First Quarter 2023 Trading Update

Conduit Holdings Limited

17 May 2023

 

Pembroke, Bermuda - 17 May 2023

Conduit Holdings Limited

("CHL" LSE ticker: CRE)

First Quarter 2023 Trading Update

Gross premiums written increased by 59.1%

Year-to-date overall risk-adjusted rate change, net of claims inflation, of 19.0%

CHL, the ultimate parent company of Conduit Re, a pure-play Bermuda-based reinsurance business, today presents its trading update for the first quarter of 2023.

Trevor Carvey, Chief Executive Officer, commented: "The imbalance between supply and demand continues in the marketplace and Conduit Re has seen a very strong first quarter both in terms of premium growth and the rating levels seen across our target classes. April business renewed through strongly and we continue to dial our book deliberately towards the property and specialty classes where the market environment is considered most favourable. The overall signs are that pricing momentum will be maintained into the important mid-year renewals, and our highly scalable and lean operating model has created a platform for strong future growth."

Trading

•   $443.2 million of estimated ultimate premiums written for the three months ended 31 March 2023, a 50.7% increase on the three months ended 31 March 2022

•   Overall portfolio risk-adjusted rate change for the first quarter of 2023, net of claims inflation, of 19.0%

•   Gross premiums written for the three months ended 31 March 2023 of $278.0 million, a 59.1% increase from the first quarter of the prior year

•   Despite an active natural catastrophe quarter of losses for the industry, no major event loss, individually or in aggregate, had an outsized or material impact on Conduit Re

•   High quality investment portfolio:

-    Average credit quality of AA; investment return 1.8%, book yield 2.8%, market yield 5.0%

-    Unrealised gain of $12.5 million compared to unrealised loss of $32.6 million in the first quarter of 2022

-    Short portfolio duration of 2.4 years; opportunity to reinvest at higher interest rates remains

•   Final dividend of $0.18 (14.73 pence) per common share in respect of 2022 was paid on 21 April 2023

•   $132.6 million of estimated ultimate gross premiums written during the April renewals, bringing estimated ultimate gross premiums written to $575.8 million from 1 January to 30 April 2023

Outlook

•   Market conditions remain very favourable with property and specialty leading the way ahead of casualty driven by:

-    Fundamental re-pricing of risk and growing demand for reinsurance while supply remains constrained

-    Continuing risk-adjusted rate increases, augmented by improvements in terms and conditions

-    Enduring momentum into April, ahead of the mid-year renewals

•   Conduit Re will continue prioritising the most attractive classes of business within an exceptional, sustainable pricing environment, accelerating its trajectory towards a mid-80s combined ratio and benefiting from:

-    Retrocession protection in place - purchased early in the year to support growth strategy and ensure certainty of cover

-    Legacy-free balance sheet and a healthy excess capital position

-    Highly efficient underwriting platform: low other operating expense ratio of 7.1% for the full year 2022

Neil Eckert, Executive Chairman, commented: "As the year progresses, the capacity constraint in the market becomes increasingly acute. We see this as an enduring pricing environment, creating the opportunity for improved margins in our business throughout 2023 and beyond. Conduit continues to deliver strong year-on-year growth. Our current ultimate premium growth is ahead of the original five year IPO plan expectations and the true value of our strong balance sheet is becoming more apparent as time passes."

Underwriting update

During the first three months of 2023, Conduit Re continued to show growth across all segments, benefiting from new business, high retention and underlying growth of our renewal business and improving rates. Client count and submission flow have increased in line with Conduit Re's strategy, with the embedded renewing portfolio providing the key foundations.

Premiums

Estimated ultimate premiums written1 for the three months ended 31 March:

	2023	2022 re-stated	Change	Change		2022 Published2
Segment	$m	$m	$m	%		$m
Property	205.7	120.5	85.2	70.7%		120.8
Casualty	110.7	99.0	11.7	11.8%		99.0
Specialty	126.8	74.6	52.2	70.0%		77.1
Total	443.2	294.1	149.1	50.7%		296.9

Gross premiums written3 for the three months ended 31 March:

	2023	2022 re-stated	Change	Change		2022 Published4
Segment	$m	$m	$m	%		$m
Property	159.0	83.6	75.4	90.2%		83.8
Casualty	64.9	59.7	5.2	8.7%		59.7
Specialty	54.1	31.4	22.7	72.3%		34.0
Total	278.0	174.7	103.3	59.1%		177.5

Pricing

Pricing levels and terms and conditions continued to improve in the first quarter of 2023 and we were presented with an increasing number of opportunities to deploy our capital into the areas and products that we target. The non-catastrophe elements of both property and specialty are providing ongoing opportunities for selective growth, with the property catastrophe renewals in Japan and Europe also showing reasonable rate strengthening in April, which enabled us to expand our footprint there.

Casualty treaty pricing is adequate, although less buoyant, and we continue to track and monitor the approach of our core clients' portfolios in their local markets. Casualty net rate change, after the impact of terms and conditions, remains broadly on par with the underlying inflation-adjusted claims expectations.

Conduit Re's overall risk-adjusted rate change for the three months ended 31 March 2023, net of claims inflation, was 19%, and by segment was:

Property	Casualty	Specialty
39%	1%	14%

Losses

Despite an active quarter for natural catastrophe losses for the industry, there were no major event losses individually or in aggregate which had a material impact on Conduit during the first quarter of 2023.

Our ultimate loss estimates, net of reinsurance and reinstatement premiums, for the previously reported 2022 loss events remain stable. The estimated ultimate losses for Hurricane Ian and the ongoing conflict in Ukraine are in line with previously announced estimates. There were also no material changes to the previously reported 2021 loss events.

Our loss and reserve estimates have been derived from a combination of reports and statements from brokers and cedants, modelled loss projections, pricing loss ratio expectations and reporting patterns, all supplemented with market data and assumptions. We will continue to review these estimates as more information becomes available.

Investments

In line with our stated strategy, we continue to maintain our conservative approach to managing our invested assets with a strong emphasis on preserving capital and liquidity. Our strategy remains maintaining a short duration, highly-rated portfolio, with due consideration of the duration of our liabilities. Our investment portfolio does not hold any derivatives, equities, alternatives or emerging market debt. Contingent convertibles are not permitted by our investment guidelines. We also have issuer restrictions in place which limit our exposure to any one credit. We do not have any investments in Silicon Valley Bank, Signature Bank, Credit Suisse AT-1s or First Republic Bank.

The portfolio returned 1.8% during the first quarter of 2023 driven primarily by the reduction in treasury yields, which more than offset the modest widening of credit spreads during the quarter. This resulted in an unrealised gain of $12.5 million on the investment portfolio for the quarter. In the first quarter of 2022 treasury yields increased significantly, which led to an unrealised loss of $32.6 million. The return for that quarter was (2.9)%.

While we expect market volatility to remain elevated in the near term, Conduit expects to be able to reinvest at higher rates as the existing portfolio rolls over.

The breakdown of the managed investment portfolio is as follows:

	As at 31 March 2023	As at 31 March 2022
Fixed maturity securities	91.5%	95.6%
Cash and cash equivalents	8.5%	4.4%
Total	100.0%	100.0%

Key investment portfolio statistics for our fixed maturities and managed cash were:

	As at 31 March 2023	As at 31 March 2022
Duration	2.4 years	2.5 years
Credit quality	AA	AA-
Book yield	2.8%	1.1%
Market yield	5.0%	2.5%

Capital & dividends

Total capital and tangible capital available was $0.82 billion as at 31 March 2023.

During the first quarter of 2023, CHL's Board of Directors declared a final dividend of $0.18 (£0.1473) per common share in respect of 2022, which was paid in pounds sterling on 21 April 2023 to shareholders of record on 24 March 2023, resulting in an aggregate payment of $29.6 million.

In accordance with authority granted at CHL's AGM held on 13 May 2021, and renewed on May 11, 2022, CHL has exercised its authority to purchase its own shares, repurchasing a total of 757,823 common shares. As announced at the time the repurchases commenced in December 2021 and subsequently, the shares were repurchased to meet future obligations under Conduit's variable incentive schemes. On or about 16 May 2023 CHL transferred 757,823 common shares at nominal value to the CHL employee benefit trust established in connection with the equity incentives granted to executives and employees of CHL and its subsidiaries.

Webcast

Conduit's management will host a virtual meeting for analysts and investors via a webcast and conference call on Wednesday, 17 May 2023 at 12.00 noon UK time / 8.00 am Bermuda time.

To access the webcast, please register in advance here:

https://www.lsegissuerservices.com/spark/ConduitHoldingsLtd/events/9174564f-d6bf-4d42-b04f-e62d17cf4de7

To access the conference call, please register to receive unique dial-in details here:

https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=9420770&linkSecurityString=17bde90b90

A recording of the conference call will be made available later in the day on the Investors section of Conduit Re's website at www.conduitreinsurance.com.

Media contacts

H/Advisors Maitland - Vikki Kosmalska / Alistair de Kare-Silver

[phone]

[e-mail]

Investor relations and other enquiries:

[e-mail]

Panmure Gordon (UK) Limited (Joint Corporate Broker)

[phone]

Berenberg (Joint Corporate Broker)

[phone]

Peel Hunt (Joint Corporate Broker)

[phone]

About Conduit Re

Conduit Re is a pure-play Bermuda-based reinsurance business with global reach. Conduit Reinsurance Limited is licensed by the Bermuda Monetary Authority as a Class 4 insurer. A.M. Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of a- (Excellent) to Conduit Reinsurance Limited. The outlook assigned to these ratings is stable.

Conduit Holdings Limited is the ultimate parent of Conduit Reinsurance Limited and is listed on the London Stock Exchange (ticker: CRE). References to "Conduit" include Conduit Holdings Limited and all of its subsidiary companies.

Learn more about Conduit Re:

Website: https://conduitreinsurance.com/

LinkedIn: https://www.linkedin.com/company/conduit-re

Important information (disclaimers)

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "goals", "objective", "rewards", "expectations", "projects", "anticipates", "expects", "achieve", "intends", "tends", "on track", "well placed", "estimated", "projected", "may", "will", "aims", "could" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, targets, future events or intentions. Forward-looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, unearned premiums pricing rate changes, terms and conditions, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, claims development, losses and loss estimates and future business prospects; and (ii) business and management strategies and the expansion and growth of Conduit's operations.

Forward-looking statements may and often do differ materially from actual results. Forward-looking statements reflect Conduit's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to Conduit's business, results of operations, financial position, liquidity, prospects, growth and strategies. These risks, uncertainties and assumptions include, but are not limited to: the possibility of greater frequency or severity of claims and loss activity than Conduit's underwriting, reserving or investment practices have anticipated; the reliability of catastrophe pricing, accumulation and estimated loss models; the actual development of losses and expenses impacting estimates for claims which arose as a result of recent loss activity such as the Ukraine crisis, Hurricanes Ian and Ida, the European storms and floods in 2021 and 2022 and the earthquake in Turkey; the impact of complex causation and coverage issues associated with attribution of losses to wind or flood damage; unusual loss frequency or losses that are not modelled; the effectiveness of Conduit's risk management and loss limitation methods, including to manage volatility; the recovery of losses and reinstatement premiums from our own reinsurance providers; the development of Conduit's technology platforms; a decline in Conduit's ratings with A.M. Best or other rating agencies; the impact that Conduit's future operating results, capital position and ratings may have on the execution of Conduit's business plan, capital management initiatives or dividends; Conduit's ability to implement successfully its business plan and strategy during 'soft' as well as 'hard' markets; the premium rates which are available at the time of renewals within Conduit's targeted business lines; increased competition on the basis of pricing, capacity or coverage terms and the related demand and supply dynamics as contracts come up for renewal; the successful recruitment, retention and motivation of Conduit's key management and the potential loss of key personnel; the credit environment for issuers of fixed maturity investments in Conduit's portfolio; the impact of swings in market interest rates, currency exchange rates and securities prices; changes by central banks regarding the level of interest rates and the timing and extent of any such changes; the impact of inflation or deflation in relevant economies in which Conduit operates; Conduit becoming subject to income taxes in the United States or in the United Kingdom; and changes in insurance or tax laws or regulations in jurisdictions where Conduit conducts business. Forward-looking statements contained in this trading update may be impacted by the escalation or expansion of the Ukraine conflict on Conduit's clients, the volatility in global financial markets and governmental, regulatory and judicial actions, including coverage issues.

Forward-looking statements speak only as of the date they are made. No representation or warranty is made that any forward-looking statement will come to pass. These forward-looking statements speak only as at the date of this announcement. Conduit disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by law or regulation.

"Estimated ultimate premiums written" is the estimated total gross premiums written (excluding reinstatement premiums) that is expected to be earned assuming all bound contracts run to the end of the period of cover, after management discount for prudence.

The Conduit renewal year on year indicative pricing change measure is an internal methodology that management intends to use to track trends in premium rates of a portfolio of reinsurance contracts. The change measure reflects management's assessment of relative changes in price, exposure and terms and conditions. It is also net of the estimated impact of claims inflation. The calculation involves a degree of judgement in relation to comparability of contracts and the assessment noted above, particularly in Conduit's initial years of underwriting. To enhance the methodology, management may revise the methodology and assumptions underlying the change measure, so the trends in premium rates reflected in the change measure may not be comparable over time. Consideration is only given to renewals of a comparable nature so it does not reflect every contract in the portfolio of Conduit contracts. The future profitability of the portfolio of contracts within the change measure is dependent upon many factors besides the trends in premium rates.

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1 Estimated ultimate premiums written now exclude reinstatement premiums to ensure consistency with the IFRS 17 view of revenue.

2 Numbers as reported in the first quarter 2022 trading update under IFRS 4.

3 Gross premiums written now exclude reinstatement premiums to ensure consistency with the IFRS 17 view of revenue.

4 Numbers as reported in the first quarter 2022 trading update under IFRS 4.

 

END