loan credit spreads. We recorded net realized and unrealized gains of $66 million to net income, and $222 million of unrealized gain to equity through OCI, driven primarily by the reversal of the bond market in November and December after the US Federal reserve began to indicate rate cuts for 2024. Our cumulative unrealized loss position as of December 31, 2023 stands at $725 million, which has adversely impacted book value by approximately $50 dollars per share. As these assets provide liquidity for the settlement of our claim liabilities, we generally hold them to maturity with a view that the unrealized losses will naturally reverse as the securities approach maturity. Consistent with prior practices, we perform the majority of our portfolio reviews in the fourth quarter. The positive RLE result was driven by favorable development across multiple acquisition years in our workers’ compensation and property lines of business as well as reductions in our provision for ULAE. Partially offsetting our favourable development was the decision to strengthen reserves on our general casualty line of business in response to trends in the industry and in part, in our own book, as well as a charge to increase the value of certain portfolios that are held at fair value due to decreases in the global corporate bond yields. It is important to note that our overall results can fluctuate by a material amount from year to year, which is why we focus on a longer-term time horizon. For instance, our investment portfolio can see marked shifts in unrealized gains and losses given our volume of investment holdings. However, if you view the long-term history of Enstar, there is a clear trajectory of profitable growth and expansion of book value. Our capital and liquidity position remains strong to support future transactions. We refinanced and upsized our revolving credit agreement from $600 million to $800 million and extended its term by five years through May 2028. The facility remains fully unutilized and available to us as of December 31st. We also maintain a solid group solvency ratio after allocating to recent transactions and our most recent share repurchase. From a regulatory standpoint, the Government of Bermuda recently enacted the Corporate Income Tax Act of 2023, which will apply a 15% corporate income tax to certain Bermuda businesses, effective for tax years beginning on or after January 1st, 2025. Under U.S. GAAP, we are required to recognize the effects of changes in tax laws in the period the change is enacted, regardless of the effective date. The Act includes various tax elections, including an Economic Transition Adjustment, which is intended to support a fair and equitable transition into the Bermuda corporate income tax regime. As a result, we have recognized a $205 million deferred tax asset, with a corresponding income tax benefit. We produced strong performance in 2023, and we continue to consistently deliver our core strategy of providing innovative legacy solutions to high-quality partners throughout the world. We maintain our disciplined approach to completing profitable legacy transactions and remain ideally placed to take advantage of a healthy pipeline and create additional long-term value for our shareholders. Finally, on behalf of myself, Dominic and the executive team, I want to thank our global employees for their expertise and hard work. They make Enstar the legacy leader. Thank you for your time and your continued interest in Enstar.
End of Q&A:
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