CHL is today announcing its interim results for the six months ended 30 June 2022.
Trevor Carvey, Group Chief Executive Officer, commented:
“We are seeing strong demand for our offering and we continue to take a highly selective approach to our underwriting in a market which is exhibiting increasingly strong fundamentals. The business is normalising, our combined ratio will be trending towards our target of mid-80s steady state and the business is in an excellent position to continue to capitalise in our chosen markets.”
Underwriting – Strategically Well Balanced Portfolio
- Approximately 70% of the portfolio is non cat business – a key benefit of Conduit’s focused and highly diversified approach
- Conduit’s robust risk selection and contract structuring process means it has experienced relatively low levels of catastrophe losses in H1 despite higher than average levels of insured catastrophe losses in the market
- Weighting towards quota share business allows Conduit to participate in the significant price rises and improved terms and conditions experienced in the primary markets at this point in the cycle, whilst reducing volatility.
Financials – Headlines
- Estimated ultimate premiums written increased by 49% on H1 2021 to $496.7 million
- H1 comprehensive loss of $61.4 million after the impact of:
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- $24.6 million estimated loss in relation to Ukraine (net of reinsurance and reinstatement premiums) including an estimate of the impact of potential aviation claims
- Net unrealised loss on investments of $54.3 million reflecting the mark to market adjustment driven by expectations of rising interest rates
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- Potential to unwind over time: portfolio c. 92% fixed maturity with an average duration of 2.4 years and average credit quality of AA
- Opportunity for enhanced investment income going forward in a higher interest rate environment
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- Interim dividend of $0.18 (approximately 15 pence) per common share declared
Momentum – Very Well Positioned for Growth
- Strong, legacy free, unencumbered balance sheet with limited exposure to issues such as claims inflation on reserves
- Market conditions remain strong with continuing rate increases and improvements in terms and conditions; 2022 year-to-date indicative renewal rate increase of 4% net of inflation
- Reinsurance market is significantly capacity constrained which is driving strong demand for Conduit’s unencumbered capacity and strong balance sheet
- The business is still in a significant growth phase. As premiums continue to earn through to the income statement the impact of premiums ceded to reinsurers and other operating expenses will form a smaller component of the combined ratio
- 51 employees, one operating location benefiting from an open culture and a modern and efficient infrastructure
- Engaged with all major reinsurance broking houses, using management’s long-term relationships to access high quality business
Neil Eckert, Executive Chairman today added:
“We have built a quality underwriting operation which is perfectly positioned at a time where there is a shortage of reinsurance capacity in the market – Conduit’s business model was constructed for precisely these circumstances. The continued hardening of the market provides Conduit with a substantial opportunity for profitable growth to build out the business.”
Trevor Carvey, Group Chief Executive Officer, added:
“Conduit has quickly built a reputation for underwriting discipline and focus, as well as great service. We have now passed $1 billion of ultimate premiums written since IPO and it is great to see the validation of our underwriting and approach.”
Key financial metrics:
| Financial highlights | Six months ended 30 June 2022
$m |
Six months ended 30 June 2021
$m |
Year on year change
% |
| Estimated ultimate premiums written | 496.7 | 333.1 | 49.1% |
| Gross premiums written | 359.0 | 210.3 | 70.7% |
| Net premiums written | 313.4 | 188.5 | 66.3% |
| Net premiums earned | 210.0 | 47.7 | 340.3% |
| Underwriting profit | 6.2 | 0.5 | 1,140.0% |
| Comprehensive loss | (61.4) | (12.4) | (395.2%) |
| Financial ratios | Six months ended 30 June 2022
% |
Six months ended 30 June 2021
% |
Year on year change
% |
| Return on equity | (6.3) | (1.2) | (5.1%) |
| Net loss ratio | 67.8 | 70.0 | (2.2%) |
| Net acquisition expense ratio | 29.3 | 28.9 | 0.4% |
| Other operating expense ratio | 8.0 | 28.3 | (20.3%) |
| Combined ratio | 105.1 | 127.2 | (22.1%) |
| Total investment return | (4.7) | 0.1 | (4.8%) |
Business review
During the first half of 2022, Conduit Re continued to show growth across all segments thanks to improving rates and, primarily, to new business. Client count and submission numbers have increased in line with the Group’s growth strategy. Rate change continues to be positive, outpacing inflation.
Underwriting activities
Our estimated ultimate premiums written for the six months ended 30 June 2022 and 30 June 2021 were as follows:
| Segment | 2022
$m |
% of total | 2021
$m |
% of total | Year on year change % |
| Property | 230.5 | 46.4% | 157.0 | 47.1% | 46.8% |
| Casualty | 171.0 | 34.4% | 115.2 | 34.6% | 48.4% |
| Specialty | 95.2 | 19.2% | 60.9 | 18.3% | 56.3% |
| Total | 496.7 | 100.0% | 333.1 | 100.0% | 49.1% |
Our gross premiums written for the six months ended 30 June 2022 and 30 June 2021 were as follows:
| Segment | 2022
$m |
% of total | 2021
$m |
% of total | Year on year change % |
| Property | 188.3 | 52.4% | 129.5 | 61.6% | 45.4% |
| Casualty | 111.6 | 31.1% | 44.1 | 21.0% | 153.1% |
| Specialty | 59.1 | 16.5% | 36.7 | 17.4% | 61.0% |
| Total | 359.0 | 100.0% | 210.3 | 100.0% | 70.7% |
The split of our estimated ultimate premiums written between quota share and excess of loss for the six months ended 30 June 2022 and 30 June 2021 were as follows:
| Type of business | 2022
$m |
% of total | 2021
$m |
% of total |
| Quota share | 354.8 | 71.4% | 235.8 | 70.8% |
| Excess of loss | 82.3 | 16.6% | 38.9 | 11.7% |
| Quota share of excess of loss | 59.6 | 12.0% | 58.4 | 17.5% |
| Total | 496.7 | 100.0% | 333.1 | 100.0% |
The split of our gross premiums written between quota share and excess of loss for the six months ended 30 June 2022 and 30 June 2021 were as follows:
| Type of business | 2022
$m |
% of total | 2021
$m |
% of total |
| Quota share | 232.9 | 64.9% | 130.7 | 62.1% |
| Excess of loss | 82.3 | 22.9% | 38.8 | 18.5% |
| Quota share of excess of loss | 43.8 | 12.2% | 40.8 | 19.4% |
| Total | 359.0 | 100.0% | 210.3 | 100.0% |
Both pricing and terms and conditions continue to improve in many of the markets we are targeting, particularly at the primary level, hence our focus has remained towards ground-up quota share business.
Pricing
The Group’s overall indicative renewal price changes for 2022, net of inflation, were estimated to be:
| Period / Segment | Property | Casualty | Specialty |
| Year to date | +7.8% | +1.4% | +2.4% |
Ceded reinsurance premiums written
Ceded reinsurance premiums for the six months ended 30 June 2022 were $45.6 million compared to $21.8 million for the six months ended 30 June 2021. The increase in cost relative to the prior period reflects the growth in our inwards portfolio plus additional limits purchased.
Losses
Conduit has had minimal exposure to the natural catastrophe activity of the first quarter, or the large loss activity of the second quarter.
The most significant event of the year so far remains the Ukraine conflict. Conduit continues to have potential exposure to the crisis across its property and specialty books via war on land, marine war and aviation. There is significant uncertainty in estimating losses emanating from the Ukraine conflict, not least as it is an ongoing event. However, Conduit’s previous guidance regarding loss expectations is unchanged. The estimated ultimate net impact, after reinsurance and reinstatement premiums, is $24.6 million, including for aviation-related claims. We have not received any loss notifications to date so our loss estimate continues to be derived from a combination of market data and ground-up assumptions, modelled loss projections and information from cedants. We will continue to keep these estimates under review while we await more detailed information and reporting from our cedants.
Our net loss ratio for the six months ended 30 June 2022 was 67.8% compared with 70.0% for the same period in 2021. Our ultimate loss estimates, net of reinsurance and reinstatement premiums, for the previously reported 2021 loss events remained relatively stable.
Investments
In line with our stated strategy, we continue to maintain our conservative approach to managing our invested assets with a strong emphasis on preserving capital and liquidity. Our strategy remains maintaining a short duration, highly creditworthy portfolio, with due consideration of the duration of our liabilities.
The Group recorded a loss of 4.7% on the investment portfolio for the six months ended 30 June 2022 (30 June 2021 – 0.1% gain) due primarily to rising treasury yields.
Net investment income, excluding realised and unrealised losses, was $6.4 million for the six months ended 30 June 2022 (30 June 2021 – $1.3 million). Total investment return, including net investment income, net realised gains and losses, and net change in unrealised gains and losses, was a loss of $50.0 million (30 June 2021 – $0.8 million gain).
The percentage split of the managed portfolio is as follows:
| 30 June 2022 | 30 June 2021 | 31 Dec 2021 | |
| Fixed maturity securities | 91.7% | 88.8% | 95.3% |
| Cash and cash equivalents | 8.3% | 11.2% | 4.7% |
Key investment portfolio statistics for our fixed maturities and managed cash were:
| 30 June 2022 | 30 June 2021 | 31 Dec 2021 | |
| Duration | 2.4 years | 2.4 years | 2.4 years |
| Credit Quality | AA | AA | AA- |
| Book yield | 1.4% | 0.8% | 0.9% |
| Market yield | 3.5% | 0.8% | 1.2% |
ESG considerations are incorporated into our individual portfolio investment guidelines. We are in favour of ESG investments generally.
Other operating expenses and equity-based incentives
Other operating expenses were $16.7 million for the six months ended 30 June 2022 (30 June 2021 – $13.5 million), while our equity-based incentives expense was $0.7 million (30 June 2021 – $0.2 million).
Other operating expenses contributed 8.0% to the Group’s combined ratio, lower than the same period of 2021 which contributed 28.3%. The prior year ratio was a reflection of our start up nature with earnings yet to mature but employment costs and technology platform development costs incurred upfront.
Capital and dividends
Total capital and tangible capital available to the Group was $0.89 billion at 30 June 2022 (30 June 2021 – $1.04 billion; 31 December 2021 – $0.98 billion).
Tangible net assets per share at 30 June 2022 were $5.39 (30 June 2021 – $6.29; 31 December 2021 – $5.93).
In December 2021, the Group commenced on-market purchases of CHL’s shares under a share purchase programme announced on 29 December 2021, where shares may be repurchased pursuant to authority obtained at CHL’s most recent annual general meeting. Shares repurchased to 30 June 2022 amounted to $3.2 million and will be held in treasury to meet future obligations under CHL’s variable incentive schemes.
On 26 July 2022 the Group’s Board of Directors declared an interim dividend of $0.18 (approximately 15 pence) per common share, resulting in an aggregate payment of $29.6 million. The dividend will be paid in pounds sterling on 9 September 2022 to shareholders of record on 19 August 2022 (the “Record Date”) using the pound sterling / US dollar spot exchange rate at 12 noon BST on the Record Date.
Publication of unaudited condensed interim consolidated financial statements
The Group’s unaudited condensed interim consolidated financial statements as at and for the six months ended 30 June 2022 have been published on the Conduit Re website.
Conference Call & Presentation
Conduit Holdings management will host a live analyst and investor call, including a question and answer session, on Wednesday, 27 July 2022 at 12.00 Noon UK time / 8.00 am Bermuda time.
The video conference will be available via MS Teams.
To join on your computer or mobile app copy and paste the following link into your browser:
| https://tinyurl.com/mry9wf47 |
Or join by entering a meeting ID
Meeting ID: 369 822 100 701
Passcode: V4nvSJ
Or call in (audio only)
+44 20 3787 4745,,416346374# United Kingdom, London
(888) 726-1416,,416346374# Bermuda (Toll-free)
Phone Conference ID: 416 346 374#
An archive of the conference call will be available together with the presentation slides through the Investors section of CHL’s website at www.conduitreinsurance.com from approximately 4:00 p.m. BST on 27 July 2022.