TIDMCRE
RNS Number : 9666P
Conduit Holdings Limited
23 February 2021
Conduit Holdings Limited
Hamilton, Bermuda - 23 February 2021
Conduit Holdings Limited ("Conduit Holdings" or the "Group")
announces its preliminary results for the period ended 31 December
2020.
Highlights:
-- Successful IPO with net proceeds of $1,057 million (GBP790 million)
-- Loss after tax of $4.6 million
-- Basic and diluted loss per share $0.03
-- Book value per share of $6.37 per share
-- Negative return on equity 0.4%
-- Underwriting commenced on 1 January 2021
Neil Eckert, Executive Chairman's statement:
"Conduit Re has got off to a flying start. We have launched the
business in attractive and improving market conditions. We have
already established a top class management and underwriting team.
We are embracing the benefits that technology brings for the new
generation of reinsurance underwriters and we have established
strong relationships with our key trading partners around the
market. It is an exciting time to be building a new reinsurance
business and we couldn't have asked for a better beginning to the
establishment of Conduit as a new breed of reinsurer.
In addition, we are working hard on our ESG strategy and we are
delighted to announce that Sir Nicholas Soames has agreed to chair
the newly established Conduit Foundation, which will engage in both
social and environmental projects."
Trevor Carvey, Chief Executive and Chief Underwriting Officer's
statement:
"Following on from our strong start in the 1 January 2021
renewals, we continue to build out our underwriting portfolio
according to plan. We have seen wide acceptance by brokers and
clients alike as an attractive and value-adding business partner
and we are well positioned to deliver on our stated strategy of
building a balanced and diversified portfolio.
We are the beneficiaries of attractive and improving market
conditions in the classes of business we are targeting, which
allows us to remain highly selective in the way we deploy our
capital, a hallmark of the Conduit Re underwriting philosophy. The
underlying pressures driving improvements in both rates and terms
are coming from the primary markets and permeating at an increasing
rate into the reinsurance markets. We believe this will lead to a
more sustained improvement taking into account the many factors
that led to deteriorations in industry loss ratios in recent
years.
Consequently, we have been more focused initially on taking a
pro-rata share of primary insurance via the underwriting of quota
share reinsurance treaties rather than on excess of loss in our
early trading. However, we still expect to deliver a balanced
portfolio across all classes and territories and we look forward to
the upcoming April and mid-year renewals with optimism."
Elaine Whelan, Chief Financial Officer's statement:
"The Group raised a total of GBP790 million ($1,057 million),
net of offering expenses, in the IPO in December but did not begin
underwriting until the 1 January 2021 renewals. Our consolidated
financial statements for the period from incorporation to 31
December 2020 therefore include mostly the expenses from our IPO
and operating expenses from our first month of setting up the
business. We have a loss after tax of $4.6 million resulting in a
small negative return on equity of 0.4%. Costs directly related to
the equity issuance were charged against equity. The loss after tax
was driven primarily by payroll, legal and regulatory expenses.
While it will take some time for us to fully build out our
underwriting book, and therefore fully deploy our capital, we are
focused on risk selection and will maintain a balanced approach.
Conduit is an underwriting business, first and foremost, and that
is rightly where our principal focus is. Capital preservation and
liquidity will, therefore, remain the primary objective of our
investment strategy in order to support our underwriting
goals."
CONDUIT HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
(unaudited)
Notes $'000
Net investment income 51
Net foreign exchange gains 151
Total net revenue 202
---------
Equity based compensation expense 6 312
Other operating expenses 6 4,507
Total expenses 4,819
---------
Operating loss 5 (4,617)
Loss for the period (4,617)
---------
Income tax expense (benefit) 7 -
Loss after tax (4,617)
Other comprehensive income (loss) -
---------
Total comprehensive loss for the period (4,617)
=========
Loss per share
Basic and diluted 14 $ (0.03)
CONDUIT HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2020
(unaudited)
Notes $'000
Assets
Cash and cash equivalents 8 1,054,046
Other assets 1,081
Right-of-use lease assets 10 11
Intangible assets 9 169
----------
Total assets 1,055,307
==========
Liabilities
Other payables 2,512
Lease liabilities 11
Total liabilities 2,523
----------
Shareholders' equity
Share capital 11 1,655
Other reserves 12 1,055,746
Retained loss (4,617)
Total shareholders' equity 1,052,784
----------
Total liabilities and shareholders' equity 1,055,307
==========
CONDUIT HOLDINGS LIMITED
STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
(unaudited) Notes $'000
Cash flows used in operating activities
Loss before tax (4,617)
Net investment income (51)
Net foreign exchange gains (161)
Equity based compensation expense 6 312
Change in operational assets and liabilities 1,436
Net cash flows used in operating activities (3,081)
----------
Cash flows used in investing activities
Purchase of intangible assets 9 (169)
Interest received 51
Net cash flows used in investing activities (118)
----------
Cash flows from financing activities
Proceeds from issue of share capital, net of issuance costs 11, 12 1,057,089
Net cash flows from financing activities 1,057,089
----------
Net increase in cash and cash equivalents 1,053,890
Cash and cash equivalents at beginning of period -
Effect of exchange rate fluctuations on cash and cash equivalents 156
----------
Cash and cash equivalents at end of period 8 1,054,046
==========
CONDUIT HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
(unaudited)
Notes Share capital Other reserves Retained loss Total shareholders' equity
$'000 $'000 $'000 $'000
Total comprehensive loss for
the period - - (4,617) (4,617)
Issue of share capital 11, 12 1,655 1,100,938 - 1,102,593
Issuance costs 12 - (45,504) - (45,504)
Equity based compensation
expense 6, 12 - 312 - 312
-------------- --------------- -------------- ---------------------------
Balance as at 31 December 2020 1,655 1,055,746 (4,617) 1,052,784
============== =============== ============== ===========================
CONDUIT HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM 7 OCTOBER TO 31 DECEMBER 2020
1 General information
Conduit Holdings Limited (the "Company") was incorporated under
the laws of Bermuda on 6 October 2020 and listed on the London
Stock Exchange on 7 December 2020. The registered office is
Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
The Company's consolidated financial statements for the period
ended 31 December 2020 include the Company's subsidiaries (together
referred to as the 'Group'). A full listing of the Group's related
parties can be found in note 15.
2 Significant accounting policies
The basis of preparation, use of estimates, consolidation
principles and significant accounting policies adopted in the
preparation of these consolidated financial statements are set out
below.
Basis of preparation
The consolidated financial statements are prepared on a going
concern basis in accordance with IFRS. The Directors performed an
assessment of the Group's ability to continue as a going concern
and have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future.
Where IFRS is silent, as it is in respect of certain aspects
relating to the measurement of insurance products, the IFRS
framework allows reference to another comprehensive body of
accounting principles. In such instances, the Group's management
determines appropriate measurement bases, to provide the most
useful information to users of the consolidated financial
statements, using their judgement and considering US GAAP. In the
course of preparing the consolidated financial statements, no
judgements have been made in the process of applying the Group's
accounting policies, other than those involving estimations as
noted in the 'Use of estimates' section on page 7, that have had a
significant effect on amounts recognised in the consolidated
financial statements.
The consolidated balance sheet is presented in order of
decreasing liquidity. All amounts, excluding share data or where
otherwise stated, are in thousands of US dollars.
Future accounting changes
Standards and interpretations which are issued but not yet
effective and have not been early adopted by the Group are
summarised in the table below.
Standard Amendment Effective Date
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 & Interest Rate Benchmark Reform - Phase 2 1 January 2021
IFRS 16
Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling 1 January 2022
Contracts
Amendments to IAS 16 Property, Plant and Equipment: Proceeds before 1 January 2022
Intended Use
Amendments to IAS 1 Classification of Liabilities as Current or Non 1 January 2023
Current
IFRS 17, Insurance Contracts, issued in May 2017, specifies the
financial reporting for insurance contracts by an insurer. The new
standard is likely to be effective for accounting periods beginning
on or after 1 January 2023. The standard includes a number of
significant changes regarding the measurement and disclosure of
insurance contracts both in terms of liability measurement and
profit recognition. The Group will assess the impact that the new
standard will have on its results and its presentation and
disclosure requirements.
Use of estimates
The preparation of financial statements in conformity with IFRS
requires the Group to make estimates and assumptions that affect
the reported and disclosed amounts at the balance sheet date and
the reported and disclosed amounts of revenues and expenses during
the reporting period. Actual results may differ materially from the
estimates made.
The most significant estimate made by management is in relation
to the estimated fair value of the MIP. This is discussed in note
6.
While not significant, estimates are also used in the valuation
of intangible assets.
Consolidation principles
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at and for the
period ended 31 December 2020. Subsidiaries are fully consolidated
from the date on which the Group obtains control, and continue to
be consolidated until the date when such control ceases.
Intercompany balances, profits and transactions are eliminated.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the subsidiary and has
the ability to affect those returns through its power over the
subsidiary.
Subsidiaries' accounting policies are generally consistent with
the Group's accounting policies. Where they differ, adjustments are
made on consolidation to bring accounting policies in line.
Foreign currency
The functional currency, which is the currency of the primary
economic environment in which operations are conducted, for Group
entities, with the exception of CRSL, is US dollars. The functional
currency of CRSL is pounds Sterling. Items included in the
financial statements of each of the Group's entities are measured
using the functional currency. The consolidated financial
statements are presented in US dollars.
Foreign currency transactions are recorded in the functional
currency for each entity using the exchange rates prevailing at the
dates of the transactions, or at the average rate for the period
when this is a reasonable approximation. Monetary assets and
liabilities denominated in foreign currencies are revalued at
period end exchange rates. The resulting exchange differences on
revaluation are recorded in the consolidated statement of
comprehensive income within net foreign exchange gains.
Non-monetary assets and liabilities denominated in a foreign
currency are carried at historic rates. Non-monetary assets and
liabilities carried at estimated fair value and denominated in a
foreign currency are translated at the exchange rate at the date
the estimated fair value was determined.
Cash and cash equivalents
Cash and cash equivalents are carried in the consolidated
balance sheet at amortised cost and include cash in hand, deposits
held on call with banks and other short-term highly liquid
investments with a maturity of three months or less at the date of
purchase. Carrying amounts approximate fair value due to the
short-term nature and high liquidity of the instruments.
Interest income earned on cash and cash equivalents is
recognised on the effective interest rate method. The carrying
value of accrued interest income approximates estimated fair value
due to its short-term nature and high liquidity.
Property, plant and equipment
Property, plant and equipment is carried at historical cost,
less accumulated depreciation and any impairment in value.
Depreciation is calculated to write off the cost over the estimated
useful economic life on a straight-line basis as follows:
-- IT Equipment 3 years
The assets' residual values, useful lives and depreciation
methods are reviewed, and adjusted if appropriate, at each balance
sheet date.
An item of property, plant or equipment is derecognised on
disposal or when no future economic benefits are expected to arise
from the continued use of the asset.
Gains and losses on the disposal of property, plant and
equipment are determined by comparing proceeds with the carrying
amount of the asset, and are included in the consolidated statement
of comprehensive income. Costs for repairs and maintenance are
charged to profit or loss as incurred.
Intangible assets
Acquired computer software licenses are capitalised on the basis
of the costs incurred to acquire and bring into use the specific
software. An intangible asset with a finite useful life is
amortised on a straight line basis over the useful life. An
intangible asset with an indefinite useful life is not amortised,
but is tested annually for impairment. When an intangible asset is
disposed of, the gain or loss on disposal is included in profit or
loss.
Leases
At the inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial measurement of the
corresponding lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs
incurred and an estimate of any costs to be incurred at expiration
of the lease agreement.
Right-of-use assets are subsequently measured at cost less
accumulated depreciation and any impairment losses. Straight-line
depreciation is calculated from the commencement date of the lease
to the earlier of either the end date of the lease term or the
useful life of the underlying asset.
The lease liability is initially measured at the present value
of the future lease payments at the lease commencement date. Lease
payments are discounted using the interest rate implicit in the
lease or, if that rate cannot be readily determined, the Group's
incremental borrowing rate.
Lease payments included in the measurement of the lease
liability comprise the following:
- fixed payments, including in-substance fixed payments;
- variable lease payments that depend on an index or a rate,
initially measured using the index or rate as at the commencement
date
The lease liability is subsequently measured by increasing the
lease carrying amount to reflect the interest due on the lease
liability using the effective interest rate method and reducing the
carrying amount to reflect the lease payments made. The Group
re-measures the lease liability and the related right-of-use asset
whenever there is a change in future lease payments arising from a
change in index or rate, if the Group changes its assessment of
whether it will exercise a purchase, extension or termination
option or if there is a revised in substance fixed lease
payment.
The Group presents right-of-use assets and lease liabilities as
a separate financial statement line item on the consolidated
balance sheet.
Employee benefits
Equity compensation plans
The Group currently operates a MIP under which shares are
subscribed for or nil cost options will be granted. The fair value
of the instruments granted is estimated on the date of grant. The
estimated fair value is recognised as an expense pro-rata over the
vesting period of the instrument, adjusted for the impact of any
non-market vesting conditions. No adjustment to vesting assumptions
is made in respect of market vesting conditions.
At each balance sheet date, the Group revises its estimate of
the number of instruments that are expected to become exercisable.
It recognises the impact of the revision of original estimates, if
any, as equity based compensation expense in the consolidated
statement of comprehensive income, and a corresponding adjustment
is made to other reserves in shareholders' equity over the
remaining vesting period.
On exercise, the differences between the expense charged to the
consolidated statement of comprehensive income and the actual cost
to the Group, if any, is transferred to other reserves in
shareholders' equity
Tax
Income tax represents the sum of tax currently payable and any
deferred tax. The tax payable is calculated based on taxable profit
for the period using tax rates and tax laws enacted or
substantively enacted at the year end reporting date and any
adjustments to tax payable in respect of prior periods.
Taxable profit for the period can differ from that reported in
the consolidated statement of comprehensive income due to
non-taxable income and certain items which are not tax deductible
or which are deferred to subsequent periods.
Deferred tax is recognised on all temporary differences between
the carrying value of the assets and liabilities in the
consolidated balance sheet and their tax base, except when the
deferred tax liability arises from the initial recognition of
goodwill. Deferred tax assets or liabilities are accounted for
using the balance sheet liability method. Deferred tax assets are
recognised to the extent that realising the related tax benefit
through future taxable profits is probable and are reassessed each
year for recognition.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes relate
to the same fiscal authority.
Where the current estimated fair value of equity based
compensation awards differs from the estimated fair value at the
time of grant, adjusted where applicable for dividends, the related
corporation tax and deferred tax charge or credit is recognised
directly in other reserves.
Own shares
Own shares include shares repurchased under share repurchase
authorisations and held in treasury, plus shares repurchased and
held in trust, for the purposes of employee equity based
compensation schemes. Own shares are deducted from shareholders'
equity. No gain or loss is recognised on the purchase, sale,
cancellation or issue of own shares and any consideration paid or
received is recognised directly in equity.
Share capital and issuance costs
Shares are classified as shareholders' equity if there is no
obligation to transfer cash or other financial assets.
Transaction costs that are attributable to the issuance of new
shares are treated as a deduction to share premium.
3 Risk disclosures: Introduction
For the period ending 31 December 2020, the Group was not
engaged in any active business and was therefore exposed to limited
risks, being market risk, operational risk and strategic risk.
From 1 January 2021, the Group will be exposed to risks from
several sources, classified into six primary risk categories. These
are insurance risk, market risk, liquidity risk, credit risk,
operational risk and strategic risk. The primary risk to the Group
will be insurance risk. These risks will be discussed, along with
the appropriate disclosure, within the Group's unaudited condensed
interim consolidated financial statements when issued later in
2021.
The Board is responsible for determining the nature and extent
of the principal risks the Group is willing to take in achieving
its strategic objectives and should maintain sound risk management
and internal control systems. To this end, for the period ending 31
December 2020, the Board established initial governance
arrangements and delegated certain limited authorities to officers
of CHL and CRL to facilitate the establishment of operating
capabilities ahead of the 1 January 2021 reinsurance renewal
period. Baseline risk appetites were defined and these remain under
review as the Group develops. Initially certain non-underwriting
activities were outsourced to, or supported by, specialist
providers with the intent of reducing short-term execution
risk.
The risk function is responsible for supporting the Board, and
the CRL board, with the day-to-day oversight of the risks that the
Group seeks or is exposed to in pursuit of its strategic
objectives, and the satisfaction of certain regulatory risk
management expectations relevant to CRL. The framework under which
risks are managed contemplates risk appetite and tolerance
constraints, prescribed by the Board and reviewed at least
annually, with consideration of the financial and operational
capacity of the Group. The use of financial capacity in this
context relates to calculated or modelled capital requirements,
based on residual unmitigated risk exposures. Current capital
requirements are determined by reference to rating agency and
regulatory capital requirements, with an internal capital model to
be developed in due course.
Day-to-day management of risk is the responsibility of
management, operating within the defined appetite and tolerances
and Board, or the CRL board, approved delegations of authority. The
risk framework prescribes a standardised approach to the management
of risk, oversight and challenge by the risk function and
independent assurance provided by the internal audit function. The
risk framework also addresses the reporting of risks, risk events
and compliance with risk appetite and tolerance statements to
executive management and the boards, and relevant board
sub-committees, of CRL and CHL. To ensure transparency and
accountability of the business to the independent non-executive
directors, three independent non-executive directors from the Board
have been appointed to the board of CRL. Furthermore, the Board is
invited to attend operating entity board level meetings and see all
minutes and records of such operating entity board and committee
meetings.
Market risk
The Group is at risk of loss due to movements in market factors.
The main risks include:
i. Insurance risk;
ii. Investment risk;
iii. Debt risk and;
iv. Currency risk.
As the Group was not engaged in any active business for the
reporting period, the only relevant market risk for the period was
currency risk. Following the successful IPO, and translation of the
pounds Sterling funds raised into US dollars, there was no
significant currency exposure to the Group.
Operational risk
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, personnel, systems or external
events. During the reporting period, which primarily involved the
establishment of operations, various operational risks were
identified and steps were taken to manage or mitigate these
risks.
The risk framework addresses the identification, assessment and
management of operational risks. This process involves the use of
risk registers to identify inherent risk and residual risk after
the application of controls. The management of individual risks is
the responsibility of management, with independent challenge and
oversight provided by the risk function. The results of compliance
reviews and independent internal audits provide an additional level
of review and verification. The Audit Committee has selected a
reputable provider to serve as outsourced internal auditors.
Strategic risk
The Group has identified several strategic risks. These
include:
-- The risks that either the poor execution of the business plan
or an inappropriate business plan in itself results in a strategy
that fails to reflect adequately the trading environment, resulting
in an inability to optimise performance, including reputational
risk;
-- The risks of the failure to maintain adequate capital,
accessing capital at an inflated cost or the inability to access
capital. This includes unanticipated changes in vendor, regulatory
and/or rating agency models that could result in an increase in
capital requirements or a change in the type of capital required;
and
-- The risks of succession planning, staff retention and key man
risks.
Business plan risk
The Group's business plan, as included in the IPO prospectus,
was evaluated and approved by the Board. Actual versus planned
results will be monitored regularly.
Capital management risk
The total tangible capital of the Group is as follows:
$'000
As at 31 December 2020
Shareholders' equity 1,052,784
Intangible assets (169)
----------
Total tangible capital 1,052,615
==========
Risks associated with the effectiveness of the Group's capital
management are mitigated as follows:
-- Regular monitoring of current and prospective regulatory and
rating agency capital requirements;
-- Oversight of capital requirements by the Board;
-- Ability to purchase sufficient, cost-effective
reinsurance;
-- Maintaining contact with vendors, regulators and rating
agencies in order to stay abreast of upcoming developments and;
-- Future participation in industry groups such as the
Association of Bermuda Insurers and Reinsurers.
The Group reviews the level and composition of capital on an
ongoing basis with a view of:
-- Maintaining sufficient capital for underwriting opportunities
and to meet obligations to policyholders;
-- Maximising the risk-adjusted return to shareholders within
the context of the defined risk appetite;
-- Maintaining adequate financial strength rating and;
-- Meeting relevant capital requirements.
Capital is increased or returned as appropriate. The retention
of earnings generated leads to an increase in capital. Capital
raising can include debt or equity and returns of capital may be
made through dividends, share repurchases, a redemption of debt or
any combination thereof. Other capital management tools and
products available to the Group may also be utilised. All capital
actions require approval by the Board.
The primary source of capital used by the Group is equity
shareholders' funds. As a holding company, CHL relies on dividends
from its operating entity to provide the cash flow required for
dividends to shareholders. The ability of the operating entity to
pay dividends and make capital distributions is subject to the
legal and regulatory restrictions of the jurisdiction in which it
operates.
CRL is regulated by the BMA and is required to monitor the ECR
under the BMA's regulatory framework, which has been assessed as
equivalent to the EU's Solvency II regime. CRL's regulatory capital
requirement is calculated using the BSCR standard formula. For the
period ended 31 December 2020, CRL was more than adequately
capitalised on this basis.
Retention risk
Risks associated with succession planning, staff retention and
key man risks are mitigated through a combination of resource
planning processes and controls, including:
-- The identification of key personnel with appropriate
succession plans;
-- The identification of key team profit generators and function
holders with targeted retention packages;
-- Documented recruitment procedures, position descriptions and
employment contracts;
-- Resource monitoring and the provision of appropriate
compensation, including equity based compensation which vests over
a defined time horizon, subject to achieving certain performance
criteria; and
-- Training schemes.
4 Segmental reporting
There is no active business in the period ending 31 December
2020. Underwriting commenced on 1 January 2021. With no operating
income, the Group did not have any reportable operating segments
during the period. The Group's principal operating segments will be
determined as business develops through 2021 and will reflect how
the business is reviewed and monitored by Management and the
Board.
5 Results of operating activities
$'000
Results of operating activities are stated after charging the following amounts:
Auditor's remuneration: audit fees 110
======
6 Employee benefits
$'000
The aggregate remuneration comprised:
Wages and salaries 2,432
------
Total cash compensation 2,432
======
Total equity based compensation 312
Total employee benefits 2,744
======
Equity based compensation
The Group's equity based compensation incentive scheme is its
MIP. The incentive is based around shares in CML, which will be
automatically exchanged for ordinary shares of CHL for an aggregate
value equivalent to up to 15% of the excess of the market value of
CHL over and above the Invested Equity, subject to the satisfaction
of the vesting conditions. All outstanding and future grants have
an exercise period of four to seven years from the grant date. The
fair value is estimated using a stochastic Monte Carlo model.
100,000 A1 shares and 100,000 A2 shares were issued by CML
during the period at a subscription price of GBP1.72 and $2.26
respectively. There have been no exercises during the period.
The following table lists the assumptions used in the stochastic
model for the MIP awards granted during the period ended 31
December 2020:
Assumptions
Dividend Yield 0%
Expected Volatility (1) range from 17.6% - 18.1%
Risk-free interest rate(2) range from 0.29% - 0.61%
Expected life of instruments range from 4 to 7 years
1. The expected volatility was calculated based on a comparator
group of companies.
2. The risk-free interest rate is based on the yield of a U.S.
government bond on the date of grant.
The instruments were granted prior to the IPO and therefore
discounts for business viability and lack of marketability were
also applied. There are significant risks associated with an IPO
and the instruments are also illiquid until the tranche vesting
dates. Management therefore selected their best estimates at the
time for these discounts. These assumptions are highly judgmental
and input from advisors was sought. Management also considered
alternative assumptions and concluded there was not a material
impact on the estimated valuation selected.
The calculation of the equity based compensation expense assumes
no forfeitures due to employee turnover, with subsequent
adjustments to reflect actual experience.
Conditions of the MIP are as follows:
The MIP instruments vest over a four to seven year period with
specific measurement dates of 7 December 2024, 7 December 2025, 7
December 2026 and 7 December 2027. The instruments will vest only
after an IRR of 10% is achieved. As noted above, a maximum of 15%
of the growth in market value will be available to each tranche at
the vesting date. If the hurdle is not achieved at the first
vesting date, the instruments will roll over until the final
vesting date.
The incentives are to be equity-settled and have therefore been
accounted for in accordance with IFRS 2.
The value of the services received in exchange for the share
based incentives is measured by reference to the estimated fair
value of the incentives at their grant date. The estimated fair
value is recognised in the consolidated statement of comprehensive
income, together with a corresponding increase in other reserves
within shareholders' equity, on a straight line basis over the
vesting period, based on an estimate of the number of shares that
will ultimately vest.
Vesting conditions, other than market conditions, are not taken
into account when estimating the fair value. Market conditions are
those conditions that are linked to the share price of the
Group.
At the end of each reporting period the Group revises its
estimates of the number of shares that are expected to vest due to
non-market conditions. It recognises the impact of the revision to
original estimates, if any, in the consolidated statement of
comprehensive income, with a corresponding adjustment to
shareholders' equity.
During the year $312 thousand has been recognised in the
consolidated statement of comprehensive income as a charge in
relation to the share based incentives.
7 Tax
Bermuda
CHL, CSL, CML and CRL have received an undertaking from the
Bermuda government exempting them from all Bermuda local income,
withholding and capital gains taxes until 31 March 2035. At the
present time no such taxes are levied in Bermuda.
United Kingdom
CRSL is subject to normal UK corporation tax on all of its
taxable profits. For the period ended 31 December 2020 a tax loss
arose. Deferred tax assets are recognised to the extent that
realising the related tax benefit through future taxable profits is
likely. It is currently anticipated that there will not be
sufficient taxable profits in 2021 and subsequent years to utilise
the deferred tax asset, therefore no deferred tax has been
recognised.
$'000
Current tax expense -
Deferred tax expense -
------
Total tax expense -
======
Reconciliation of effective tax rate
Loss for the period before tax (4,617)
Tax using the Bermuda corporation tax rate of 0% -
Tax using the UK corporation tax rate of 19% 88
Tax benefit not recognised (88)
--------
Total tax expense -
========
8 Cash and cash equivalents
$'000
Cash at bank and in hand 54,046
Cash equivalents 1,000,000
----------
1,054,046
==========
Cash equivalents have an original maturity of three months or
less. The carrying amount of these assets approximates their fair
value.
9 Intangible assets
Software
$'000
Cost
Additions 169
---------
Net book value as at 31 December 2020 169
=========
There was no amortisation or impairment recognised for the
period ended 31 December 2020 on the basis that the assets are not
ready for use.
10 Right-of-use lease assets
$'000
Cost
Additions 11
------
Balance and net book value as at 31 December 2020 11
======
11 Share capital
Number $'000
Authorised share capital
Authorised common shares of $0.01 each 10,000,000,000 100,000
Authorised A1 shares of GBP0.01 each 100,000 2
Authorised A2 shares of $0.01 each 100,000 1
--------------- --------
As at 31 December 2020 10,000,200,000 100,003
=============== ========
Allotted, called-up and fully-paid
Common shares issued 165,239,997 1,652
A1 shares issued 100,000 2
A2 shares issued 100,000 1
--------------- --------
As at 31 December 2020 165,439,997 1,655
=============== ========
The number of common shares in issue with voting rights as at 31
December 2020 was 165,239,997. The A1 and A2 shares have no voting
rights attached. Subject to vesting conditions, discussed in note
6, the shares will be automatically exchanged for ordinary shares
of CHL.
12 Other reserves
Other reserves consist of the following:
Other reserves Share premium Total other reserves
$'000 $'000 $'000
Issue of shares - 1,100,938 1,100,938
Issuance costs - (45,504) (45,504)
Equity based compensation expense 312 - 312
--------------- -------------- ---------------------
As at 31 December 2020 312 1,055,434 1,055,746
=============== ============== =====================
Other reserves includes an equity based compensation
expense.
Share premium includes any premiums received on issue of share
capital. The transaction costs that are attributable to the
issuance of new shares incurred in forming the Group are treated as
a deduction from share premium.
13 Contingencies and commitments
During the period ended 31 December 2020, the Company entered
into contracts to purchase software licenses. These commitments are
expected to be settled in the ordinary course of business.
Legal proceedings and regulations
The Group operates in the re/insurance industry and is subject
to legal proceedings in the normal course of business. While it is
not practicable to estimate or determine the final results of all
pending or threatened legal proceedings, management does not
believe that such proceedings (including litigation) will have a
material effect on its results and financial position.
14 Loss per share
The following reflects the loss and share data used in the basic
and diluted loss per share computations:
$'000
Loss for the period attributable to equity shareholders of CHL (4,617)
============
Number
Basic & diluted weighted average number of shares 165,239,997
============
Basic & diluted loss per share $ (0.03)
============
Equity based compensation awards are only treated as dilutive
when their conversion to common shares would decrease earnings per
share or increase loss per share from continuing operations.
Unvested restricted shares without performance criteria are
therefore included in the number of potentially dilutive shares.
Incremental shares from ordinary restricted share options where
relevant performance criteria have not been met are not included in
the calculation of dilutive shares.
15 Related party disclosures
The consolidated financial statements include CHL and the
entities listed below:
Subsidiary undertakings Domicile Principal business
CHL Bermuda Holding company, Ultimate parent
CRL Bermuda General insurance business
CRSL England & Wales Support services
CML(1) Bermuda Support services
CSL Bermuda Support services
Unless otherwise stated, the Group owns 100% of the share
capital and voting rights in its subsidiaries listed. (1)CML is
part-owned by members of management. Management's share ownership
in CML exists solely for the purposes of the Group's management
share incentive scheme for attracting and retaining talent.
Management's shares in CML have no voting power or control in
respect of CHL's ownership of CRL via CML's ownership of CRL.
Key management compensation
Remuneration for key management, the Group's Executive and
Non-Executive Directors, was as follows:
$'000
Cash compensation 1,115
Directors fees and expenses 188
------
Total 1,303
======
Non-Executive Directors do not receive any benefits in addition
to their agreed fees and expenses and do not participate in any of
the Group's incentive, performance or pension plans.
16 Subsequent events
For the period ending 31 December 2020, the Group was not
engaged in any active business. Underwriting commenced on 1 January
2021.
GLOSSARY
The following definitions apply throughout the financial
statements unless the context otherwise requires:
Admission The admission of CHL's ordinary shares (i) to the standard listing
segment of the Official
List of the UK Financial Conduct Authority and (ii) to trading on
the London Stock Exchange's
main market for listed securities
AFS Available for sale
BMA Bermuda Monetary Authority
Board of Directors; Board Unless otherwise stated refers to the CHL Board of Directors
Book Value Generally calculated as the total assets of a company, minus any
intangible assets such as
goodwill, patents, and trademarks, less all liabilities and the par
value of preferred stock
Book value per share (BVS) Calculated by dividing the value of the total shareholders' equity
by the sum of all common
voting shares outstanding
BSCR Bermuda Solvency Capital Requirement
CHL Conduit Holdings Limited
CML Conduit MIP Limited
CRL Conduit Reinsurance Limited
CRSL Conduit Reinsurance Services Limited (the new name for Conduit
Marketing Limited - change
currently in progress).
CSL Conduit Services Limited
ECR Enhanced capital requirement. Under the BSCR Model, the reinsurer's
minimum required statutory
capital and surplus is referred to as the enhanced capital
requirement ("ECR"). The ECR is
the greater of the calculated BSCR and the minimum solvency margin
("MSM").
Earnings (loss) per share (EPS) Calculated by dividing net profit (loss) for the year attributable
to shareholders by the
weighted average number of common shares outstanding during the
year, excluding treasury shares
European Union or EU The European Union is made up of 27 Member States: Austria,
Belgium, Bulgaria, Croatia, Cyprus,
Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy,
Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
Portugal, Romania, Slovakia, Slovenia,
Spain, and Sweden.
FVTPL Fair value through profit or loss
The Group CHL and its subsidiaries
IFRS International Financial Reporting Standard(s)
International Accounting Standard(s) (IAS) Standards created by the IASB for the preparation and presentation
of financial statements
International Accounting Standards Board (IASB) An international panel of accounting experts responsible for
developing IAS and IFRS
Invested Equity The aggregate of initial equity invested in CHL on Admission and
equity invested pursuant
to any future equity raises by CHL, with the US dollar value of
Invested Equity for the USD
MIP Shares being calculated at the spot rate at the time the
relevant proceeds of the equity
raise were received by CHL.
IPO Initial public offering
IRR Internal rate of return
MIP Management incentive plan
Minimum solvency margin or MSM The minimum excess unimpaired surplus as a percent of outstanding
loss reserve as set by regulators
UK United Kingdom
US United States of America
US GAAP Accounting principles generally accepted in the United States
Notes to Editors
Contacts
Media: David Haggie, Caroline Klein, Haggie Partners
+44 (0) 207 562 4444
ConduitRe@haggie.co.uk
Other: info@conduitreinsurance.com
About Sir Nicholas Soames
Sir Nicholas Soames was a Member of the UK Parliament for 35
years. He served as a junior Minister at the Ministry of
Agriculture, Fisheries and Food and from 1994-1997 he was Minister
of State for the Armed Forces. Between November 2003 and May 2005
Sir Nicholas served in the Shadow Cabinet as Shadow Secretary of
State for Defence. Sir Nicholas has specialist knowledge in the
fields of defence, Europe, international affairs, trade and
industry, aviation and the countryside.
Sir Nicholas was made a Privy Counsellor in July, 2011 and
knighted in May, 2014.
About Conduit Re
-- A.M. Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer
Credit Rating of "a-" to Conduit Reinsurance Limited. The outlook assigned to these Credit
Ratings (ratings) is stable.
Learn more:
Web: https://conduitreinsurance.com/
LinkedIn: https://www.linkedin.com/company/conduit-re
Twitter: https://twitter.com/Conduit_Re
Important Information
This announcement may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements may be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"projects", "anticipates", "expects", "intends", "estimates",
"may", "will", "aims", "could" or "should" or, in each case, their
negative or other variations or comparable terminology, or by
discussions of strategy, plans, objectives, goals, future events or
intentions. Forward-looking statements include statements relating
to the following: (i) future capital expenditures, expenses,
revenues, earnings, synergies, economic performance, indebtedness,
financial condition, dividend policy, losses and future prospects;
and (ii) business and management strategies and the expansion and
growth of the Group's operations. Forward looking statements may
and often do differ materially from actual results. Any
forward-looking statements reflect Conduit Holdings' current view
with respect to future events and are subject to risks relating to
future events and other risks, uncertainties and assumptions
relating to the Group's business, results of operations, financial
position, liquidity, prospects, growth and strategies. Forward
looking statements speak only as of the date they are made. No
representation or warranty is made that any forward-looking
statement will come to pass. These forward-looking statements speak
only as at the date of this announcement. Conduit Holdings
disclaims any obligation or undertaking to update or revise any
forward-looking statements contained herein to reflect actual
results or any change in the assumptions, conditions or
circumstances on which any such statements are based unless
required to do so by law or regulation.
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END
FR UOARRAVUUURR
(END) Dow Jones Newswires
February 23, 2021 02:00 ET (07:00 GMT)
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