Mount Logan Capital Inc. (NEO: MLC) (the “Company” or “Mount
Logan”) announced today its financial results for the quarter ended
September 30, 2023. All amounts are stated in United States
dollars, unless otherwise indicated. The financial results have
been adjusted for the adoption of IFRS 17 Insurance Contracts
(“IFRS 17”) which became effective January 1, 2023. IFRS 17 is
effective for years beginning as of January 1, 2023, and has been
applied retrospectively with a transition date of January 1, 2022.
IFRS 17 does not impact the underlying economics of the business,
nor does it impact the Company’s business strategies.
Third Quarter 2023
Highlights
- On July 5, 2023, completed
the previously announced transaction with Ovation Partners, LP (the
“Ovation Advisor”) for the management of Ovation’s Alternative
Income platform. The Company completed the transactions
under its membership interest and asset purchase agreement (the
“Ovation Purchase Agreement”) with the Ovation Advisor, a
Texas-based specialty-finance focused asset manager, pursuant to
which the Company acquired (collectively, the “Ovation
Acquisition”) all of the membership interests of Ovation and
certain assets from the Ovation Advisor, pursuant to which ML
Management has become the investment advisor to the platform. The
Alternative Income platform is focused on investments in commercial
lending, real estate lending, consumer finance and litigation
finance.
- Basic Earnings per share
(“EPS”) was $0.62 for the three months ended September 30,
2023, an increase of $0.65 from $(0.03) for the three months ended
June 30, 2023. The increase in EPS across basic and adjusted
presentation, as discussed below, resulted primarily from a change
in net insurance finance expense driven by an increase in market
interest rates in the quarter.
- Adjusted basic EPS
was $0.68 for the quarter ended September 30, 2023, an increase of
$0.63 from $0.05 for the three months ended June 30, 2023.
- Management fees
for the asset management segment were a record $2.5 million for the
quarter ended September 30, 2023, an increase of $0.4 million from
the three months ended June 30, 2023 and $1.3 million higher when
compared to the three months ended September 30, 2022. The increase
year-over-year resulted from the Ovation Acquisition in respect of
which the Company receives a management fee and incentive fees that
commenced in the second quarter of 2023.
- Total net investment income
for the insurance segment of the Company was $26.2
million, an increase of $4.9 million as compared to $21.3 million
for the second quarter of 2023 and an increase of $10.7 million as
compared to $15.5 million for the third quarter of 2022. The
increase is primarily due to the increase in interest rates and the
increase in Ability's bond portfolio.
- Investment contract
liabilities, including MYGA products, had a carrying
value1 of $168.1 million as of quarter ended September 30, 2023, an
increase of $9.4 million when compared to a carrying value1 of
$158.7 million as of the quarter ended June 30, 2023. The increase
of investment contract liabilities primarily through premium growth
through the reinsurance of MYGA helps increase the Company’s total
working capital and contributes to higher total assets in the
insurance segment. As of September 30, 2023, the $250 million of
MYGA coinsurance agreements have been satisfied.
- Insurance segment
raised $17 million of capital during the third quarter
across a $12 million surplus note issuance at Ability Insurance
Company and an additional $5 million contribution from a Lind
Bridge note issuance. The capital raises help drive growth for the
insurance segment across assets and progress us towards our
long-term vision for the business.
Subsequent Events
- Declared a shareholder
distribution in the amount of C$0.02 per common share for
the fourth quarter of 2023, payable on November 30, 2023, to
shareholders of record at the close of business on November 20,
2023. This cash dividend marks the seventeenth 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, “Following the close of the third quarter of
2023, we continue to see strong earnings momentum across both the
asset management and insurance solutions segments of the Company.
For the second straight quarter, both revenue for the asset
management segment and net investment income for the insurance
solutions segment grew quarter-over-quarter and year-over-year. I
also would like to highlight that our Basic earnings per share grew
to $0.62 this quarter, up $0.65 per share from the second quarter.
Ability further progressed on its reinsurance activities of fixed
annuities, helping grow total assets of the platform. We also
completed the final closing of the Ovation transaction early in the
quarter, which will drive incremental fee-related earnings for the
business in the future and add further depth and diversification of
our specialized credit investment strategies. I am grateful to our
team for their tireless work and commitment to the platform and am
excited for the opportunity to update our shareholders on
additional progress on increasing fee-related earnings, growing
assets at the insurance company and capitalizing on the growth
opportunities present with our recent acquisitions.”
________________________________
1Carrying value of fixed annuity products is amortized at a rate
that exactly discounts the projected actual cash flows to the net
carrying amount of the liability at the date of issue.
Selected Financial
Highlights
- Total
revenue for the asset management segment of the Company
was $3.2 million for the three months ended September 30,
2023, an increase of $0.2 million as compared with $3.0 million for
the three months ended June 30, 2023, and an increase of $1.1
million as compared with $2.1 million for the three months ended
September 30, 2022. The increase year-over-year in revenue was
largely driven by increased management fees and equity investment
earnings.
- Total revenue for the
insurance segment of the Company for the three months
ended September 30, 2023, of $18.4 million, an increase of $8.7
million as compared to $9.7 million for the three months ended June
30, 2023, and an increase of $27.9 million as compared to $(9.5)
million for the three months ended September 30, 2022. The increase
year-over-year is primarily due to increase in interest rate, the
increase in Ability’s bond portfolio, and a $32.2 million increase
in net gains from investment activities due to increase in market
value of CLOs, offset by a $13.9 million decrease in realized and
unrealized losses on embedded derivatives – funds withheld.
- Reported net income
(loss) available to holders of common shares for the three
months ended September 30, 2023, was $15.9 million. This
compares to reported net income (loss) of $(0.7) million for the
three months ended June 30, 2023. This increase in reported and
adjusted net income (loss), as discussed below, resulted primarily
from an increase in net gains from investment activities in the
insurance segment of the Company and an increase in net insurance
finance income due to risk-adjusted interest rate changes.
- Adjusted net income
(loss) available to holders of common shares for the three
months ended September 30, 2023, was $17.3 million. This
compares to reported adjusted net income of $1.1 million for the
three months ended June 30, 2023. Adjusted net income (loss) in the
current and prior year periods excludes transaction costs,
acquisition-related costs (including integration costs), and
amortization of acquisition-related intangible assets for the asset
management segment and certain market-related impacts and
experience-related items for the insurance segment.
- Fee Related Earnings
(“FRE”) for the asset management segment of the Company
was $0.7 million for the three months ended September 30, 2023, a
decrease of $0.4 million as compared to $1.1 million in the
corresponding period in the prior year.
- Total Capital as
of September 30, 2023, was $132.0 million, an increase of
$14.0 million from December 31, 2022. Total capital consists of
debt obligations and total shareholders’ equity.
Results of Operations by Segment
($ in Thousands)
| |
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2023 |
|
|
June 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Reported Results(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
$ |
3,186 |
|
|
$ |
2,996 |
|
|
$ |
2,139 |
|
|
$ |
8,108 |
|
|
$ |
6,694 |
|
| Expenses |
|
6,868 |
|
|
|
6,133 |
|
|
|
3,401 |
|
|
|
18,841 |
|
|
|
8,913 |
|
| Net income (loss) - asset
management |
|
(3,682 |
) |
|
|
(3,137 |
) |
|
|
(1,262 |
) |
|
|
(10,733 |
) |
|
|
(2,219 |
) |
|
Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue(3) |
|
18,443 |
|
|
|
9,667 |
|
|
|
(9,468 |
) |
|
|
38,296 |
|
|
|
(45,224 |
) |
| Expenses |
|
(1,482 |
) |
|
|
7,433 |
|
|
|
(25,220 |
) |
|
|
41,410 |
|
|
|
(91,292 |
) |
| Net
income (loss) - insurance |
|
19,925 |
|
|
|
2,234 |
|
|
|
15,752 |
|
|
|
(3,114 |
) |
|
|
46,068 |
|
|
Income before income taxes |
|
16,243 |
|
|
|
(903 |
) |
|
|
14,490 |
|
|
|
(13,847 |
) |
|
|
43,849 |
|
|
Provision for income taxes |
|
(331 |
) |
|
|
248 |
|
|
|
149 |
|
|
|
(348 |
) |
|
|
(195 |
) |
|
Net income (loss) |
$ |
15,912 |
|
|
$ |
(655 |
) |
|
$ |
14,639 |
|
|
$ |
(14,195 |
) |
|
$ |
43,654 |
|
| Basic EPS |
$ |
0.62 |
|
|
$ |
(0.03 |
) |
|
$ |
0.66 |
|
|
$ |
(0.61 |
) |
|
$ |
1.97 |
|
| Diluted
EPS |
$ |
0.61 |
|
|
$ |
(0.03 |
) |
|
$ |
0.65 |
|
|
$ |
(0.61 |
) |
|
$ |
1.94 |
|
|
Adjusting Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Transaction costs(4) |
|
(872 |
) |
|
|
(1,278 |
) |
|
|
— |
|
|
|
(2,308 |
) |
|
|
— |
|
| Acquisition integration
costs(5) |
|
(375 |
) |
|
|
(375 |
) |
|
|
(375 |
) |
|
|
(1,125 |
) |
|
|
(1,375 |
) |
|
Non-cash items(6) |
|
(139 |
) |
|
|
(140 |
) |
|
|
(199 |
) |
|
|
(419 |
) |
|
|
(597 |
) |
|
Impact of adjusting items on expenses |
|
(1,386 |
) |
|
|
(1,793 |
) |
|
|
(574 |
) |
|
|
(3,852 |
) |
|
|
(1,972 |
) |
|
Adjusted Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
$ |
3,186 |
|
|
$ |
2,996 |
|
|
$ |
2,139 |
|
|
$ |
8,108 |
|
|
$ |
6,694 |
|
| Expenses |
|
5,482 |
|
|
|
4,340 |
|
|
|
2,827 |
|
|
|
14,989 |
|
|
|
6,941 |
|
| Net
income (loss) - asset management |
|
(2,296 |
) |
|
|
(1,344 |
) |
|
|
(688 |
) |
|
|
(6,881 |
) |
|
|
(247 |
) |
|
Income before income taxes |
|
17,629 |
|
|
|
890 |
|
|
|
15,064 |
|
|
|
(9,995 |
) |
|
|
45,821 |
|
|
Provision for income taxes |
|
(331 |
) |
|
|
248 |
|
|
|
149 |
|
|
|
(348 |
) |
|
|
(195 |
) |
|
Net income (loss) |
$ |
17,298 |
|
|
$ |
1,138 |
|
|
$ |
15,213 |
|
|
$ |
(10,343 |
) |
|
$ |
45,626 |
|
| Basic EPS |
$ |
0.68 |
|
|
$ |
0.05 |
|
|
$ |
0.69 |
|
|
$ |
(0.44 |
) |
|
$ |
2.06 |
|
| Diluted
EPS |
$ |
0.67 |
|
|
$ |
0.05 |
|
|
$ |
0.68 |
|
|
$ |
(0.44 |
) |
|
$ |
2.03 |
|
|
(2) |
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" |
| (3) |
Insurance Revenue line item is presented net of insurance
service expenses and net expenses from reinsurance contracts
held. |
| (4) |
Transaction costs are related to business acquisitions and
strategic initiatives transacted by the Company. |
| (5) |
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. |
| (6) |
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 |
|
|
Nine Months Ended |
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Management fee |
$ |
2,531 |
|
|
$ |
1,188 |
|
|
$ |
5,914 |
|
|
$ |
3,814 |
|
|
Equity investment earning |
|
221 |
|
|
|
183 |
|
|
|
1,141 |
|
|
|
996 |
|
|
Interest income |
|
274 |
|
|
|
311 |
|
|
|
813 |
|
|
|
951 |
|
|
Dividend income |
|
166 |
|
|
|
— |
|
|
|
331 |
|
|
|
276 |
|
|
Net gains (losses) from investment activities |
|
(6 |
) |
|
|
457 |
|
|
|
(91 |
) |
|
|
657 |
|
|
Total revenue — asset management |
$ |
3,186 |
|
|
$ |
2,139 |
|
|
$ |
8,108 |
|
|
$ |
6,694 |
|
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 its asset management activities, as follows:
|
($ in Thousands) |
| |
| |
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2023 |
|
September 30, 2022 |
|
|
September 30, 2023 |
|
September 30, 2022 |
|
|
Net income (loss) and comprehensive income
(loss) |
|
15,912 |
|
|
14,639 |
|
|
|
(14,195 |
) |
|
43,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to net income (loss) and comprehensive income
(loss): |
|
|
|
|
|
|
|
|
|
|
Total revenue - insurance(7) |
|
(18,443 |
) |
|
9,468 |
|
|
|
(38,296 |
) |
|
45,224 |
|
|
Total expenses - insurance |
|
(1,482 |
) |
|
(25,220 |
) |
|
|
41,410 |
|
|
(91,292 |
) |
|
Net income - asset management(8) |
|
(4,013 |
) |
|
(1,113 |
) |
|
|
(11,081 |
) |
|
(2,414 |
) |
|
Adjustments to non-fee generating asset management business and
other recurring revenue stream: |
|
|
|
|
|
|
|
|
|
|
Management fee from Ability |
|
1,110 |
|
|
607 |
|
|
|
2,902 |
|
|
1,616 |
|
|
Interest income |
|
— |
|
|
(37 |
) |
|
|
— |
|
|
(138 |
) |
|
Dividend income |
|
(166 |
) |
|
— |
|
|
|
(331 |
) |
|
(276 |
) |
|
Net gains (losses) from investment activities |
|
6 |
|
|
(457 |
) |
|
|
91 |
|
|
(657 |
) |
|
Administration and servicing fees |
|
215 |
|
|
190 |
|
|
|
702 |
|
|
630 |
|
|
Transaction costs |
|
872 |
|
|
— |
|
|
|
2,308 |
|
|
— |
|
|
Amortization of intangible assets |
|
139 |
|
|
199 |
|
|
|
419 |
|
|
597 |
|
|
Interest and other credit facility expenses |
|
1,555 |
|
|
867 |
|
|
|
4,212 |
|
|
2,394 |
|
|
General, administrative and other |
|
1,009 |
|
|
862 |
|
|
|
4,387 |
|
|
2,697 |
|
|
Fee Related Earnings |
$ |
727 |
|
$ |
1,118 |
|
|
$ |
3,609 |
|
$ |
4,449 |
|
| (7) |
Includes
add-back of management fees paid to ML Management. |
| (8) |
Represents net income for asset management, as presented in the
unaudited Interim Consolidated Statement of Comprehensive Income
(Loss). |
Insurance
Total Revenue – Insurance
|
($ in Thousands) |
| |
| |
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Insurance service result |
$ |
(6,455 |
) |
|
$ |
(5,382 |
) |
|
$ |
(20,144 |
) |
|
$ |
(17,137 |
) |
|
Net investment income |
|
26,233 |
|
|
|
15,527 |
|
|
|
67,804 |
|
|
|
38,358 |
|
|
Net gains (losses) from investment activities |
|
574 |
|
|
|
(31,596 |
) |
|
|
4,751 |
|
|
|
(118,166 |
) |
|
Realized and unrealized gains (losses) on embedded derivative —
funds withheld |
|
(2,033 |
) |
|
|
11,898 |
|
|
|
(14,396 |
) |
|
|
48,959 |
|
|
Other income |
|
124 |
|
|
|
85 |
|
|
|
281 |
|
|
|
2,762 |
|
|
Total revenue — net of insurance services expenses and net
expenses from reinsurance |
$ |
18,443 |
|
|
$ |
(9,468 |
) |
|
$ |
38,296 |
|
|
$ |
(45,224 |
) |
Liquidity and Capital Resources
As of September 30, 2023, the asset management
segment of the Company had $64.6 million (par value) of borrowings
outstanding, of which $32.1 million had a fixed rate and $32.5
million had a floating rate. This balance was comprised of: 1)
$31.6 million of outstanding borrowings under a credit facility of
a wholly-owned subsidiary of the Company, 2) $15.0 million of
seller notes due 2031 relating to the acquisition of Ability, 3)
$13.1 million borrowed by Lind Bridge L.P., a limited partnership
of which the Company is, directly and indirectly, the sole limited
partner and sole general partner, and of which $5.05 million is due
2025 and $8.06 million is due 2029, 4) $4.0 million of seller notes
from the acquisition of certain assets from Capitala Investment
Advisors, LLC due 2025, and 5) $0.8 million of outstanding
borrowings under a credit facility of Ovation. Additionally, in the
quarter ended September 30, 2023, the insurance segment of the
Company had $14.25 million (par value) of surplus debentures from:
1) Sentinel Security Life Insurance Company, which has a par value
of $2.25 million and matures in the second quarter of 2028, and 2)
Pavonia Life Insurance Company of Michigan, which has a par value
of $12.0 million and matures in the fourth quarter of 2032.
Liquid assets, including high-quality assets
that are marketable, can be pledged as security for borrowings, and
can be converted to cash in a time frame that meets liquidity and
funding requirements. As of September 30, 2023, and December 31,
2022, the total liquid assets of the Company were as follows:
($ in Thousands)
|
As at |
September 30, 2023 |
|
|
December 31, 2022 |
|
|
Cash and cash equivalents |
$ |
114,853 |
|
|
$ |
65,898 |
|
| Investments |
|
605,894 |
|
|
|
692,693 |
|
| Management fee receivable |
|
2,637 |
|
|
|
1,385 |
|
| Receivable for investments
sold |
|
21,483 |
|
|
|
1,249 |
|
| Accrued
interest and dividend receivable |
|
- |
|
|
|
16,157 |
|
|
Total liquid assets |
$ |
744,867 |
|
|
$ |
777,382 |
|
The Company defines working capital as the sum
of cash, restricted cash, investments that mature within one year
of the reporting date, management fees receivable, receivables for
investments sold, accrued interest and dividend receivables, and
premium receivables, less the sum of debt obligations, payables for
investments purchased, amounts due to affiliates, reinsurance
liabilities, and other liabilities that are payable within one year
of the reporting date.
As of September 30, 2023, the Company has
working capital of $209.6 million, reflecting current assets of
$248.3 million, offset by current liabilities of $38.7 million, as
compared with working capital of $232.4 million as at June 30,
2023, reflecting current assets of $248.3 million, offset by
current liabilities of $15.9 million. The decrease in working
capital is primarily driven by maturity of short term investments
and reinvestment of funds into long term investments.
Interest Rate Risk
The Company holds certain debt investments with
fixed interest rates that exposes it to fair value interest rate
risk. The Company also holds debt investments with variable
interest rates that exposes it to cash flow interest rate risk and
is partially mitigated with those debt investments subject to an
interest rate floor. The Company also holds a debt obligation
subject to variable interest rates, which partially mitigates it to
cash flow interest rate risk.
The following table summarizes the potential
annualized impact on net income of hypothetical base rate changes
in interest rates on our debt investments and debt obligations
assuming a parallel shift in the yield curve, with all other
variables remaining constant.
($ in Thousands)
|
As at |
September 30, 2023 |
|
|
December 31, 2022 |
|
|
50 basis point increase (1) |
$ |
(3,554 |
) |
|
$ |
(2,843 |
) |
| 50
basis point decrease (1) |
|
3,554 |
|
|
|
2,843 |
|
(1) Losses are presented in brackets and gains are presented as
positive
numbers.
Actual results may differ significantly from
these sensitivity analyzes. As such, the sensitivities should only
be viewed as directional estimates of the underlying sensitivities
for the respective factors based on the assumptions outlined
above.
Conference Call
The Company will hold a conference call on
Friday, November 10, 2023, at 12:30 p.m. Eastern Time to discuss
the third quarter 2023 financial results. Shareholders, prospective
shareholders, and analysts are welcome to listen to the call. To
join the call, please use the dial-in information below. A
recording of the conference call will be available on our Company’s
website www.mountlogancapital.ca in the ‘Investor Relations’
section under “Events”.
Dial-in Toll Free:
1-833-470-1428International Dial-in:
1-404-975-4839Access Code: 367148
About Mount Logan Capital Inc.
Mount Logan Capital Inc. is an alternative asset
management and insurance solutions company that is focused on
public and private debt securities in the North American market and
the reinsurance of annuity products, primarily through its
wholly-owned subsidiaries Mount Logan Management LLC (“ML
Management”) and Ability Insurance Company (“Ability”),
respectively. The Company also earns investment income by investing
in loans, debt securities, and other credit-oriented instruments
that present attractive risk-adjusted returns and present low risk
of principal impairment through the credit cycle, and minority
equity stakes in funds and companies
Ability Insurance is a Nebraska domiciled
insurer and reinsurer of long-term care policies and annuity
products acquired by Mount Logan in the fourth quarter of fiscal
year 2021. Ability is unique in the insurance industry in that its
long-term care portfolio’s morbidity risk has been largely
reinsured to third-parties. Ability is also no longer insuring new
long-term care risk and will continue to expand and diversify its
business including through the reinsurance of annuity products
which commenced in the second quarter of fiscal 2022.
Non-IFRS Financial Measures
This press release makes reference to certain
non-IFRS financial measures. These measures are not recognized
measures under IFRS, do not have a standardized meaning prescribed
by IFRS and may not be comparable to similar measures presented by
other companies. Rather, these measures are provided as additional
information to complement IFRS financial measures by providing
further understanding of the Company’s results of operations from
management's perspective. The Company’s definitions of non-IFRS
measures used in this press release may not be the same as the
definitions for such measures used by other companies in their
reporting. Non-IFRS measures have limitations as analytical tools
and should not be considered in isolation nor as a substitute for
analysis of the Company’s financial information reported under
IFRS. The Company believes that securities analysts, investors and
other interested parties frequently use non-IFRS financial measures
in the evaluation of issuers. The Company’s management also uses
non-IFRS financial measures in order to facilitate operating
performance comparisons from period to period.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains forward-looking
statements and information within the meaning of applicable
securities legislation. Forward-looking statements can be
identified by the expressions "seeks", "expects", "believes",
"estimates", "will", "target" and similar expressions. The
forward-looking statements are not historical facts but reflect the
current expectations of the Company regarding future results or
events and are based on information currently available to it.
Certain material factors and assumptions were applied in providing
these forward-looking statements. The forward-looking statements
discussed in this release include, but are not limited to,
statements relating to the Company’s continued transition to an
asset management and insurance platform business and the entering
into of further strategic transactions to diversify the Company’s
business and further grow recurring management fee and other income
and increasing Ability’s assets; the Company’s plans to focus
Ability's business on the reinsurance of annuity products; the
expected benefits of combining Mount Logan’s and Ovation’s platform
including an increase in fee-related earnings as a result of the
acquisition; the Company’s business strategy, model, approach and
future activities; portfolio composition and size, asset management
activities and related income, capital raising activities, future
credit opportunities of the Company including through the Company’s
minority investments, portfolio realizations, the protection of
stakeholder value; the expansion of the Company’s loan portfolio;
the risk that changes to IFRS, including the adoption of IFRS 17,
could have a material impact on the Company’s financial results and
access to capital; and the expansion of Mount Logan’s capabilities.
All forward-looking statements in this press release are qualified
by these cautionary statements. The Company believes that the
expectations reflected in forward-looking statements are based upon
reasonable assumptions; however, the Company can give no assurance
that the actual results or developments will be realized by certain
specified dates or at all. These forward-looking statements are
subject to a number of risks and uncertainties that could cause
actual results or events to differ materially from current
expectations, including that the Company has a limited operating
history with respect to an asset management oriented business
model; Ability may not generate recurring asset management fees,
increase its assets or strategically benefit the Company as
expected; the expected synergies by combining the business of Mount
Logan with the business of Ability may not be realized as expected;
the risk that the Company may not be successful in continuing to
integrate the business of Ability without significant use of the
Company’s resources and management’s attention; the risk that
Ability may require a significant investment of capital and other
resources in order to expand and grow the business; the Company
does not have a record of operating an insurance solutions business
and is subject to all the risks and uncertainties associated with a
broadening of the Company’s business; the risk that the expected
synergies of the acquisition of Ovation may not be realized as
expected; and the matters discussed under "Risks Factors" in the
most recently filed annual information form and management
discussion and analysis for the Company. Readers, therefore, should
not place undue reliance on any such forward-looking statements.
Further, a forward-looking statement speaks only as of the date on
which such statement is made. The Company undertakes no obligation
to publicly update any such statement or to reflect new information
or the occurrence of future events or circumstances except as
required by securities laws. These forward-looking statements are
made as of the date of this press release.
This press release is not, and under no
circumstances is it to be construed as, a prospectus or an
advertisement and the communication of this release is not, and
under no circumstances is it to be construed as, an offer to sell
or an offer to purchase any securities in the Company or in any
fund or other investment vehicle. This press release is not
intended for U.S. persons. The Company’s shares are not and will
not be registered under the U.S. Securities Act of 1933, as
amended, and the Company is not and will not be registered under
the U.S. Investment Company Act of 1940 (the “1940 Act”). U.S.
persons are not permitted to purchase the Company’s shares absent
an applicable exemption from registration under each of these Acts.
In addition, the number of investors in the United States, or which
are U.S. persons or purchasing for the account or benefit of U.S.
persons, will be limited to such number as is required to comply
with an available exemption from the registration requirements of
the 1940 Act.
Contacts:Mount Logan Capital
Inc.365 Bay Street, Suite 800Toronto, ON M5H
2V1info@mountlogancapital.ca
Jason RoosChief Financial
OfficerJason.Roos@mountlogancapital.ca
|
MOUNT LOGAN CAPITAL INC. |
|
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION |
|
(in thousands of United States dollars, except share and
per share amounts) |
|
|
|
As at |
September 30,2023 |
|
|
December 31,2022 |
|
|
January 1, 20229 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Asset Management: |
|
|
|
|
|
|
|
|
|
Cash |
$ |
3,012 |
|
|
$ |
1,525 |
|
|
$ |
14,433 |
|
|
Restricted cash |
|
53 |
|
|
|
53 |
|
|
|
135 |
|
|
Due from affiliates |
|
— |
|
|
|
12 |
|
|
|
— |
|
|
Investments |
|
27,766 |
|
|
|
30,605 |
|
|
|
35,209 |
|
|
Intangible assets |
|
29,332 |
|
|
|
21,501 |
|
|
|
22,060 |
|
|
Other assets |
|
6,840 |
|
|
|
4,792 |
|
|
|
4,180 |
|
|
Total assets — asset management |
|
67,003 |
|
|
|
58,488 |
|
|
|
76,017 |
|
|
Insurance: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
111,841 |
|
|
|
64,373 |
|
|
|
29,733 |
|
|
Investments in financial assets |
|
964,947 |
|
|
|
884,627 |
|
|
|
881,170 |
|
|
Reinsurance contract assets |
|
431,002 |
|
|
|
455,115 |
|
|
|
617,618 |
|
|
Intangible assets |
|
2,444 |
|
|
|
2,444 |
|
|
|
2,444 |
|
|
Goodwill |
|
55,015 |
|
|
|
55,015 |
|
|
|
55,015 |
|
|
Other assets |
|
33,402 |
|
|
|
24,178 |
|
|
|
18,251 |
|
|
Total assets — insurance |
|
1,598,651 |
|
|
|
1,485,752 |
|
|
|
1,604,231 |
|
|
Total assets |
$ |
1,665,654 |
|
|
$ |
1,544,240 |
|
|
$ |
1,680,248 |
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
Asset Management |
|
|
|
|
|
|
|
|
|
Due to affiliates |
$ |
10,122 |
|
|
$ |
1,110 |
|
|
$ |
3,852 |
|
|
Debt obligations |
|
63,199 |
|
|
|
53,172 |
|
|
|
42,708 |
|
|
Contingent value rights |
|
53 |
|
|
|
3,003 |
|
|
|
4,169 |
|
|
Accrued expenses and other liabilities |
|
4,195 |
|
|
|
2,583 |
|
|
|
3,916 |
|
|
Total liabilities — asset management |
|
77,569 |
|
|
|
59,868 |
|
|
|
54,645 |
|
|
Insurance |
|
|
|
|
|
|
|
|
|
Debt obligations |
|
14,250 |
|
|
|
2,250 |
|
|
|
2,250 |
|
|
Insurance contract liabilities |
|
1,093,633 |
|
|
|
1,073,251 |
|
|
|
1,311,855 |
|
|
Investment contract liabilities |
|
168,104 |
|
|
|
89,358 |
|
|
|
— |
|
|
Funds held under reinsurance contracts |
|
234,823 |
|
|
|
231,839 |
|
|
|
291,296 |
|
|
Accrued expenses and other liabilities |
|
22,689 |
|
|
|
25,404 |
|
|
|
4,885 |
|
|
Total liabilities — insurance |
|
1,533,499 |
|
|
|
1,422,102 |
|
|
|
1,610,286 |
|
|
Total liabilities |
|
1,611,068 |
|
|
|
1,481,970 |
|
|
|
1,664,931 |
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
Common shares |
|
115,607 |
|
|
|
108,055 |
|
|
|
108,055 |
|
|
Warrants |
|
1,129 |
|
|
|
1,129 |
|
|
|
1,129 |
|
|
Contributed surplus |
|
7,240 |
|
|
|
7,240 |
|
|
|
7,240 |
|
|
Surplus (Deficit) |
|
(47,532 |
) |
|
|
(32,296 |
) |
|
|
(79,249 |
) |
|
Cumulative translation adjustment |
|
(21,858 |
) |
|
|
(21,858 |
) |
|
|
(21,858 |
) |
|
Total equity |
|
54,586 |
|
|
|
62,270 |
|
|
|
15,317 |
|
|
Total liabilities and equity |
$ |
1,665,654 |
|
|
$ |
1,544,240 |
|
|
$ |
1,680,248 |
|
(9) Refer to notes 2 and 3 of the Unaudited
Consolidated Financial Statements for further discussion.
|
MOUNT LOGAN CAPITAL INC. |
|
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) |
|
(in thousands of United States dollars, except share and
per share amounts) |
| |
|
|
|
|
|
| |
Three months ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| REVENUE |
|
|
|
|
|
|
|
|
|
|
|
| Asset
management |
|
|
|
|
|
|
|
|
|
|
|
|
Management fee |
$ |
2,531 |
|
|
$ |
1,188 |
|
|
$ |
5,914 |
|
|
$ |
3,814 |
|
| Equity investment earning |
|
221 |
|
|
|
183 |
|
|
|
1,141 |
|
|
|
996 |
|
| Interest income |
|
274 |
|
|
|
311 |
|
|
|
813 |
|
|
|
951 |
|
| Dividend income |
|
166 |
|
|
|
— |
|
|
|
331 |
|
|
|
276 |
|
| Net
gains (losses) from investment activities |
|
(6 |
) |
|
|
457 |
|
|
|
(91 |
) |
|
|
657 |
|
|
Total revenue — asset management |
|
3,186 |
|
|
|
2,139 |
|
|
|
8,108 |
|
|
|
6,694 |
|
|
Insurance |
|
|
|
|
|
|
|
|
|
|
|
| Insurance revenue |
|
21,901 |
|
|
|
23,905 |
|
|
|
65,721 |
|
|
|
71,556 |
|
| Insurance service
expenses |
|
(26,391 |
) |
|
|
(23,084 |
) |
|
|
(70,779 |
) |
|
|
(71,268 |
) |
| Net
expenses from reinsurance contracts held |
|
(1,965 |
) |
|
|
(6,203 |
) |
|
|
(15,086 |
) |
|
|
(17,425 |
) |
|
Insurance service result |
|
(6,455 |
) |
|
|
(5,382 |
) |
|
|
(20,144 |
) |
|
|
(17,137 |
) |
| Net investment income |
|
26,233 |
|
|
|
15,527 |
|
|
|
67,804 |
|
|
|
38,358 |
|
| Net gains (losses) from
investment activities |
|
574 |
|
|
|
(31,596 |
) |
|
|
4,751 |
|
|
|
(118,166 |
) |
| Realized and unrealized gains
(losses) on embedded derivative — funds withheld |
|
(2,033 |
) |
|
|
11,898 |
|
|
|
(14,396 |
) |
|
|
48,959 |
|
| Other
income |
|
124 |
|
|
|
85 |
|
|
|
281 |
|
|
|
2,762 |
|
|
Total revenue, net of insurance service expenses and net
expenses from reinsurance contracts held — insurance |
|
18,443 |
|
|
|
(9,468 |
) |
|
|
38,296 |
|
|
|
(45,224 |
) |
|
Total revenue |
|
21,629 |
|
|
|
(7,329 |
) |
|
|
46,404 |
|
|
|
(38,530 |
) |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
| Asset
management |
|
|
|
|
|
|
|
|
|
|
|
| Administration and servicing
fees |
|
1,108 |
|
|
|
749 |
|
|
|
2,496 |
|
|
|
971 |
|
| Transaction costs |
|
872 |
|
|
|
— |
|
|
|
2,308 |
|
|
|
— |
|
| Amortization of intangible
assets |
|
139 |
|
|
|
199 |
|
|
|
419 |
|
|
|
597 |
|
| Interest and other credit
facility expenses |
|
1,555 |
|
|
|
867 |
|
|
|
4,212 |
|
|
|
2,394 |
|
|
General, administrative and other |
|
3,194 |
|
|
|
1,586 |
|
|
|
9,406 |
|
|
|
4,951 |
|
|
Total expenses — asset management |
|
6,868 |
|
|
|
3,401 |
|
|
|
18,841 |
|
|
|
8,913 |
|
|
Insurance |
|
|
|
|
|
|
|
|
|
|
|
| Net insurance finance (income)
expenses |
|
(13,432 |
) |
|
|
(29,811 |
) |
|
|
9,758 |
|
|
|
(102,555 |
) |
| Increase (decrease) in
investment contract liabilities |
|
1,986 |
|
|
|
324 |
|
|
|
4,400 |
|
|
|
888 |
|
| (Increase) decrease in
reinsurance assets |
|
6,326 |
|
|
|
760 |
|
|
|
15,897 |
|
|
|
760 |
|
|
General, administrative and other |
|
3,638 |
|
|
|
3,507 |
|
|
|
11,355 |
|
|
|
9,615 |
|
|
Total expenses — insurance |
|
(1,482 |
) |
|
|
(25,220 |
) |
|
|
41,410 |
|
|
|
(91,292 |
) |
|
Total expenses |
|
5,386 |
|
|
|
(21,819 |
) |
|
|
60,251 |
|
|
|
(82,379 |
) |
|
Income (loss) before taxes |
|
16,243 |
|
|
|
14,490 |
|
|
|
(13,847 |
) |
|
|
43,849 |
|
|
Income tax (expense) benefit — asset management |
|
(331 |
) |
|
|
149 |
|
|
|
(348 |
) |
|
|
(195 |
) |
|
Net income (loss) and comprehensive income
(loss) |
$ |
15,912 |
|
|
$ |
14,639 |
|
|
$ |
(14,195 |
) |
|
$ |
43,654 |
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.62 |
|
|
$ |
0.66 |
|
|
$ |
(0.61 |
) |
|
$ |
1.97 |
|
|
Diluted |
$ |
0.61 |
|
|
$ |
0.65 |
|
|
$ |
(0.61 |
) |
|
$ |
1.94 |
|
| Dividends per common
share — USD |
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
0.05 |
|
| Dividends per common
share — CAD |
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
Mount Logan Capital (NEO:MLC)
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