Conduit Holdings Limited

Good morning everyone. Welcome to the 24 conduit results presentation. The team will present our results, but also an update on the tragic events that have occurred in Los Angeles. And with that I will hand over to Trevor and we will take questions afterwards and the Q&A will be moderated by Brett Shiref, our head of IR.

I'm pleased to be with you today to share our 2024 results as well as provide updates on our January renewal performance. and our exposure to the California wildfires. First, on premiums, during 2024, we continued to grow our portfolio in market conditions supported, with gross premiums written increasing nearly 25% to 1.16 billion. Our approach to building the portfolio has been consistent by selectively deploying capacity to business lines that offer the best risk-adjusted returns, This means that over time, our relative growth by segment will rise or fall based on the various opportunities that we see in the market. During 2024, each of our three segments experienced growth, with the overall picture led by property and specialty, while casualty grew at a lower rate. Our discounted combined ratio was 86%, up from 72.1% in 2023, due primarily to increased catastrophe activity during the year. 2024 was a year with significant natural and man-made catastrophes, and also a number of larger man-made losses occurring in the industry. With over $140 billion of insured loss, it ranks once again as one of the highest on record. The loss pattern during 2024 was somewhat different to what has been experienced in recent years, with a higher frequency of smaller and mid-sized cat events across the globe. Hurricanes Milton and Helene were two of the larger ones occurring, and we recorded an undiscounted net loss after reinsurance and reinstatement premiums of $68 million related to these events, which contributed 9.4% to our undiscounted loss ratio for 2024. This elevated catastrophe activity has continued into 2025 with the California wildfires, which I will comment on further in my report. Balancing this higher loss activity was a solid contribution from our investment portfolio. Net investment return was $66.1 million or 4% for 2024. This was down slightly from the prior year due to lower unrealized gains reflecting changes in interest rates and spreads. Importantly, a larger component of our investment return was from net investment income due to a higher book yield on our growing investment portfolio. In total, we produced $125.6 million of comprehensive income, representing a return on equity of 12.7%. Net tangible assets per share ended the year at $6.7 was 12.9%. A reasonable result in a challenging year with more than $140 billion of insured catastrophe losses and pressure on legacy casualty reserves for the industry. As we have commented previously, our balance sheet remains strong. We have the necessary headroom for further growth in 2025 and expect to focus in those classes where attractive conditions and returns and margins continue to persist. We have achieved meaningful scale, including more than $1.1 billion of gross premiums written in 2024 and more than $3 billion written since inception. This scale creates a growing and diversified portfolio of risk, while we also remain focused on being super selective with the risks that we write. Clients value our capacity and marketing conditions have been very good over the past four years. and this has effectively acted as a tailwind to our growth achievements. Having said that, it is cycle management that remains the key to our strategy. We have always said we will pull back from classes when it's the right thing to do, and indeed, we have adjusted our capacity allocations for certain classes already over the last 12 months or more. Overall, the business is in a very good position currently, and the progress over the last four years has been meaningful. And it is a strong reflection of the team and the quality that we have attracted to the company. Turning to the costs of doing business, this growth in our portfolio has resulted in positive operating leverage on our expense ratio. While we continue to invest in our business, both in terms of people and technology, our premium growth has outpaced our expenses and thereby driving this leverage. We have added to our staff in both senior and supporting roles, ensuring we have the right resources to manage the business growth. And now that we have this scale, we expect to maintain this fundamental expense advantage in our business, supporting our margins and returns, whatever part of the cycle we are experiencing. While profitable underwriting is our primary focus, our investment portfolio has also made significant contributions to our bottom line in the last two years, increasingly facilitating a balanced overall earnings profile. Investments in cash have increased by approximately $400 million from the end of 2023 to year-end 2024, driving the investment leverage in our business. We have maintained a conservative investment strategy to support the underwriting business, but we have benefited from higher book yields and a larger portfolio to drive the increase in investment income. All in, we expect to continue our balanced approach to drive value for shareholders by generating the target returns and managing our capital effectively to grow our tangible net assets per share while returning an attractive dividend. The California wildfires are a major industry loss and have impacted many homeowners in the affected areas. This event is yet another reminder of the critical role that the insurance and reinsurance industry plays in our communities and the support the industry provides as rebuilding occurs. There is still considerable uncertainty around the event and the tail nature of it, with the modeling agencies producing a typically broad range of initial loss estimates. We recognise these, and the $35 billion to $50 billion range is broad, but clients that we are speaking to are very much still in their own loss evaluation process. Until more information comes to the fore, this range is likely to remain as a point of reference for the marketplace. Our approach to assessing conduits exposure has focused around a detailed contract by contract analysis, along with the review of the latest model losses from clients in our portfolio at various return periods. Based on this process, our preliminary undiscounted ultimate loss estimate across all divisions is between $100 million and $140 million net of reinsurance recoveries and reinstatement premiums. As additional information emerges, our ultimate loss estimate may vary from this preliminary estimate, but given the magnitude of the wildfires, we thought it would be helpful to put the loss into context. And our mean expectation for non-peak natural catastrophe model perils such as these is between $40 million and $50 million annually. While it is clearly only February and we have experienced a very significant event early in the year, Our current forecasts lead us to believe we can still deliver an ROE in the low to mid teens for the year. That's clearly dependent on the loss activity with the rest of the year, plus investment markets to a degree. But with reasonable activity for the rest of the year, we believe this is achievable. As regards how the loss impacts the property reinsurance market in general, we would expect to see a firming in the market around the perils of wildfire. and more broadly, a hardening of catastrophe pricing, especially in the USA. The first signs of this will emerge as we enter the coming Q2 property cap renewal season. Further, we would comment that as regards the response in the quota share market, The contracts here will actually begin to capture any market positive response immediately as those in-force treaters are writing business through the year continuously and renewing underlying policies now on a daily basis. Turning back to our performance in 2024, gross premiums written increased by close to 25% or $231 million over the prior year. We achieved growth in each of our segments, led by property and specialty, and risk-adjusted pricing for full year 2024 was up 1% net of inflation. Overall, we maintained appropriate balance within our portfolio while selectively allocating capacity to the risks that we view as best priced on a risk-adjusted basis. For 2024, property represented 52% of gross premiums written compared to 50% in 2023. Casualty was 26% of gross premiums written and specialty increased to 22% of gross premiums written. In total, this results in a similar balance to our premium split in 2024 compared to the prior year, and we continue to optimise the portfolio and the clients that we support. I will now hand it over to Greg to provide some more detail by segment and an update on the January renewals.

Thanks, Trevor. Our property segment gross premiums written has grown 29% from 23 to 2024. This significant growth has been supported by our partnerships our underwriting team have worked very hard to develop, most notably in relation to our treaty reinsurance support of US primary carriers. The sector continues to evaluate the impact of inflation, and more importantly, price for it, with adequate increased premiums to cover the growth in underlying exposure. The non-cap loss ratios remain attractive, and the core of our portfolio being primarily commercial risk. Our natural catastrophe exposure is somewhat more internationally diverse than our primary book, but still remains US-biased. This has been where we have seen the most opportunity to collect premium for the natural catastrophe perils that are covered within our requirement levels, both in terms of pricing and terms. Although the undiscounted combined ratios across all years have been influenced by NatCat losses, the combined ratios for 2021 and 2022 also reflected a lower premium base as we built out our portfolio. After a very favourable year in 2023, The undiscounted loss ratio rose in 2024, driven by the events during both Q3 and Q4. In particular, hurricanes Helene and Milton. The portfolio is broadly where we planned it to be, and its composition reflects the build out of our portfolio with the right partners. Across the portfolio of property, we've benefited from plus 3% risk adjusted rate change over the 2024 fall year. This rate change is our view of net change after inflation, exposure and terms and conditions. So it also is reflective of some of the upwards pressure of increased seeding commissions or overrides on the primary business. When comparing 2024 June and July renewals to those of the 1st of January 2024, we found that higher or more remote XOL contracts were showing some negative rate change. albeit from a historic high in absolute terms, and in our view, remained priced with combined ratios remaining stable. The year was active from a major NatCat perspective, with PCS alone reporting $94 billion of natural catastrophes in the US, which does include last week's industry loss increase to Hurricane Helene. Total industry NatCat losses look to be in excess of $140 billion for 2024, and supports our observations of increasing trend from an absolute dollar perspective. We moderated growth in the casualty portfolio to an increase of 8% in gross premiums written, which is both a function of active portfolio management from Conduit Re and our partners modifying the texture of their primary accounts. For example, we've reduced our participation on classes such as D&O where the rate and terms and conditions have become less favourable. This is positive cycle management from our partners and is what makes a longer-term relationship between primary carrier and reinsurer work very well. Beyond DNO, to which we do talk a lot about, general third-party liability, a much larger market, has numerous areas of interest for us right now, and generally this class continues to reprice risk with increased rates, allowing for the consideration of claims inflation and acknowledgement of prior year deterioration. Now, prior year in this context is meaning years prior to conduit re-being formed. Most importantly, in the general third party liability class, I'm pleased to say that our partners demonstrate strong underwriting discipline with thoughtful and balanced limit deployment, the key to a healthy portfolio construction. The undiscounted combined ratio remains stable year on year. We remain patient. given the longer-tail nature of the portfolio, and focus on building what we believe is the right portfolio and monitoring the underlying trends across both our own portfolio and the wider industry more generally. Risk-adjusted rate change is broadly flat across the portfolio, and based on our analysis of claims inflation, we believe the increases in primary pure rate continue to outpace inflation, and this is reflected in the premium growth in our portfolio. There are observational points shared with us by our partners, indicating that primary conditions could be improving even further as underlying trend is being better understood, which we believe may produce more opportunity. We have grown our gross premiums written in the specialty portfolio by 39% for the fall year of 2024. This is a result of developing some new business with core clients who provide us access to balanced books of multi-class business, bringing both growth and diversification. This has also introduced some additional geographic diversification away from the US, and we expect to build this out further in the future. The combined ratio increased in 2024 compared to 2023. driven by the impact of the Baltimore Bridge collapse and other large risk events in the market. The risk-adjusted rate change is plus 1%, which is generated from a broad range of business and transaction types. Our core marine and energy portfolio has remained very stable, with growth coming from non-correlating exposures, enabling specialty accumulations to remain well within appetite. The Baltimore Bridge collapse provided the specialty market with a large industry loss, with very specific contracts responding to it due to the type of coverage likely to respond to the claims emanating from the event. This will take time to settle, but due to the construction of our portfolio, we remain very comfortable with our ability to identify our potential exposures and indeed evaluate them. We continue to actively identify, investigate and evaluate multi-class opportunities. Our ability to do so is enhanced due to our underwriters all physically situated together at the one desk in Bermuda. The January renewal season was fairly orderly with the market renewing contracts from a near historic high in terms of pricing levels. The significant loss activity from 2024, both Nat Cat and Man Made, such as the Baltimore Bridge collapse, gave sharp focus to pricing and capacity. Loss affected areas of the market across property and specialty responded to exposure increases and performance. the loss-free contracts were more sensitive to supply and demand, and this was best characterised by the variation observed generally in the property CatXOL contracts. The markets we have greatest focus on, though, remain well-priced. While orderly, the market demonstrated some significant reinsurance buying strategy changes, which affected some of the existing panels, and probably caught them by surprise. The knock-on effect of this clearly caused some reactionary shifts in target risk deployments, and pricing probably reflected this. Now taking each segment in turn, we recorded a risk-adjusted rate change of minus 5% from property, which reflects a heavier skew towards primary quota share than the XOL portfolio. Variability in the XOL contracts was more like plus 5% to minus 15%, dependent on the performance and the attachment points. The effects of Hurricane Helene and Milton certainly supported the discipline of primary carriers to present business plans with risk-adjusted flat rates, but there was certainly more interest from the reinsurance market in supporting these types of insurers. It is understandable, given the underlying performance, but as with increased supply, pressure came on seeding commissions and they grew. and hence perhaps reduced our absolute margins in this space. That said, although there were some pressure on terms of conditions, given the ample capacity, the market generally remained disciplined and attachment points tended to remain stable. The casualty market continues to digest loss deterioration and significant nominal claims emergence from the back years, typified here by the period prior to 2020. This is the starting point in any actuarial analysis, and hence this drives much of the evaluation. Generally, insurers are now writing very different books than back then, with smaller limits and more premiums spread across a greater number of towers, creating more balance across these books of business. We had a minus 1% risk-adjusted rate change for casualty. which reflects our view of inflation and trend after pure rate change, as well as any changes in underlying policy coverage. Although the rate change metrics for the specialty portfolio largely mirror those in property and casualty, the diverse nature of this portfolio allows us to remain selective and continue to build an overall portfolio that remains attractive to us. We successfully placed our core Outwards programme at 1.1 and included some further expansion of the panel, We are able to secure the core placement at more favourable terms and, as in past years, will consider other purchases throughout the year. Since launch, our planned PMLs have grown both in absolute terms and as a percentage of our balance sheet, as we have grown and scaled the business, as would be expected. We have published our planned position each year, calibrated to a July 1st viewpoint, and this chart summarises our progress over the period. To date, our most significant modelled net PML has been either Florida wind or California earthquake, depending on year and return period. This is based on our gross modelled position for a first occurrence, and then netting down based on how our reinsurance would apply to these modelled events. Market conditions are also a factor, and in 2024 our plan showed lower PMLs than prior years. For 2025, we had anticipated the potential for improving market conditions and increased PMLs in our plan, most notably at the 1 in 250 return period. Though, at 1.1, we saw an oversupply of capacity for excess of loss business, so our current PMLs are notably below our plan for the year. Our current position provides opportunity to deploy further through the year if the market conditions support it. Going forward, We don't expect our planned PMLs will grow from these levels without a corresponding growth in our balance sheet. Again, our views may change based on market conditions. I will now hand over to Elaine to provide some more detail on the financials.

Thanks, Greg. We recorded $1.16 billion of gross premiums written for the year compared to $931.4 million for the prior year, almost a 25% year-on-year increase. Our business mix still favours quota share over excessive loss, so we have a little bit of the 2024 underwriting year that we'll continue to write into 2025, but subject to any ongoing adjustments to estimates, all other prior underwriting years are fully written now. Just over half of our 2024 underwriting year is earned, so a substantial amount remains to earn into 2025. Our reinsurance revenue, which broadly speaking is IFRS 4, gross premiums earned less seeding commissions, was $813.7 million for the year, compared to $633 million for the prior year, a 28.5% increase year-on-year, reflecting our continued growth strategy. All three of our divisions showed growth in both gross premiums written and reinsurance revenue year-on-year, with the largest dollar increase in property, followed by specialty and then casualty, reflecting the market conditions Trevor and Greg have discussed. Seeded reinsurance expenses, which you can see in our R&S, and are essentially our seeded premiums earned excluding reinstatement premiums, were $93.7 million compared with $76.7 million for the prior year. Our hours cover has increased year on year again as the Inward's book has grown, in addition to price increases at the January 1, 2024 renewals. We also sponsored our first cap bond in June 2023, with the cover from that having a three-year term. That seeded reinsurance expense brings our net reinsurance revenue to $720 million and $556.3 million respectively, with 29.4% year-on-year growth. On the loss side, 2024 was another active year in terms of industry losses, but with a different makeup of those losses than in 2023. The losses resulted from a broad mix of events. Risk losses such as the Baltimore Bridge collapse, and several smaller and mid-sized natural catastrophe events, as well as more significant ones, such as Hurricane Milton. As a predominantly quota share underwriter, Conduit picked up its fair share of those losses. Across Hurricanes Helene and Milton, we had a net impact after reinstatement premiums of $68 million, which had a 9.4% impact on our undiscounted loss and combined ratio, and an 8.5% impact on our discounted loss and combined ratio. Our net undiscounted loss ratio for the year was 84.4% versus 68% for the prior year, the difference being driven by the numerous events in 2024. Our net discounted loss ratio was 73.3% versus 58.2% for the prior year. You can see a higher impact from discounting on the 2024 ratio as compared to the 2023 ratio, driven primarily by the higher loss ratio offset somewhat by the relative impact of the movement in rates year on year and also the reduction in duration of our reserves. Just a reminder here that we made a policy decision to use opening rates to discount our non-specific incurred losses, but date of loss for material-specific events. Our combined reinsurance operating expense and other operating expense ratios were 12.7% versus 13.9% in the prior year. trending down in line with expectations as previously communicated as the business scales and also partly down to business mix. Our combined ratio on a discounted basis was 86% versus 72.1% for the prior year, and on an undiscounted basis was 97.1% versus 81.9%. Our net reinsurance finance expense for the year was $30.8 million versus $32.8 million in the prior year, Our interest accretion was 37.6 million compared to 26 million in the prior year. And the impact of changes in discount rates was a benefit of $6.8 million versus an expense of $6.8 million in the prior year. You can see these numbers in our R&S and our financial statements. The accretion has increased in line with expectations as a relatively new company with growing reserve balances. The re-measurement to current discount rates reflects the changes in yields. Our net investment return was 4% for the year versus 5.8% in the prior year. I'll come on to investments in a bit more detail in a moment on the next slide. But just to wrap this one up, our comprehensive income for the year was $125.6 million, or an RE of 12.7%. So here's the investment bit. Book yield is now at 4.1% compared to 3.7% at the end of 2023. The portfolio is therefore earning more income than in the prior year. The business is also generating more cash now, and our invested assets increased significantly year on year, so that produces more income as well, although the fourth quarter saw increasing yields, almost offsetting the strong market-to-market gains we had in the third quarter. Overall for the year, we have a small net unrealised gain, and as noted in the previous slide, our investment return for the year was 4%. The 5.8% generated in the prior year was in part driven by the sizeable reduction in yields in the fourth quarter of that year. Otherwise around the portfolio, we continue to nudge duration up a little, but remain relatively short and our focus continues to be on maintaining a high quality, highly liquid portfolio. Duration is currently 2.5 years versus 2.8 years on our net reserves. Average credit quality is AA and you can see the usual pie chart here with our asset allocation. On this slide, you can see that as the business continues to grow and we remain highly cash generative, our invested assets also continue to grow. As our portfolio has become higher yielding over time, we produce more income, and as our investment leverage increases over time, that contributes more to our ROE. I'll now hand back to Trevor for additional comments.

Thanks, Elaine. In closing, 2024 was a year of good progress for Conduit. We continue to generate robust growth across our portfolio as market conditions remain attractive. we experienced a high loss year in 2024 due to elevated natural catastrophes and risk losses. And our comprehensive income of $125.6 million resulted in the ROE of 12.7%. This followed our 22% ROE in 2023. The scale and leverage we've achieved with the business, particularly in the last two years, will support our returns going forward. As I have said for 2025, despite the significant impact from the California wildfires, we expect to achieve a return on equity in the low to mid-teens. Our highly focused approach to building a well-balanced portfolio has been consistent at all times. We review our seedants on a ground-up basis to understand how they underwrite and manage risk within their portfolios, and have selectively supported clients that demonstrate prudent behaviour. This is particularly critical in casualty, where our experience to date suggests that the book continues to perform in line with our expectations. And we can underline here again that our original pricing picks remain solid. In our view, risk-adjusted pricing remains at attractive levels by historical standards. We saw rates softening through the Jan 1 renewal season, especially in property CAT. And in response, we held back capacity as terms being presented to us were, in our opinion, less than ideal. However, this does follow several years of strong rate increases, relatively speaking, and our portfolio sits at a well-priced level from a technical perspective. In our view, the frequency and severity of natural catastrophes experienced during 2024 and into 2025 is more likely to support stable to firmer pricing looking forward. We expect to continue to deploy capacity into attractive market conditions. And as I've mentioned already, our quota share treaties are likely to immediately capture any market hardening and rate increases as our primary insurance partners manage their risk and are renewing business on a daily basis. So in closing, our balance sheet remains strong with over $1 billion in total capital at year end. with no debt and a conservative investment portfolio to support our underwriting. AMBEST recently revised our financial strength rating outlook to positive from stable, and we continue to have the headroom for further growth and scale in the business. We are focused on driving long-term returns for shareholders, and we believe that we have built a business with a strong underwriting culture, a broad distribution reach, and a very efficient cost structure. That will enable us to deliver on our goals across the insurance cycle. So thanks for your time, and we are now ready to open the line for Q&A. Thank you.

If you are dialed into the call and would like to ask a question, please press star 1 to raise your hand and join the queue. When called upon to ask your question, please pick up your handset and remember to unmute your device. Again, that is star 1 to join the queue. And your first question is from the line of Derald Goh from RBC Capital Markets. Please go ahead.

Hey, hey, morning, everyone. The first one, firstly, thank you for the new disclosure around your budget for non-teak at $40 trillion. Could you maybe share what your overall CAAT budget is? I'm just trying to get a sense of what a so-called normalized combined ratio might look like. And then secondly, For 2025 guidance, I'm trying to look at an underlying basis for the combined ratio. Is a low 80s normalized still valid, or do you think it should be higher given everything that we've seen? And my third question, it's on the DSCR, so that's 269%. What is the corresponding DSCR ratio Because historically, I think in the last few years, the ECR ratio was actually lower. So if you could tell us what that corresponding ECR ratio, please, is. Thank you.

Hi, Daryl. ramble around these a little bit. I think in terms of 25 guidance, the low 80s combined that we have been guiding to, we're clearly going to be higher than that this year, given the wildfire events. So this is not a kind of normal year when we give normal guidance and the guidance we have been giving was also we said was emerging given the way that we reserve. So there's always a little bit in terms of risk adjustment on top of things. So hopefully that helps a little bit. And as you know, we don't give details on our cap budget. And so the disclosure that we have given this time round around where we think that this sits in terms of our normal expectations on non peak perils was to help you guys get to revise your models and work that through to get to an updated combined ratio. And the ROE guidance is there to help you with that as well. I don't have an ECR ratio yet. We published that in May, so you'll need to wait till then, unfortunately.

I mean, any indication so far if that ECR ratio will be higher or lower than the 2009?

I don't have that number to hand, but typically we don't tend to focus on it too much anyway. We prefer to look at how we look from a capital perspective through risk models as opposed to the MSM.

Yep.

Okay. Thank you.

Your next question comes from the line of Andreas Van Ebden from Peel Hunt. Please go ahead.

Yes, thank you very much. I've got two questions, please. Just on the LA wildfires, just a quick question around the caps you build into your quota share programs to sort of mitigate losses. I just wonder, have these been triggered in the LA wildfires, i.e., have those caps helped you mitigate you know, increasing the gross loss to this exposure. And the second question I have is really on reserving. There was a small reserve lease coming through from prior years, I think $4 million. I just want to look into the casualty book. Those primary insurers in the U.S. have been increasing. loss peaks and putting up additional reserves for the recent underwriting years, so from 2021 onwards. I just wondered whether Conwy Re had needed to strengthen their reserves as well on the back of what your citizens are doing. Thank you.

Thanks, Andreas. I'll just take the Keshi question. The Secretary will probably expand a bit more on credit shares and caps within the early wildfires. You're on the casualty position, you know, we're not pricing picks, quite often get asked this. We started underwriting for the 21 year and, you know, what I like to comment on is that it was a completely brand new portfolio where we had a very selective approach. A lot of business that came through and we were able to create a new portfolio from scratch. And when we've looked at the various reports industry around those years, 21, 22, maybe in 23, starting to move adversely, we've done a lot of work both in-house and also with our consulting interests. And we just don't see that in our portfolio. One of the conclusions is that it was a brand new portfolio. There was no drag from prior years. we were able to select it completely. And certainly the pricing picks that we've made on the Cashty book since we started, we have not moved that pricing pick. It is still as per the original selection. So it's something we watch and certainly the industry is reporting sort of some larger development trends on those more recent years. So we watch it, but we're not seeing it in our portfolio. Greg. Yeah.

Hi, I'm just, I just would add to that. Some of the observations at the industry level for casualty, it's always a challenge to map the business mix back from the industry level to a reinsurer's own risk appetite. Classes that have probably had more stress on them in the last three years, that period you're referencing, those later years, I would guess a big portion that's probably excess also, which is a class that is, you know, susceptible to concepts like nuclear verdicts and bits and pieces like that. And, you know, when we, as Trevor said, you know, we clearly had the advantage of building a book and a texture of casualty risk from the beginning of which we, you know, avoided also. It's a distressed class and you know there are some people who understand it really well i'm sure they did a very good job of it but for us it was a it was a very straightforward decision to avoid that class as we built up our book um and just to comment on um the wildfires and quote shares and bits and pieces i think you're quite right as we've referenced in the in the past you know caps and collars quoted shares Um, event limits, ag limits are very important to us as we structure these deals and they are absolutely relevant in a case like this. And, um, yeah, I can say, you know, it's, they are, they are a part of the loss estimate. Um, I can't comment on, you know, where they sit in there, but they're very much a part of that. And it does provide a lot of, uh, you know, a lot of confidence in the way we build our estimates.

So thank you very much. Just a quick follow-up. Have those caps and collars worked in line with your expectations for such a sort of tail event?

Yeah, I think that's, yeah, I would agree that's a fair assumption, yeah.

Okay, thank you very much.

Your next question is from the line of Michael Hutner from Barenburg. Please go ahead.

Thank you, Anthony. The first one is on the low to mid-teens ROE going forward. So the starting point is kind of the same, 12.7%. I just wondered if you could kind of paint a waterfall, a chart picture of the moving parts. If the wildfire is higher than your non-peak perils, so I think you gave a figure of 40 to 50 million, so we're kind of... 60 or 50 or 90 million higher, then that's one moving part I can see, but I'd be interested in how else you see the other moving parts. The second is to understand better your confidence on the 100 to 140. I just wondered, you've given the figure of 68 for the two large events, Hurricanes, Milton and Elaine. How did that 68 million compare to your initial estimate? And then the third question is on kind of going back to that combined ratio question which we had before, you know, the low 80 to 80s or whatever. And I think the way I understood it is you're beginning to add to build up buffer reserves. And I just wondered if my understanding is correct. And I have a fourth one, and I'm really sorry. On the renewal, so clearly you held back in January. And I just wondered if you can give us the scale of holding back relative to how much we would normally grow in January, just to get a feel for how much kind of spare capacity you've kept for the June-July renewals. Thank you. Okay.

Thanks, Michael. Perhaps I'm only at the easier end of this. If I do the last one, I suspect Elaine's going to have to come up with some of those other three. Yeah, just around the renewals and the renewal season, I suppose, or generally. The degree to which we have kept our powder dry is an expression that's often used. It's largely driven around the excessive loss pricing. You obviously saw the plan figures or figures that we put in our plan over time and see what is provided for the 25 year. But the assumptions were originally when the plan was put together that the excessive loss pricing would be holding up a lot of offers around the cap space. We looked at them, fed them through, and they just, in our view, weren't adequately priced enough to increase the position. So what we saw there with the lines on those pillars was a reflection of how we have basically held back from committing the company to that exposure at Gen 1. Going forward, remains to be seen. We'll watch that. We'll look at that. I think it's possible that, you know, we could deploy proactive, if you like, after the Gen 1 season, some of this capacity that we've held back. But in the main, that was the story of Gen 1. Just one last observation, renewal season for us was generally successful. We saw good growth. And for us, you know, comparing your figure year over year, Gen 1, But generally we had good double digit growth, but that certainly doesn't start with the two. And the book overall did move on satisfactorily at Gen 1.

Yeah. Hi, Michael. Just in terms of, excuse me, in terms of the RE expectations, we've looked at that in the context of how we forecast our business and we generally have you know, cat large loss, um, nutritional expectations in there. Um, the wildfires have clearly been a tail risk event, and that's really how it's being talked about in the industry as well. So we've had to adjust for that beyond the normal expectations, but, um, tried to give some kind of guidance around that. So in terms of the, the, the bits that can move in that over the rest of the year, um, We tend not to really think too much about reserve releases when we're thinking about our RE expectations. There's obviously the book is maturing and there's always some hope there that we'll be able to see some releases coming through from that. You know, what happens around our RE insurance programme, what happens with investments and market to market movements there and other opportunities for the rest of the year as well. And off the back of recent events, and we have still factored in some cat and large loss expectations into that guidance that we've given you there. But obviously, it really depends on the level of activity that we see over the rest of the year. And you know, it is only February, we've had a very large event very early on in the year. And so we do still have some some build in there. And we'll wait and see what happens. And on the reserving side, in terms of the confidence around the Californian range, we hope that we've got a good range there. It's very early after that event as well. And not an awful lot of information out there yet. So we've engaged as much as we can. with clients and brokers and done as good a job as we can do at this time, but obviously it still has a long way to go before that's properly loss adjusted and we can see anything more detailed in terms of reporting coming through on that. Where we were on last year's losses, Milton was really pretty solid in terms of the initial guidance that we gave there. We did see a little bit of creep on Helene from Q3 into Q4. But I think that that's broadly in line with what you'd have seen from others within the market as well. I think that that was an event that happened very close to the end of Q3. And we did see that nudge up just a little bit in our numbers. But being broadly comfortable with where we ended up in terms of our expectations. And then I guess continuing on the reserving approach, if you like, and how that impacts our combined ratio. I guess a few years ago we talked about kind of the combined ratio on an IFRS 4 basis we kind of translated that into an IFRS 17 basis and talked about that as emerging because we do end up when we go through the reserving process and work out what our actuarial best estimate is then we have a management estimate and you can see some transparency over that in our numbers now in terms of the risk adjustment that we disclose in our financial statements so there is a little bit of buffer, if you want to use that word on there, in terms of how we approach our reserves.

Thank you so much. Very helpful. Yeah, lovely. Thank you so much, Helene. Thank you.

Your next question is from the line of Abid Hussain from Panmure Librem. Please go ahead.

Oh, hi, everyone. I think I've got three questions. The first one is on the ROE progression. I know there's been a number of questions already on this, but I just want to sort of delve a little bit deeper and get any further colour if possible. I'm just trying to get to what you're assuming for the rest of the year in terms of net caps over the remainder of the year. to hit that ROE target, the ROE guidance rather. What would keep you on course and what might blow you off course? Any colour on that would be helpful. And then the second question is on, I guess, the maximum potential losses for the year. I'm really thinking here, is there any aggregate retro cover that kicks in? And if so, what level might that kick in I guess I'm asking, is there a ceiling to your losses across the year as events tally up? And then the final question is on the growth opportunity set. Can you talk to what is the growth and margin opportunity set ahead of you? How has the landscape changed now versus when you set up the business? What sort of opportunities are you focusing on now? Thank you.

Hi, Abed. I'll take your first one there. It will come as no surprise to you that I'm not going to give you a number, I'm sure. But just in terms of how we've thought about the rest of the year, we do contemplate what I'll call kind of more attritional cats in our expectations. So that's the smaller stuff that you guys wouldn't necessarily see that much of in terms of what we report and disclose on the larger specific events. So we do have an expectation built in for those kind of things. And we also do continue to have an expectation built in for some of the larger cat events that would be the types of things that we would be disclosing if they did happen. So the likes of, you know, a Milton or whatever. And just to kind of round that one off, we do also have an expectation built into our forecast around large losses as well.

Thanks, Lynn. I can pick up too. Maybe Greg, you can talk about the growth too. Third question. Yeah, just around... the outwards protections a bit. We don't go into, never have done, gone into great detail on these calls around the nature of how the reinsurance is structured, but we do have a real stack of reinsurance that we buy, products like the CapOn, which has an aggregate element to it, an aggregate response feature, but probably it's safe to say in the main, you know, our protections that we buy basis. The market this year in January, when we renewed a large portion of that starter cover, was a bit more amenable. We were able to buy more cover there, probably touching at slightly lower levels than compared to last year. So that's in place. But that's the mainstay of the starter cover that we buy in conjunction, let's say, with the cap bond, which is structured on an aggregate basis.

Yeah, sure. So I think we've sort of referenced in the past, you know, the market that we've been building the business into has generally been a bit better than we planned. And you've seen that in the size of our business. I think if I talk about property specifically and particularly after the effects of both Q4 last year or Q3, Q4 events, Helene and Milton, um coupled with uh the los angeles uh wildfire um you know there are a few there are a few things that come through from from the primary market there one is with an event with so many total losses unfortunately it does give a moment of re-evaluating underlying exposures so where we have seen inflationary growth through the portfolio uh due to general inflation you'll now get this massive data point from such a great number of total losses from an event like the wildfire reviewing underlying values generally they go up so there'll be i guess what i'm describing is there's extra inflationary pressures there on underlying exposures. So we'd expect to see portfolios and underlying TIVs grow again. And it won't be restricted just to California, but that will give data points relevant to elsewhere, particularly around the US. So what happens there is those buying excess of lost contracts will likely look to re-evaluate how much limit they're buying. So that's a possible cause for more limit to be bought. for the primary carriers. The premiums will grow with that as well, obviously, with primary rate moving as well. So, you know, it is a massive data point for the industry with such a large industry event and such a great number of claims. So, yeah, undoubtedly, that's going to fuel a further requirement for insurance and reinsurance.

Yeah, Abid, I just want to add one thing. Trevor was very specific in his statement on the guidance that it assumes what we would call a reasonable or normalised CAT year. And there are data points as to how the portfolio performed in 23, which was actually in itself quite a heavy NAT CAT year, and 24. So in terms of the way we manage our risk, you know, there is a track record to see how the portfolio has performed under circumstances like that and and it's those are the bases on which we will form a view on the guidance that we have given that's very helpful thank you your next question is from the line of joseph deans from autonomous please go ahead hi there

um just kind of maybe adding on the back there um in terms of what you consider uh what would you consider a reasonable loss activity year um is it sort of 2023 is that sort of the level um and you know thinking about this in terms of guidance um you know is the low 80s combined emerging is that still the long-term target um just given off the sort of the fact that we've seen you know two years of elevated cat losses as you just said Um, the second question is just, if I look at sort of the size of the, um, losses relating to these wildfires, it's, you know, equivalent to a one and two 50 PML. Then, um, what does that kind of say about the risk and exposure management of the firm? Do you think you need to make any, uh, remedial steps, um, as you go through this year?

Um, thanks. Okay. Um, thanks Joe. You guys pick up on the second question. relative to PML. For us, the published peak perils, if you like, let's call it that, of hurricane and earthquake at the 102.50 level, plainly the loss that was embedded in the distribution for California wildfire was sitting significantly in excess of that. We spent a lot of time, and always have done, We do that for all of the parallel events, different regions around the world that we write. This is one that needs looking at quite plainly from an industry standpoint and the way in which we apply loads to it. The models will undoubtedly think, you know, at the tail, the models can be unreliable, I think, in this instance. That's an example of it. Elaine, do you want to respond?

Sure. I think a good question in terms of what our reasonable loss activity is these days, I think the annual average expectation is definitely on the increase. I think we've had a series of years where we've had significant industry losses and I think expecting something that's greater than 100 billion is easily standard these days. We're not changing our guidance on that combined ratio. I think the way to think about that is, and Neil kind of mentioned it as well, 23 and 24 were both significant industry loss years, but different makeup of those losses. And you can see how we performed in those. Also, just in terms of the conversation we've had a little bit today about reserving again and how we think about that and developing our actuarial best estimate and our management best estimate. We have been doing that over the last four years. We're in year five now. More of that, I guess, sits within kind of our casualty book. We've been very cautious around that in terms of looking at that and assessing whether we want to take any of that down as well. So that's kind of also part of the equation in there. But overall, no change in guidance, in terms of where we expect to go. But obviously a different year this year, given the event that we've just gone through.

Okay. Thank you. And if I might just ask a quick follow up, um, about sort of, um, the wildfires, um, can you give any color and sort of how and where it showed up, you know, was it all in property? Um, you know, was it on any of your XOL business? Was it in quota share? Just kind of came to maybe get an understanding of, of basically how it sort of developed, um, given the sort of, you know, maybe it was sort of misread the exposure that you had in there. in that geography?

Hi, Jason. Yeah, I mean, I can say that the way we've built our estimate, as we've done with other large events, man-made or CAP, we've certainly looked across property, casualty and specialty to build that loss estimate. Specifically within property, you know, such as the size of the event, both quote share and excess at loss contracts. As you'd expect with, we've built it from a ground up client by client basis, but as you'd expect from a, as often cited at the moment, 35 to $50 billion industry event with PCS now already at 34 billion from their first report.

This is an addition to that, Joe, if you look at the $50 billion, you know, California wildfire loss definition or the way that's picked up in the models, you know, it's acting or reacting equivalent to probably, you know, a wildfire, sorry, a hurricane or a quake loss possibly double that size. So that's to put it in the context of where it sits, sort of in that distribution tail. And also just up on Greg's point around the contracts impacted. You've got a range there that we've produced. It comes from obviously a There's a magnitude bigger than the loss range if we go forward, just to put it into context.

Thank you for that additional comment.

Before continuing to the next question, a reminder to join the queue to please press star one. And you have a follow-up question from Gerald Goh at RBC Capital Markets. Please go ahead.

Hey, just a follow-up, please. So the quarter share bias strategy, why do you think that is still the right strategy given the industry transfer you're seeing and your own experience as well? And I guess what reassurance can you give around your net cap exposure, seeing that you plan to increase it this year as well? And then secondly, looking at your general renewal rates for property, so that's minus five, which seems to be in line with what we've read elsewhere. Why isn't that better given your loss experiences in 2024?

If I start from the end, so the minus 5% referenced, as a reminder, that's our net number, which for us, um reflects our view of you know the underlying exposure growth any change in terms and conditions um any increase in acquisition cost for example i think i cited in my narrative um that you know a lot of this very well performing underlying business uh particularly on the non-cat component as well um is quite attractive business and we certainly saw pressure on that business through seeding commissions and overrides to respond to that. So our minus five certainly includes all of that in there as well. And I suppose that probably draws a contrast to some of the risk adjusted rate change that might be referenced from a heavier XOL book where you saw, you know, the minus 15s and things like that floating around. So just to point out that minus five is heavily moderated from terms and conditions, exposure, inflation adjustments.

And just more broadly, Daryl, around the broader strategy of where you allocate capacity across either a ground-up contract or a sort of more volatile excess of loss. It's a blend over time. The clients that we write business to, we receive submissions on either credit share or an excess of loss basis. And when you look at them in the round, it depends on the region and the pricing adequacy that's been received through. But we certainly believe that take a year such as such as last year, we're getting on for potentially $140, $150 billion of natural perils losses in the industry. We've deployed into areas that are have been impacted from a regional standpoint by those losses. But clients have actually managed and weathered the position reasonably well. So for us, in terms of building a book around quota share versus excessive loss, I'm certainly back and reassess the clients that we got on an ongoing basis. The quota share that we got to them, we believe is written in a balanced way. They charge an appropriate time. It depends where the market adequacy is at points in the cycle. But there's a lot of areas that we analyze at the moment where the ground up does make more sense. And as a mean result over time, we believe it's a more solid place to be.

Thank you. You have a further follow up question from Justin from Autonomous. Please go ahead.

Hi, thank you for taking my follow-up questions. First one, just want to confirm, you didn't give a peak peril budget. Obviously, you talked about the non-peak, but just about the peak peril. And how did the $68 million that you reported for Helene and Milton sort of fit within that? Was that kind of within the budget? Second question, just thinking about sort of your solvency constraints. how do you think about what's kind of binding constraint? Is it the internal risk model? Is it the ECR, BSCR? You know, just be curious to see if, you know, to understand what's maybe, if anything is holding back further growth. Thank you for that.

Okay. I'll take a stab at those, Joe, and others can jump in. I think in terms of peak peril budget, I think when you look at the likes of hurricanes, Helene and Milton, they're not unexpected events. They're fairly kind of standard occurrences. We obviously can't predict the timing of when those kind of events will happen, but there's nothing really that's too surprising around those. So very different to things like the California wildfires. Around solvency constraints, So I think the way that we tend to look at that is a number of different ways. We have an internal capital model that we reference and that we use and look at various different outputs from that. We also use the rating agency models. We kind of tend to disclose the regulatory models because that's what others use and what we can publish and talk around. But generally, I would say that our rating agency models had a higher requirement than the regulatory models. So we would see them as more important in our consideration. But in terms of binding constraints, we're still not really at a point where we think of any of those as a binding constraint. We still have plenty of capital to execute the plan that we have in front of us.

Okay, so, you know, kind of reflecting on your first start, I think kind of my takeaway is that, you know, you're within the sort of the Helene and Milton experience, we're kind of within a normal range, so to speak, you know, it wasn't sort of an outlier.

Yeah, I think Helene was probably the more unusual of the two in terms of the type of event and where that impacted, but yeah, certainly in terms of, you know, the

of yeah yeah but in terms of kind of you know industry loss estimates and in terms of the size of them that there's nothing that's kind of surprising in there yeah i mean i would only reiterate um that um helen and milton probably were sort of on a combined basis were about 40 billion out in a cat year that delivered 140 billion so there was exceptional frequency across the market so I mean, you know, in the context of what's going on, then as just reinforcing what Elaine has said, you know, they are within expectations. Thank you for answering my questions.

And there are no further questions on the conference line. I will now hand over to Neil Eckert, Executive Chairman, for closing remarks.

Yeah. So, I mean, in summary, the results in 24, it was a year that stress tested the model. We came in at 12.7% ROE. The loss we're seeing is, it's a very, very unusual event. I mean, it's in the top four cat losses that I've seen in my career and it's left field. You know, people, right to and model for peak perils and this is a very concentrated loss a hurricane is spread over thousands of square kilometers and market share analysis is easier um thank you for for attending um but by the way i do think it will have a an impact on the marketplace as the market metabolize what what's happened it'll be fascinating to see what happens at the mid-year on us cat renewals so um that's that's my parting comment um thank you for for your time thank you for all your questions and um we will update you at the end of q1