Conduit Holdings Limited

is logged on. Welcome to the Conduit Holdings Trading Update. We'll be talking about the 1st of January renewals. Just as a point of order, we'll be recording the call and we'll be putting up on the website with the slides later on today. We are here to talk about the one January renewals and we'll be updating on our quarter four 21 and full year 21 on the 24th of February. And so hopefully we can just keep the discussion to our experience in the first of January renewals for today. Just to introduce the team, I'm sure most people know Neil Eckert, our executive chairman, Trevor Carvey, chief executive officer and chief underwriting officer. We also have a special guest star, Greg Roberts, who's head of our property team. We'll be talking about some of the insights that we've had during the renewal season. So, Neil, it's all over to you.

Yeah. So, first of all, we've had a really good renewal season. Market conditions were, I think, ahead of where we had expected them to be. And looking at the background, 2021 was the year, fourth highest cat loss year in history, between 110 and 120 billion of claims. And notably there are more than 500 billion of cat losses over the last five years. So we launched the company into what was a technically repricing market on the back with some pretty serious losses from 2017 to 2020. Last year, there was ILS capacity and retrocession was, available, we responded to that by writing more quota share. This year, we have seen a significant withdrawal of our less capacity through funds being trapped or withdrawn. We still see inflation, both in terms of social inflation across casualty lines and economic inflation, which will affect short tail account. So rate rises were needed to reflect that. And the other thing is the recognition of the impact of climate change. in itself. I mean, URI was an unmodeled loss at the beginning of the year, the winter storms in Texas. We then saw in Q4 the quad state tornadoes together with the Marshall Fire in Colorado in December. One doesn't normally expect to see wildfires happening in North America in December. So that creates further momentum for repricing. We've seen a withdrawal of capacity from a number of players in the market, which further strengthened our conviction that our timing is good. Next slide.

Trevor. Okay, thanks. Highlight slide, yeah? It's just not turning over on our screen.

That's Mike. I do apologise.

Mike. No worries, no worries. Yes, so highlights of the renewal season. OK, thanks. Yes, so ultimate brand premiums of 262, that's up 70% on last year's 154. And actually, when we look back, last year was a pretty good effort from the team in establishing that 154 from day one. But the benefits that we got this year was plainly just having a team fully in place. for the renewal season. But also, you know, it's our first renewal season. So that 154 was due to renew. The team here fully formed by the time we got to the end of Q1 have had the year to develop the client contacts the broker relationships etc and get that message across so we knew you'll be seeing a wide funnel of business and that's going to exceed our expectations so that was great for us we talk more about the individual classes in a moment momentum on pricing that's definitely been a feature of this year, the underlying rate has still been moving forward. And I think the expression that's often used is that, you know, it's pricing is staying ahead of loss and claims inflation. And in many cases, that is correct. And we've had some really good results, where the original underlying rate is still moving ahead in some classes like our Casualty book, into high single digit low double digit on the original rate but what we're showing here and in this presentation a part of our metric going forward is that we believe that a true measure of if you like margin improvement is showing that rate to increase net of claims inflation exposes change and to a degree terms and conditions where they improve on or change on risks So for us it's a it's a solid metric is one which will carry through the business and it's one that enables us, I think, to best communicate to investors. And the teams metrics are built around that net margin improvement so we'll talk about that in the slide that's coming up where we we have that for the individual classes. diversified business, as we've said before, 41, 33, 26. That's pretty much where we kind of had it in the plan anyway through the course of year two. But also it's what you'd expect in the renewal season and the market generally. Property is more of a skew towards Jan 1. Obviously, in the US, we have coming up what we call the Atlantic wind season, which comes up end of Q1 into Q2. But property is generally more skewed in terms of the buyers to Jan 1. Casualty, a third of this portfolio now. We said a year ago that we knew our casualty portfolio that we were looking to build which was diversified across many clients and regionally, particularly within the state, renews through the year. So for us, the Casualty Book is an ongoing renewal portfolio. And with that, we expect to just continue to tick through as those renewals come through, plus other new clients are added. Quality share split. You know, it's in the press and you've seen it, and it's still true in our belief and in terms of our own metrics. The underlying primary rate change is really strong. And in the main, it's still moving ahead of excessive loss. There are exceptions to that, obviously, when you get to parts of the US where I'd have hit, parts of Europe where Bernd hit those programmes. Those rates have moved significantly more. And that's great. And we've taken some benefit from that. But there's no doubt in our mind that the Crota share getting access to all of the underlying rate increased dollars is the way that we've built a portfolio here that's effectively reduced the volatility because we're able to apply tied to event caps, but also get the benefit of all of the underlying rate. So for us, it's always been a blend and it will be a blend of the two. But at the moment, we're firmly committed to the belief that the sharing in all of that ground up premium is a better way to us to optimise the portfolio profitability. Hit rate for us, 20%. That's moved in the right direction. It's a lower number than I think the last indicator that we provided, which was 23, 24%. That's simply a reflection of seeing that larger volume of business and continuing to be selective. And it's what we said we would do. We're sticking to that mantra. And providing we still see that business flowing through, we're able to, if you like, sift and super sift within that overall submission flow that we received. The retrocession programme, heavily placed at Jam 1. We will continue to add to that as we go through the year and the portfolio grows, but I found the way the majority of it is placed. At increased pricing, which is a market statement as much as anything else, we budgeted to pay more for that programme and we have done, but we are within budget, which is a great result for us. And we've also added by virtue of some hard work from Greg alongside me and also the brokers in Q4, we've added a number of new participants to that panel. So we've actually built out that panel overall. So I'll move on to the next slide where you've got, if you like, the breakdown of the portfolio in its underlying metrics. As I said, it's pretty much in line with as we'd expect through the general manual season. Property for us. the portfolio has continued to build out very strong renewal book we've added Europe to that in a selective manner I think much of Europe the price through on the back of Europe I think the team here would say was was was generally positive but some of them were disappointment still so rate increases that we saw may well be in the 30 or 40 percent range but when you're coming off of a a base rate that's in the 2% to 3% range, it really still isn't attractive in a number of cases for us. But we've built that out, particularly on the quota share side. by still being able to underwrite with very tight event caps. And Greg can talk about that slightly more in a moment, but in producing that portfolio around the property and building it regionally, putting tight event caps, I use the expression that we've still managed to knock out quite a bit of volatility from that. And that has paid dividends as we've gone through 2021 with our incurred losses that we reported on, IDA and Burn particularly, where we have managed to reduce that impact on the portfolio considerably by skewing the portfolio away from what we would call headline catastrophe excessive loss limits. Casualty, large increase in terms of percentage wise, but it was a relatively low, slower start for us a year ago. Casualty for us is worth pointing out is a, we have a, very large showing that comes through and it runs with our lowest hit rate. So on the portfolio for casualty, it's currently we're running at about sort of one in eight or one in nine submission to hit rate. So I think it just shows our continued sort of selectivity around that portfolio and a recognition that claims inflation and the social inflation factors that we put into our pricing are still very much alive in the way that we view profitability. As I said, you know, double digit rate increase is being reported by a number of our underlying clients. But when you dial into that claims inflation, which can be kind of mid to high single digit, we still find a number of those casualty contracts not meeting our own hurdle rates. But overall, very good effort from the guys there. Specially for us is we still see that as a real complementary set to P&C for us. We have a very limited exposure within the specialty field to CAT classes such as workers comp or specie. You know, we don't play in those classes. And specialty for us is always designed to be a firm adjunct and a complementary factor to the P&C. We see that globally, Lloyd's to some degree, but certainly US and Europe. Far East on specialty is still a very small market and relatively low volumes of that actually come out onto the world stage. The Far East probably is one area where especially it's underrepresented on the global distribution. Hit rate I've spoken about already in terms of the overall split 41, 33, 26 generally that's in line with our plan. Sam Tickle- split that we forecast for year two and then at the bottom there just in I've already commented on the fact that you know we skewed this towards the quota share to purely get at that underlying primary market and get the best Sam Tickle- access to the dollars that are in play there. Sam Tickle- Okay. Sam Tickle- Okay Tristan, I'll have you take more questions on this when we move to the Q&A session. Sam Tickle- Next slide. If you turned over, it's not moving. Okay, great. I think it's probably contract market experience.

So I think a key characteristic of the renewal season was it was very late, somewhat compressed as well over the sort of latter period of mid to late December. Some effects from travel, underwriters and clients less able to travel perhaps, and noting loss activity still occurring in the final quarter, which for reasons of material impact to renewal contracts, for example, spending longer to collect that data, have a better understanding of it was very important. We show here, as previously, some index graphics, Guy Carpenter's global rate of online index and Howden's here. noting here that these are indicators of price and they are less reflective of the underlying risk dynamics, thinking about claims inflation here and exposure metrics. But the key here is that our observation here is the gradient of the slope, the momentum that's created in them. Obviously, they're very visual in that price is moving in the right direction. A couple of characteristics here from the actual placement process of the treaties. There was an observed change in risk appetite and risk profile deployment. Lower attachment point programmes were more difficult to place, particularly aggregate or frequency products. The market was responsive in asking for that risk transfer mechanism to be revisited. And we saw structures move in whole from aggregate to occurrence. Good example, that's Europe. Post-burned were in existence, probably were quite a lot of aggregate products bought by sedants. The market probably did a good job in moving those to occurrence-based products, and they feel very different for the seed and buying, and it requires a different level of exposure control. So we saw that as a great positivity. Whether they're priced adequately still, I would look there to the right direction. We still think there's more work to be done there on pricing. Comment here referencing Trevor's point earlier on about quoted shares and the capping of quoted shares. So this has obviously been a strategy from us from the beginning, controlling the tail and maintaining control over the volatility as a reinsurer is assumed. by selling reinsurance. The quota share product is a value to us, it puts us as a pure play reinsurer, it puts us closer to the original business that we have cited as being repriced and reset in its metrics. The quota shares allow us to get close to that business, but we control the volatility and the tail utmost as our objectives, continually putting balance on those quota shares and working with the sedents and the carriers to put that in an equitable level. Next slide. So we've referenced here our net rate change across PCNS, and there's a breakdown here of how that sites across PCNS separately. Now, key here, and Trevor referenced this, it's our objective here to produce a forward-looking metric here that indicates the expected improvement in margin, and obviously, margin is a reflection of both price and risk transfer so what we've done here is include the effect of our forward-looking view of claims inflation that will be an effect of both exposure valuations there of frequency and severity that is obviously built on you know the concept of collecting claims data so constantly we're looking at the appropriateness of valuations of exposure that are shared with us via sedans claims data is a great vehicle for us to analyze that. So that's embedded in our numbers here. Coverage controls as well, narrowing at this point in the cycle, the narrowing of coverage transferred to reinsurers via the CDN would also be included in here. So it gives us an overall weighting of plus five across PCNS. Noting here that, for example, in specialty, our book is less affected from some of the headline classes, such as cyber, for example, where we see significant rate movement. It's not a class we're in. So, you know, making the point here that our specialty book is very specific, perhaps not as broad as some of the specialty classes we see in the press. So just as a recap there, this is an objective to create a forward-looking metric indicating our movement in margin expected. Okay, thanks.

You're on mute, Neil, yeah.

kind of hidden in him.

OK, yeah, you've come back.

Yeah, so right. So premiums bound were ahead of our expectation. And if anything, we would expect that momentum to continue and possibly even increase. And there are key renewal seasons coming up. One is the April renewals, where some of the biggest reinsurance programs in the world are placed. That's the Japanese renewal season, the one for then this key U.S., Atlantic hurricane renewal seasons in June and July. And there's been a lot of people withdrawing from catastrophe business in the market. So we think there could well be. The previous hard market was really about a technical re-rating, and that's why we went for quota share and wrote the primary. we could well see a shortage of capacity as the year develops. And we're obviously very pleased with the way that the brand's now been established. And we've proven that we are on our preferred market to many brokers. So the outlook remains really positive. And it only leaves me to say that our results, our final results will be out on the 24th of February. And I think, Tristan, at this point, we open the floor to questions.

Yeah, so we run the hands-up process, first come, first served. So if people do have questions, if you could use the, I see Tryphonos is first in the queue. Use the hands up. And don't forget to put your hand down afterwards. Otherwise, we'll think you're asking another question. So Caroline, if you could do the muting and unmuting. Thank you. Hi, Trivenus.

Hi, can you hear me? Yes. Yes, congratulations on a very strong trading segment. I have two questions. The first one is on specialty. I know you touched on it briefly. Obviously, I appreciate one-on-one is more property-driven, but could you perhaps comment on what you're seeing, especially at the market? And obviously, you're a bit underweight there, and what could have resulted in sort of the current allocation split that we saw? And the second question on the appreciate the planning sort of dynamic and opportunity said could change these going forward, but it is a current run rate of quarter share versus excess loss. We saw a good indicator of what we should expect for the remainder of the year. Thank you.

OK, I'll take the first one on specialty. Yes, especially as I kind of touched on the incredibly diverse class, and that is the challenge for any reinsurer in, if you like, marshalling your own skill set and forces against what's presented to you. A feature this year that we saw, more and more was what I would call the bundling of contracts. So whereas our preference is to write single class, exposure business where we're getting paid for the coverage that we're giving. And it's very explicit. This year, there was a degree of bundling going on where some longer and short tail classes were thrown into a combined programme. And reinsurers were asked to, if you like, take a view with probably less transparency in the information packs. So that was a feature of this year. We were still able to write some of those clients through specific classes, specific entries into their portfolio. But in a lot of cases, the market was trying to bundle those. So that's something that we resisted and probably a bit of a break on growth for us. The other one that Greg touched on was the cat component. We're very sensitive to cat coming into specialty. It's often referred to by the brokers, it's just soft cat. But if it's workers' comp, it's probably got California. And if it's specie, it's got California and it's got um japan quake as well probably so for us we're conscious of that probably the last comment is around cyber cyber for us is uh one that we have said that we would watch the market has definitely started to move more towards a balanced product where reinsurers can um to a degree cap the um the systemic scenarios that hasn't been possible to date it's starting to happen but still some of the the event caps that are being put around um cyber contracts are still quite a long way out so for that reason we we haven't participated in that cyber market it's one that we'll watch um ford um the lady do you want to comment on the Sure.

I think in terms of where we are, we expected to rebalance the portfolio a little bit more towards Excel this year. And that's what you're seeing coming through in our 1-1 numbers. I think where we are just now is a fairly good indicator of the rest of the year, obviously subject to how the market develops.

That's great. Thank you.

Thank you very much.

Ben, I think you were second. A very close second. Thanks very much. I just had two questions. Firstly, on the net rate, just to be clear, that 5%, I think if we go back to the time of the IPO, you suggested that the plan that you'd set out there was based on market conditions as you saw them in 2021. Am I right in thinking, therefore, that that 5% rate, we should see that as all dropping down to the bottom line for this year, and I guess going forward in terms of our forecasts. The second question I had was, In terms of your catastrophe appetite and capacity to write cat business, how much of an impact do you think the Muta changes to the S&P model, the difference that that's going to make? And maybe you could also comment as to the impact that you see those model changes having on the market as a whole, looking out through the course of this year. Thanks.

I'll pick up on the S&P. Ben, thanks. When we put the plan together, we had our assumptions around the market and rate change for year two. We made some assumptions there. I've made comments publicly or semi-publicly in the last quarter that I think where we see the market now, I think it's got greater momentum than we were forecasting in our IPO plan. So we're showing a net rate change here of five after essentially significant allowances for claims inflation. So what's happened is that we're still seeing in casualty and property, high single digit, low double digit rate increases from many clients and in several classes. But what we're showing here, and that is probably, you know, it's where the IPO was, but if not slightly ahead in terms of our plan. But what we're showing here is the, you know, the impact on that dialing through to, if you like, a better, more of an accurate margin measure for us. And it's a better metric for us to have around the way that the portfolio is impacted by our business that's coming through. Cash is a good casing point, as I touched on. We saw a number of contracts where, on the face of it, and you see reported in the press, that apparently healthy original underlying rate But by the time you dial in a significant casualty claims inflation component, the improvement was kind of flat at best in a number of cases. Hence, we have that very low rate hit rate around casualty. So, yeah, so that's very much kind of our view on rate and how we want to measure it going forward.

I think the S&P changes, it's a little hard to tell at this point, they haven't released a model yet so it's hard to check that against previous ones and obviously we're not rated by S&P at the moment. I think our general view is that the increase in risk charges is probably offset by the diversification benefits. I think the bigger question or the bigger issue is around the treatment of debt and what that means for some people that have got senior debt in their capital mix and the lack of grandfathering in there, which is not favourable for that kind of debt. So I think that that's the bit that we'll have to wait and see. I guess ASMP's commentary around it is that they don't expect there to be big impacts across the industry. It's kind of 10% of an impact of rating changes, and they've said up and down. So if you read into that, again, not a big impact for the market, but for individual people, it could have a bigger impact.

Thank you very much.

Barry, I think you're next.

Yeah, morning, everybody. I've just got three questions. In fact, most of mine have already been answered. But I wonder if you could just comment on the proportion between quota share and excessive loss as to whether or not that might swing back during 2022 more towards your original anticipated split. I appreciate it obviously doesn't make a huge amount of difference, but obviously in timing it does. So could clarify that um secondly um trevor you mentioned there about potentially keeping an eye on um on cyber and i just wondered what what what's needed if you like for you to dip a toe and start writing cyber and the last question i had was um obviously you've acquired uh staff during the year to build the portfolio is everybody now on board or you still waiting for people to join Okay.

Thank you. Thanks. I'll take the last two and then perhaps you can comment on the queue. So this is Excel in reverse order, as they say. So from a staffing standpoint, had a great year in terms of the senior members of the team continue to recruit and build out within their teams and underneath them for us in the main. Gareth J. is adding what I would call second and third string capabilities to the team so building out within underneath the club, the claims building out underneath within underwriting administration and the line and then also around on finance elaine's got some plans, just to continue to build out. Gareth J. Really, at the more junior level, so we were in the position where. When we went live, we had the heads of the functions pretty much in place, which was a great commitment for them in joining a newly formed or forming IPO. And it's really been a question that's been building out at more junior level since. On cyber, yeah, I did touch on it. What needs to happen for us is for a better balance. in the contract skew, if you like. At the moment, there's still too much passing through a systemic loss to reinsurers without sufficient caps around it, in essence. So we can obviously observe the underlying rate, which has been moving ahead significantly. We still need to complete our own work on where the underlying claims trends are going. And that's obviously the big part of it. I've made the comment publicly that I think the cyber insurance market has been doing its R&D in public for the last two to three years. And it's been an evolving pattern. But for us, the main metric is that there needs to be tighter event caps around that systemic loss. There's always challenges being thrown at it. The last one we heard from a client that we respect significantly was talking about their cyber experiences. And he said, you know, when you think you've kind of got this thing in a box, he said, the next thing that they're picking up is the emergence of cryptocurrencies and the way that that seems to be feeding, you know, additional ransomware claims are coming into the crypto space, the cyberspace. So there's always something there, which... is a challenge. And I think our mantra is we prefer to underwrite what we understand at the end of the day. And I don't think we profess to be experts in that. So we prefer to sit and watch. Okay.

Thank you. Great. Yeah. So yes, we continue to review and find opportunity to write more excessive loss into the account, particularly as we mature and the portfolio grows. um we look forward to kind of mid-year conditions um probably probably probably march through to mid-year in fact where we are watching so characterized by property for example tend to think of excessive loss in the property world um impact to uh you know gross line deployments we we think these are there are some uh parts of the market coming up you know japan end of Q1, North Atlantic windstorm mid-year, where we expect to see perhaps some changes in the way in which reinsurance products are bought. You know, reinsurers, we write a diversified book. So when we see reinsurance treaties broken down and allowing us to find the diversification, for example, a nationwide contract, breaking up into regional towers, for example, that becomes more appealing to us. So we think some of the conditions are heading in that direction, and we are preparing ourselves to be part of that.

Great. Thank you very much. Thank you. Thanks a lot, Barry.

Andreas. Hello. Good afternoon. Two questions, please. First of all, could you maybe discuss seeding commissions? has that materially changed or increased the amount of seeding commissions you have had to pay on your quota share programs to get access to that sort of ground up rate? And is the benefit on your attritional loss ratio exceeding that sort of increase in that seeding commission? Or is that seeding commission also included in your plus 5% rate assumption? And my second question is on property cap. Could you maybe disclose how much property cap you wrote at 1.1 and whether your risk appetite has materially changed or will materially change as you go through the renewal season in Asia and the US. Thanks.

Okay, thanks, Andreas. Okay, just on the first point, I'll pick that one up. So ceiling commissions, yes, attracted a lot of interest in the press as the renewal season was pushing through. In essence, you can think of it in kind of two ways uh split by class on the casualty space there was a an increased um level of request i think in the market generally this is general observation for seeding commissions to um move up uh in recognition of the fact that the loss ratios are still modeling out to very healthy and advantageous levels. The issue that I think reinsurers face is that if you are absolutely honest and genuine about your claims assumptions, and as we factor that into our pricing, then in many cases that seeding commission could not be justified. I've already touched on the fact that we have the lowest hit rate for us is in the casualty class. In the main one, we were modelling those through and modelling through the impact of seeding commissions to your second point, that is in our net rate assumptions. When we modelled through the portfolios, Generally, the loss ratios that we're pulling those through, we're comfortable with them. They work for us. But the seeds overlaid on top of that was probably the main reason for us failing to come to terms with the contracts that were being offered. So that was the dynamic of the casualty class. And for us, we have a very high showing. We're very grateful for that to brokers and clients. And from there, we distill that down to the portfolio that you see in front of you and you'll see through 22. The property side was different. On the property side where on quota shares, where there's much more concept of private deals. Casualty isn't. Casualty is market terms and pretty much everybody signs up to that and that's the market price. On the property credit share for us, our portfolio is typified by what i would call private contracts where we negotiate those and in a number of cases the seating commissions went the other way so we were able to if you like um use the the benefit of the quality of contract to the client which we understand and they appreciate And we were able to, in a number of cases, as Greg's referred to, not only bring down the event caps to make it less volatile for us, but we were able to move the quota share commissions and seeding commissions the other way. And over on our quota share property portfolio, seeding commissions are less this year than they were last year. And that obviously, you know, that doesn't make the press. Normally it's not such exciting news, but that was the reality for us. Greg, do you want to talk about caps?

Yeah, a comment on CAT here. I mean, CAT is a finite resource for us, whether it's across all PCNS, in fact, whether you're thinking of work comp or... Martin Bloomfield- marine or property and it's more kind of well known state, so we continue to evaluate cat exposure across all classes, we price for it it's a it's a as a limited resource so it's embedded in our view of any risk. And we see the price of it moving, that's for sure. You know, claims data is the key there to understand, are you getting the right dollar of premium for dollar of exposure there? And is it behaving as you might expect? So we look through the rest of the year that there is a significant amount of CAT traded at 1.1. um but uh the the sort of headline grabbing pieces are probably more mid-year north atlantic wind storms heavily traded in june july um a lot of loss affected business coming up in mid-year we expect to see a lot of restructuring and uh changing in the um amount of risk transferred to reinsurance so you know our our plan is um much like last year in the same way we approached cat no change there It's about balance and progressively building our portfolio without creating accumulations or spikes anywhere.

All right. Thank you very much. Thank you very much, Andreas. Philip. Hi, Philip.

Hi. I was wondering if you could comment briefly on the placement of your Outwards Reinsurance Program and the panel and the prices and the terms that you received for that.

Yeah, Greg, you can take that. I'm not sure. Yeah, not much I can ask. Don't divulge at the public stage the prices. But yeah, talk through the metrics.

I suppose what we can say is our Outwards programme is aligned to our plan. And as we stated in the IPO, we grew the programme as our portfolio grows, as exposures build. our Outwards programme grows with it. We did place a bigger programme at 1-1 this year versus last year as planned. Our incumbent supporters are on that programme and stayed with us and have worked with us to grow. We've introduced some new security as well to build out the bigger programme and that will be a continual theme.

Thanks very much.

Right. I think if there aren't any other questions. Thank you, everyone. Thank you for attending the presentation. I hopefully those questions clarified any outstanding issues and there's little left to say other than I look forward to speaking to you all.