Conduit Holdings (LSE:CRE) — Q1 Trading Update

0:01 Good afternoon, and welcome to the CONDUIT HOLDINGS LIMITED Q1 Trading Update Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions and press send. Before we begin, I would like to submit the following poll. And I would now like to hand you over to Brett, Head of Investor Relations. Good afternoon to you. Good day, everyone, and welcome to CONDUIT's Q1 twenty twenty six Trading Update. Thank you for joining us today. Joining me on the call are Neil Eckert, Chief Executive Officer Elaine Whelan, Chief Financial Officer and Stephen Possilwhite, Chief Underwriting Officer. Please note our disclaimer language on Slide two.

0:50 I will now turn the call over to our CEO, Neil Eckert. Thanks, Brett, and welcome, everyone. As mentioned on our 2025 results call, Stephen joined in January, and I'm delighted to have him with us today. As usual, today's update focuses on our top line underwriting underwriting experience during the quarter and our view of the market, with Steve providing more details of each of our segments. Elaine will then cover the financial and investment highlights, including a review of our capital management strategy. In the first quarter of twenty twenty six, we continued to identify select areas for growth and increased gross premiums written by 4.9 over the prior year.

1:38 Growth was again led by our Casualty segment, where risk adjusted pricing has remained stable. The quarter saw heightened volatility in investment markets following the outbreak of the conflict in The Middle East. Against this backdrop, we were pleased with the performance of our investment portfolio, which generated a 0.3% return during the first quarter despite the volatility and higher fixed income yields and spreads. Importantly, our managed investments continued to grow by over $100,000,000 since year end and over $400,000,000 during the last twelve months, reaching $2,300,000,000 This added scale will continue to support our earnings going forward.

2:25 Capital management remains a focus for us as market conditions soften. During the first quarter, we repurchased $22,900,000 worth of shares. And this month, we substantially completed our previous $50,000,000 buyback authorization. We remain confident in the strength of our balance sheet, and the Board has authorized a new buyback program, demonstrating our focus on shareholder returns. Turning to our top line underwriting performance for the first quarter. Our portfolio continues to grow into areas of the market where we have found attractive underwriting opportunities. We achieved 4.9% growth in gross written premiums, reaching $430,000,000 in the first quarter.

3:16 Our overall growth rate continues to moderate given increasing competition in the market, but we have identified select opportunities that align with our appetite, primarily in the casualty segment. As we discussed on our last call, our reception in the market was strong at oneone. And this performance is a direct result of the hard work of the team leading up to the renewal period. Market capacity continues to increase, driven by the strong retained earnings of the industry over the last several years. Prices are softening, and we observed a risk adjusted rate decline of 5% for the first quarter. Property and specialty markets are experiencing more intense competition and rate softening, but pricing overall remains adequate in our view.

4:11 Casualty rates are more stable, broadly keeping up with loss trend, and we have seen strong opportunities to grow that portfolio with existing and new seasons. From a loss perspective, the first quarter of twenty twenty six was more benign than the prior year, which included the California wildfires, but was in line with longer term averages for insured catastrophe losses for the industry. The market is also dealing with the rise in geopolitical uncertainty and the conflict in The Middle East. The event is ongoing and could impact several areas of the market, depending on the extent and duration of the conflict. We do have exposure to the conflict in some of our specialty classes and have recorded an initial loss estimate based on the latest information, which is not material to CONDUIT.

5:07 With that, I will hand over to Steve for a deeper dive into our market experience across our segments. Thanks, Neil, and good morning, everyone. It's great to be with you today. As Neil mentioned, I joined the team in January this year and have been working in the industry for nearly three decades. I'm very happy to bring this experience to the COO role at CONDUIT. Over my career, I have served in senior positions within underwriting, risk management and actuarial functions. I've spent the first few months getting to know the team and the portfolio and have been pleased with the strength of the people and the opportunities for CONDUIT going forward. In Q1, the team selectively renewed or secured deals that aligned well with our strategic objectives, primarily seeking to protect our margins and improve earnings stability.

5:58 Turning to the Properties segment. Gross premiums written increased 1% over the prior year period to $248,800,000 This modest growth reflects our success of securing new business and increasing shares on well priced accounts, while reducing exposure or exiting treaties with poorer performance or terms that did not match our technical pricing standards. We continue to see a strong flow of business opportunities and submissions, and we are carefully picking our participations. As we expected, rates continue to soften in the quarter, and risk adjusted rates were down 9% across our property portfolio. The rate softening comes on the back of several years of strong rate increases and profitable results for the industry.

6:47 Despite the recent rate softening, we believe the pricing generally remains adequate, and we continue to find select opportunities. Softening was most notable within property catastrophe reinsurance lines, driven by robust returns over recent years, increased capacity and a relatively benign loss activity for the market. We expect these softening trends to continue through the midyear renewals, and we will remain nimble and proactive in the competitive environment to target well priced business. Turning to casualty. In Q1, the team continued to focus on expanding in classes where rate dynamics remain robust and with cedents that have demonstrated track records of prudent cycle management behaviors. Our casualty team has found select new business opportunities on top of strong renewals.

7:38 The increase in this segment complements our shorter tail property and specialty business and enhances overall portfolio diversification. For the first quarter, we reported $109,700,000 of gross premiums written, representing a 23% increase over the prior year quarter. Expiring business was generally renewed at similar shares, while we made deliberate decisions to exit underperforming treaties, where returns or terms were less attractive, supporting ongoing portfolio optimization. Growth for the quarter was largely attributable to U. S. General third party liability, complemented by incremental gains in smaller subclasses that contributed to portfolio diversification.

8:26 The rating environment remains attractive in our view, although some classes continue to demonstrate firmer prices than others. We continue to focus on areas of the casualty market with sustained pricing momentum. During the first quarter, risk adjusted rates were down 1% after adjusting for inflation expectations. Looking ahead, we remain mindful of industry loss trends, including some signs of increased loss frequency and past legacy concerns in certain areas. Against this backdrop, our focus is on carefully selecting our partners, improving diversification and expansion with our preferred partners across complementary classes. Turning to Specialty. Competition has increased, and we have scaled back the portfolio slightly to begin the year, with premiums reducing 4% or $3,000,000 compared to prior year to $71,800,000 Consistent with our plans, we have been able to leverage our strong trading relationships and quota share participations to successfully write some new higher margin excess of loss business.

9:34 This gradual repositioning will take time, but we expect it will help support our margins as the market softens. Risk adjusted rates were down 7% in the quarter. The specialty market has become competitive, and the team stepped back from a number of deals which did not meet our expectations or requirements. Instead, the team has prioritized protecting margins and ensuring written deals are adequately priced with the required terms and conditions. Loss impacted contracts and selected classes where there has been loss activity have experienced firmer pricing, such as marine and aviation. And we have written a few new treaties in these areas. The first quarter has been quite active from a risk loss perspective in addition to the ongoing conflict in The Middle East.

10:20 We don't expect the direction of the market to change, but there is potential for enhanced geopolitical risk awareness and the ongoing conflict to create further opportunities. We will stand ready to respond should the opportunities align with our appetite. I will now hand over to Elaine to go through our financial and investment highlights. As you've heard, our growth continues into our sixth year of operations, albeit now at a much slower pace, as you would expect, given the rapid growth we experienced in our earlier years and also market conditions at the oneone renewals. We wrote 4 and $30,300,000 of gross premiums written in the first quarter of the year compared with $410,200,000 in the first quarter of twenty twenty five, a 4.9% increase year on year.

11:08 We typically write the majority of our book in the first half of the year, certainly by 1.7%, and we have tried to front load our book a little given our market outlook. So we would expect that first quarter growth rate to moderate a bit by the half year, although we still expect to see growth for the year. Note that our gross premiums written exclude reinstatement premiums as they are not deemed to be revenue under IFRS 17, but are included within reinsurance service expenses as a loss related amount. Our reinsurance revenue was $240,300,000 compared with $213,000,000 in the prior year, a 12.8% increase year on year. There hasn't been any significant loss activity in the quarter that has impacted the company. We do expect to pick up some losses related to The U. S. Military campaign in Iran, but we don't expect these to be material to results based on the current information available.

12:01 Given that latest information, I would describe the loss level from the ongoing conflict as manageable and within our earnings expectations. Otherwise, not much to report on the loss front and prior year specific loss events are broadly stable. On the investment side, the portfolio yield offset the negative impact of the increase in yields in the quarter, and we generated a return of 0.3%. Book yield is 4.2%, in line with year end and March 31 last year. We remain relatively short duration and maintain our focus on a high quality, highly liquid portfolio, particularly given the recent volatility in the markets. Duration is currently two point eight years on both our investments and our net reserves. Average credit quality is AA, and you can see the usual pie chart here with our asset allocation.

12:52 And the only change to note is a small bank loan portfolio that we have started this year to help to diversify the portfolio and maintain yield. Otherwise, no real changes from prior quarters in that or our strategy. We started to include this slide on capital last year to explain how we think about capital. Our focus, first and foremost, is on maintaining sufficient capital to maintain our ratings and to support our underwriting portfolio. We then carry a buffer for opportunities and any other eventualities. Anything over and above that is where we consider capital returns or where else to deploy the excess. The option or blend of options depends on a number of factors, including market outlook and our share multiple. This month, we substantially completed the $50,000,000 share repurchase authorization that our Board approved last year.

13:44 This year, our Board have approved another program and we intend to execute that as and when appropriate before our twenty twenty seven AGM. I'll now hand back to Neil for closing comments. Thanks, Elaine. In closing, we remain focused on delivering shareholder returns, and we'll continue to execute our strategy to support that objective. We continue to make meaningful progress to stabilize the business. The key driver has been the renewal of our outward retrocession program at oneone with broader coverage for peak and secondary perils, reducing our net exposure to tail events. Board and leadership strength is an ongoing focus, and we are pleased that Steve Potterywhite is now settled in the COO role and working well with his team.

14:33 We have continued to make progress with our regular Board succession during the first quarter. Elizabeth Murphy has retired from the Board, and I would like to thank her for her dedicated service. Elizabeth was a Founder Director and has provided valuable guidance and insight as Audit Committee Chair during her tenure. Sadly, Stephen Redman, a tremendous asset to the Board, passed away in March. His significant contributions and kindness will be missed by all those who had the privilege of working with Stephen. During the quarter, Nicholas Schott was appointed Board Chair and was joined by three new independent nonexecutive directors: Richard Laitowler, Peter Mullen and Penny Shaw, each bringing strong insurance industry experience.

15:22 The market is softening, but we view most areas as remaining rate adequate. We found select growth opportunities in the first quarter, primarily within our Casualty segment, and we'll continue to adjust in response to changing conditions. Our underwriting business is supported by a relatively conservative and growing investment portfolio that is now 2,300,000,000 This increased scale will support investment income and returns going forward. Capital management remains a priority. We substantially completed the initial $50,000,000 share buyback program and have continued to pay a consistent attractive dividend. The Board has authorized another share buyback program, reinforcing our focus on capital efficiency and shareholder value.

16:12 Looking ahead, while we expect competitive market conditions to persist, we remain confident in our strategy, balance sheet and underwriting approach to generate value for shareholders. Thank you for your time and continued interest in CONDUIT. We would now be happy to take your questions. That's great. Thank you very much indeed for your presentation. And gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that recording of this presentation, along with a copy of the slides and the published can be accessed for our investor dashboard. O'Neil, Elaine, Steven, as you can see, we have received a number of questions throughout today's presentation. And I wanted to start off the Q and A session with the first one here, which reads as follows.

17:00 Gross premiums written only grew 4.9% despite a still large reinsurance market opportunity. What is preventing faster growth? And how should shareholders think about your long term growth rate? Right. So that growth was posted in spite of the fact that there is underlying rate reductions, particularly on property and specialty. So that growth does represent the net after the reduction in overall premiums. So it's a pleasing performance. It puts us probably at the upper end of our peer group in terms of q one reporting. We do have to accept the fact that we face a softening market at the moment, and we must manage our business accordingly and really make sure that we have high underwriting standards and do not compromise those standards.

18:00 So my hope is we've struck the right balance and that that growth rate is is good whilst maintaining our underwriting discipline. Steve, do you want to take Peter's other question on casualty? Yeah. Sure. Yeah. Thanks, Neil. So on casualty, I mean, we have underwritten casualty since the formation of the company in five years of relatively strong rate. And so off the back of that relatively strong rate, we have set reserves, I think, on a reasonably prudent basis, and we monitor them really continuously. And so we gain comfort from the fact that we have been extremely consistent in our approach to casualty reserving and have really seen no major sources of worry, I. E, deterioration within those reserves. However, what I would say is it's still relatively early in that development process for casualty.

18:57 And so we will continue to do that as we build into the future. Certainly, a rating perspective, casualty has also been the thing which has held up best in terms of rating. We build really quite stringent inflation assumptions into our pricing, recognizing that casualty lines can be impacted by social inflation, particularly in The U. S. And what we're seeing after we build in those inflation assumptions is that pricing still remains broadly adequate and at the level that we've really seen over the past few years. We're not seeing significant rate deterioration. So that's what gives us comfort. Thanks, Steve. That's a comprehensive answer. I I would add one other thing to that. On reserving, there's two criteria. There's the independent actuarial best estimate, which is determined by Willis Towers Watson, and then the management had their own best estimate known as the MBE.

19:56 Our management best estimate is some 125 or more million above the independent actuary, and we call that the risk adjustment. So we are trying to layer conservatism on top of the independent third party. Right. Let's move on then. Board and leadership changes. Right. The next phase of CONDUIT for me, we are five years in as a company. We will be really challenging and testing the business plan. We we have scaled and deployed capital during that first five years. We have not executed as well as I would have liked, but I think those things and those corrections are in protest in process.

20:54 We've made a number of senior personnel changes, all of which I would say are strengthening and adding to the business. The next phase for me is about building and further strengthening, reviewing the classes of business we write. Bench strength within underwriting is important. Operations, we're we're aware of the fast changing world of technology. We want to stay abreast of that and improve our biz internal business processes. So it's really more of the same, and it is about improving the strength on the bench. Elaine, would you like to comment on the share buybacks versus writing more business?

21:50 Sure. We've gone ahead, and our board has authorized a share buyback, but it gives us the flexibility to use that between now and the next AGM. So it it doesn't mean that we're gonna go and execute that right now. We we do have time to do that and and review all of our options. We have a fairly healthy dividend yield just now anyway. So there's a whole combination of factors that go into our decision making around our capital in terms of whether we deploy or return capital. So it's lots of moving parts, and a lot of it is driven by the market opportunities that we see ahead of us as well. And what about the bond market volatility? We did disclose in our year end financial statements in the risk section there, the potential impacts of movements in rates on our bond portfolio. So I'd refer you to that to get a view in terms of how sensitive it is.

22:48 That's great, guys. If I may just jump back in there. As I can see, you have addressed those questions for investors today. So thank you for doing so. Neil, before we direct investors to provide you with a feedback, which one is particularly important to the company, could I just please ask you for a few closing comments? Yeah. So we're now well into q two, which really has continued as q one left off. We've affected a lot of change in the recent period, and we are getting into the phase of further strengthening on key areas, particularly operations and underwriting. I'm personally pleased with the outcome of Q1. I look forward to presenting our interim results in July when we will no doubt be doing another session with with you guys. So very many thanks for your interest, and we look forward to speaking in the near future.

23:45 Fantastic. Thank you for updating investors today. Could I please ask investors not to close this session as you now will automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On the board of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.