REG - Conduit Holdings Ltd - Preliminary results
Conduit Holdings Limited
Hamilton, Bermuda - 23 February 2021
Conduit Holdings Limited ("Conduit Holdings" or the "Group") announces its preliminary results for the period ended 31 December 2020.
Highlights:
• Successful IPO with net proceeds of $1,057 million (£790 million)
• Loss after tax of $4.6 million
• Basic and diluted loss per share $0.03
• Book value per share of $6.37 per share
• Negative return on equity 0.4%
• Underwriting commenced on 1 January 2021
Neil Eckert, Executive Chairman's statement:
"Conduit Re has got off to a flying start. We have launched the business in attractive and improving market conditions. We have already established a top class management and underwriting team. We are embracing the benefits that technology brings for the new generation of reinsurance underwriters and we have established strong relationships with our key trading partners around the market. It is an exciting time to be building a new reinsurance business and we couldn't have asked for a better beginning to the establishment of Conduit as a new breed of reinsurer.
In addition, we are working hard on our ESG strategy and we are delighted to announce that Sir Nicholas Soames has agreed to chair the newly established Conduit Foundation, which will engage in both social and environmental projects."
Trevor Carvey, Chief Executive and Chief Underwriting Officer's statement:
"Following on from our strong start in the 1 January 2021 renewals, we continue to build out our underwriting portfolio according to plan. We have seen wide acceptance by brokers and clients alike as an attractive and value-adding business partner and we are well positioned to deliver on our stated strategy of building a balanced and diversified portfolio.
We are the beneficiaries of attractive and improving market conditions in the classes of business we are targeting, which allows us to remain highly selective in the way we deploy our capital, a hallmark of the Conduit Re underwriting philosophy. The underlying pressures driving improvements in both rates and terms are coming from the primary markets and permeating at an increasing rate into the reinsurance markets. We believe this will lead to a more sustained improvement taking into account the many factors that led to deteriorations in industry loss ratios in recent years.
Consequently, we have been more focused initially on taking a pro-rata share of primary insurance via the underwriting of quota share reinsurance treaties rather than on excess of loss in our early trading. However, we still expect to deliver a balanced portfolio across all classes and territories and we look forward to the upcoming April and mid-year renewals with optimism."
Elaine Whelan, Chief Financial Officer's statement:
"The Group raised a total of £790 million ($1,057 million), net of offering expenses, in the IPO in December but did not begin underwriting until the 1 January 2021 renewals. Our consolidated financial statements for the period from incorporation to 31 December 2020 therefore include mostly the expenses from our IPO and operating expenses from our first month of setting up the business. We have a loss after tax of $4.6 million resulting in a small negative return on equity of 0.4%. Costs directly related to the equity issuance were charged against equity. The loss after tax was driven primarily by payroll, legal and regulatory expenses.
While it will take some time for us to fully build out our underwriting book, and therefore fully deploy our capital, we are focused on risk selection and will maintain a balanced approach. Conduit is an underwriting business, first and foremost, and that is rightly where our principal focus is. Capital preservation and liquidity will, therefore, remain the primary objective of our investment strategy in order to support our underwriting goals."
CONDUIT HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
(unaudited)
Notes
$'000
Net investment income
51
Net foreign exchange gains
151
Total net revenue
202
Equity based compensation expense
6
312
Other operating expenses
6
4,507
Total expenses
4,819
Operating loss
5
(4,617)
Loss for the period
(4,617)
Income tax expense (benefit)
7
-
Loss after tax
(4,617)
Other comprehensive income (loss)
-
Total comprehensive loss for the period
(4,617)
Loss per share
Basic and diluted
14
$ (0.03)
CONDUIT HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2020
(unaudited)
Notes
$'000
Assets
Cash and cash equivalents
8
1,054,046
Other assets
1,081
Right-of-use lease assets
10
11
Intangible assets
9
169
Total assets
1,055,307
Liabilities
Other payables
2,512
Lease liabilities
11
Total liabilities
2,523
Shareholders' equity
Share capital
11
1,655
Other reserves
12
1,055,746
Retained loss
(4,617)
Total shareholders' equity
1,052,784
Total liabilities and shareholders' equity
1,055,307
CONDUIT HOLDINGS LIMITED
STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
(unaudited)
Notes
$'000
Cash flows used in operating activities
Loss before tax
(4,617)
Net investment income
(51)
Net foreign exchange gains
(161)
Equity based compensation expense
6
312
Change in operational assets and liabilities
1,436
Net cash flows used in operating activities
(3,081)
Cash flows used in investing activities
Purchase of intangible assets
9
(169)
Interest received
51
Net cash flows used in investing activities
(118)
Cash flows from financing activities
Proceeds from issue of share capital, net of issuance costs
11, 12
1,057,089
Net cash flows from financing activities
1,057,089
Net increase in cash and cash equivalents
1,053,890
Cash and cash equivalents at beginning of period
-
Effect of exchange rate fluctuations on cash and cash equivalents
156
Cash and cash equivalents at end of period
8
1,054,046
CONDUIT HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
(unaudited)
Notes
Share capital
Other reserves
Retained loss
Total shareholders' equity
$'000
$'000
$'000
$'000
Total comprehensive loss for the period
-
-
(4,617)
(4,617)
Issue of share capital
11, 12
1,655
1,100,938
-
1,102,593
Issuance costs
12
-
(45,504)
-
(45,504)
Equity based compensation expense
6, 12
-
312
-
312
Balance as at 31 December 2020
1,655
1,055,746
(4,617)
1,052,784
CONDUIT HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
1 General information
Conduit Holdings Limited (the "Company") was incorporated under the laws of Bermuda on 6 October 2020 and listed on the London Stock Exchange on 7 December 2020. The registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
The Company's consolidated financial statements for the period ended 31 December 2020 include the Company's subsidiaries (together referred to as the 'Group'). A full listing of the Group's related parties can be found in note 15.
2 Significant accounting policies
The basis of preparation, use of estimates, consolidation principles and significant accounting policies adopted in the preparation of these consolidated financial statements are set out below.
Basis of preparation
The consolidated financial statements are prepared on a going concern basis in accordance with IFRS. The Directors performed an assessment of the Group's ability to continue as a going concern and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
Where IFRS is silent, as it is in respect of certain aspects relating to the measurement of insurance products, the IFRS framework allows reference to another comprehensive body of accounting principles. In such instances, the Group's management determines appropriate measurement bases, to provide the most useful information to users of the consolidated financial statements, using their judgement and considering US GAAP. In the course of preparing the consolidated financial statements, no judgements have been made in the process of applying the Group's accounting policies, other than those involving estimations as noted in the 'Use of estimates' section on page 7, that have had a significant effect on amounts recognised in the consolidated financial statements.
The consolidated balance sheet is presented in order of decreasing liquidity. All amounts, excluding share data or where otherwise stated, are in thousands of US dollars.
Future accounting changes
Standards and interpretations which are issued but not yet effective and have not been early adopted by the Group are summarised in the table below.
Standard
Amendment
Effective Date
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 & IFRS 16
Interest Rate Benchmark Reform - Phase 2
1 January 2021
Amendments to IAS 37
Onerous Contracts - Cost of Fulfilling Contracts
1 January 2022
Amendments to IAS 16
Property, Plant and Equipment: Proceeds before Intended Use
1 January 2022
Amendments to IAS 1
Classification of Liabilities as Current or Non Current
1 January 2023
IFRS 17, Insurance Contracts, issued in May 2017, specifies the financial reporting for insurance contracts by an insurer. The new standard is likely to be effective for accounting periods beginning on or after 1 January 2023. The standard includes a number of significant changes regarding the measurement and disclosure of insurance contracts both in terms of liability measurement and profit recognition. The Group will assess the impact that the new standard will have on its results and its presentation and disclosure requirements.
Use of estimates
The preparation of financial statements in conformity with IFRS requires the Group to make estimates and assumptions that affect the reported and disclosed amounts at the balance sheet date and the reported and disclosed amounts of revenues and expenses during the reporting period. Actual results may differ materially from the estimates made.
The most significant estimate made by management is in relation to the estimated fair value of the MIP. This is discussed in note 6.
While not significant, estimates are also used in the valuation of intangible assets.
Consolidation principles
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at and for the period ended 31 December 2020. Subsidiaries are fully consolidated from the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. Intercompany balances, profits and transactions are eliminated. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.
Subsidiaries' accounting policies are generally consistent with the Group's accounting policies. Where they differ, adjustments are made on consolidation to bring accounting policies in line.
Foreign currency
The functional currency, which is the currency of the primary economic environment in which operations are conducted, for Group entities, with the exception of CRSL, is US dollars. The functional currency of CRSL is pounds Sterling. Items included in the financial statements of each of the Group's entities are measured using the functional currency. The consolidated financial statements are presented in US dollars.
Foreign currency transactions are recorded in the functional currency for each entity using the exchange rates prevailing at the dates of the transactions, or at the average rate for the period when this is a reasonable approximation. Monetary assets and liabilities denominated in foreign currencies are revalued at period end exchange rates. The resulting exchange differences on revaluation are recorded in the consolidated statement of comprehensive income within net foreign exchange gains. Non-monetary assets and liabilities denominated in a foreign currency are carried at historic rates. Non-monetary assets and liabilities carried at estimated fair value and denominated in a foreign currency are translated at the exchange rate at the date the estimated fair value was determined.
Cash and cash equivalents
Cash and cash equivalents are carried in the consolidated balance sheet at amortised cost and include cash in hand, deposits held on call with banks and other short-term highly liquid investments with a maturity of three months or less at the date of purchase. Carrying amounts approximate fair value due to the short-term nature and high liquidity of the instruments.
Interest income earned on cash and cash equivalents is recognised on the effective interest rate method. The carrying value of accrued interest income approximates estimated fair value due to its short-term nature and high liquidity.
Property, plant and equipment
Property, plant and equipment is carried at historical cost, less accumulated depreciation and any impairment in value. Depreciation is calculated to write off the cost over the estimated useful economic life on a straight-line basis as follows:
• IT Equipment
3 years
The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date.
An item of property, plant or equipment is derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset.
Gains and losses on the disposal of property, plant and equipment are determined by comparing proceeds with the carrying amount of the asset, and are included in the consolidated statement of comprehensive income. Costs for repairs and maintenance are charged to profit or loss as incurred.
Intangible assets
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. An intangible asset with a finite useful life is amortised on a straight line basis over the useful life. An intangible asset with an indefinite useful life is not amortised, but is tested annually for impairment. When an intangible asset is disposed of, the gain or loss on disposal is included in profit or loss.
Leases
At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial measurement of the corresponding lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of any costs to be incurred at expiration of the lease agreement.
Right-of-use assets are subsequently measured at cost less accumulated depreciation and any impairment losses. Straight-line depreciation is calculated from the commencement date of the lease to the earlier of either the end date of the lease term or the useful life of the underlying asset.
The lease liability is initially measured at the present value of the future lease payments at the lease commencement date. Lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
- fixed payments, including in-substance fixed payments;
- variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
The lease liability is subsequently measured by increasing the lease carrying amount to reflect the interest due on the lease liability using the effective interest rate method and reducing the carrying amount to reflect the lease payments made. The Group re-measures the lease liability and the related right-of-use asset whenever there is a change in future lease payments arising from a change in index or rate, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in substance fixed lease payment.
The Group presents right-of-use assets and lease liabilities as a separate financial statement line item on the consolidated balance sheet.
Employee benefits
Equity compensation plans
The Group currently operates a MIP under which shares are subscribed for or nil cost options will be granted. The fair value of the instruments granted is estimated on the date of grant. The estimated fair value is recognised as an expense pro-rata over the vesting period of the instrument, adjusted for the impact of any non-market vesting conditions. No adjustment to vesting assumptions is made in respect of market vesting conditions.
At each balance sheet date, the Group revises its estimate of the number of instruments that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, as equity based compensation expense in the consolidated statement of comprehensive income, and a corresponding adjustment is made to other reserves in shareholders' equity over the remaining vesting period.
On exercise, the differences between the expense charged to the consolidated statement of comprehensive income and the actual cost to the Group, if any, is transferred to other reserves in shareholders' equity
Tax
Income tax represents the sum of tax currently payable and any deferred tax. The tax payable is calculated based on taxable profit for the period using tax rates and tax laws enacted or substantively enacted at the year end reporting date and any adjustments to tax payable in respect of prior periods.
Taxable profit for the period can differ from that reported in the consolidated statement of comprehensive income due to non-taxable income and certain items which are not tax deductible or which are deferred to subsequent periods.
Deferred tax is recognised on all temporary differences between the carrying value of the assets and liabilities in the consolidated balance sheet and their tax base, except when the deferred tax liability arises from the initial recognition of goodwill. Deferred tax assets or liabilities are accounted for using the balance sheet liability method. Deferred tax assets are recognised to the extent that realising the related tax benefit through future taxable profits is probable and are reassessed each year for recognition.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
Where the current estimated fair value of equity based compensation awards differs from the estimated fair value at the time of grant, adjusted where applicable for dividends, the related corporation tax and deferred tax charge or credit is recognised directly in other reserves.
Own shares
Own shares include shares repurchased under share repurchase authorisations and held in treasury, plus shares repurchased and held in trust, for the purposes of employee equity based compensation schemes. Own shares are deducted from shareholders' equity. No gain or loss is recognised on the purchase, sale, cancellation or issue of own shares and any consideration paid or received is recognised directly in equity.
Share capital and issuance costs
Shares are classified as shareholders' equity if there is no obligation to transfer cash or other financial assets.
Transaction costs that are attributable to the issuance of new shares are treated as a deduction to share premium.
3 Risk disclosures: Introduction
For the period ending 31 December 2020, the Group was not engaged in any active business and was therefore exposed to limited risks, being market risk, operational risk and strategic risk.
From 1 January 2021, the Group will be exposed to risks from several sources, classified into six primary risk categories. These are insurance risk, market risk, liquidity risk, credit risk, operational risk and strategic risk. The primary risk to the Group will be insurance risk. These risks will be discussed, along with the appropriate disclosure, within the Group's unaudited condensed interim consolidated financial statements when issued later in 2021.
The Board is responsible for determining the nature and extent of the principal risks the Group is willing to take in achieving its strategic objectives and should maintain sound risk management and internal control systems. To this end, for the period ending 31 December 2020, the Board established initial governance arrangements and delegated certain limited authorities to officers of CHL and CRL to facilitate the establishment of operating capabilities ahead of the 1 January 2021 reinsurance renewal period. Baseline risk appetites were defined and these remain under review as the Group develops. Initially certain non-underwriting activities were outsourced to, or supported by, specialist providers with the intent of reducing short-term execution risk.
The risk function is responsible for supporting the Board, and the CRL board, with the day-to-day oversight of the risks that the Group seeks or is exposed to in pursuit of its strategic objectives, and the satisfaction of certain regulatory risk management expectations relevant to CRL. The framework under which risks are managed contemplates risk appetite and tolerance constraints, prescribed by the Board and reviewed at least annually, with consideration of the financial and operational capacity of the Group. The use of financial capacity in this context relates to calculated or modelled capital requirements, based on residual unmitigated risk exposures. Current capital requirements are determined by reference to rating agency and regulatory capital requirements, with an internal capital model to be developed in due course.
Day-to-day management of risk is the responsibility of management, operating within the defined appetite and tolerances and Board, or the CRL board, approved delegations of authority. The risk framework prescribes a standardised approach to the management of risk, oversight and challenge by the risk function and independent assurance provided by the internal audit function. The risk framework also addresses the reporting of risks, risk events and compliance with risk appetite and tolerance statements to executive management and the boards, and relevant board sub-committees, of CRL and CHL. To ensure transparency and accountability of the business to the independent non-executive directors, three independent non-executive directors from the Board have been appointed to the board of CRL. Furthermore, the Board is invited to attend operating entity board level meetings and see all minutes and records of such operating entity board and committee meetings.
Market risk
The Group is at risk of loss due to movements in market factors. The main risks include:
i. Insurance risk;
ii. Investment risk;
iii. Debt risk and;
iv. Currency risk.
As the Group was not engaged in any active business for the reporting period, the only relevant market risk for the period was currency risk. Following the successful IPO, and translation of the pounds Sterling funds raised into US dollars, there was no significant currency exposure to the Group.
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, personnel, systems or external events. During the reporting period, which primarily involved the establishment of operations, various operational risks were identified and steps were taken to manage or mitigate these risks.
The risk framework addresses the identification, assessment and management of operational risks. This process involves the use of risk registers to identify inherent risk and residual risk after the application of controls. The management of individual risks is the responsibility of management, with independent challenge and oversight provided by the risk function. The results of compliance reviews and independent internal audits provide an additional level of review and verification. The Audit Committee has selected a reputable provider to serve as outsourced internal auditors.
Strategic risk
The Group has identified several strategic risks. These include:
• The risks that either the poor execution of the business plan or an inappropriate business plan in itself results in a strategy that fails to reflect adequately the trading environment, resulting in an inability to optimise performance, including reputational risk;
• The risks of the failure to maintain adequate capital, accessing capital at an inflated cost or the inability to access capital. This includes unanticipated changes in vendor, regulatory and/or rating agency models that could result in an increase in capital requirements or a change in the type of capital required; and
• The risks of succession planning, staff retention and key man risks.
Business plan risk
The Group's business plan, as included in the IPO prospectus, was evaluated and approved by the Board. Actual versus planned results will be monitored regularly.
Capital management risk
The total tangible capital of the Group is as follows:
$'000
As at 31 December 2020
Shareholders' equity
1,052,784
Intangible assets
(169)
Total tangible capital
1,052,615
Risks associated with the effectiveness of the Group's capital management are mitigated as follows:
• Regular monitoring of current and prospective regulatory and rating agency capital requirements;
• Oversight of capital requirements by the Board;
• Ability to purchase sufficient, cost-effective reinsurance;
• Maintaining contact with vendors, regulators and rating agencies in order to stay abreast of upcoming developments and;
• Future participation in industry groups such as the Association of Bermuda Insurers and Reinsurers.
The Group reviews the level and composition of capital on an ongoing basis with a view of:
• Maintaining sufficient capital for underwriting opportunities and to meet obligations to policyholders;
• Maximising the risk-adjusted return to shareholders within the context of the defined risk appetite;
• Maintaining adequate financial strength rating and;
• Meeting relevant capital requirements.
Capital is increased or returned as appropriate. The retention of earnings generated leads to an increase in capital. Capital raising can include debt or equity and returns of capital may be made through dividends, share repurchases, a redemption of debt or any combination thereof. Other capital management tools and products available to the Group may also be utilised. All capital actions require approval by the Board.
The primary source of capital used by the Group is equity shareholders' funds. As a holding company, CHL relies on dividends from its operating entity to provide the cash flow required for dividends to shareholders. The ability of the operating entity to pay dividends and make capital distributions is subject to the legal and regulatory restrictions of the jurisdiction in which it operates.
CRL is regulated by the BMA and is required to monitor the ECR under the BMA's regulatory framework, which has been assessed as equivalent to the EU's Solvency II regime. CRL's regulatory capital requirement is calculated using the BSCR standard formula. For the period ended 31 December 2020, CRL was more than adequately capitalised on this basis.
Retention risk
Risks associated with succession planning, staff retention and key man risks are mitigated through a combination of resource planning processes and controls, including:
• The identification of key personnel with appropriate succession plans;
• The identification of key team profit generators and function holders with targeted retention packages;
• Documented recruitment procedures, position descriptions and employment contracts;
• Resource monitoring and the provision of appropriate compensation, including equity based compensation which vests over a defined time horizon, subject to achieving certain performance criteria; and
• Training schemes.
4 Segmental reporting
There is no active business in the period ending 31 December 2020. Underwriting commenced on 1 January 2021. With no operating income, the Group did not have any reportable operating segments during the period. The Group's principal operating segments will be determined as business develops through 2021 and will reflect how the business is reviewed and monitored by Management and the Board.
5 Results of operating activities
$'000
Results of operating activities are stated after charging the following amounts:
Auditor's remuneration: audit fees
110
6 Employee benefits
$'000
The aggregate remuneration comprised:
Wages and salaries
2,432
Total cash compensation
2,432
Total equity based compensation
312
Total employee benefits
2,744
Equity based compensation
The Group's equity based compensation incentive scheme is its MIP. The incentive is based around shares in CML, which will be automatically exchanged for ordinary shares of CHL for an aggregate value equivalent to up to 15% of the excess of the market value of CHL over and above the Invested Equity, subject to the satisfaction of the vesting conditions. All outstanding and future grants have an exercise period of four to seven years from the grant date. The fair value is estimated using a stochastic Monte Carlo model.
100,000 A1 shares and 100,000 A2 shares were issued by CML during the period at a subscription price of £1.72 and $2.26 respectively. There have been no exercises during the period.
The following table lists the assumptions used in the stochastic model for the MIP awards granted during the period ended 31 December 2020:
Assumptions
Dividend Yield
0%
Expected Volatility ¹
range from 17.6% - 18.1%
Risk-free interest rate²
range from 0.29% - 0.61%
Expected life of instruments
range from 4 to 7 years
1. The expected volatility was calculated based on a comparator group of companies.
2. The risk-free interest rate is based on the yield of a U.S. government bond on the date of grant.
The instruments were granted prior to the IPO and therefore discounts for business viability and lack of marketability were also applied. There are significant risks associated with an IPO and the instruments are also illiquid until the tranche vesting dates. Management therefore selected their best estimates at the time for these discounts. These assumptions are highly judgmental and input from advisors was sought. Management also considered alternative assumptions and concluded there was not a material impact on the estimated valuation selected.
The calculation of the equity based compensation expense assumes no forfeitures due to employee turnover, with subsequent adjustments to reflect actual experience.
Conditions of the MIP are as follows:
The MIP instruments vest over a four to seven year period with specific measurement dates of 7 December 2024, 7 December 2025, 7 December 2026 and 7 December 2027. The instruments will vest only after an IRR of 10% is achieved. As noted above, a maximum of 15% of the growth in market value will be available to each tranche at the vesting date. If the hurdle is not achieved at the first vesting date, the instruments will roll over until the final vesting date.
The incentives are to be equity-settled and have therefore been accounted for in accordance with IFRS 2.
The value of the services received in exchange for the share based incentives is measured by reference to the estimated fair value of the incentives at their grant date. The estimated fair value is recognised in the consolidated statement of comprehensive income, together with a corresponding increase in other reserves within shareholders' equity, on a straight line basis over the vesting period, based on an estimate of the number of shares that will ultimately vest.
Vesting conditions, other than market conditions, are not taken into account when estimating the fair value. Market conditions are those conditions that are linked to the share price of the Group.
At the end of each reporting period the Group revises its estimates of the number of shares that are expected to vest due to non-market conditions. It recognises the impact of the revision to original estimates, if any, in the consolidated statement of comprehensive income, with a corresponding adjustment to shareholders' equity.
During the year $312 thousand has been recognised in the consolidated statement of comprehensive income as a charge in relation to the share based incentives.
7 Tax
Bermuda
CHL, CSL, CML and CRL have received an undertaking from the Bermuda government exempting them from all Bermuda local income, withholding and capital gains taxes until 31 March 2035. At the present time no such taxes are levied in Bermuda.
United Kingdom
CRSL is subject to normal UK corporation tax on all of its taxable profits. For the period ended 31 December 2020 a tax loss arose. Deferred tax assets are recognised to the extent that realising the related tax benefit through future taxable profits is likely. It is currently anticipated that there will not be sufficient taxable profits in 2021 and subsequent years to utilise the deferred tax asset, therefore no deferred tax has been recognised.
$'000
Current tax expense
-
Deferred tax expense
-
Total tax expense
-
Reconciliation of effective tax rate
Loss for the period before tax
(4,617)
Tax using the Bermuda corporation tax rate of 0%
-
Tax using the UK corporation tax rate of 19%
88
Tax benefit not recognised
(88)
Total tax expense
-
8 Cash and cash equivalents
$'000
Cash at bank and in hand
54,046
Cash equivalents
1,000,000
1,054,046
Cash equivalents have an original maturity of three months or less. The carrying amount of these assets approximates their fair value.
9 Intangible assets
Software
$'000
Cost
Additions
169
Net book value as at 31 December 2020
169
There was no amortisation or impairment recognised for the period ended 31 December 2020 on the basis that the assets are not ready for use.
10 Right-of-use lease assets
$'000
Cost
Additions
11
Balance and net book value as at 31 December 2020
11
11 Share capital
Number
$'000
Authorised share capital
Authorised common shares of $0.01 each
10,000,000,000
100,000
Authorised A1 shares of £0.01 each
100,000
2
Authorised A2 shares of $0.01 each
100,000
1
As at 31 December 2020
10,000,200,000
100,003
Allotted, called-up and fully-paid
Common shares issued
165,239,997
1,652
A1 shares issued
100,000
2
A2 shares issued
100,000
1
As at 31 December 2020
165,439,997
1,655
The number of common shares in issue with voting rights as at 31 December 2020 was 165,239,997. The A1 and A2 shares have no voting rights attached. Subject to vesting conditions, discussed in note 6, the shares will be automatically exchanged for ordinary shares of CHL.
12 Other reserves
Other reserves consist of the following:
Other reserves
Share premium
Total other reserves
$'000
$'000
$'000
Issue of shares
-
1,100,938
1,100,938
Issuance costs
-
(45,504)
(45,504)
Equity based compensation expense
312
-
312
As at 31 December 2020
312
1,055,434
1,055,746
Other reserves includes an equity based compensation expense.
Share premium includes any premiums received on issue of share capital. The transaction costs that are attributable to the issuance of new shares incurred in forming the Group are treated as a deduction from share premium.
13 Contingencies and commitments
During the period ended 31 December 2020, the Company entered into contracts to purchase software licenses. These commitments are expected to be settled in the ordinary course of business.
Legal proceedings and regulations
The Group operates in the re/insurance industry and is subject to legal proceedings in the normal course of business. While it is not practicable to estimate or determine the final results of all pending or threatened legal proceedings, management does not believe that such proceedings (including litigation) will have a material effect on its results and financial position.
14 Loss per share
The following reflects the loss and share data used in the basic and diluted loss per share computations:
$'000
Loss for the period attributable to equity shareholders of CHL
(4,617)
Number
Basic & diluted weighted average number of shares
165,239,997
Basic & diluted loss per share
$ (0.03)
Equity based compensation awards are only treated as dilutive when their conversion to common shares would decrease earnings per share or increase loss per share from continuing operations. Unvested restricted shares without performance criteria are therefore included in the number of potentially dilutive shares. Incremental shares from ordinary restricted share options where relevant performance criteria have not been met are not included in the calculation of dilutive shares.
15 Related party disclosures
The consolidated financial statements include CHL and the entities listed below:
Subsidiary undertakings
Domicile
Principal business
CHL
Bermuda
Holding company, Ultimate parent
CRL
Bermuda
General insurance business
CRSL
England & Wales
Support services
CML¹
Bermuda
Support services
CSL
Bermuda
Support services
Unless otherwise stated, the Group owns 100% of the share capital and voting rights in its subsidiaries listed. ¹CML is part-owned by members of management. Management's share ownership in CML exists solely for the purposes of the Group's management share incentive scheme for attracting and retaining talent. Management's shares in CML have no voting power or control in respect of CHL's ownership of CRL via CML's ownership of CRL.
Key management compensation
Remuneration for key management, the Group's Executive and Non-Executive Directors, was as follows:
$'000
Cash compensation
1,115
Directors fees and expenses
188
Total
1,303
Non-Executive Directors do not receive any benefits in addition to their agreed fees and expenses and do not participate in any of the Group's incentive, performance or pension plans.
16 Subsequent events
For the period ending 31 December 2020, the Group was not engaged in any active business. Underwriting commenced on 1 January 2021.
GLOSSARY
The following definitions apply throughout the financial statements unless the context otherwise requires:
Admission
The admission of CHL's ordinary shares (i) to the standard listing segment of the Official List of the UK Financial Conduct Authority and (ii) to trading on the London Stock Exchange's main market for listed securities
AFS
Available for sale
BMA
Bermuda Monetary Authority
Board of Directors; Board
Unless otherwise stated refers to the CHL Board of Directors
Book Value
Generally calculated as the total assets of a company, minus any intangible assets such as goodwill, patents, and trademarks, less all liabilities and the par value of preferred stock
Book value per share (BVS)
Calculated by dividing the value of the total shareholders' equity by the sum of all common voting shares outstanding
BSCR
Bermuda Solvency Capital Requirement
CHL
Conduit Holdings Limited
CML
Conduit MIP Limited
CRL
Conduit Reinsurance Limited
CRSL
Conduit Reinsurance Services Limited (the new name for Conduit Marketing Limited - change currently in progress).
CSL
Conduit Services Limited
ECR
Enhanced capital requirement. Under the BSCR Model, the reinsurer's minimum required statutory capital and surplus is referred to as the enhanced capital requirement ("ECR"). The ECR is the greater of the calculated BSCR and the minimum solvency margin ("MSM").
Earnings (loss) per share (EPS)
Calculated by dividing net profit (loss) for the year attributable to shareholders by the weighted average number of common shares outstanding during the year, excluding treasury shares
European Union or EU
The European Union is made up of 27 Member States: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
FVTPL
Fair value through profit or loss
The Group
CHL and its subsidiaries
IFRS
International Financial Reporting Standard(s)
International Accounting Standard(s) (IAS)
Standards created by the IASB for the preparation and presentation of financial statements
International Accounting Standards Board (IASB)
An international panel of accounting experts responsible for developing IAS and IFRS
Invested Equity
The aggregate of initial equity invested in CHL on Admission and equity invested pursuant to any future equity raises by CHL, with the US dollar value of Invested Equity for the USD MIP Shares being calculated at the spot rate at the time the relevant proceeds of the equity raise were received by CHL.
IPO
Initial public offering
IRR
Internal rate of return
MIP
Management incentive plan
Minimum solvency margin or MSM
The minimum excess unimpaired surplus as a percent of outstanding loss reserve as set by regulators
UK
United Kingdom
US
United States of America
US GAAP
Accounting principles generally accepted in the United States
Notes to Editors
Contacts
Media: David Haggie, Caroline Klein, Haggie Partners
+44 (0) 207 562 4444
Other: info@conduitreinsurance.com
About Sir Nicholas Soames
Sir Nicholas Soames was a Member of the UK Parliament for 35 years. He served as a junior Minister at the Ministry of Agriculture, Fisheries and Food and from 1994-1997 he was Minister of State for the Armed Forces. Between November 2003 and May 2005 Sir Nicholas served in the Shadow Cabinet as Shadow Secretary of State for Defence. Sir Nicholas has specialist knowledge in the fields of defence, Europe, international affairs, trade and industry, aviation and the countryside.
Sir Nicholas was made a Privy Counsellor in July, 2011 and knighted in May, 2014.
About Conduit Re
•
A.M. Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of "a-" to Conduit Reinsurance Limited. The outlook assigned to these Credit Ratings (ratings) is stable.
Learn more:
Web: https://conduitreinsurance.com/
LinkedIn: https://www.linkedin.com/company/conduit-re
Twitter: https://twitter.com/Conduit_Re
Important Information
This announcement may include 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", "projects", "anticipates", "expects", "intends", "estimates", "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, future events or intentions. Forward-looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; and (ii) business and management strategies and the expansion and growth of the Group's operations. Forward looking statements may and often do differ materially from actual results. Any forward-looking statements reflect Conduit Holdings' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial position, liquidity, prospects, growth and strategies. 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 Holdings 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.
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