Conduit Holdings Limited

We'll do a short management presentation followed by questions and answers. As we've done before, if you can use the raise hand function under reactions on the Zoom to sort of get in the queue for asking questions, then we'll go through hopefully in a very orderly way. And with that, perhaps Neil, I could hand over to you.

Yeah. So if we can have the first slide. You know who we are. Right. So, yes, it's been another busy quarter. And I suppose the main theme is delivering on what we said. And I think that's hopefully the takeaway from today. Our ultimate written premiums in the first half of £333 million, which is bang on plan, gross written £210 million. In this quarter, we've... deployed and invested the funds we raised at the IPO operating platform and team continue to build on track all key roles now filled and we are announcing as we said in the IPO well the IPO we said we pay a dividend of between five and six percent this And we said we'd pay it 50-50. So this dividend implies about a 5.5% annual yield. So basically, we're smack in the middle of the range that we said. And with that, I'll pass over to Elaine.

Thanks, Neil. All right. We've got some headline numbers here. As you've just heard, we have ultimate written premiums to the half year of $333.1 million, which is broadly in line with our IPO plan, albeit with awaiting more towards quota share contracts. That waiting, as we've talked about previously, delays both the lag in gap written and in gap earned and it also increases our acquisition costs. And you can see that impact in the lag into gross written premiums of $210.3 million and also the net earned of $47.7 million. Although that net earned obviously also net of our own reinsurance. Loss ratio for the half year was 70%. Not much happening in the second quarter in terms of loss activity, relatively benign. We did maintain our yearly reserve of $6 million net reinstatement premiums from the first quarter. And we'll continue to monitor that over the next few quarters as well. And net loss ratio excluding URI was 57.2%. So the combined ratio of 127.2% is really a reflection of the maturity of the earnings base of the company at this stage. And given that proportion of quota share that we've been talking about. I'm very happy though with the quality of future earnings that we are locking in. So overall comprehensive loss for the half year of $12.4 million, a negative RLE of 1.2%. And as Neil said, we're declaring our first interim dividend of 18 cents. Next slide, I think just a summary on that for you to take away, nothing else to highlight on that one. So I'll hand over to Trevor to talk about underwriting.

OK, thanks Elaine. Yes, you say 333 million for the half year to date and the split there broadly 7030 QS versus Excel. That compares to the plan of 4753, but time and again in many of the classes that we've been receiving submissions on, we've seen the attractiveness of being involved in the ground up business. more often than not when compared to pure excessive loss play. That does vary across the classes, but in the main, the primary markets, I think as you've probably seen in some of the industry press surveys, is where the ground up rate has been moving. So we're really comfortable with our approach to broaden the portfolio and get that diversity from day one by sharing in that ground up rate increase and getting a greater share of the original premium. The split of business geographically, obviously, predominated by North America, and that's particularly through the property and the chemistry lines. The relatively small figures shown here for Europe and Japan, that's not the sum total of it, because some of that business does sit also within the worldwide portfolio, 34%. So there is some European, Japan, and other business within there. I'll talk a little bit more about Japan in a moment. And overall, we maintained our hit rate, as we call it, of around about one in four risks seen make it through to bound. That's a very healthy position to be in. We've set our stall out to be able to access a broad suite of business, a great support from the brokers and the clients. And we've bound just around 160 contracts to date. So very happy with that breadth of portfolio. Next slide. So a couple of slides here around pricing. We have continued to show these two indices from our initial iteration. Marsh Global P&C insurance pricing change top left. It's just been updated in the last couple of days. The rate of increase is slowing. I think you can summarise that. We're seeing that generally in our own portfolios when we compare with Clients books of business in now versus say 12 months ago, but still very healthy 15% in the quarter to date. So still an increase. And obviously, us coming on board with these contracts now and be able to write these new on the back of those previous rate increases, you can see there's been a real spur to our technical pricing. GC cat index on the right is actually an annual annually updated index and we'll just continue to monitor that. Just a comment from Willis Free at the bottom where they've generally maintained a bullish stance across, as they call it, most major lines and territories. Next slide. So our own in-house price monitoring here, monitoring rate change year to date on the far right is the compound Q1 and Q2. And those are percentage increases within property, casualty and specialty blended out to give an overall total year to date change of plus 15. And then you can compare that with the individual iterations between Q1 and Q2. I'm really happy with that and it's a great position to be in for us again to be able to, as we say, see a wide portfolio of business right around about one in four and then to derive that rate change out of that business that we've found is a great position for us to be in. Small rider there, there was one change to one of the calculations in a specialty class of business in Q1 and that's an annotation. It was plus eight, it's gone to plus 12 in Q1. But overall, really pleased with that and still a positive market. Next slide. Yeah, so just some headline comments around the, you know, the renewal dates we see and know of in the industry. 1-4 is known as predominantly a Far East renewal season. For us, it was a great opportunity for the underwriters here to reconnect, shall we say, with a long list of clients that they've dealt with previously. And we were able to establish positions on a broad set of contracts. So really pleased with that. We're relatively small position in Japan in our first year. That really stems out of not wanting to over-imbalance to girls such as Japanese Quake in the early part of our iteration, but really pleased with the client support we've had there. 1.5, I think we said before, we had a strong pipeline of business through on particularly US casualty. Very good acceptance from clients there on security panels. Don't think we could have asked for anything more there. It's been very, very good. And there was a strong flow of business through on the casualty classes. One six is the, you know, known as the wind season, wind renewal season in North America. It's not just about Florida, though. The press is often dominated by Florida comment and Texas comments. But for us, it's a broad renewal season that we were able to tap into with a Significant number of regional contracts, so geographically constrained within the states, but putting together a diversified portfolio within different parts of the US. And then on 1-7, again, yes, some US business still late renewing, which is interesting. But just a reminder that, you know, we do more than just property in the mid years and casualty and specialty was a strong run rate with business flying through on both those other classes. Okay, next slide. Just some comments around market loss events that you will have known and heard of. Elaine has already commented on Wintersturm Storm Erie, which we've maintained our current estimate of $6 million net. And as she says, we'll be reviewing that during the quarter. Very comfortable with the figure we've got around that currently. ever given an express perla to marine casualties during the the first half year ever given us that well-known Suez event which we have maintained our reserve on but generally seems to be probably some better news coming through in the industry as regards insurance involvement in that ever given loss We'll keep that under review. An express spill is just an early heads up, I suppose, for the market generally. It was a loss that involved a chemical spill in Sri Lankan waters. Again, we wouldn't call these material exposures, but they are events which have occurred in the quarter, so worthy of comment. Also, as the storm loss up the east coast of the States, minimal insured loss, relatively speaking. So, again, we don't expect any exposure on that. And I guess the larger one in the industry is European floods. Talk of that being circa a $10 billion economic event, potentially up to $5 billion. as an insured event, we don't have a major position in that European market currently. So we will have some involvement, but we don't believe that will be a meaningful event for our overall portfolio. Next slide. Over to Elaine.

And so, as Neil said, we funded our investment portfolio during the quarter and, as we noticed last quarter, there's not really any change in terms of our strategy or our approach to our investments since the IPO document. So we will be maintaining high quality, highly liquid portfolio and what we have here for you is a few more stats on it. So average duration of 2.4 years. which is possibly a little bit light for the positioning at the moment. And we might increase that a little bit, but not significantly. Average AA credit rating. And you can see the pie chart there, the allocation across the asset classes, decent slug of corporate bonds and treasuries, still a fair proportion of cash left there, but fairly happy with how the portfolio is coming together. And I think no surprises for anybody in there. Next slide, Tristan. So operationally, we spoke last quarter about the work that we had ongoing on systems and building out there. That's been ongoing this quarter, a lot of progress made. And we've gone live in quite a lot of our systems ahead of the half year. We've still got some more work to do in the second half and we'll continue building them out, but really pleased with the progress there. And we're now up to 35 people. So along with all that hard work on the systems that everyone's doing, it's nice to have those extra hands on board to help us out now. Nothing else particularly to highlight there. So Neil, I'll hand back to you.

Right. Yeah, there is one point on the previous slide that I'd like to discuss, and that is the culture. I think for people that join a startup, it can be a career-defining moment, you know, if one looks back on the previous Bermudan startups. And there is a strong culture developing I really enjoy my trips to Bermuda and seeing the office and meeting the staff and the team has developed really well. And although they wouldn't say it themselves, it's great credit to Trevor and Stuart Quinlan and Elaine. So I just wanted to comment on that because they probably wouldn't say it themselves. So on to the next slide. So just summarising really, underwriting plans are on track, almost precisely on track, with the one exception being the higher quota share, which we've discussed frequently in the past. Pricing remains strong in all the classes, investment portfolio deployed, operating platform is built out. And that has happened much more quickly than I've seen in previous startups. And particularly one of the benefits on the systems is not having to deal with legacy systems and data transfer. Strong team. and the dividend that we promised now with the record date of the 20th of August. So with that, I think we're ready to hand over for questions, Q&A. So if we could follow the procedure that Tristan laid out at the beginning of the chat and use your hands and we will do our best to give you full answers.

Barry. I think Barry was first.

Okay, thank you very much. I have three questions, if I may. The first one, I just wondered if there's any difference in terms of brokerage or lead office fee between quota share reinsurance and excessive loss. Obviously you swung more one way than we thought. So just interested in that. The second question I had was, If there's any reason that you're aware of why the Marsh Global Index has a slowdown in the rate of increase in rates between Q2 and Q1, whereas yours is the other way around. You have accelerating in Q2 and maybe one for Neil. You say it's very much on plan from the time of the IPO. I just wonder if there's anything that surprised you, which I guess was probably on the positive side, but what's been a surprise to you, if you like, in the first six months?

Okay, I'll take that one first and then I'll hand over to Trevor to get into the technicalities of commissions and brokerage on quota share. The biggest surprise is that I haven't had any nasty surprises. So that is one thing. It is not often that you get involved with putting a business together where... where things really do happen almost as you planned the nicest surprise is the reception that we've received from the marketplace um we really have been in that there are certain very key intermediaries and and it's fairly obvious guy carpenter aeon gallagher um Willis to name the biggest and the reception has been really good. And with those brokers, we are, my perception is that we are in their tier one markets. So, you know, I'm just delighted with that. Trevor, I'll hand over to you to discuss the other questions about the commissions and the rate acceleration.

Okay, thanks Barry. On the brokerage, as you say, between QuotaShare and Excel, broadly speaking on the brokerage side of things, commissions on QuotaShares payable to the brokers can be a very low single-digit. So one and a half to two and a half percent is probably a normal industry figure. Whereas an excessive loss, again, a fairly industry standard, anywhere between 10% and 15% could be a brokerage part of the acquisition cost. The seeding commissions vary significantly around quota shares, depending on whether the premium is... establishes a net premium or gross premium. So without getting too much technicality there, there's a fair degree of swing around within the contracts that we see. A seating commission can be a single-digit figure on net premium or a higher figure in the high 20s, say, on gross premium, where we share in the original acquisition. So it's very much a large, a significant moving feast there between different types of contracts. On the Marsh Global Index, it's probably sample size. I mean, Marsh is obviously a massive portfolio of P&C business. So it's a trend through. For us, we did see that in some of our contracts that we were offered. But we are writing approximately one in four. So there's a lot that we see where rate has fallen away. And we probably just in the round tended towards more support on those that are still showing positive rate. So it's probably down to sample size, I would say.

Great. Thank you very much. Thank you. Amin.

Hi, thank you for taking my call. Just two questions, please. First is, could you just give some color in terms of the competition and any new capital into the areas that you are writing? And my second question is really, could you give some color in terms of your view on the sustainability of this writing environment you're currently having? And should we expect more quota share? at the coming 1.1 and the remaining of this year. Thank you.

So, Trevor, shall I take the first thing about capital? My perception is that we have got an orderly and well-disciplined market. And in previous hard markets I've seen, it's been about a capacity crunch. Brokers are able to complete slip placements on most business. And we haven't really come up against other aggressive new entrants. Quite a lot of the capital raised has been in different areas. to us, so Catlin was a large raise, but they're much more focused on large direct portfolios, Vanguard. But I think it's fair to say that we've found the market to be orderly. Trevor, perhaps you can take the other question.

Yeah, sure. Yeah, thanks, Ming. Yeah, in terms of sustainability, I mean, one of the pointers is always also around terms and conditions, which we don't really talk a great deal in the industry. You know, everybody seems to focus on rate because it's a visible metric. But terms and conditions is one of the early signs when they start to weaken. It's a sign that rate is probably going to start to follow. And in the vast majority of classes that we're seeing, there's still quite some resolve around terms and conditions still. So we don't see any wholesale signs of weakening, certainly in terms of rate. We'll monitor terms and conditions. And as long as they are still holding firm in the main, that's a pretty good barometer of where rate is too. So at the moment, I think there's good resolve within the industry and certainly within the reinsurance industry that we see.

Okay, Ming, your other question was about the quota share, next one one. I mean, I would expect to see our portfolio trend towards the original plan and more excessive loss to come on board in the medium term. And Trevor, perhaps you can elaborate on that.

Yeah, sure. Yeah. Just a word on that. You know, quota share for us has been a great opportunity in the way that the original rate has flowed through. When we've compared and contrasted offerings from clients on a quota share ground up or excessive loss basis. we have in a number of cases been offered the choice of either option. And when you look at it and the way that ability to get access to that business now and diversify the portfolio right from the get-go, that's been a really attractive proposition for us. So it's enabled us to dial out some of the volatility that would be there with a predominant excess of loss portfolio. But as we go now and we start to build that base and we've got that earned premium base, we can start to switch that and take on board some of that excessive loss. So as Neil says, it will start to trend back more towards the planned numbers as we get into particularly half year, next year, first two quarters.

Thank you. Just a follow up on that. So are you seeing better rates, terms, conditions in reinsurance? And how about the retros you buy? Are you taking advantages of that gap in between?

Yes, so probably just a final comment on this. Yes, we're seeing very good rate on the ground at primary, and we get a greater share of that, a greater share on the excessive loss that we buy. We buy a programme on an excessive loss basis around the entire portfolio, which helps us dial out the volatility. And I think our reinsurers on that would agree that we get a fair deal on it, should we say.

Thank you.

So Philip, I think you're next. Barry, I think if you put your hand down, then I won't think you're asking another question, if that's okay. You just press the button again. Hi.

Yeah, it's Philip from Jefferies. I've got a couple of questions, please. So the first up, obviously, there's been a lot of discussion about the earnings pattern of quota share versus excessive loss. I was wondering if you could maybe give us an indication of how long you think it'll take for the the ultimate premiums that you've quoted in the release today to earn through the business. Are there many multi-year contracts in there? Is it a 12 month from the date it's written or any color around that would be helpful. And the second question kind of tangentially related to that is on your DAC policies. Are the deferred acquisition costs being recognized in the same pattern as quota shares or is there any difference in that? Because I was thinking that the acquisition costs look quite high and the down quotes perhaps slightly less than I was expecting.

Okay Philip, I think they're all for me. So in terms of the way that the quota share is right, the vast majority of what we've got underlying there are 12 month policies. Certainly currently there's not a great deal of construction or anything like that in there, so we write them over 12 months and then earn them accordingly. And everything that's bound this year will write fully through by the end of next year. I expect the vast majority of the earnings to be through by the half year, I would say, you know, in the region of kind of 80% or so. That's obviously subject to what actually comes through reported and how we change the underlying versus the estimates that we're using just now. But that's the kind of rough expectation. And the DAC, the acquisition costs, same treatment. So at the moment, obviously, we're only a couple of quarters in. we're working off of premium estimates and the underlying deductions that we're expecting there. As we see reported coming through, we'll start turning to book off of the actual underlyings and that might just adjust that a little bit, but it'll earn on what we expect the underlying pattern to be.

If I could come back for just another question as well. Obviously you're now giving some figures around the investment portfolio, which is now deployed. I was wondering if you could give us an indication of what the costs are, because you do quote that the book yield is 80 bps. I was wondering how much should we pencil in for the investment expenses?

I'm pretty sure you asked me that question last quarter as well, Philip, and I declined to answer then, so I'll decline to answer now as well. I think your estimate is reasonable, though.

Thanks very much.

Sorry, thank you, Philip. Ben? Thanks very much. Good afternoon, everyone. Good morning. I just had two questions. Could you just remind us what are the major markets that are left to renew this year? Maybe give us some sense in terms of the mix of the business by type and by geography that you would expect to write in the next five months. And the second question was, given the shift in the exposure towards quota share, Is there any material change in the sort of catastrophe exposures that you're running versus what was in your in your IPO plan? Thank you. Yeah.

Thanks, Ben. On the, if you like, the pipeline, as we call it, between now and year end, we have an expected significant pipeline still coming through on casualty. It's a function of that market, particularly out of the US, that tends to renew through, at least on our scorecard, more sort of month by month rather than on um hot spots of one four one seven one then and there's specialty there's uh an element of that coming through which we know towards the end of q3 um property um is a reasonably full sort of flow that comes through it's obviously a much larger market and we're still receiving submissions there and inquiries and projects that we're working on out for carriers, particularly in the US. So it is a varied portfolio, but it ticks through sort of month by month, as opposed to just on some of these sort of industry significant year-end dates.

And Trevor, there's the 1-7 attachments, obviously, which... Yeah, yeah, yeah.

Sorry, Ben, and your second question? Sorry, it was about whether the catastrophe exposure had changed materially because of the shift towards QuestShare.

Okay, yeah, thanks. No, absolutely not. What we were able to do in putting the credit share on the books alongside the excessive loss is build like a proxy portfolio. So when we have built that in line in conjunction with buying our output through insurance, we established a proxy build up through the four quarters. And that's pretty much ended up bang on targets we've got now through into the start of Q3. And we've got a forecast which takes us through into year end. As I say, the premium flow is still to come through. There's an element of casualty and speciality in there as well, which tends not to generate such a large embedded cat number. Thank you very much. Thanks.

Thanks, Ben. Philip and Barry, I don't think you're asking another question, but if you are... I actually was going to ask another question, actually.

On the geographic mix, it looks like you're much more overweight in North America than you originally planned. I was wondering how much of the the worldwide segment is also US because I'm just trying to gauge how much of the portfolio is exposed to the US relative to the rest of the world.

OK, thanks Philip. Generally, not so much. If we have a client that has got a worldwide portfolio that is predominated by US, we would tend to code that as US on that slide that you've got there. And when it comes to tracking and monitoring catastrophe exposures, We do that in a very granular level within each contract. But for the purpose of that slide, if a client is predominant US, then it will appear in the US geography.

Just as a follow-up on that geographic mix question, where would you put the UK? Because I think originally the UK was shown as part of the Europe segment, and now it looks like it might be in the worldwide.

Yeah, I think, Tristan, correct me on that, but I think at the moment it falls within the worldwide.

Yeah, so originally in that section was Lloyd's. So obviously Lloyd's is where the contracts are written, the decedent is. But this is based on where the risk is. So that splits between US and worldwide and other countries.

Okay, and do you plan on lifting the proportion of business that's written in Europe anytime soon or is that proven to be far less attractive than you expected?

No, we continue to look at that. I think as we just run into another year of talking to clients, talking to brokers, being present in the space, we'll start to see more of that. And also probably just in the way that we show that business there, we can start to extract out of the worldwide some of the European business as well.

Okay, so I was just trying to work out, did you choose not to write Europe or is it a case of you've just been shown more business in North America than in Europe?

At the moment, largely around some of the pricing, particularly on the property side, we chose to avoid that in Europe. We did see a number of very regional contracts through Europe, which on the face of it is attractive in that it offers diversification, but some of the pricing just didn't get past our hurdle.

Thanks very much. So Barry, did you have another question or are you? No, I'm good, thank you. Okay. So anybody for further questions? So if there are questions that spring to mind after the call, please don't hesitate to get in touch. We'll do our best to help to answer those. And I think that just leaves us to say, oh, did you have another question, Philip? Sorry.

I feel like I'm watching it. Going, going. Apologies. I do have one more. You've given some discussion around the 1.7 renewals in the presentation. But obviously you haven't been able to give us a figure because it falls outside of the period. Can you give us any colour on what the July renewals look like for Conduit? Any material change in momentum maybe from the second quarter?

Probably in line with, I would say. I did comment earlier that there was some late buying from some of the clients that came to the US on some of the 1.7s. And that's generally been good news for us in the way that that's flowed through. And then there was casualty contracts, which were, again, you referred to earlier, was in our pipeline, and then we renewed through on those. So I'd say broadly in line with... the activity and the level of rating that we saw in half year one.

Thanks very much. I'll look forward to seeing the number at Q3.

Thanks Philip. So thank you very much, everybody, for joining. As I said, this recording will go up on the website as soon as possible after this meeting. Obviously, the statements and the announcement this morning are up on the website too. And thank you very much, everybody, for your time.