REG - Conduit Holdings Ltd - Third Quarter 2022 Trading Update

Conduit HoldingsAnnouncement

09/11/2022 07:00

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RNS Number : 7546F  Conduit Holdings Limited  09 November 2022

 

Pembroke, Bermuda - 9 November 2022

 

Conduit Holdings Limited

("Conduit Re")

Third Quarter 2022 Trading Update

Strong premium income growth; positive future earnings benefits from embedded
Quota Share premium pipeline; balance sheet strength and underwriting focus
put Conduit Re in an excellent position to take advantage of exceptional
market conditions

 

Conduit Re, a pure-play global reinsurance business based in Bermuda, is today
presenting its trading update for the nine months ended 30 September 2022.

Key highlights:

•   Successful build out of market-leading reinsurance platform

•    $600.9 million of estimated ultimate gross premiums written for the
nine months ended 30 September 2022, a 55% increase on the nine months ended
30 September 2021

•    Underlying business trending towards a mid-80's combined ratio in
the medium term

•    Strong, legacy-free balance sheet; AM Best A- (Excellent) rating;
well placed to write additional business into highly attractive market
conditions

•   High quality book of business with embedded pipeline of premium income
and strengthening renewal experience

•    $1.1 billion of estimated ultimate premiums written since launch in
December 2020

•    Year-to-date overall renewal price change of 4%, net of estimated
claims inflation

•    High-quality quota share business contracted since December 2020
provides an embedded pipeline of premium which is flowing through to income

•   Exceptionally attractive market conditions exhibiting accelerating
improvement in risk-adjusted rate and terms and conditions

•    Shortage of reinsurance capacity and increasing demand for
reinsurance protection combine to make this a very exciting market for
reinsurers

•    Underlying inflation dynamic is generating increasing demand for
reinsurance as asset values increase whilst the supply of reinsurance has been
constrained by withdrawal of capital and capital depletion across the industry

•    The 1 January renewal season remains a primary indication point for
pricing in the reinsurance market and all signals currently point to a
significant acceleration in risk-adjusted rate improvements in an already
hardening market

•    Conduit Re's strategy, the team's market reputation and Conduit Re's
strong and legacy-free balance sheet put it in an excellent position to take
advantage of these highly attractive market conditions

•   Q3 Trading

•    Estimated ultimate premiums written up 55% on the nine months ended
30 September 2021, to $600.9 million; gross premiums written up 81% to $528.1
million for the same period

•    In a high catastrophe loss year for the industry, Conduit Re's
focused risk selection restricted the impact from major loss events; current
estimated loss, net of reinsurance and reinstatement premiums, of
approximately $40 million from Hurricane Ian and $24.6 million (unchanged)
from the Ukraine crisis

•    High-quality (AA average credit) investment portfolio with short
average duration of 2.3 years; unrealised investment losses driven by rising
rates are expected to unwind as the securities mature; opportunity to reinvest
at attractive yields

 

Neil Eckert, Conduit Re Executive Chairman, commented:

"As we move towards the industry-important 1 January renewals, the existing
capacity shortage in the reinsurance sector is turning into a capacity crunch.

Hurricane Ian and a deteriorating macro-economic situation have further
impacted balance sheets and risk appetite on both sides of supply and demand
for reinsurance. I believe this hardening environment is the best the industry
has seen in decades."

 

Trevor Carvey, Conduit Re Chief Executive Officer, commented:

"The creation and development of Conduit Re has been perfectly timed. In the
past two years, we have built a lean and efficient reinsurance business, with
an excellent underwriting team that is ideally positioned to take full
advantage of current market conditions. The growth we have shown in our
premium income, together with the high-quality book of business we have
assembled, which will continue to earn through to our income statement in
future periods, gives us great confidence for the rest of this year and
beyond."

Premiums written for the nine months ended 30 September:

                                      2022   2021   Year on year change %

                                      $m     $m
 Estimated ultimate premiums written  600.9  387.7  55.0%
 Gross premiums written               528.1  291.2  81.4%

 

Business update

During the first nine months of 2022, Conduit Re continued to show growth
across all segments thanks to improving rates and, primarily, to new business.
Client count and submission numbers have increased in line with Conduit Re's
growth strategy. Rate change continues to be positive, outpacing inflation.

Underwriting activities

Our estimated ultimate premiums written for the nine months ended 30 September
2022 and 30 September 2021 were as follows:

 Segment    2022   % of total  2021   % of total  Year on year change %

            $m                 $m
 Property   292.8  48.7%       193.5  49.9%       51.3%
 Casualty   200.8  33.4%       126.8  32.7%       58.4%
 Specialty  107.3  17.9%       67.4   17.4%       59.2%
 Total      600.9  100.0%      387.7  100.0%      55.0%

Our gross premiums written for the nine months ended 30 September 2022 and 30
September 2021 were as follows:

 Segment    2022   % of total  2021   % of total  Year on year change %

            $m                 $m
 Property   262.3  49.7%       162.9  55.9%       61.0%
 Casualty   181.1  34.3%       77.2   26.5%       134.6%
 Specialty  84.7   16.0%       51.1   17.6%       65.8%
 Total      528.1  100.0%      291.2  100.0%      81.4%

The split of our estimated ultimate premiums written between quota share and
excess of loss for the nine months ended 30 September 2022 and 30 September
2021 remains broadly unchanged, at approximately 70%-30% respectively, with
the quota share portion of gross premiums written being 68% and 63%
respectively.

Pricing

Both pricing and terms and conditions continue to improve in most of the
markets we are targeting, particularly at the primary level, hence our focus
remains towards ground-up quota share business.

Conduit Re's overall indicative renewal price changes by class of business,
net of claims inflation, in the year-to-date were estimated to be:

 Property  Casualty  Specialty
 +7%       +1%       +2%

Losses

Hurricane Ian made landfall in the US state of Florida as a strong category 4
hurricane on 28 September 2022. It continued its path north-east across
Florida before making a second landfall in South Carolina. Based on current
information, our ultimate loss estimate, net of reinsurance recoveries and
reinstatement premiums, for this event is approximately $40 million. While
reserves have been recorded for this recent event, significant uncertainty
exists in relation to the ultimate losses.

As regards the ongoing crisis in Ukraine resulting from the Russian invasion
on 24 February 2022, Conduit Re has potential exposure across its property and
specialty reinsurance books, via classes such as aviation, war on land and
marine war. There is significant uncertainty in estimating losses emanating
from the conflict, not least as it is an ongoing event. Based on current
information, Conduit Re's estimated ultimate losses, net of reinsurance
recoveries and reinstatement premiums, in relation to the conflict are
unchanged at $24.6 million.

Our loss and reserve estimates have been derived from a combination of market
data and assumptions, modelled loss projections and reports from brokers and
cedants. We will continue to keep these estimates under review as more
detailed information becomes available.

Our ultimate loss estimates, net of reinsurance and reinstatement premiums,
for the previously reported 2021 loss events remain relatively stable.

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.

The Federal Reserve has raised rates six times thus far in 2022, and has
indicated further increases before year-end. As a result, the portfolio return
is negative 6.2%, mostly due to unrealised losses, for the nine months ended
30 September 2022. While we expect market volatility to remain elevated in the
near term, Conduit Re expects to be able to reinvest at higher rates as the
existing portfolio rolls over.

The managed portfolio is as follows:

                            30 September 2022
 Fixed maturity securities  90.5%
 Cash and cash equivalents  9.5%

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

                 30 September 2022
 Duration        2.3 years
 Credit Quality  AA
 Book yield      1.8%
 Market yield    4.8%

Conduit Re does not have any direct exposure to Russian or Ukrainian assets in
its investment portfolio.

Capital and dividends

Strong capital position with total capital and tangible capital available to
Conduit Re at 30 September 2022 of $0.8 billion.

During the third quarter of 2022, Conduit Re's Board of Directors declared an
interim dividend of $0.18 (approximately £0.15) per common share (in respect
of the first half of 2022) which was paid in pounds sterling on 9 September
2022 to shareholders of record on 19 August 2022, resulting in an aggregate
payment of $29.6 million.

Details of Webcast and Conference Call

Conduit Re's management team will host a live presentation for investors and
analysts, including a question and answer session, via a live webcast and
conference call on 9 November 2022 at 12pm (midday) UK time / 8am Atlantic
time.

To access the live webcast, please register in advance here:
https://www.lsegissuerservices.com/spark/ConduitHoldingsLtd/events/73973512-6a2a-40de-a2e1-722a409c425f
(https://www.lsegissuerservices.com/spark/ConduitHoldingsLtd/events/73973512-6a2a-40de-a2e1-722a409c425f)

To access the live conference call, please register to receive unique dial-in
details here: https://cossprereg.btci.com/prereg/key.process?key=PTHJ9QKYR
(https://cossprereg.btci.com/prereg/key.process?key=PTHJ9QKYR)

A recording of the presentation together with the presentation slides will be
made available on the Investors section of Conduit Re's website at
www.conduitreinsurance.com (http://www.conduitreinsurance.com) from
approximately 4:00 p.m. BST on 9 November 2022.

-END-

 

Media contacts

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

+44 (0) 207 379 5151

conduitre@h-advisors.global

 

Investor relations and other enquiries:

info@conduitreinsurance.com

 

About Conduit Re

Conduit Re is a pure play global reinsurance business based in Bermuda.
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).

Learn more about Conduit Re:

Website: https://conduitreinsurance.com/ (https://conduitreinsurance.com/)

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

Twitter: https://twitter.com/Conduit_Re (https://twitter.com/Conduit_Re)

 

Market abuse regulation: This announcement contains inside information for the
purposes of Article 7 of Regulation (EU) No 596/2014 as it forms part of UK
domestic law by virtue of the European Union (Withdrawal) Act 2018.

Important Information

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, future events or intentions. Forward-looking statements
include statements relating to the following: (i) future capital expenditures,
expenses, revenues, 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 Re's operations.

Forward-looking statements may and often do differ materially from actual
results. Forward-looking statements reflect Conduit Re'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 Re'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 Re'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, and the European
storms and floods in 2021; 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 Re's
risk management and loss limitation methods, including to manage volatility;
the recovery of losses and reinstatement premums from our own reinsurance
providers; the development of Conduit Re's technology platforms; a decline in
Conduit Re's ratings with A.M. Best or other rating agencies; the impact that
Conduit Re's future operating results, capital position and ratings may have
on the execution of Conduit Re's business plan, capital management initiatives
or dividends; Conduit Re'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 Re'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 Re's
key management and the potential loss of key personnel; the credit environment
for issuers of fixed maturity investments in Conduit Re'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 Re operates; Conduit Re
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 Re conducts business. Forward-looking statements contained in
this trading update may be impacted by the escalation or expansion of the
Ukraine conflict on Conduit Re'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 Re 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 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 Re 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 Re'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 Re 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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