Conduit Holdings Limited

Good afternoon, ladies and gentlemen. It gives me great pleasure to open the Conduit interim results presentation for the first half of 2023. We are now seeing the best market conditions that I've experienced in my career. This is true both for pricing, terms and conditions, and higher attachment points, which to some extent mitigate the increased claims activity we are seeing. We see a number of factors combining to create these market conditions. Inflationary pressures continue to persist and interest rates remain high. But what we have seen is the erosion of traditional reinsurance capital, which we now believe stands at 213, 214 levels. Another element for me, which has not been so much discussed, is a structural change in the US primary markets, where the admitted carriers are withdrawing from new business in certain key states. which is driving strong growth across excess and surplus lines markets, which are core markets for conduit. Our underwriting team and chief executive will go on to discuss this in more detail. Extreme weather events are more and more prevalent, and June 23 is the warmest month on record. We've also witnessed elevated cat activity during the first half, which, whilst not materially affecting Conduit, adds to the cocktail driving current market conditions. Given these excellent market conditions, Conduit is delivering a strong set of numbers, which are testament to the effectiveness of our strategy and a credit to our team. With this, I'll pass over to Trevor Carvey, our CEO, who will take you through our results, alongside Elaine Whelan, our Chief Financial Officer, and Greg Roberts, our Chief Underwriting Officer.

Thank you, Neil. Good morning everyone and a very warm welcome to this half year results call for 2023. So starting with premium income, we've shown really good growth again in the half year growth premiums written of 542 million, which is a 52.9% increase over the first half year in 2022. This is partly an indication of the strength of the market in general, but also demonstrates our growth trajectory in our third year of trading and the compounding effect of renewals flowing through year on year. Elaine and Greg will talk more on the component parts of this growth and also the net reinsurance revenue, which has shown similarly strong growth year over year. Turning to our combined ratio, we are obviously now in the new world of IFRS 17, and as such, there are new definitions and terminology in broad use. For the half year and on an IFRS 17 basis, we are reporting a discounted combined ratio of 72.5%, which compares with the 99.9% on a restated basis for the first six months of 2022. To put the current figure into perspective, the undiscounted combined ratio for the year in old money, if you like, was 83.1%. and was achieved during a period when the industry suffered a relatively high level of cat loss activity, including Turkey-Syria quake, New Zealand flooding losses, and the series of severe convective events in the US. We've navigated the effect of these H1CAT events with no major loss materially impacting the business, either individually or in the aggregate. In terms of comprehensive income, I'm pleased to report a positive result of £78.6 million, and a return on equity of 9.1% for the six months. As we've said previously, as the business has been maturing, our ratios have been trending and demonstrating the right signs, and this result in H1 is a vindication of what we set out to achieve when we founded Conduit in the middle of 2020. More colour on this in the coming slides. The dividend is unchanged at 18 cents a share, again in line with guidance. As a final remark, market conditions remain extremely favourable. Now take this opportunity to reaffirm that we will be maintaining our approach to managing strategically both the volatility and our capital allocation across the classes, which is so important in setting us up for the times ahead. So these graphs give more detail around the remarks from the previous slide and also give a better sense of the journey we've been on since we started. For clarification, all the numbers and ratios here have been restated on an IFRS 17 basis to enable true comparisons. The half-year premium growth was the result of a really good all-round delivery by the team, with not just property but also casualty and specialty classes delivering good growth. Property is often spoken about in the market as a class showing very positive dynamics. And we see those two, but the casualty and specialty lines also delivering good growth and opportunities for us. With careful underwriting and pricing discipline, premium delivery and diversification achieved here have been very pleasing. And then we'll go into more detail in her section on the component parts of our combined ratio and the progress we have made. But here are the headline numbers showing the progression for the past three years, again, on an IFRS 17 basis. The business was formed to commence under IT for the 2021 year. And from a standing start in January 21, we've had to respond to a succession of major loss events, such as Hurricane Ida, Storm Burnt, and the European flooding, Hurricane Ian, and also events such as the Russia-Ukraine situation. On top of these, through 22, we also saw the advent of the volatile financial markets delivering the extreme mark-to-market movements evidenced across the industry. It was always our belief that a reinsurance business needs to be able to handle these shock loss events by the nature of its diversification and good line size management and to have in a way a built in shock absorbers to carry it through. This is what we set out to build and is the platform that we are now pushing on into the market ahead. Lastly, it's worth highlighting our first catastrophe bomb placement. And that was executed in June this year. We sponsored $100 million multi-year cap bond, which is designed to complement the traditional retrocession program that we place. I'm pleased to say the bond was well received in the market with a degree of oversubscription. And the pricing that we achieved was pretty much in our sweet spot. From a net capacity standpoint, it puts us in a solid place for the year ahead in terms of retrocession protection. And being a multi-year instrument, it also provides us with increased certainty around these protections beyond just 2023. So this is the final slide for me before I hand over to Greg, and it shows our premium progression now on an IFRS 17 basis, showing our cumulative gross premiums written since inception and broken down by category. Our view from last quarter remains broadly unchanged in that we see property and specialty spaces currently offering the best margins. And our focus is directed there, as you can see from the growth of these two segments. The largest percentage growth over the first six months of 2023 was property at 66%, specialty at 57%, and casualty at 39%. On an ultimate premium written basis, we have bound 1.9 billion since the inception of the business in December 20, and actually now have $755 million of unearned premium in our pipeline. We are also clearly maturing as a business in terms of premium income and as a broad guide. And of course, with some variance between the classes, 12 months ago, around 40 to 50% of contracts written were new. Over the half year, that proportion now stands at broadly around one third, showing the relevance and impact of the increasing renewal book year on year. In addition to new business bound, being able to take increasing shares on renewals, where it's warranted, of course, is a great foundation for growth. Writing new business will of course be a major part of what we do, but having the increasing renewal book going forward is a big plus for the team to work from. And on that note, I'll hand over to Greg.

Thanks Trevor. This has been a very strong first half for our third year build of the portfolio. We continue to evaluate property, specialty and then casualty contracts in that order as a result of the market opportunities. The first-half portfolio premium has grown around 53% when compared to first-half 2022. Renewing premium for existing contracts counts for around two-thirds of our first-half portfolio, the remaining growth from new contracts. We've pushed forward again with the development of target specialty contracts, and I'm very pleased with these developments, which are providing a broad spread of complementary risk, of which we are able to digest in an efficient manner. This is important as not to create accumulations of clashing risk, which dilutes our return on capital and creates portfolio volatility. Our casualty portfolio, now in year three, continues to benefit from our analytical approach, reviewing underlying trends with a relentless attention to data from the primary markets. We continue to increase the speed at which this information is made available to us, further improving our forward-looking approach. there is increasing evidence that the casualty market is somewhat dislocated with both buyers and sellers responding to underlying trends in a differentiated manner. The best in class primary writers are handling inflationary pressures and trend accordingly and are able to maintain confidence and stable loss ratios. However, there are areas of the primary market where this is not the case and the reinsurers are needing to reduce seeding commissions to maintain combined ratio stability. The property market is very strong. The primary non-admitted markets have adjusted the price of their products to accommodate inflationary pressures much faster than the admitted carriers. This inability to adjust rates efficiently has created drag for the personal lines rises, particularly with challenging areas such as auto. Our focus on ground up primary non-admitted business is continuing to develop strong margins from both growth of renewing premium and new opportunities. The cap market remained disciplined through mid-year, with buyers and sellers generally able to agree terms, creating capacity. Terms and conditions remained broadly as the 1st of January, and pricing moved up again. The difference here to the 1st of January was that the capacity was available, though with often a binary behaviour around terms and conditions. As a reminder here, we continue to report our risk-adjusted portfolio metrics on a year-to-date basis after the application of our view of inflation and terms and conditions. The graphic clearly shows that property and specialty continue to compound rate through the quarter. Our portfolio year-to-date overall rate change is 15%, and the current texture of our casualty portfolio has resulted in a flatlining of risk-adjusted rate change net of inflation. As I mentioned earlier, the differing types of contracts in the casualty portfolio allow for many touchpoints to respond to the underlying metrics. We are very comfortable with our portfolio, and so this data point serves as an expected checkpoint on the dynamic management of the contracts we write. Though not a significant part of our portfolio, sectors such as public DNO have been causing placement processes to become more varied, with contracts with structures expiring being less prescriptive. Terms and conditions remain a dominant factor in how risk is transferred in the specialty market, with our rate change strongly presented at plus 12%. Prices have been rising still, and broadly speaking, are managing inflationary pressures very well. Property has produced a year-to-date rate change of plus 30%. As mentioned earlier, the primary non-admitted market continues to push rate and values strongly, required to move ahead of inflation and organic growth and exposure. The US ENS market and the more global DNF market are great examples of sectors that have responded quickly and affirmatively to improve loss ratios. The compound effect here is very powerful and in a short tail class like this produces significant margin. The natural catastrophe market has simplified with many XOL contracts now traded on a much narrowed coverage basis with significant rate increases. Our underwriting strategy remains unchanged as we seek to rise a balanced portfolio of risk and limit our catastrophe exposure whilst remaining nimble to adapt to opportunities ahead. In the first half of the year, we have seen opportunity with strong property cap rates, notably at the 1 in 100 return period level, so have adapted our plan to benefit from these stronger rates. Conversely, we have not seen a significant improvement at the more remote return periods so have been very selective there. The revised plan contemplates that more opportunities will be presented during the remainder of the year, recognising, however, that the main renewal periods have passed. I shall now hand over to Elaine.

Thanks, Greg. Before I get into the numbers, just a reminder here from the presentation we gave last month on our IFRS 17 transition. There's no economic or strategic impact of applying IFRS 17, nor any impact on our reserving approach. While there's a new presentation to get used to, the main impact on us is discounting, and that's really a timing impact as that discount unwinds over time. So as this is our first time formally reporting under IFRS 17, I'll take a little bit of time to run through the numbers on this page. We're focused on our results and not an IFRS 17 technical session, but there's a degree of explanation of the numbers we want to provide to help with understanding them. As we previously discussed, we're still providing a measure of gross premiums written, so there's some link to the old world. and some comparability to US GAAP reporters. That number now excludes reinstatement premiums, but that's not material impact on our numbers, so it's a reasonably consistent measure. Gross premiums written of $542.2 million are up 52.9% on the prior year, which is in line with both our growth strategy and with what we've just been telling you about the market conditions we've seen. We typically have written about 75% of our book by the half year on an ultimate premium basis. I would say this year we have front loaded the book a little more given the opportunities we've seen. Our proportion of quota share business remains reasonably consistent year on year, again reflecting where we've seen the best value. Translating that into IFRS 17 terminology, we have reinsurance revenue of $278.7 million versus $169.3 million at the prior half year, a 64.6% increase year on year. Our reinsurance revenue is essentially gross premiums earned, less seeding commission, and a smaller adjustment for non-distinct investment components. It therefore tracks the same pattern as our gross premiums earned would have, just a lower number after the seeding commission deduction. Seeded reinsurance expenses, which are essentially our seeded premiums earned, excluding reinstatement premiums, are $35.9 million for the first six months of 2023, compared with $20.4 million for the prior year. Our hours cover has increased year on year as the Emirates book has grown, in addition to price increases at the January 1 renewals. Although it was a relatively active first half for losses for the industry, we don't have any individually significant loss impacts to disclose. Our reinsurance service expenses includes both loss and loss-related amounts, but also reinsurance operating expenses and an allocation of some other operating expenses. In our release and our segment disclosure, we provided a breakout of that number into the loss and expense components so you can see those separately and also to help with calculating our new net loss ratio. So on losses then, leaving the impact of discounting to one side for now, our undiscounted net loss ratio for the half year was 68.1% versus 90.9% for the prior period, with the prior period impacted by the reserves we put up for the Ukraine conflict. Our reported net loss ratio for the half year last year under IFRS 4 was 67.8%, so you can see the impact that rebasing the calculation to IFRS 17 has. While that impact looks fairly significant and is more so at a higher loss ratio given the relative dollar impact on a lower denominator, the impact on the overall combined ratio is much less significant and I'll come on to that. Before we move on to the combined ratio though, I want to point out the discounted loss ratios. 57.5% for the half year this year and 85% for the half year last year. There's a 10.6 point impact this year from discounting versus a 5.9 point impact last year, showing the relative impact of the movement in rates year on year. A reminder that we made a policy decision to use opening rates to discount our non-specific incurred losses, so we're seeing the impact of the higher rates at the end of 2022 impacting in 2023. Our combined ratio for the half year was 72.5% on a discounted basis and 83.1% on an undiscounted basis compared to 99.9% on a discounted basis and 105.8% on an undiscounted basis for the prior year. That compares to the prior year reported combined ratio of 105.1% under IFRS 4. Under IFRS 4, we've previously discussed a mid-80s combined ratio emerging as our book has begun to mature. Under IFRS 17, at that level, we expect around a four-point reduction on the undiscounted combined ratio, with that divergence increasing as the combined ratio reduces and narrowing to zero impact at a 100% combined ratio. If the combined ratio is above 100%, the further it moves from 100%, the wider the divergence gets the opposite way. If you're having a hard time picturing that, I'd refer you back to our presentation on June 30th. Slide 23 in that deck shows those impacts. Hopefully that demonstrates that while there's a significant impact on the net loss ratio and the various expense ratios, the overall impact is not that significant. It's the component parts of the combined ratio that have moved around a lot. The last half year's reported combined ratio is slightly lower than now reported under IFRS 17 on an undiscounted basis, which is in line with what I've just described and with what we previously stated in our IFRS 17 presentation. The undiscounted measures converge at 100%. IFRS 17 combined ratios below 100% will look slightly better than IFRS 4 and vice versa. Our comprehensive income for the half year was $78.6 million, or an ROE of 9.1%. There's a little over 1% of a benefit from IFRS 4 reporting, which is largely driven by the net impacts from discounting. There are three parts to the discounting impact. There's discounting incurred claims, there's unwinding prior discount or interest depreciation, and there's revaluing to current discount rates. The latter two go to our net reinsurance finance income or expense line. For the half year, most of the impact was from the unwind of prior discount as rates and reserve balances had increased in 2022. The revaluation aspect was minimal given how rates have moved over the period. The opposite is true for the prior period as a relatively new business without a large prior discount balance built up. The impact from revaluing was much more significant given the significant increase in rates. On the investment side, last quarter we saw a reduction in yields. This quarter saw much of that reverse. We still managed to eke out a positive return for the quarter as spreads narrowed and the portfolio is just generally yielding more now. Overall for the half year, we returned 2.1% versus a negative return of 4.7% in the prior year, driven by the significant rate increases last year. We remain relatively short duration and our focus is on maintaining a high quality, highly liquid portfolio. Duration is currently 2.4 years versus 3.2 years on our net reserves. Average credit quality is AA and you can see the usual pie chart here with our asset allocation and no real changes from prior quarters in that. I'll now hand back to Neil for closing comments.

So in summary, we are delighted with these results. We have achieved solid comprehensive income and our dividend is now covered for the first time. As you will have seen during the presentation, we continue to grow at a strong rate and believe that this will persist. We do enjoy the benefit of a young, legacy-free balance sheet, which has meant that we do not have to contend with reserving issues being experienced elsewhere in the industry. Our investment portfolio is conservative, but we are now able to invest at high rates as our existing portfolio rolls over. We feel that we have now reached the stage where we have a mature business, one that is scalable, where the key ratio is moving in the right direction. Finally, we do have a strong balance sheet with ample capital to support our continued growth plans. With that, I will close the presentations and we will open for Q&A.

Thanks, Neil. Let's open the Q&A. As a reminder, let's keep it to two questions per person. Thank you.

If you are dialed into the call and would like to ask a question, please press star and then one on your touchstone phone or on the keypad on your screen. If you however wish to withdraw the question, you may press star and then two to remove yourself from the question queue. Once again, if you would like to ask a question, you may press star and then one. We'll take our first question from Daryl Goh of RBC Capital Markets. Please go ahead.

Hi, morning, everyone. Can I just start off with a clarification, please? Elaine, you're saying that, is it a four-point translation between IFRS 1 and IFRS 17 on the mid-80s combined ratio guidance? Was that what you said?

Hi, Daryl. Yep, that's spot on. And there's some language in our prepared remarks around how that moves. And I've also referred you back to the slide in our presentation so you can see how that moves as it moves away from 100% and as it moves over 100% as well. But at the mid-80s combined, it's around a 4% impact.

Okay, okay, got it. Okay, that helps to frame my question. So my two questions, the first one, so you're implying that say you know you're shooting for low 80s being a normal level uh and you've done 72 and a half uh this first half is is the variance is the variance mainly from things like lower than expected um net cat uh and and my second question is that ignoring the accounting translation is the low 80s still the right number because from the way i see it it looks like you've written more property cards you've taken on more XL over quarter share, and it looks like you've got better than expected rates as well. Thank you.

Hey, Daryl, I'll start with that one. I think just to be clear on the difference between the discounted and the undiscounted basis, the mid 80s combined on IFRS 4 basis, we're seeing is around a four point difference on the undiscounted basis. Those 70s that we're producing is taking into account the discount as well. and in terms of our book, it's pretty much shaping up as we expected, and there's nothing in there that we see that changes the guidance that we've been giving about that mid-80s combined emerging under an IFRS 4 basis, so you're right to translate that into the low 80s now.

Morning, Daryl. A comment here from me on the cat, so the proportionality of cats and the makeup of our portfolio remains unchanged. Our strategy of writing cat and non-cat in balance has remained the same. So we talk about the sort of 70, 30% split with 70% of our premium being non-cat related, largely remains the same. So no change there.

Got it. Thank you.

Our next question is from Tryphonos Spiro of Birenburg. Please go ahead.

I guess the question is on the revised 1 in 100 PML. It looks like you're not quite there yet in terms of your revised July plan. I guess my question is, what would it take for this to trend towards the plan? Obviously, we don't have any major renewals left. And I guess related to that, a comment you made earlier on the split between the cut and the non-cut, sort of proportions staying roughly the same. How should we square this, given that you're revising your PMO upwards, which means you probably have a bit more card exposure on the books than previously anticipated? Thank you.

Hi, Trev. Sorry about the technical pieces there. So, understanding your question, I mean, to answer this in the context of the proportion of our portfolio split between the volatility components like CAT and non-CAT remain the same. We have a little headroom based on the one in 100 revised number, which, as you point out, much of the CAT business specifically has been written traditionally by the industry by mid-year. But we have a headroom, we continue to grow our business. The key here is the proportionality, the 70-30 that we referenced in the past with 70% of our portfolio being non-cap related premium remains the same. So it's a reflection of us just growing our total portfolio.

And is that mainly sort of, is it mainly by specialty, non-cap specialty or is it? across the border, including casualty sort of growth offsetting that higher property growth?

Yes, property, casualty and specialty, but noting there that there is property risk as well. There's largely non-CAT derived as well, which we continue to find opportunity through the year. So though the CAT renewals are very specific around sort of January, March, April, June, July, there are other opportunities throughout the year.

That's helpful. And I guess one more question for me. On the E&S market, it was really sort of the comments you made are quite sort of bullish, I guess, in terms of the dynamics. How long do you think this can last? And how long do you think you can benefit from the increased sort of flow in the E&S market and the increased rates with sort of that medium market at some point starting to become, again, attractive? So any comments? I appreciate it. Thank you. Well, I'll make a comment.

I think Trevor will have something to say, but I would say that market conditions are certainly moving in our interest. The E&S market is reflecting the fact that the admitted carriers are struggling to keep up with rates and inflation required to cover off lost cost prices. um the non-admitted market obviously is able to respond to that much faster so we see a lot of um development still to happen there with i think a pretty long continuation of that trend yeah thanks hi trev uh yeah trevor here i just had a couple of um kind of bit of color to that um yeah we referenced

The changes in the emitted and non-emitted market in the States, in our introductory remarks, it's a reference to the fact that it is a news item. It's a big industry. It's a change, if you like, a potential step change in the US. But I made the comment at the time, when you look at the portfolio that we are currently writing, in fact, from 21 when we started, we have a skew into that space already. those signs on stamping office premium changes were emerging in 21 and 22. So the bifurcation or the split that's appeared between the admitted and the non was really starting 18 months ago. So we're kind of in that space, happy with the business we see, and we secure out of the E&S and the non-admitted space. And it kind of just forms part of our general underwriting and portfolio builder. But what I'm really making is that we're kind of in that space significantly already, and it's just an ability for us to continue to sort of grow and see the opportunities.

Our next question is from Abid Hussain of Panmure Gordon. Please go ahead.

Good morning all. Just two questions from me. Firstly on pricing. Clearly, another quarter for positive pricing coming through.

This is Q1.

Is that just because you've got bigger line items coming through at 1 Jan? And then just related to that, how is the pricing momentum over July, over 1 July, i.e. after the interim result period. The second question is on your expense ratios. If you look at your total expense ratio, it looks like it's remained broadly flat at around 15%, but the backdrop being that you've substantially grown your book. Just wondering if this is an accounting thing and if this should trend down over time or something else is going on here.

Thank you. Hi, Abid. I'll take the expense one first. I think there's a bit more noise around our expenses now with the implementation of IFRS 17. So what was previously acquisition costs is now split. We've got seeding commissions being offset against our top line and brokerage goes into our reinsurance operating expense ratio. Our old operating expenses, G&A, is now split between other operating expenses and the reinsurance operating expenses. So I think the guidance that we gave on OPEX previously was five to six percent in old money, if you like. And we had said that we hoped that that would trend into the 60s this year. So I think we still expect that trend to continue. And our cost base is increasing in dollar terms as we grow. but the earnings base of the company is also growing. So that 15% that you see there, we would expect that to nudge down a little bit over time. We're not giving any guidance on an absolute number on that at this stage.

Hi, I'll pick up the second part of the first question. I think we lost a little bit of the first part, but the second part referencing July, I can say that certainly at the industry level as well, nothing really happened between the 30th of June and the 1st of July. So the trends through Q2 certainly continued through the July renewals with no significant changes there. So all the same sort of driving factors remained there in July. We actually missed the first part of them.

Yeah, but can you repeat the first part of your first question? We couldn't hear it completely.

There's a moderation in the rate that you've achieved across the book. So I think 19 to 15 from Q1 to Q2. Is that moderation something that we should worry about? Or is it just that on the 1st of Jan, you've got much bigger volumes and large ticket items being written? So just a bit more colour around the trend of the rate between Q1 and Q2.

Okay, thanks. I would suggest that there's not a trend to draw between two quarters there. I think there is business mix in there, different types of contracts. If you think of the property world, there's a lot of European risk written at the 1st of January, for example. And if you think of the sort of highlights of June, July, which, you know, as a market, we will tend to talk about Florida in bits and pieces a lot. You know, that's probably been renewed again on the year of similar rate increases the year prior as well. So you've sort of got some of some are compounding and some have started moving and accelerating. So that mix between Q1 and Q2 is I would say it's hard to draw trending from.

That answers my question. Thank you.

The next question is from Andreas van Imden of Peelhans. Please go ahead.

Andreas van Imden Yes, thank you very much. I just want to come back to your comments around the renewal book. I didn't capture the trend between the renewals in 2020 and the first half of 2023. I think you mentioned the renewal book, which was around 40% to 50% of premiums last year. If you can maybe say again how that's trending this year. And on that renewal book, is this largely based on just the rate change and the portfolios shifting from the panels you're sitting on? Or are you also increasing your share of the panels? that you underwrite on. And the second question is really on the CAD bond you issued as part of your retro program. I just wondered whether this CAD bond is there to protect you from frequency or severity. Thank you.

Good morning. So when we talk about our renewing portfolio, I think as Trevor outlined in one of our comments earlier on, the positions we took in the first two years of our of our portfolio build continue to produce growth through both rate, growth in underlying exposures, and the partners we've commenced relationships with are doing a good job. So they're growing their businesses appropriately into the appropriate market conditions. So we're seeing a benefit of both organic growth rate And in some instances, some growth of us increasing our lines appropriately on certain contracts. So I think we sort of talk about two thirds of our portfolio produces the growing business through the first half, which is a really strong core pipeline to work from.

Yeah, thanks, Greg. Yeah, hi, Andreas. Yeah, I'll just pick up on the Cat Bond question. Yeah, as you remark, that was the issuance that sponsored in June. The strategic approach for us around that is we have a pretty, we're pretty comfortable with the retro tower that we buy. That's been in place through 21, 22 and 23, obviously renewed each year. But it's always good to have alternatives out there and additional sources of retrocession protection alongside it. We looked at the cat bar market probably six, seven months ago. And the level of pricing then in that market just wasn't really that attractive. You know, it was kind of comparable with what we were buying in the standard retrocession tower market. We watched it, kept an eye on it. And then the issues we did in June did actually get a benefit in terms of the pricing levels over there in the market at that time. So I think I used the word that pricing in June was more in our sweet spot. So that's the ethos of it. But strategically, it gives us that buy forward element to the program. It's multi-year and it complements what we buy. To answer your specific question about severity versus frequency, which is really where your question is, it's really designed to respond to the severe events in the same way that our retrocession tower picks up large events, particularly cat, that run through from a severity standpoint. That's really what the cat bond does. But it has an element of complementary nature to the programme. So it's not To a large extent, it enables us to have a block of capacity in that capital market rolling forward.

Okay, perfect. Thank you very much.

We have a follow-up question from Trifinus Spira of Burenberg. Please go ahead.

Yeah, just a quick follow-up on the number of employees. I think you mentioned around 56 employees. um, how close to our sort of towards a full, um, sort of run rate or how many people you expect to help in the business. Um, perhaps you can give us an update here. Thank you.

Yeah. Hi, um, yeah. Uh, in terms of the headcount, if you like, or the, you know, the workforce that, um, that we've built, uh, we said that in the IPO plan where we saw the resource, um, if you like, demand across the different units, different functions of the business. And we broadly built the business in line with those plans. Obviously, some deviations from there within individual units and functions. But where we are now is a really probably got there in sort of mid, that's a half of 22, in terms of having all of the pieces on the chessboard in place. And for us now, it's really a question of just adding additional value to those. We've had a number of really good conversations with people, both on the island and off the island, who we know could add real value to what we do, build and enhance skill sets. business is at a state where it's really scalable. The resources we have, I'd say, are really pulling in line and in tune. It's really just adding additional resource to that where it can really add additional value. But we're in a good place. We will grow. We still have plans to recruit through the rest of this year and into next. But I think, as you can see from the way that we set that plan out and also from the financials, you know, the Bermuda reinsurance treating mousetrap is a pretty efficient model. So I think it works and is a good place still to recruit.

Okay.

Oh, sorry. I just wanted to maybe, I guess, if you sort of going, as you said, in line with your sort of clients, that they themselves grow granically and will take a higher portion of some treaties. Is it almost an argument to say that your model is even more scalable? Because you don't need, I guess, a structurally higher number of people if those two underlying drivers desist over the next 20 years.

It's certainly, in terms of scalable, Probably I take you back to the comment that Greg made earlier around, it's more around the nature of the incoming business because that's where you scale from. And the renewing portfolio, what we're doing on that is with a similar number of contracts, just keep increasing the shares where it warrants it. And that's massively powerful when that comes in and you increase the overall size of the portfolio. Keep classes like CAT in proportion. So you're not imbalanced in any one area. But with a similar number of contracts, you can actually scale through share and line size change. And that's a big part of what we're doing at the moment, in addition still to writing new. So it's very scalable. But as I say, where there's resource that we can add more colour and flavour to the company, then happy to bring it on.

Excellent. Thank you so much. Thank you.

The next question is a follow-up from Darryl Goh of RBC Capital Markets. Please go ahead.

Hey guys, thanks for the opportunity. Two quick follow-ups please. The first one is just on the Netcat experience. So you mentioned it being elevated and we've seen it in a few broker reports as well. I guess the question is why was it less impactful to you? Was it simply because of the nature of the event or Can you point to some of the benefits in terms and conditions taking effect already? And the second one is just on inflation. I think you mentioned a couple of times about this dislocation in casualty. Elaborate on what you're seeing in terms of the lost trends there. Is it more general or more social inflation coming through? Is it of the usual suspects in GL and commercial auto? And did you also revise your own inflation assumptions during the quarter or the half? Thank you.

So, as you say, it's been reported many times over, it seems, with the total aggregate industry insured losses of excess of 50 billion for the first half. And in the US in particular, I think it's been reported perhaps 18 or more billion dollar plus storms. So that in the aggregate is obviously a significant number and rather new. But I suppose you have to remember with a greater number of single events, every time an event happens, deductibles come into play. So the original insured policies have deductibles absorbing a bigger proportion of those events each and every time. And I suppose the market at an industry level has certainly done a lot of work around deductibles, evaluating values correctly and every time a deductible as a percentage of an insured value is upped, the deductible in dollar terms rises. So I think the industry might be benefiting from the fact that some of the discipline in the insurance business has protected itself from that. I think many of the focus questions are around the excessive loss market, and particularly the occurrence excessive loss market for US cats probably has benefited from a general increasing in attachment points over the last 24 months. And in some cases, the narrowing of coverage afforded on said CatXR contracts, perhaps even excluding some of those types of barrels at times. So I think a combination of many factors has probably changed the way in which a great number of smaller events permeates through to the reinsurance market when contrasted with prior years.

Adele, I'll just come back on the inflationary aspect of your question. Yeah, in terms of monitoring social claims inflation, that's a big part of what we do. Quarterly, there's a formal review of that. But in reality, where we get a lot of our leading indicators is from the updated data and stats that comes in, particularly on triangles within credit shares. It's a great window on the world as to how trends are emerging and also receiving updates from those primary carriers on their own, on the ground, if you like, trends that they're seeing. Classes like, as you say, GL, DNO, certainly moving. And also that's where rate has probably been given away, I think, in the market. More significantly in the last six months, particularly. So, you know, that's all part of the analysis that we do in making our loss picks. But having the ability to flex between an Excel participation and a quota share is very powerful. And a lot of the data that we drive our trend indicators from comes from that underlying quota share patterns. Just one final comment. I think you mentioned auto or motor. We don't write that class. And we've pretty much made that clear right from day one.

And I don't see that changing anytime soon. No inflation assumptions at all so far.

Dara, can you repeat it? We didn't get complete question. No, that's fine. So just to be clear, you have not adjusted any of the inflation assumptions up so far during the year?

No. Go on the contrary. They're all reviewed and some are up. And it's unlikely to see any of them move materially down, but some of them are up. But they're all reviewed quarterly. So some will definitely be up, yeah. Got it. Thanks, guys.

The next question is from Barry Corns of Pamier Gordon. Please go ahead.

Good morning or afternoon, everybody. A couple of questions, if I may. First of all, in terms of casualty, the easing of the rate increases, is that largely driven by increased capacity or rate adequacy? I just wondered if you could comment on casualty looking forward. And the second question was in respect to post-period end. And maybe Southern Europe, whether or not you see the wildfire actually being an issue or not, whether or not that being an industry loss and whether or not it might impact you. Thank you.

Hi, Barry. So casualty markets, certainly, I think you're asking if the capacity in the reinsurance market is affecting terms and conditions. And I would suggest, I suggest it probably has been over the last year to an extent in certain sectors of the casualty market. Generally, There is still rate flowing through, which is compounding on prior years. Inflation and claims inflation, as Trevor just spoke to, with social inflation as well in the casualty areas, certain sectors are incredibly sensitive to that. And so a small variation in rate very quickly flows through to net of inflation in terms of conditions, rate changes such as ours. As Trevor said, that's something that we monitor across all the various sub-sectors, digesting the information shared with us from the primary writers to make our picks and identify loss trend and loss cost. Where terms and conditions are starting to move a little bit is awareness that provides stability in the combined ratios, which is ultimately the reflection of the underlying margin in a contract. you're seeing perhaps a shift in the economics on a quota share, for example, to maintain stability on the combined ratio. So if the loss ratio thick is an agreement that is going up, perhaps the costs of producing that quota share contract through deductions are decreasing to maintain that combined ratio. And on Southern Europe, slightly different dynamics. I think generally in the industry there that a lot of the exposure from a cap basis is probably more XOL for the reinsurance community generally. So the activity there is probably, I would suggest, deeper down into the primary market there, which for us is less of an area of focus over the years.

Thanks, Greg. We have no more questions live. We have one written question, so I will read it out. What return period were the US spring storms? Trying to get a sense of what sort of loss exposure the growth at one in 100 years might give you. And the question is from Johnny Irving at Newton Investment Management. Greg, you want to?

Sure. I mean, putting a return period on the US spring storms is a bit of a challenge there, I would suggest. But I would just reference the point that that is an aggregation of many events, widely quoted 18 events over a billion dollars, which is a different measure to PMLs when they're thought about on the occurrence basis. So it's not really a link between the two, in my opinion.

Thank you, Greg. We have no more questions, so I will give it back to Neil for some final remarks.

Thank you, everyone. Yes, it's a pleasing set of numbers for us. Thank you for the questions. Elaine, well done for going all the way through IFRS 17 in such detail, which I think is important for this particular set of results. So with that, we'll close the call. Many thanks, everyone.