Conduit Holdings Limited (“CHL”) is today presenting its trading update for the first quarter of 2022.
Key highlights of the first quarter:
| 2022
$m |
2021
$m |
Year on year change % | |
| Estimated ultimate premiums written | 296.9 | 199.1 | 49.1 |
| Gross premiums written | 177.5 | 82.6 | 114.9 |
- Continued build of a high quality reinsurance franchise
- Market conditions remain strong with continuing rate increases and improvements in terms and conditions
- Diversified and balanced portfolio growth with a renewal net rate change of 4.9%
- Net ultimate incurred losses related to the Russian invasion of Ukraine are estimated at between $15.0 million and $30.0 million, with net impact for the first quarter of $24.6 million, after reinsurance and reinstatement premiums, predominantly driven by the classes of aviation, war on land and marine war
- Investment return at (2.9)% driven by unrealised losses of $32.6 million from increase in yields due to interest rate hike expectations; conservative approach to invested assets maintained
- Final dividend of 18c (approximately 14p) per common share (in respect of the second half of 2021) paid in the second quarter of 2022
Neil Eckert, Group Executive Chairman, commented:
“Our position as a pure-play reinsurer, with a strong balance sheet and no legacy, allows the team to take advantage of the best market conditions for a decade.
As the discipline in primary markets continues, Trevor and his team are successfully executing the strategy put forward in the IPO plans and our earned premium recognition is building.”
Trevor Carvey, Group Chief Executive Officer, commented:
“The first quarter of 2022 has seen significant year-on-year growth as we execute on our plan to selectively grow our diversified portfolio. We continue to enjoy the benefits of strong reinsurance market conditions and the continuing excellent support from our clients and brokers.
Turning to the situation in Ukraine, we have estimated the ultimate potential losses for the first quarter derived primarily from our property and specialty books via classes such as aviation, war on land and marine war. Given the typical structure of the reinsurance treaty contracts that we underwrite, with event and aggregate limitations in place, we have been able to arrive at a loss estimate for the relatively small number of contracts we write across these classes for Ukraine and Russia, and this gives us confidence in our estimate at this time.”
Business update
During the first quarter 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 three months ended 31 March 2022 and 31 March 2021 were as follows:
| Segment | 2022
$m |
% of total | 2021
$m |
% of total | Year on year change % |
| Property | 120.8 | 40.7% | 85.7 | 43.1% | 41.0% |
| Casualty | 99.0 | 33.3% | 60.6 | 30.4% | 63.4% |
| Specialty | 77.1 | 26.0% | 52.8 | 26.5% | 46.0% |
| Total | 296.9 | 100.0% | 199.1 | 100.0% | 49.1% |
Our gross premiums written for the three months ended 31 March 2022 and 31 March 2021 were as follows:
| Segment | 2022
$m |
% of total | 2021
$m |
% of total | Year on year change % |
| Property | 83.8 | 47.2% | 44.2 | 53.5% | 89.6% |
| Casualty | 59.7 | 33.6% | 15.9 | 19.3% | 275.5% |
| Specialty | 34.0 | 19.2% | 22.5 | 27.2% | 51.1% |
| Total | 177.5 | 100.0% | 82.6 | 100.0% | 114.9% |
The split of our estimated ultimate premiums written between quota share and excess of loss for the three months ended 31 March 2022 and 31 March 2021 was:
| Type of business | 2022
$m |
2022
% |
2021
$m |
2021
% |
| Quota share | 200.6 | 67.6% | 122.1 | 61.3% |
| Excess of loss | 40.1 | 13.5% | 18.4 | 9.3% |
| Quota share of excess of loss | 56.2 | 18.9% | 58.6 | 29.4% |
| Total | 296.9 | 100.0% | 199.1 | 100.0% |
The split of our gross premiums written between quota share and excess of loss for the three months ended 31 March 2022 and 31 March 2021 was:
| Type of business | 2022
$m |
2022
% |
2021
$m |
2021
% |
| Quota share | 114.2 | 64.3% | 40.2 | 48.7% |
| Excess of loss | 40.1 | 22.6% | 18.8 | 22.8% |
| Quota share of excess of loss | 23.2 | 13.1% | 23.6 | 28.5% |
| Total | 177.5 | 100.0% | 82.6 | 100.0% |
Both pricing and terms and conditions continue to improve in most of the markets we are targeting, particularly at the primary level. Hence our focus remains towards ground-up quota share business.
Pricing
The Group’s overall indicative renewal price changes, net of inflation, in the year to date as of 1 April 2022 were estimated to be:
| Period/Type of Business | Property | Casualty | Specialty |
| Year to date | +7.8% | +2.7% | +2.1% |
Losses
While the first quarter of 2022 was the sixth first quarter in a row where weather-related insured losses have exceeded $10 billion, Conduit Re had minimal exposure to these natural catastrophe events.
As regards the escalating crisis in Ukraine and the Russian invasion on 24 February, Conduit Re has potential exposure across its property and specialty reinsurance books, via classes such as aviation, war on land and marine war. There is significant uncertainty in estimating losses emanating from the conflict, not least as it is an ongoing event. Based on current information, Conduit Re’s estimated net ultimate losses in relation to the conflict for the aforementioned classes are expected to be in the range of $15 million to $30 million, after anticipated reinsurance recoveries and reinstatement premiums. The estimated net impact which has been recognised in respect of the first quarter is $24.6 million. This has been derived from a combination of market data and ground-up assumptions, modelled loss projections and reports from cedants. As noted, as the event is ongoing, further losses could occur in the second quarter and beyond depending on the ultimate duration of the conflict. We will continue to keep these estimates under review as more detailed information becomes available.
Our ultimate loss estimates, net of reinsurance and reinstatement premiums, for the previously reported 2021 loss events remained relatively stable.
Investments
During the first quarter of 2022 expectations for future Federal Reserve rate rises increased significantly, driven by the outlook on inflation. Treasury yields increased significantly as a result, which led to an unrealised loss of $32.6 million on the Group’s investment portfolio for the quarter. Total return for the three months ended 31 March 2022 was (2.9)%. While we expect market volatility to remain elevated in the near term, Conduit Re expects to be able to reinvest at higher rates as the existing portfolio rolls over.
The managed portfolio is as follows:
| Fixed maturity securities | 95.6% |
| Cash and cash equivalents | 4.4% |
| Total: | 100.0% |
Key investment portfolio statistics for our fixed maturities and managed cash were:
- Duration 2.5 years
- Credit quality AA-
- Book yield 1.1%
- Market yield 2.5%
Conduit Re does not have any direct exposure to Russian or Ukrainian assets in its investment portfolio.
Capital and dividends
Total capital and tangible capital to the Group on 31 March 2022 was $0.9 billion.
During the first quarter of 2022, the Group’s Board of Directors declared a final dividend of $0.18 (approximately £0.14) per common share (in respect of the second half of 2021) which was paid in pounds sterling on 22 April 2022 to shareholders of record on 25 March 2022, resulting in an aggregate payment of $29.7 million.
Conference Call & Presentation
CHL management will host a live analyst and investor videoconference, including a question and answer session, on 11 May 2022 at 12pm (midday) UK time / 8am Atlantic time.
The video conference will be available at:
https://conduitreinsurance.zoom.us/j/88314550313?pwd=eTZSUG9QYUFHMUI1SVhlVTBlNEQ4dz09
Meeting ID: 883 1455 0313
Passcode: 476740
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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 12 May 2022.
Market abuse regulation: This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (“MAR”).