Mount Logan Capital Inc. Announces First Quarter 2024 Financial Results
Increased Ability's total assets managed by Mount Logan to $617 million and reinsured an additional $39 million Multi-Year Guaranteed Annuities during the quarter
Generated $9.5 million of insurance segment Spread Related Earnings ("SRE") for the trailing twelve months ended March 31, 2024, demonstrating the earnings power of the insurance segment
Strong quarter for the asset management segment with another quarter of record management fees. Fee Related Earnings ("FRE") for the quarter of $1.6 million, up 15% as compared to first quarter 2023. FRE increases attributable to growth in Assets Under Management ("AUM") and management fees
Declared quarterly distribution of C$0.02 per common share in the second quarter of 2024, the nineteenth consecutive quarter of a shareholder distribution
TORONTO, May 09, 2024 (GLOBE NEWSWIRE) -- Mount Logan Capital Inc. (Cboe Canada: MLC) ("Mount Logan" or the "Company") announced today its financial results for the first quarter ended March 31, 2024. All amounts are stated in United States dollars, unless otherwise indicated.
First Quarter 2024 Highlights
- Total revenue for the asset management segment of the Company of $4.0 million, an increase of $2.1 million, or 109%, as compared to the first quarter of 2023. The increase is primarily due to growth in fees attributable to the inclusion of Ovation management and incentive fees, increase in CLO fees, growth in the Opportunistic Credit Interval Fund, and other sub-advisory activities of Mount Logan. First quarter asset management revenues exclude $1.4 million of management fees associated with Mount Logan's management of the assets of Ability Insurance Company ("Ability"), a wholly-owned subsidiary of the Company, during the first quarter of 2024, which increased by $0.6 million, or 74% as compared to first quarter 2023 of $0.8 million.
- Total net investment income for the insurance segment was $21.8 million for the three months ended March 31, 2024, an increase of $1.6 million, or 7.8%, as compared to the first quarter of 2023, driven by an increase in total insurance investment assets and improvements in yield across the investment portfolio attributable to deployment of capital in a higher rate environment. Excluding the funds withheld under reinsurance contracts and Modco, Ability's net investment income was $14.1 million, an increase of $3.0 million, or 27%, as compared to the first quarter of 2023.
- 7.9%1 yield on the insurance investment portfolio as of March 31, 2024 reflective of ongoing portfolio and capital optimization across the insurance solutions portfolio alongside the benefit of higher base rates. Excluding the funds withheld under reinsurance contracts and Modco, the yield was 8.5%.
- Ability's total assets managed by Mount Logan increased to $616.8 million as of March 31, 2024, up $145.6 million from first quarter 2023 of $471.2 million. As of March 31, 2024, the insurance segment included $1.0 billion in total investment assets, up $138.2 million or 15% from first quarter 2023 investment assets of $904.8 million.
- Book value of the insurance segment as of March 31, 2024 was $82.6 million, an increase of $56.0 million as compared to $26.6 million for first quarter 2023.
- Published SRE disclosure for the insurance segment, generating $9.5 million for the trailing twelve months ended March 31, 2024. SRE is a non-IFRS financial measure used to assess the insurance segment's generation of profits excluding the impact of certain market volatility and other one-time, non-core components of insurance segment income (loss). The Company believes this measure is useful to shareholders as it provides additional insight into the underlying economics of the insurance segment.
- FRE for the asset management segment was $1.6 million for the three months ended March 31, 2024, an increase of $0.2 million, or 15% compared to the first quarter of March 31, 2023. FRE was $6.5 million for the twelve months ended March 31, 2024, an increase of $0.4 million, or 7.1%, compared to the twelve months ended March 31, 2023 of $6.1 million primarily driven by the previously mentioned revenue improvements.
- Announced the completion of an $18.8 million capital raise and opportunistic refinancing, representing an important milestone for the business as it simplifies Mount Logan's capital structure at an attractive fixed-rate over the next 8 years. $13.6 million of the net proceeds of the offering were used to repay all existing indebtedness at Lind Bridge L.P., a wholly owned subsidiary of Mount Logan, which had previously been raised to support direct growth investment into Ability. The balance of the proceeds of the offering are being used for general corporate purposes, primarily supporting the Company's working capital position, and paying outstanding transaction fees and expenses.
Subsequent Events
- Declared a shareholder distribution in the amount of C$0.02 per common share for the quarter ended March 31, 2024, payable on May 31, 2024 to shareholders of record at the close of business on May 22, 2024. This cash dividend marks the nineteenth consecutive quarter of the Company issuing a C$0.02 distribution to its shareholders. This dividend is designated by the Company as an eligible dividend for the purpose of the Income Tax Act (Canada) and any similar provincial or territorial legislation. An enhanced dividend tax credit applies to eligible dividends paid to Canadian residents.
Management Commentary
- Ted Goldthorpe, Chief Executive Officer and Chairman of Mount Logan stated, "We are excited to announce our first quarter 2024 results, which demonstrate the earnings power of both our asset management and insurance segments. Fee Related Earnings, or FRE, of the asset management segment was up significantly year-over-year and highlights the growing profitability of our asset management business. Additionally, today we published a new non-IFRS metric, Spread Related Earnings, or SRE, which highlights the profitability of our insurance segment and provides additional information to enable shareholders to better understand the financial performance of our insurance segment."
_______________________________
1The yield is calculated based on the net investment income excluding reinsured portfolio income less management fees paid to Mount Logan divided by the average of investments in financial assets for the current and prior period, and then is annualized.
Selected Financial Highlights
- Total Capital of the Company was $147.1 million at March 31, 2024, an increase of $17.6 million as compared to December 31, 2023. Total capital consists of debt obligations and total shareholders' equity.
- Consolidated net income(loss) before taxes was $13.1 million for the three months ended March 31, 2024, an increase of $42.3 million from $(29.2 million) for the first quarter 2023. The increase is due to increases in risk-adjusted market interest rates, which resulted in lower net insurance finance expense.
- Basic Earnings per share ("EPS") was $0.51 for the three months ended March 31, 2024, an increase of
$1.84 from $(1.33) for the first quarter 2023. The increase in EPS resulted primarily from an increase in the net insurance finance income in the first quarter 2024 compared to the first quarter 2023. The increase in net insurance finance income in the first quarter 2024 was attributable to changes in risk-adjusted market interest rates. - Adjusted basic EPS was $0.54 for the first quarter 2024, an increase of $1.84 from $(1.30) for the first quarter 2023.
Results of Operations by Segment
($ in Thousands)
| Three Months Ended | |||||||||||
| March 31, 2024 | December 31, 2023 | March 31, 2023 | |||||||||
| Reported Results(1) | |||||||||||
| Asset management | |||||||||||
| Revenue | $ | 4,030 | $ | 3,723 | $ | 1,926 | |||||
| Expenses | 7,315 | 7,839 | 5,840 | ||||||||
| Net income (loss) - asset management | (3,285 | ) | (4,116 | ) | (3,914 | ) | |||||
| Insurance | |||||||||||
| Revenue(2) | 17,555 | 30,847 | 10,186 | ||||||||
| Expenses |
822 | 28,677 | 35,459 | ||||||||
| Net income (loss) - insurance | 16,733 | 2,170 | (25,273 | ) | |||||||
| Income before income taxes | 13,148 | (1,946 | ) | (29,187 | ) | ||||||
| Provision for income taxes | (56 | ) | (315 | ) | (265 | ) | |||||
| Net income (loss) | $ | 13,092 | $ | (2,261 | ) | $ | (29,452 | ) | |||
| Basic EPS | $ | 0.51 | $ | (0.09 | ) | $ | (1.33 | ) | |||
| Diluted EPS | $ | 0.50 | $ | (0.09 | ) | $ | (1.33 | ) | |||
| Adjusting Items | |||||||||||
| Asset management | |||||||||||
| Transaction costs(3) | (251 | ) | (1,413 | ) | (158 | ) | |||||
| Acquisition integration costs(4) | (250 | ) | — | (375 | ) | ||||||
| Non-cash items(5) | (346 | ) | (553 | ) | (140 | ) | |||||
| Impact of adjusting items on expenses | (847 | ) | (1,966 | ) | (673 | ) | |||||
| Adjusted Results | |||||||||||
| Asset management | |||||||||||
| Revenue | $ | 4,030 | $ | 3,723 | $ | 1,926 | |||||
| Expenses | 6,768 | 5,873 | 5,167 | ||||||||
| Net income (loss) - asset management | (2,738 | ) | (2,150 | ) | (3,241 | ) | |||||
| Income before income taxes | 13,995 | 20 | (28,514 | ) | |||||||
| Provision for income taxes | (56 | ) | (315 | ) | (265 | ) | |||||
| Net income (loss) | $ | 13,939 | $ | (295 | ) | $ | (28,779 | ) | |||
| Basic EPS | $ | 0.54 | $ | (0.01 | ) | $ | (1.30 | ) | |||
| Diluted EPS | $ | 0.54 | $ | (0.01 | ) | $ | (1.30 | ) | |||
(1) Certain comparative figures have been reclassified to conform with the current year's presentation, including the reclassification of "Net realized and unrealized gain (loss)" to "Revenue"
(2) Insurance Revenue line item is presented net of insurance service expenses and net expenses from reinsurance contracts held.
(3) Transaction costs are related to business acquisitions and strategic initiatives transacted by the Company.
(4) Acquisition integration costs are consulting and administration services fees related to integrating a business into the Company. Acquisition integration costs are recorded in general, administrative and other expenses.
(5) Non-cash items include amortization of acquisition-related intangible assets and impairment of goodwill, if any.
Asset Management
Total Revenue – Asset Management
($ in Thousands)
| Three Months Ended | |||||
| March 31, 2024 | March 31, 2023 | ||||
| Management fee | $ | 3,494 | $ | 1,237 | |
| Equity investment earning | 224 | 468 | |||
| Interest income | 271 | 268 | |||
| Dividend income | 112 | 56 | |||
| Net gains (losses) from investment activities | (71 | ) | (103) | ||
| Total revenue — asset management | $ | 4,030 | $ | 1,926 | |
Quarter Ended Fee Related Earnings ("FRE")
Fee Related Earnings ("FRE") is a non-IFRS financial measure used to assess the asset management segment's generation of profits from revenues that are measured and received on a recurring basis and are not dependent on future realization events. The Company calculates FRE, and reconciles FRE to net income from it's asset management activities, as follows:
| ($ in Thousands) | Three Months Ended | ||||||
| March 31, 2024 | March 31, 2023 | ||||||
| Net income (loss) and comprehensive income (loss) | 13,092 | (29,452 | ) | ||||
| Adjustment to net income (loss) and comprehensive income (loss): | |||||||
| Total revenue - insurance(1) | (17,555 | ) | (10,186 | ) | |||
| Total expenses - insurance | 822 | 35,459 | |||||
| Net income - asset management(2) | (3,641 | ) | (4,179 | ) | |||
| Adjustments to non-fee generating asset management business and other recurring revenue stream: | |||||||
| Management fee from Ability | 1,429 | 823 | |||||
| Interest income | — | — | |||||
| Dividend income | (112 | ) | (56 | ) | |||
| Net gains (losses) from investment activities | 71 | 103 | |||||
| Administration and servicing fees | 366 | 174 | |||||
| Transaction costs | 251 | 158 | |||||
| Amortization of intangible assets | 346 | 140 | |||||
| Interest and other credit facility expenses | 1,702 | 1,254 | |||||
| General, administrative and other | 1,233 | 3,013 | |||||
| Fee Related Earnings | $ | 1,645 | $ | 1,430 | |||
(1) Includes add-back of management fees paid to ML Management (as defined below).
(2) Represents net income for asset management, as presented in the Interim Consolidated Statement of Comprehensive Income (Loss).
The following table presents FRE, the performance measure of our Asset segment for the trailing twelve month period ended March 31, 2024 and March 31, 2023 respectively:
Trailing Twelve Month FRE
| ($ in Thousands) |
Trailing Twelve Months Ended | ||||||
| March 31, 2024 | March 31, 2023 | ||||||
| Net income (loss) and comprehensive income (loss) | 26,088 | (4,056 | ) | ||||
| Adjustment to net income (loss) and comprehensive income (loss): | |||||||
| Total revenue - insurance(1) | (76,512 | ) | 2,831 | ||||
| Total expenses - insurance | 35,450 | (6,798 | ) | ||||
| Net income - asset management(2) | (14,974 | ) | |||||