Last checked at 9 Nov 2022 07:00
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 $m | 2021 $m | Year on year change % |
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 $m | % of total | 2021 $m | % of total | Year on year change % |
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 $m | % of total | 2021 $m | % of total | Year on year change % |
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
To access the live conference call, please register to receive unique dial-in details here: 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 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/
LinkedIn: https://www.linkedin.com/company/conduit-re
Twitter: 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.