Conduit/CHL has announced its interim results for the six months ended 30 June 2022. Here are some highlights FYI.
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:
- $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
- 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
- Interim dividend of $0.18 (approximately 15 pence) per common share declared
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.
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.”