TIDMCRE
RNS Number : 6808G
Conduit Holdings Limited
28 July 2021
Conduit Holdings Limited Interim Results
Hamilton, Bermuda (28 July 2021)
Conduit Holdings Limited ("CHL" or the "Group") today announces
its results for the six months ended 30 June 2021.
Highlights
-- Successful first six months of trading with continuing strong broker and client support
-- Estimated ultimate premiums written of $333.1 million
-- Gross premiums written of $210.3 million
-- Indicative renewal rate changes estimated at +14% for
Property, +17% for Casualty and +12% for Specialty
-- Estimated Winter Storm Uri incurred loss of $6.0 million,
including the impact of reinstatement premiums
-- Net loss ratio of 70.0% (57.2% excluding Winter Storm Uri)
-- Loss on equity of 1.2%, reflecting start-up factors
-- Interim dividend of $0.18 (approximately GBP0.13) per common share declared
Neil Eckert, Group Executive Chairman, commented:
"I am proud of what we have achieved in our first six months as
an operating business and we could not have asked for more from our
growing team. We are delivering on the plan we set out in our IPO
last year and continue on our mission to build Conduit into a
leading modern pure play reinsurance franchise."
Trevor Carvey, Group Chief Executive Officer, commented:
"In our first half year of operations as a global reinsurer, we
have hit the ground running and been accepted as a disciplined and
supportive reinsurance partner by our brokers and clients who have
shown us overwhelming support. We are building a strong team
culture of technical discipline, collaboration and transparency
which we believe is well received by our customers.
We have been deliberately more weighted to quota share business
than excess of loss in these early stages and I am delighted with
the diversity and quality of the book and the pricing we have been
able to achieve. Over time, we would expect the balance of excess
of loss business to increase as we continue to build out our book.
The benefits of our focused and diversified approach to
underwriting have meant that we have avoided significant exposures
to the large losses that have been experienced in the wider
reinsurance industry in the first half of the year.
We expect our ultimate premium income to be broadly in line with
the estimates we set out in our plan, subject to market conditions
over the remainder of this year.
We have made excellent progress so far, but there is still lots
of hard work ahead of us."
Elaine Whelan, Group Chief Financial Officer, commented:
"We are declaring an interim dividend of $0.18 (approximately
GBP0.13) per common share, in line with our previously communicated
dividend policy.
We are pleased with the progress we have made with the
operational build-out and development of our systems. Our IPO funds
are now fully invested in accordance with our investment strategy
and we will maintain a high quality, highly liquid investment
portfolio to support our underwriting activities."
Business update
The first seven months of the Group's operations since its IPO
have been a period of great activity. From a standing start in
December 2020 we have:
-- established the underwriting discipline, culture and focus we
hoped to achieve when we founded the business;
-- selectively written approximately 165 reinsurance contracts
of the approximately 700 contracts we have analysed which are
estimated to deliver $333.1 million of ultimate premiums written.
These contracts provide a book of business which exceeds our
underwriting criteria on both terms and price and are written
across a wide variety of classes of business, thus providing a
focused and diversified book of business in line with the
characteristics identified in our prospectus published in
connection with the Group's IPO (the "IPO Prospectus");
-- successfully placed our outwards reinsurance programme to
manage our catastrophe exposures in line with our risk
tolerances;
-- built out our team with quality staff across the business.
All our key function roles have been filled and we now have a team
of 35 highly experienced reinsurance professionals;
-- delivered phase one of our operating plan. We have an
ambitious strategy to build a modern and future-proof cloud-based
operating and underwriting platform; and
-- fully deployed our IPO funds in line with our conservative investment strategy.
To date, our underwriting portfolio has been more weighted to
quota share than originally planned, as reflected in the higher
acquisition expenses than anticipated, although we expect this to
reduce as the underwriting portfolio develops over time.
The Group's combined ratio of 127.2% and negative ROE of 1.2%
reflect the start-up nature of the business. Notably, the lag in
net premiums earned as a result of writing more quota share means
that the expense side of the business, such as incurred losses (for
example Winter Storm Uri) and the level of operating expenses, can
significantly impact these metrics.
Underwriting results
Given the start-up nature of the business, and the high degree
of quota share business, we have presented both estimated ultimate
and gross premiums written:
Segment Estimated ultimate premiums written Percentage of total Gross premiums written Percentage of total
$m $m
Property 157.0 47.1% 129.5 61.6%
Casualty 115.2 34.6% 44.1 21.0%
Specialty 60.9 18.3% 36.7 17.4%
Total 333.1 100.0% 210.3 100.0%
Estimated ultimate premiums written of $333.1 million are in
line with the targets set out in the IPO Prospectus. While we are
in line with these overall targets, we have written more quota
share business than originally planned and consequently there will
be more of a lag in the accounting recognition of gross premiums
written and earned.
As this is the Group's first year of business, it does not yet
have a renewing book. However, the underlying renewal price index
is tracked where there is sufficient data to do so. The Group's
overall indicative renewal price changes were estimated at +14% for
Property, +17% for Casualty and +12% for Specialty.
*******
Ceded reinsurance premiums of $21.8 million are also in line
with the targets presented in the IPO Prospectus. Our cover has
been purchased on an excess of loss basis to provide protection
against significant losses from major events.
*******
The net loss ratio for the first six months of 2021 was 70.0%.
Excluding the impact of Winter Storm Uri, the net loss ratio was
57.2%.
Our exposure to the Winter Storm Uri event and the financial
impact of this loss event would not typically be considered
material to the Group. However, there is a more meaningful impact
on the Group's results of operations for the six months ended 30
June 2021 as our net premiums earned base has yet to mature. Our
net losses recorded in relation to Winter Storm Uri, including the
impact of reinstatement premiums, are estimated to be $6.0 million.
With a lack of any reported claims to date, there remains a degree
of uncertainty around early loss estimates. We will continue to
keep this estimate under review as more detailed information
becomes available.
Investments
Net investment income was $1.3 million for the first six months
of 2021. Total investment return, including net investment income,
net realised gains and losses and the net change in unrealised
gains and losses was $0.8 million for the first six months of
2021.
As previously reported, the Group selected three highly
reputable fixed maturity investment managers, but funding of the
portfolios did not commence until April 2021. As such, the Group
avoided the volatility of the first quarter of 2021. The portfolios
are now fully funded and our investment guidelines are in line with
the strategy set out in the IPO Prospectus. The managed portfolio
is as follows:
Fixed maturity securities 88.8%
Cash and cash equivalents 11.2%
Total 100.0%
Key investment portfolio statistics for our fixed maturities and
managed cash were:
Duration 2.4 years
Credit quality AA
Book yield 0.8%
Market yield 0.8%
Other operating expenses
Other operating expenses were $13.5 million in the first six
months of 2021.
The development of the Group's technology platforms and
recruitment of the wider teams is ongoing and in line with our plan
and expectations.
Equity-based compensation
The equity-based compensation expense was $0.2 million for the
first six months of 2021.
Financing
During July 2021, Conduit Reinsurance Limited ("CRL"), as the
borrower, entered into a $125.0 million standby letter of credit
facility led by Lloyds Bank Corporate Markets PLC. CHL will
guarantee the obligations of CRL with respect to the standby letter
of credit facility. Terms of the standby letter of credit facility
contain standard qualitative representations and require certain
standard financial covenants be adhered to. Outstanding amounts
issued under the standby letter of credit facility will be secured
by cash and cash equivalents and investments.
Capital and dividends
The Group remains well capitalised to achieve the business plan
presented in the IPO Prospectus, and remains committed to its
dividend policy. Total capital available to the Group was $1.041
billion. Tangible capital was $1.040 billion.
On 27 July 2021 the Group's Board of Directors declared an
interim dividend of $0.18 (approximately GBP0.13) per common share,
resulting in an aggregate payment of $29.7 million. The dividend
will be paid in pounds sterling on 10 September 2021 to
shareholders of record on 20 August 2021 (the "Record Date") using
the pound sterling / US dollar spot exchange rate at 12 noon BST on
the Record Date.
Conference Call
Conduit Holdings management will host a live analyst and
investor videoconference, including a question and answer session,
on Wednesday, 28 July 2021 at 12:00 noon UK time / 8:00 am Bermuda
time.
The videoconference will be available at:
https://conduitreinsurance.zoom.us/j/92927083773
Meeting ID: 929 2708 3773
One tap mobile:
8884754499,,92927083773# US Toll-free / 8335480276,,92927083773#
US Toll-free
Dial by your location:
US Toll-free Numbers: 888 475 4499 / 833 548 0276 / 833 548 0282
/ 877 853 5257
UK Toll-free Numbers: 0 800 456 1369 / 0 800 031 5717 / 0 800
260 5801 / 0 800 358 2817
Bermuda Toll-free Number: 866 237 6875
Meeting ID: 929 2708 3773
Find your local number:
https://conduitreinsurance.zoom.us/u/acuwsq134w
About Conduit Re
Conduit Re is a pure play global reinsurance business based in
Bermuda. The Group's main operating subsidiary Conduit Reinsurance
Limited, is licensed by the Bermuda Monetary Authority as a Class 4
reinsurer. 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 about Conduit Re:
Website: https://conduitreinsurance.com/
LinkedIn: https://www.linkedin.com/company/conduit-re
Twitter: https://twitter.com/Conduit_Re
Media contacts:
Haggie Partners - David Haggie, Caroline Klein
+44 (0) 207 562 4444
conduitre@haggie.co.uk
Investor relations and other enquiries:
info@conduitreinsurance.com
Additional Performance Measures (the "APMs")
The Group presents certain APMs to evaluate, monitor and manage
the business and to aid readers' understanding of the Group
financials and methodologies used. These are common measures used
across the (re)insurance industry and allow the reader of the
Group's financial reports to compare those with other companies in
the (re)insurance industry. The APMs should be viewed as
complementary to, rather than a substitute for, the figures
prepared in accordance with IFRS. This information has not been
audited.
Management believes the APMs included in the unaudited condensed
interim consolidated financial statements are important for
understanding the Group's overall results of operations and may be
helpful to investors and other interested parties who may benefit
from having a consistent basis for comparison with other companies
within the (re)insurance industry. However, these measures may not
be comparable to similarly-labelled measures used by companies
inside or outside the reinsurance industry. In addition, the
information contained herein should not be viewed as superior to,
or a substitute for, the measures determined in accordance with the
accounting principles used by the Group for its audited
consolidated financial statements or in accordance with IFRS.
Below are explanations, and associated calculations, of the APMs
presented by the Group:
APM Explanation Calculation
Net loss ratio Ratio of net losses and loss adjustment Net losses and loss adjustment expenses /
expenses expressed as a percentage of net Net premiums earned
premiums
earned in a period.
------------------------------------------ ------------------------------------------
Net acquisition expense ratio Ratio of net acquisition expenses charged Net acquisition expenses / Net premiums
by insurance brokers and other insurance earned
intermediaries
to the Group expressed as a percentage of
net premiums earned in a period.
------------------------------------------ ------------------------------------------
Other operating expense ratio Ratio of other operating expenses Other operating expenses / Net premiums
expressed as a percentage of net premiums earned
earned in a period.
------------------------------------------ ------------------------------------------
Combined ratio The sum of the net loss ratio, net Net loss ratio + Net acquisition expense
acquisition expense ratio and other ratio + Other operating expense ratio
operating expense ratio.
A combined ratio below 100% generally
indicates profitable underwriting,
whereas a combined
ratio over 100% generally indicates
unprofitable underwriting, each prior to
the consideration
of total net investment return.
------------------------------------------ ------------------------------------------
Accident year loss ratio Ratio of the accident year ultimate Accident year losses and loss adjustment
liability revalued at the current balance expenses / Net premiums earned
sheet date expressed
as a percentage of net premiums earned in
a period.
------------------------------------------ ------------------------------------------
Underwriting year loss ratio Ratio of net losses and loss adjustment Underwriting year losses and loss
expenses of an underwriting year (or adjustment expenses / Net premiums earned
calendar year)
expressed as a percentage of net premiums
earned in a period.
------------------------------------------ ------------------------------------------
Total net investment return The Group's principal investment (Net investment income + Net unrealised
objective is to preserve capital and gains (losses) on investments + Net
provide adequate liquidity realised gains
to support the payment of losses and (losses) on investments) / (Non-operating
other liabilities. In light of this, the cash and cash equivalents + Fixed
Group looks maturity securities,
to generate an appropriate total net at beginning of period)
investment return. The Group bases its
total net investment
return on the sum of non-operating cash
and cash equivalents and fixed maturity
securities.
Total net investment return is calculated
daily and expressed as a percentage.
------------------------------------------ ------------------------------------------
Return on equity ROE enables the Group to compare itself Profit (loss) after tax for the period /
against other peer companies in the Total shareholders' equity, at beginning
immediate industry, of period
it is also a key measure internally, and
is integral in the performance-related
pay determinations.
ROE is calculated as the profit for the
period divided by the adjusted opening
total shareholders'
equity.
------------------------------------------ ------------------------------------------
Total shareholder return TSR allows the Group to compare itself (Closing common share price - Opening
against other public peer companies. TSR common share price) + Common share
is calculated dividends during
as the percentage change in common share the period) / Opening common share price
price over a period, after adjustment for
common
share dividends.
------------------------------------------ ------------------------------------------
Dividend yield Calculated by dividing the annual Annual dividends per common share /
dividends per common share by the common Closing common share price
share price on
the last day of the given year and
expressed as a percentage.
------------------------------------------ ------------------------------------------
Important Information
This announcement may include certain statements and indicative
projections that are, or may be deemed to be, "forward-looking
statements". These forward-looking statements are not based on
current or historical facts and are forward looking in nature and
may be identified by the use of forward-looking terminology,
including, without limitation, 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 may 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 the Group's
current view with respect to future events and are subject to known
and unknown risks relating to future events and other risks,
uncertainties, and assumptions and other factors relating to the
Group's business, results of operations, financial position,
liquidity, prospects, growth and strategies.
These factors include but are not limited to: the Group being
recently established with a limited history of operations; the
Group's ability to continue to build and sustain a business of
writing reinsurance and implement its strategy; the Group's ability
to assess accurately the risks of the potential underwriting
losses; Conduit Reinsurance Limited being able to maintain its
financial strength rating from A.M. Best; the number and type of
reinsurance contracts that the Group writes or may write;
competition from existing reinsurance carriers, as well as
alternative capital providers, insurance linked funds and
collateralised special purpose insurers; increased competition on
the basis of pricing, capacity, coverage terms or other factors;
the Group's ability to integrate its businesses and new joiners to
the Group; the successful retention and motivation of the Group's
key management; the potential loss of key personnel; the
effectiveness of the Group's loss limitation methods; the
reliability of, and changes in assumptions to, catastrophe,
accumulation and estimated loss models; potential uncertainties
relating to reinsurance recoveries, reinstatement premiums and
other factors inherent in loss estimations; the global changing
climate conditions which may lead to the possibility of greater
frequency or severity of claims and loss activity than the Group's
underwriting, reserving or investment practices have anticipated;
possible low frequency of large events or unusual loss frequency;
the actual development of losses and expenses impacting estimates
for claims which may arise, including for Winter Storm Uri;
cyclical downturns of the reinsurance industry; exposure to
unanticipated or novel coverage disputes; the impact that the
Group's future operating results, capital position and rating
agency and other considerations may have on the execution of
capital management initiatives, financing or dividends; the impact
of swings in market interest rates, currency exchange rates and
securities prices on the Group's investments or liquidity; changes
by central banks regarding the level of interest rates and the
timing and extent of any such changes; the impact of inflation or
deflation in relevant economies in which the Group operates; the
increased regulatory burden facing the Group and the potential for
development of an unfavourable regulatory environment; changes in
governmental regulations or tax laws in jurisdictions where the
Group conducts business; the focus and scrutiny on ESG-related
matters regarding the (re)insurance industry from key stakeholders
of the Group, and any adverse asset, credit, financing or debt
capital market conditions generally, which may affect the ability
of the Group to manage its liquidity.
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. The
Group expressly disclaims any obligation or undertaking (save as
required to comply with any legal or regulatory obligations
including the rules of the London Stock Exchange) 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. All
subsequent written and oral forward-looking statements attributable
to the Group or individuals acting on behalf of the Group are
expressly qualified in their entirety by this announcement.
Prospective investors should specifically consider the factors
identified in this announcement which could cause actual results to
differ before making an investment decision.
The Group's renewal year on year pricing change measure is an
internal methodology that management intends to use to track trends
in premium rates of a portfolio of reinsurance contracts. The
change measure reflects management's assessment of relative changes
in price, terms, conditions and limits. The calculation involves a
degree of judgement in relation to comparability of contracts and
the assessment noted above, particularly in the Group's initial
years of underwriting. To enhance the methodology, management may
revise the methodology and assumptions underlying the change
measure, so the trends in premium rates reflected in the change
measure may not be comparable over time. Consideration is only
given to renewals of a comparable nature so it does not reflect
every contract in the portfolio of the Group's contracts. The
future profitability of the portfolio of contracts within the
change measure is dependent upon many factors besides the trends in
premium rates.
Condensed interim consolidated statement of comprehensive
loss
Six months ended 30 June 2021 Period ended 31 December 2020
$m $m
------------------------------ ------------------------------
Gross premiums written 210.3 -
Ceded reinsurance premiums (21.8) -
------------------------------ ------------------------------
Net premiums written 188.5 -
Change in unearned premiums (153.2) -
Change in ceded unearned premiums 12.4 -
Net premiums earned 47.7 -
------------------------------ ------------------------------
Net investment income 1.3 0.1
Net realised losses on investments (0.4) -
Net unrealised losses on investments (0.1) -
Net foreign exchange gains - 0.1
Total net revenue 48.5 0.2
------------------------------ ------------------------------
Net losses and loss adjustment expenses 33.4 -
Net acquisition expenses 13.8 -
Total insurance expenses 47.2 -
------------------------------ ------------------------------
Equity-based compensation expense 0.2 0.3
Other operating expenses 13.5 4.5
Total expenses 60.9 4.8
------------------------------ ------------------------------
Results of operating activities (12.4) (4.6)
------------------------------ ------------------------------
Total comprehensive loss for the period (12.4) (4.6)
============================== ==============================
Loss per share
Basic and diluted $ (0.08) $ (0.03)
Condensed interim consolidated balance sheet
As at 30 June 2021 As at 31 December 2020
$m $m
------------------- -----------------------
Assets
Cash and cash equivalents 130.9 1,054.0
Accrued interest receivable 3.2 -
Fixed maturity securities 939.9 -
Premiums receivable 143.6 -
Reinsurance assets
- Unearned premiums on ceded reinsurance premiums 12.4 -
Deferred acquisition expenses 40.2 -
Intangible assets 0.5 0.2
Other assets 5.4 1.1
------------------- -----------------------
Total assets 1,276.1 1,055.3
=================== =======================
Liabilities
Reinsurance contracts
- Losses and loss adjustment expenses 33.4 -
- Unearned premiums 153.2 -
Amounts payable to reinsurers 15.6 -
Other payables 33.3 2.5
Total liabilities 235.5 2.5
------------------- -----------------------
Shareholders' equity
Share capital 1.7 1.7
Other reserves 1,055.9 1,055.7
Retained loss (17.0) (4.6)
Total shareholders' equity 1,040.6 1,052.8
------------------- -----------------------
Total liabilities and shareholders' equity 1,276.1 1,055.3
=================== =======================
Condensed interim statement of consolidated cash flows
Six months ended 30 June 2021 Period ended 31 December 2020
$m $m
------------------------------ ------------------------------
Cash flows used in operating activities
Loss before tax (12.4) (4.6)
Interest income (2.2) (0.1)
Net realised losses on investments 0.4 -
Net unrealised losses on investments 0.1 -
Net foreign exchange gains (0.2) (0.2)
Amortisation of fixed maturity securities 0.9 -
Equity-based compensation expense 0.2 0.3
Change in operational assets and liabilities
- Reinsurance assets and liabilities 6.1 -
- Other assets and liabilities 0.1 1.5
Net cash flows used in operating activities (7.0) (3.1)
------------------------------ ------------------------------
Cash flows used in investing activities
Purchase of investments (1,008.4) -
Proceeds on sale and maturity of investments 90.5 -
Purchase of intangible assets (0.3) (0.2)
Interest received 2.0 0.1
Net cash flows used in investing activities (916.2) (0.1)
------------------------------ ------------------------------
Cash flows from financing activities
Proceeds from issue of share capital - 1,057.1
Net cash flows from financing activities - 1,057.1
------------------------------ ------------------------------
Net (decrease) increase in cash and cash
equivalents (923.2) 1,053.9
Cash and cash equivalents at beginning of period 1,054.0 -
Effect of exchange rate fluctuations on cash and
cash equivalents 0.1 0.1
Cash and cash equivalents at end of period 130.9 1,054.0
============================== ==============================
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Conduit (LSE:CRE)
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