Conduit Holdings Limited

Good day, everyone. Welcome to Conduit's 2025 Interim Results presentation. We appreciate your time today as we discuss our performance for the first half of the year. Joining me on the call are Neil Eckert, Chief Executive Officer, Elaine Whalen, Chief Financial Officer, and Nick Prichard, Interim Chief Underwriting Officer. Please note our disclaimer language on slide two. I will now turn the call over to our CEO, Neil Eckert.

Thanks, Brett. Welcome to our presentation. I'm today joined by Elaine Whelan, our CFO, and Nick Pritchard, our interim CEO. Today's presentation will cover our results for the first half of 2025, our view of the market, and our updated outlook for this year and beyond. I will begin with a summary of our interim results. Nick will then provide a more detailed segment level performance review. Elaine will cover our financial and investment highlights, and I will close with some key takeaways and thoughts on the future of Conduit. For the first six months of 2025, we delivered growth in gross premiums written across all three of our segments. Property and casualty experience, strong increase in premium, while the growth in specialty was more modest relative to recent periods. We have seen increased competition during Q2, causing us to reduce certain parts of the portfolio. In line with our plans, we have started to add more excessive loss business to our portfolio of mid-year renewals. As most of the business has been written for 2025, we will continue on these initiatives throughout next year. Moving to performance, The first half was marked by elevated loss activity, including wildfires, severe convective storms, aviation events, and the recent High Court judgment regarding Ukraine war loss. These events contributed significantly to our undiscounted combined ratio of 122.1%. The California wildfires alone added 31.6% to our combined ratio for the half year. Our investment portfolio continued to deliver with a 3.9% return during the first six months, producing a net investment result of 63.8 million. Importantly, a large component of our investment return was from the income generated by our growing investment portfolio, which now totals 1.9 billion. Ultimately, we reported a disappointing comprehensive loss of 13.5 million for the first half. largely a result of elevated loss activity. 2025 is a transitional period across multiple dimensions for Conduit, including portfolio composition, both inwards and outwards, and personnel. During the second quarter, we undertook a number of strategic actions in response to evolving market conditions and elevated loss activity. These developments have unfortunately led us to revise our expectations for the return on equity for this year. We now anticipate our ROE to be in the mid single digits for 2025. This updated guidance reflects both the actions taken and the loss experienced during the second quarter of 2025, which includes the following. We have increased our reserves related to Ukraine following the UK High Court judgment. which has significantly increased the industry's insured loss from the event. We have also taken a more conservative stance on several aggregate excessive loss contracts, given the heightened loss activity in the first half of the year. Our guidance incorporates losses from other aviation-related losses that occurred during the first half of 2025. Further, as previously disclosed, we have made targeted portfolio adjustments including purchasing additional reinsurance and reducing certain quota share business. Whilst these actions are part of our long-term strategy, they are expected to result in lower premium growth and net revenue in 2025. The most significant driver of our result for the second half of the year will be the Atlantic wind season. We plan on a mean basis and our guidance assumes an average hurricane season. Moving forward, we remain focused on our long-term strategy and are committed to improving the company's performance. We continue to invest in our business, both in terms of people and technology, and Condrit is guided by a highly experienced leadership team with decades of proven success in building and managing reinsurance and insurance companies. You would have seen that our most recent hire was William Randolph, who recently joined as our Chief Risk Officer. We are very pleased to have William on board and look forward to the contributions he will make at our risk function. We have also hired a new head of exposure management, and later this year we will welcome a new head of claims and a highly experienced specialty underwriter to partner with Mark Bierman. These are experienced and well-regarded professionals, and we are pleased with the positive reception from the market. Collectively, the leadership team is committed to delivering Conduit's long-term vision and strategy. We will exercise discipline, managing risks thoughtfully, and ensure that we are allocating capital where it can generate the best outcomes. With this approach, we believe our cross-cycle mid-teens ROE objective remains achievable, whilst recognising the near-term challenge of the 2025 results. Now, turning to our underwriting performance for the first half of the year, we achieved 8.9% growth in gross premiums written, reaching $803.3 million. This growth reflects both targeted new business and increased participations on accounts where we saw strong alignment with our underwriting approach. Our balance between property, casualty, and specialty remains similar to the prior year, and each of our segments have gained scale. We are taking steps to refine our book, reducing exposure to business that no longer meets our return thresholds. This was most apparent in specialty during the second quarter. Our underwriting decisions will be margin led and we are willing to walk away from underpriced business. Overall, across the portfolio, risk adjusted rates have reduced by 3% net of inflation through the first half. In our view, rates remain relatively strong in our target classes. Pricing has come off historical highs, but remains near 2023 levels. Despite the elevated loss activity during the last two years, industry capacity remains near peak levels, and this excess capital is driving more competition. Regarding losses, this has been an historic year for catastrophes. The first half of 2025 was one of the most loss-intense periods on record for the industry. Ensured catastrophe losses are expected to reach at least $100 billion for the first six months, which is more than double the long-term average and the second highest first half total ever recorded. Over 90% of these losses occurred in the US, which is where the majority of our property exposure lies. Catastrophe activity was driven by a combination of severe convective storms and the devastating Palisades and Eton wildfires, which together accounted for over $40 billion of the total. Our undiscounted net loss, net of reinsurance and reinstatement premiums for the January California wildfires is $118.3 million, which is within our previously disclosed range of between $101.4 million. The majority of this impact was concentrated in our property segment with some exposure and specialty as well. On top of this, we have experienced development on losses relating to the conflict in Ukraine, as well as several large risk losses, such as the Air India aviation crash. As discussed last quarter, we have made meaningful changes to our insurance program since the wildfires and have purchased considerable protection against large secondary perils. Our aim is to reduce volatility going forward from these types of events. Looking ahead to 2026, our intention is to embed secondary peril protection more structurally into our core program, reducing our net exposure to large secondary perils. These changes reflect our intent to reduce volatility and manage gross to net more effectively as a core part of our underwriting strategy. With that, I will hand over to Nick for a deeper dive into our market experience across divisions.

I'll now turn to our performance at each of our business segments, along with respective market conditions and outlook. With a $65.5 million of year-to-date growth, $41.8 million was driven by our property segment, which grew 9.5% to $483.6 million. This was supported by a continuation of increased demand from U.S. carriers in addition to inflation-linked exposure growth. In line with our Q1 commentary, we observed more limit purchase through mid-year in the US. As we anticipated, renewal negotiations were more challenging than in 2024. Risk-adjusted rates, net of inflation declined by approximately 5% through June 30th. Outcomes varied significantly by region, peril, and layer. This reflects broader market dynamics, including increased capacity and higher ILS participation. the ILS market continues to show strong appetite, contributing to increased capacity and competitive pricing on certain layers. Our growth rate has moderated, and depending on market conditions, this trend could continue as we prioritize risk that satisfies our return hurdles. During the year, we continue to increase our line size on high-performing treaters, and we actively reduced exposure to accounts where pricing or structure no longer fits with our risk appetite. We made progress on several new placements in Q2, notably on excess of lost business, but also in select quota share deals. These steps support our strategic goal to increase excess of lost business over time. We're actively managing our portfolio to achieve this shift, including adjusting line sizes, targeting new excess of lost opportunities, along with refining and marketing our underwriting strategy to support this evolution. As Neil mentioned, the first half of 2025 was one of the most active catastrophe periods on record, particularly in North America, where most of our exposure lies. The largest event was the California wildfires in January, but there was also several large severe convective storms and other smaller events that contributed to results. Our undiscounted combined ratio for the property segment reflects this loss activity and increased to 132.5% for the first half of 2025. Looking ahead, we remain selective in deploying capital as we make careful adjustments to the portfolio. This also includes a revised Outwards Reinsurance Programme the remainder of 2025, which will better protect against large sector perils going forward. I'll now turn to our performance in the casualty segment. Casualty experienced the strongest growth rate among our underwriting segments during the first half of the year, with gross written premiums of 14% to $169 million. Growth was concentrated in US general liability classes, where we have deepened our partnerships with several key participants in the excess and surface lines market. These are mostly existing clients where we have observed strong underwriting behaviours and we therefore sought to increase our line size on their programmes. Equally, as we manage our casualty portfolio for changing conditions, we have reduced exposure to segments where pricing has been more competitive or rate adequacy is deteriorating, such as D&O and financial institutions. For the period to the 30th of June, the risk-adjusted rate change for casualty was plus 1%, with positive momentum in US general liability offsetting softer trends elsewhere. Seating commissions have moderated slightly, improving net economics as we look forward. Overall, the reinsurance market is showing strong demand to deploy capacity in casualty classes. However, we would characterize the market as genuinely remaining disciplined, given some of the recent experience in the industry from back-year deterioration. For the first half of the year, our casualty segment undiscounted combined ratio was 103.8%. Historically, our four-year ratio tends to improve relative to the half-year result, reflecting the timing of earnings and loss emergence. The 2025 ratio also reflects an increase to our unallocated loss adjustment expense estimate, given the overall casualty claims environment. Prior year reserves remain stable, and in our opinion, our booked ratios include prudent allowances for inflation and uncertainty through our risk adjustment margin, which we expect to unwind over time as claims are paid. Due to the long-term nature of the business, we will continue to be selective in casualty classes and prudent with our reserving. Overall, we believe our portfolio is well-positioned and resilient. Our focus remains on long-term partnerships, disciplined underwriting, and selective diversification beyond the U.S. market. Finally, moving on to our specialty segment. We have built an attractive, diversified portfolio of specialty risks. We will look to expand this over time with the addition of underwriting resources and as market conditions warrant. Gross premiums written in specialty rose 2% to $150.7 million during the first half of 2025, with growth constrained by softening rates and our selective underwriting approach. The moderation in year-to-date premium growth to 2% for the half-year from 25% in Q1 is largely attributable to a combination of timing-related effects and more market competition in the second quarter. While Q1 benefited from strong new business momentum and favourable prior-year comparisons, During Q2, we came off a few treaters where pricing or terms and conditions did not meet our standards. We also reduced our offered line on certain programmes, while some accounts experienced slower-than-expected exposure growth or structural changes that reduced our premium capture. Risk-adjusted rates, net of inflation, declined by approximately 4% through June 30th, with pressure across most classes, including marine and energy. However, earnings and terms and conditions have largely held. Specialty classes have been exposed to some significant risk losses, including the Baltimore Bridge and several aviation events. We have been disappointed that pricing in these classes has not responded to some significant claims for the industry. The undiscounted combine ratio for the first half of the year was 105%. This result considers impacts of our aviation and war-related exposures, including developments linked to Ukraine. A small portion of our California wildfire exposure also sits within the specialty book. Regarding Ukraine, the situation remains complex and we are monitoring legal developments and working closely with partners to assess outcomes. Looking ahead, we have reinforced relationships with proven partners and are seeing increased traction in multi-line and excess of loss opportunities. Submission flow has increased and we are maintaining discipline on event limits and loss ratio caps. While top-line growth is modest, we are prioritising quality of underwriting. I'll now hand over to Elaine for the interim financial results.

Thanks, Nick. growth premiums of $803.3 million are up 8.9% on the prior year. That compares to the 15% increase that we discussed in our first quarter trading update. As mentioned then, we expected that growth rate to moderate somewhat by the half year, given timing around our renewing book plus some premium adjustments. So our growth of nearly 9% is in line with those expectations. That growth will moderate a bit more over the rest of the year, but we still expect to have a healthy level of growth for the full year. Our proportion of quota share business currently remains reasonably consistent year on year, again reflecting where we've seen the best value. Although, as you've heard, we're just beginning to tilt a little to some excessive loss deals, where we're seeing some more deals meet our return hurdles, and as we seek to rebalance our book a little. We have reinsurance revenue of $433.3 million versus $382 million at the prior half year, a 13.4% 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. Generally, seeding commissions have ticked up a bit, so we're seeing a higher deduction for those which of course impacts our reinsurance revenue. Seeded reinsurance expenses, which are essentially our seeded premiums earned, excluding reinstatement premiums, were $53.4 million over the first six months of 2025, compared with $43.8 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, plus some additional cover purchases around Secretary Perls following the California wildfire loss in January. On losses then, the first six months of 2025 was another highly active period of natural catastrophe events and risk losses for the industry, including the California wildfires, severe convective storms in the United States and several aviation losses amongst others. The California wildfires were the most significant event and our undiscounted net loss, net of reinsurance and reinstatement premiums is $118.3 million, which is within our previously disclosed range of between $100 and $140 million. The California wildfires contributed 31.6% to our undiscounted net loss ratio. Absent this event, our undiscounted net loss ratio would have been 78%, which is more in line with the prior year undiscounted loss ratio of 73%. Other smaller impacts came from taking a more conservative stance on a number of aggregate excessive loss contracts, given the elevated loss activity in the first half of the year, and also strengthening our Ukraine reserves a little, given the outcome of the UK High Court ruling. While some of our students may appeal the ruling, we felt it prudent to boast our reserves now, given the updated information available. A reminder that 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 interim financial statements segment disclosure, we've provided a breakout of that number into the loss and expense components so that you can see those separately and also to help with calculating our net loss ratio. Our undiscounted net loss ratio for the half year was 109.6% versus 73% for the prior period. Our discounted loss ratio was 95.8% for the half year this year and 62.4% for the half year last year. Our combined ratio for the half year was 122.1% on an undiscounted basis and 108.3% on a discounted basis compared to 85.7% and 75.1% respectively for the prior year. Our comprehensive loss for the half year was $13.5 million, or an ROE of negative 1.3%, compared to comprehensive income of $98.1 million and an ROE of 9.9% for the prior period. On the investment side, yields have decreased a fair bit this year, and the portfolio is generally yielding more now, maintaining a current book yield around 4.2%. Overall, for the half year, we returned 3.9% versus 1.5% in the prior year, where we saw yields move the other way. We remain relatively short duration, and our focus is on maintaining a high-quality, highly liquid portfolio. Duration is currently 2.8 years, which is the same as our net reserves. Average credit quality is AA, and you can see the usual pie chart here with our asset allocation, and other than cash, cash equivalents and short-term investments reducing a bit, which is largely timing, no real changes from prior quarters in that or our strategy. 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. As our investment leverage increases over time, that contributes more to our ROE. I'll now hand back to Neil for closing comments.

Thank you, Elaine. Before we close, I would like to reflect on this transitional phase for Conduit and our strategy. Conduit has made significant achievements since the IPO and our efforts to better position the business for the future are progressing. As the market changes, our strategy must evolve. As a startup company, we achieve scale with our quota share focus, which enabled us to capitalize on the hard market conditions and grow into our capital base. Through the startup phase, we have developed strong client and broker relationships to access risk. As we move forward, we are looking to achieve balance between quota share and excessive loss business, which is consistent with the business plan we originally designed at the IPO. We believe this adjustment, which will take time to achieve, will affect our business in a few ways. Reduce our exposure to attritional losses, which is more difficult to control when rates are softening, improve diversification within our portfolio, allow us to better control our net exposures through retro coverage, retro being our outward reinsurance protection. We recognize our transition will involve additional investment in people and resources. We have started to make progress with recent hires who are bringing fresh perspective and expertise to the company. and are supported by our long-standing executives who are providing strategic consistency and operational stability. Our goal is to create a stronger, more resilient conduit that generates more consistent returns. Our path forward requires building on strong leadership, underwriting expertise and a collaborative culture. Returning to this year's performance, we are disappointed to report the first half loss of 13.5 million, primarily driven by industry-wide losses relating to the California wildfires. Market conditions have become more competitive. However, business generally remains adequately priced. We will continue to deploy capacity where we see sufficient margin, and our underwriting teams are starting to manage the cycle in classes where there is more intense pressure on rates, terms and conditions. Our strategy is bottom line driven, with growth during 2025 enabled by renewal support from our clients and selective expansion with preferred partners. Conduit's balance sheet remains strong with over a billion dollars of shareholders' equity. Our capital strategy remains focused on supporting underwriting whilst returning value to shareholders over time. Our conservative investment portfolio has reached $1.9 billion and is now generating meaningful investment income to support our returns. We are committed to long-term value creation and we believe necessary strategic actions are underway. That concludes today's presentation. Thank you for your time. We will now turn it over to Q&A.

into the call and would like to ask a question, please press star followed by one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in. Your first question comes from the line of Michael Hutner of Barenburg. Your line is now open.

Thank you very much. I guess good morning. I have three questions. The first one, the transitional phase. Could you say how long it will last? That would be my first question. And maybe touch on this additional investment is a potential amount we can think about. The second one is on the... I noticed it's on Ukraine and maybe I'm misheard. you know, the complex flame, does that mean that there could be potentially more loss coming from that? And maybe you could give us a feel for that. And then the final point is, You talked a lot about the retro cover that you've purchased and how it protects earnings. I just wondered, can you give us a feel for either the benefit of this retro cover or the cost of it? It's difficult to form a kind of idea of how meaningful it is. Thank you.

Okay. So the first question was the transitional phase. And we are... Our current portfolio, quite a share to Excel split, quite a share is probably in the mid-70s. The IPO plan stated a 50-50 split. We wish to move towards that. I previously said that it's about evolution, not revolution. We will not move there. in one go. It will be a gradual adjustment of the portfolio. I mean, we're not going to sort of sit on our hands. It will be done in a meaningful fashion, but it will take more than 12 months to adjust that premium split. So that's why it's described as a transition phase. Your next question was about people. When we say continue to invest, it's not like a capital investment or we're buying people. It's just new recruits and hires. So, you know, we are where appropriate and where the skill sets we've announced the hiring of a new underwriting specialty to support recruitment. Mark Bierman, we've announced a new CRO. So that's what we meant by investment. It is not a material sum, and we would still expect our expense ratio to be below the 5% line that we've always aspired to. On the retro, Michael, the principal purchases were made in the announcement that was before the announcement that was made in Q1. So the... That cost would have been contained within previous announced figures. And any further purchases of reinsurance for this year were within the original budget. So there is not material additional cost making part of this set of results from previous disclosures. And on Ukraine? You also asked about the benefit of that reinsurance. The principal benefit, we have historically disclosed losses that are greater than 25 to 30 million, roughly. There's no hard and fast rule on that, but that's the basic level. And what I said previously is that we now have substantial vertical limits on an excessive loss basis. that cap our losses on secondary perils to within that disclosable level. We never give details of individual reinsurance contracts for commercial reasons, but it is safe to assume that within what I described as the disclosable range, that those reinsurance contracts kick in on an each and every basis. So effectively on a per event basis, there's a big limit but there's an excess point that caps in below the disclosable level. We also did previously announce the purchase of additional aggregate cover, which protects us from attrition.

Mike, we'll just pick up on those points as well. If you go to our interim financial statements in the segment notes, we split out the CDV insurance expenses, which is basically on an earned basis. It'll let you be able to compare where we are this year versus last year, so you can kind of carry that through for the rest of the year. um so go to the statements and then um and and effectively look at the the seeded premiums is that what you're saying yeah in the notes so there's a segment note in the notes of the national statement and when we read the line items that you see in the income statement out in a little bit more detail so you can see the cdv insurance expenses there yeah and brilliant fantastic so you also asked a question about ukraine uh which

The Ukraine loss has gone up a lot in the original loss terms. The latest PCS estimate is between $8 billion to $10 billion, and it was previously much reduced from that. I do think it will be a feature of this results season for certain companies. The reason it's complex is that the judge found that it was an aviation war claim, and that claim is still being appealed. So until the outcome of that case is finally resolved, there could be some more risk loss. Some insurers aren't even appealing that judgment. So it is not a cut and dried case. But we do not have deterioration that's up to a disclosable level. And any deterioration that we've taken, we have, in my view, provenly reserved. It's not material. And the reserves that we have on Ukraine and the aviation loss would be contained within our H1 class combined ratio, which we do disclose. And that will give you the ability to see that it's not a large or material figure. So Ukraine is complex. The way it's treated in reinsurance is also complex because... as to whether it becomes more than one event. So I think we've taken a prudent position and there are moving parts, but we are not, we've reserved on the basis we don't expect. Well, obviously when you set a reserve, you don't expect further deterioration.

Absolutely. Very good. Very helpful. Thank you.

The next question comes from the line of . Your line is now open.

Oh, hello. Hi there. I've got a few questions, if I may. The first one is on growth. What number are you looking to focus on in terms of the growth? Are you looking to adjust the gross premium number or the net? number down or both? It sounds like you're looking to manage the net insurance revenues more effectively through retro. So that's the first question. And then the second one is just coming back on to the balance of the business. You're looking to shift more towards the excess loss lines. I'm just wondering, what's the motivation behind that? Is it as simple as the margins are better there? Just any more color on what's driving that motivation towards excess loss? And then the third question is on exits. I think you mentioned that you are looking to pull back from certain products, certain lines. Any more color on that? And then the final question is just on your share buyback. Are you still intending to buy back your shares, particularly given where the stock is trading today? Thank you.

Right. so the the first question was on growth in in pi we we did record um a um level of growth in the first half nine percent increase and we would expect that growth to moderate um we um so yes it will be um a reduced level of growth for this year, and I'll ask Elaine to comment further on that in a minute. We don't give guidance for 26. In terms of going and driving towards excessive loss, excessive loss is priced at a higher margin than quota share. So there is an attraction to driving towards. The original business plan was written on a 50-50 basis. It's also easier to manage attrition within that portfolio because excess of loss bias definition is more catastrophe orientated. Quota shares, if market rates soften, the margin is less. So we are managing that process. We will reduce our exposure to quota share for those reasons and increase towards excess of loss, which is higher margin. You asked on exit. We haven't specifically exited a class in total. We will review each line of business based on its merits. And we are happy with the shape of the portfolio from a class perspective, other than our wish to drive towards more excessive loss activities. and less quota share. Abbott, can you remind me of the last... Oh, it was on share buybacks. The share buybacks, we announced we have full permission to make share buybacks until March next year. I mean, yes, I am totally aware of where the share price is as we sit here. And we have exercised our ability to purchase some shares and we have been prudent. Every single time we purchase our stock, it goes down the wire on the R&S, so you guys can see what we've purchased. I don't want to comment on forward purchase, because by definition, I'll be giving out inside information.

Just to add to that, we are in a competitive season. That's obviously part of our consideration there as well, and we'll reassess that as we move through that peak risk period. And I guess Neil asked me to comment a little bit more on the growth side. I think both sides of that equation are important. I mentioned in our remarks that the growth in our growth streams will moderate a little bit as we move towards the end of the year. And that's a fairly typical pattern for us anyway, given where we write our books. But also, I think going forward, there's the mix of the book that we're looking to achieve, but also managing to have a more efficient and effective outwards program there as well. So there's two sides to it.

Thank you. Your next question comes from the line of Andreas van Ebden of Peel Hunt. Your line is now open.

Yes, thank you very much. Just three quick questions, please. Again, turning back to that transition you're making towards the quota share program, could you maybe describe some examples of where you're already cutting back on that quota share program? You mentioned property as being an area where you're sort of looking to actively re-underwrite, but you didn't mention anything on casualty and specialty. So I just wanted to try and find out whether you're cutting back on quota share on individual clients, classes across the board, and whether you're cutting back because of being uncomfortable with terms and conditions rather than rates. And the second question is, as you move to excess of loss type contracts, I appreciate that there's a higher margin business, but it also increases your risk appetite and just wondered what this means from a capital point of view. Would you need to hold more capital against the premiums you write as you move to writing more excess of loss? And then finally on premiums, as you downsize your quota share book and move into excess of loss, Are you managing the premium pie, as it were, sort of the whole premium volume you're writing in 2025? Can you replace dollar for dollar, you know, a quarter share contract with an excess of loss contract and keep premium stable? Or is there going to be any pressure on premium volume as you move towards that 50-50 transition? Thank you.

Okay, so on the quota share examples, we would look. There are some types of quota share that we will be more sceptical of, one or two in the property segment. But it's basically down to the quality of the underlying property that's the first assessment in writing that risk, and then it's down to the margin that is available based on those factors, but also the factors of the level of acquisition costs within that treaty. So if in our perception there is exposure that does not justify on the model and the price margin, We have reduced on some property quota share. We've also reduced our line on one large casualty treaty. And we have a reduced line within the specialty account. So, yes, it's not that we will target a particular property. It is about the quality and the margin within that portfolio. I do take your points on excess of loss being more capital intensive. It's catastrophic. So you do reduce your exposure to attrition losses. And we can tailor our reinsurance program accordingly. We have always had good capital protection and we we are able to accommodate more excess of lost business without putting capital stress in the business. We have a strong balance sheet. In terms of the premium pie, your observation that if you do, you know, can you replace dollar for dollar XL for quota share? Quota share comes in larger lumps premiums. So we would have to do more work and attract portfolios of excess of loss business. So dollar for dollar, no. And it's then a question if we have an increased appetite for excess of loss, can we get on the business we want to get on? And we are in the middle of the planning process for 26. And, you know, I need to complete that. But your question on dollar for dollar replacement is, On a per-risk basis, obviously not, but we would look to... And I have said earlier in the call that we're not just coming off quota share business wholesale. There is some nice business in there that we would want to give continuity and support to our seedings. So it's evolution, not revolution. And so I do think we can replace, as we trim our quota share book, we can replace it with excess of lost business.

I'll just chip in on that one if I can. Hi, Andres. The quota share, although there's some larger dollar treaties, they do take time to write in there now. So there's some transition timing around that in terms of the dollar-to-dollar matching as well.

All right. Understood. Thank you very much.

The next question comes from the line of Ben Cohen of RBC Capital Markets. Your line is now open.

Good morning. Hello there. I hope you're all well. I just had two questions. I wanted to go back on something I think Elaine said, which was about some of the loss in the quarter reflecting, I think, treatment of aggregate XOL contracts that you had. I just wonder if you could give some more colour there. Does that suggest that you yourself are writing aggregate business and that you're concerned because of, I guess, the storms in the US that these contracts are more likely to kind of move against you. And so you've recognized that now. And the second question is just to come back on the casualty combined ratio in the first half. I appreciate your, I think you're setting your reserves at a conservative level. But could you just say more about why you're prepared to write business above 100% combined ratio, particularly as it doesn't seem now that there's that much forward momentum in that rate anymore? Thank you.

Hi, Ben. Welcome back. You're spot on on the aggregate accessible contracts. We do write a few of those and we have recognised that the higher period of activity in the first half around convective storms and some of the other things we've mentioned there as well. So, yeah, we have taken appropriate measures on those contracts. On the casualty combined ratio, there is a little bit of timing element in there. It was kind of higher through half a year last year and then came down towards the end of last year. I may expect that trend to continue. It's just a bit of a fallout in terms of how we think about risk adjustments and through the reserving process there.

Thanks. Can I ask just to follow up on... Sorry, Niamh.

Go ahead, Ben.

No, I was just going to ask a follow-up on the aggregate excess of loss. So does that mean that there's a risk that these treaties, if there are sort of more mid-sized events, that actually you would have more losses there? And then can they come to a point where this additional aggregate cover that you yourself have purchased in the first quarter, that that sort of claw some of that back, or would that be below the level that you've then purchased the coverage for, if you follow?

There's a degree of a timing exercise with when we've purchased the additional cover. Sorry, ask your question again, or else you're hard to answer.

Yeah, it was just whether you'd potentially have additional coverage coverage from the new reinsurance that you bought for this, you know, for this kind of aggregate contracts that are being, that I suppose are being pinged now from all that, you know, you're more worried about sort of aggregating into you providing cover, whether there's any, you know, additional protection that you've bought there? Or is that, am I just looking at the wrong things and we should just think about it? Okay, you know, if there's another $15 billion SQS in the US, then you'll be protected and a $30 million loss would come down to a $10 million loss and we wouldn't hear about it.

Yeah, I guess I'll probably stick with my initial reaction in terms of timing. So we did have some cover in place. We've got some more. So depending on when that kind of kicks in, then we'll get the benefit of that cover. I think that's what you're looking for, yeah?

Yeah, and an SES loss of the size that you mentioned on an event basis is capped out by the each and every cover's that we have. And what I would observe is we have tried to give granular detail on the constituent parts that go into the result for H1, but no individual particular event, whether it's within the aggregate, whether it's Ukraine, whether it's the individual aviation plane, make up a majority part of that result. So it's not significant. We have just taken what we regard as a prudent reserving stance. Okay. Thank you very much.

Your next question comes from the line of Joseph Ewing of Autonomous. Your line is now.

Hello? Can you hear me? Yeah. Oh, hi. Great. So I've got two questions. The first I saw is that you reiterated a cross-cycle ROE target of mid-teens. Given that we're past the peak and entering the soft market, what's the near-term ROE target? Is it realistic that it might be below this cross-cycle target? And the second question I have is, is just going back to the combined ratio target of the low 80s. Given all of the changes that you're making, primarily in property, but a little bit broader across the book, does this still hold? Is that sort of the target, or has that changed? Thank you for answering.

Okay, so if we do give a cross-cycle ROE target, then... one would suspect that during the soft part of a market cycle the 50 or sorry the mid teens would be harder to achieve and companies should be getting to more than mid-teens in the hard part which we did observe you know across the market in 23 so at peak of cycle, then, you know, there will be volatility within that cross-cycle aspiration. And yes, I get where you're coming from. We've given guidance for this year. We haven't given guidance for next year. We're in the middle of a planning process. And, you know, that's what we aspire to as a company. And we will write a plan accordingly. But within that cross-cycle guidance, there will be parts of the cycle where that is much more difficult to achieve. So hopefully that answers that part of your question.

Do you think in the near term, while the market is softening, we're not going to proper stock market either, so I think I'd factor that into your expectations around our ability to produce returns for next year. On the combined ratio, we're not in a position where we think that anything has changed in terms of anything we've said previously, so we've obviously had some issues around our welfare losses this year, but in terms of the underlying book, it's adjusting around our share in excess loss balance and making our reinsurance program hopefully work a little bit harder but none of that really changes where we expect to be from that perspective and that kind of ties in with the cross cycle guidance as well.

Okay thanks for that.

Question comes from the line of Ivan Bachmet of Barclays. Your line is now open.

Hi good afternoon thank you very much. A few questions, please. The first one, I mean, I've noticed that if I look at the property and casualty rate changes, there seems to be some improvement of momentum from Q1 to first half, albeit some changes. acceleration in specialty. I was just wondering if you could maybe comment on why we're seeing such dynamics. Is it because of mix? Is it because of some other impact? And perhaps if you could provide some of the outlook of what you think will happen to those rates and the rest of the year and maybe into 2026. And my second question is, I mean, could you help us understand the change in the attritional loss ratio or combined ratio year on year? I mean, obviously, first half of 2024 did not see anywhere near as much cap losses. But given the changes in the reinsurance you have purchased, how should we think about that attritional ratio and where should the net cap ratio be throughout the cycles? And maybe the final question, I think it's actually related to the prior year developments and the reserve confidence. I mean, you flagged that you've added the Ukraine reserves, but overall PYD, I think, was positive over the first half. Maybe you could comment a little bit on where that came from and also how you view your reserve confidence at the moment.

Thank you. Okay. Elaine, if we take that in reverse order, do you want to start on the reserves?

Sure, Ukraine was in those numbers and that is an offset. The rest of it is really just the runoff of prior years in terms of what's been reported versus what we expected and how we're adjusting our risk margin there. So there isn't anything specific that I would call out in those numbers there. On the traditional loss ratio, I think it's going to go back to the comments that we made just a moment ago around the combined ratio. I don't think we're necessarily changing significantly the expectations around the underlying portfolio. I think what we're talking about with adjusting business mix and buying more effectively insurance programme is our ability to achieve those. So I don't think I'd necessarily say there's any significant change in how we think about those underlying ratios.

Yeah, and you asked about rate progression in P&C. The underlying pricing, there were rate reductions, and I think to a small extent some of these classes are dependent on class-specific experience, but there is an overarching trend, which is that there is a lot of capacity in the market now and placements are You know, as rates come off, we have seen rates come off from peak, and we now think they're at 23 levels. So from a macro industry perspective, there are people that are increasing their premiums. I'm sure this reporting season people will announce increased premiums. And so the availability of additional capacity on a pure supply and demand basis is affecting things. Cash Decide, we are seeing rate increases and probably an extremely small single-digit rate reduction post our inflation assumption. Property, we have seen rate reduction, and I wouldn't expect that trend to continue, sorry, to change. I wouldn't expect the continuation of those conditions because you've got the high-level supply and demand issue There will be class specific claims and loss activity that affect areas. There has been loss experience in Florida from Helen and Milton, which have affected pockets of risk. But overall, the market sort of has come off and we've been clear on that.

Next question comes from the line of Michael Hutner of Barenburg. Your line is now open.

Thank you. It was really light stuff. One, I don't know if you can answer that. I tried to put it in a kind of general way, the natural catastrophe kind of loss pattern. You mentioned hurricane season and stuff. I just wondered if... if you can give us a feel for what, I know I'm kind of asking for a forward-looking, but any help would be good. And then I think you mentioned several times diversification. At the moment, not much because, you know, the pattern of loss has affected you more. It was more U.S. and then XOL giving you the opportunity for diversification. Maybe you could explain possibly the benefit of that. Thank you.

Right, so the first thing you asked about was the up and coming Atlantic wind season. What we were not doing was trying to create any type of predictive skill set. What we did say, you know, we use a mean basis in terms of results. We originally gave guidance post the LA event and have therefore been updating There is volatility. There could be a benign hurricane season, and so far the hurricane season has started fairly quietly. But we are in the Atlantic wind season, which is why we said and caveated the guidance in that regard. So... I think that's positioned. There is no attempt to predict an outcome. We've, I think, stated that we would use a mean hurricane basis, and that will be taking the mean equivalent of the preceding few years. In terms of diversification, we do have a concentration of risk within North America. Within that market itself, we are diversified, and America is a very large place but by writing excessive loss with more exposure into European and international markets we will increase diversification and we will in writing excessive loss where an earlier question was talking about the margin then there is less exposure to attrition and more margin in the underlying so long as you can attract diversification within the excess of loss account. We are in the middle of a planning process. That would be one of the targets, would be to improve the diversification we get through a spread of excess of loss business.

Very helpful. Thank you.

Next question comes from the line of Joseph Deans of Autonomous. Your line is now open.

Hi there. Thanks for taking my follow-up questions. The first is just in terms of this transition, can you give any indication of how long you anticipate it might take? I know you mentioned more than 12 months, but even on a sort of, I don't know, say two or three renewal window season, that seems like quite a dramatic shift. Um, and my second question is on the, um, underwriting hires, um, are there more planned, um, in top of the, the one you mentioned specialty, um, and in terms of, you know, this current high you've mentioned specialty and, and any other future hires, is it for, uh, new lines and geographies or is it just expanding what you kind of already currently underwrite? Thanks again for the followups.

Yeah. So, um, There are sort of two questions there, which are obviously slightly forward-looking. In terms of highs, we have been strengthening various areas across the group, and we actually have a new head of claims starting very soon. We also would be strengthening in areas such as pricing actuaries and things that increase demand. bandwidth and enable us to write more business. So yes, we will continue to hire. I don't want to make forward-looking statements in terms of specific allusions, but we will hire where appropriate within the classes that we currently write and there are no current plans to open new lines of business away from property, cash, and specialty, but we will continue to look to strengthen, both from a service and resource perspective within those lines, and if the right underwrite is available, then that would be good too. But we have made hires in risk, we've made hires in claims, and we will be looking just to strengthen in general. You asked about... the duration of the transition. And I did say that it was evolution, not revolution. I also said, you know, we would not be looking to suddenly be sitting down here in 12 months' time saying it is 50-50. That is not what we can say. We are in the middle of a planning process for 2026, and we will... drive towards that figure. I cannot predict the exact timeframe on that drive. We will. We have that strategy, which is to increase the amount of excessive loss and reduce on a selective basis. And we will continue to write what we regard as good statements with attractive reinsurance policies that we want to write. including on quota share. But the drive is to adjust the portfolio over time. And you said, will it take two or three renewal seasons? To achieve the ultimate goal, it could. But as I sit here, I can't turn around and give an exact program. We are in the middle of the 2026 business planning process now.

Okay, so... what I'm hearing is that you won't be actively cutting quota share. It's more kind of a trimming where the profitability isn't adequate and then, you know, kind of growing more actively in sort of the XOL kind of book.

Yeah, I mean, what you're doing is drawing a distinction between the word cutting and trimming. And what I've said is that we will push towards the 50-50. We will manage both the increase in Excel and the reduction in QS in what we think is the best way possible. And that may mean that there are some bits of business that do not meet our margin criteria. So if the definition of cut is to decline that renewal, then... That's a cut. But we are looking to, you know, I have said it's evolution, not revolution. We are looking to drive towards a goal as opposed to define explicit action.

Okay. Thanks for that additional comment.

For no further questions on the conference line, I will now hand over to Neil for closing remarks.

Thank you, everybody. And, yeah, I mean, closing remarks, the announcement's been made. You know, we have revised earnings. It's been a tough quarter for us. We look forward to seeing individual investors and catching up with all of you individually and especially Q3. Many thanks. Cheers.