Conduit Holdings Limited (CRE) Earnings Call Transcript & Summary

I think we're ready to start. Hello, everyone. Welcome to the First Inaugural Conduit Full Year Results Presentation. Thanks very much for joining. If I can start by introducing the team here. Most of you will know well, Neil Eckert, Executive Chairman; Trevor Carvey, CEO; and Elaine Whelan, CFO. And perhaps Neil, I could ask you to kick off.

Okay. So Good morning, everyone, and what a morning it is. So our highlights, yes, we are very pleased to have hit our premium targets as per original plans. What we have majored on and what we've discussed during the year and our quarterly updates is the strategic focus on quota share. This has given us a stable portfolio in terms of the business, reduced volatility, which you'll see from the relatively low net catastrophe losses, which we'll come on to in detail. '22, so the difference between last year and this year is we had a full complement. We've literally been up and running for sort of 3 weeks at the 1st of January last year. So we've got a lot of momentum into '22. We've had a good 1st of January with premium incomes at January ahead of our expectations. And finally, we are paying our dividend as promised at the IPO bringing the total '21 dividend to $0.36 for the year.

Okay, thanks. So as Neil said, we've closed out the year with ultimate premium written of $458.5 million. That's versus our IPO plan of $471.5 million. So we're broadly in line with that plan. As Neil also mentioned and as we've talked about over the course of last year with the decision to weigh our book more towards quote share in excess of loss business, the resulting accounting impacts of that produces gross premiums written of $378.8 million, and that's gross earned $226 million. Our net premiums earned were $194.2 million as our core reinsurance program was fully earned in the year. So the ratio of our gross earned to gross written is only about 60%. And against ultimate, that's only about 50%. So there's a significant amount of the 2021 underwriting of premiums that will earn into 2022. In terms of our overall performance, our combined ratio of 119.4% and our negative return on equity of 4%, clearly impacted by the cat loss event of the year, but that's not really our full story. In our start-up year, we did expect there to be a deferral of the recognition of the gross premiums written and earned, given our rough 50-50 business plan split between quota share in excess of loss. With that now skewed a bit more towards the quota share business, that increases deferral and that makes things like the cost of our reinsurance program and our other operating expense as a higher proportion of our combined ratio, and it reduces the earnings to offset those upfront costs. So to put that in context, our operating expense ratio, as you could see there, 6.7% of gross written premiums versus the 15.8% that we reported on actual. Also, and as we've talked about before with the quota share there's a higher cost of doing business. And we accept that given the reduction in the volatility that, that gives us. And you can see that in our full-year acquisition cost ratio of 30.4%. And again, as we've said previously, we do expect that to trend down a bit over time. On the cats then the major cat events of the year of Ida and the European floods contributed $27.1 million or 14.4 points to our performance. And our total net cat losses recorded for the year were $53.8 million or 27.7 points on our performance. So in addition to Ida, the European floods, that includes bits and pieces for other events such as Uri and of course [ tornadoes ] and others. So while our earnings base is still relatively mature, those loss events will have a bigger impact on our performance. And lastly, impacting our ROE was the unrealized loss of investments in the fourth quarter -- late in the fourth quarter, and that's a result of the expectations of more rapid fed rate hikes that led to an increase in treasury yields in that quarter. And the next slide is our teach-in. We've had a lot of questions over the last year into conversations in terms of how to treat our quota share contracts given that it is a fairly significant proportion of our book. So we've included this slide and we do have some more independencies on the other types of business that we underwrite to help with the modeling of the numbers and to show the time that it takes to fully recognize the premiums on the quota share. This is an example, of course. And as I said before, also, it does become less of a standout item as we grow the book and over time, it's very much a feature of being a startup, and it is more pronounced in the first few years of the company's life. So on the chart, when we find a quota share contract, we have an estimated premium amount associated with that contract. That's our yellow bars there. We write that out into GAAP premium over the term the contract, which is generally 12 months and that's demonstrated by the dark blue bars that you see there. And that written amount then earns out over 12 months from the written. So hence, you get that deferral that we've been discussing on both the written and the earned with earned stretching out as much as 24 months. So by the end of the actual contract term, although we'll hopefully written the amount in the dark blue bars will have earned just about half of it, as you can see the light blue bars. And then in the 18-month mark, we're at about 90% earned. And then by the time we get to 2 years, we're hitting that kind of fully earned mark and maybe just a little bit more lag after that. The caveat around this example is that we do adjust contracts during the course of the contract for any other information that we get on those actual reported amounts, changes, expectations or even a change in the pattern of the underlying business attaching. So this is just an example. But hopefully, it's clear from this that once we're in the pattern of a renewing book, as we have some earnings getting pushed out, there's others coming through from the previous years. So it does get to a more steady state after a couple of years.

Thanks, Elaine. So this is really a tailored to take for us through the year in terms of the way that the business has flowed through, not just by the divisions of Property, Casualty and Specialty book by the underlying types of products that we've written. As we said several times, the waiting for us has been preferable to weighted towards quota share. It's where the underlying price has been improving most significantly. We've got a couple of rate change tails coming up where you'll see the continued evidence for that. We've also shown a new metric around what we call our non-cat premium versus our cat exposed premium. And it's a reminder that as the industry does have a particular focus on the impact of climate change and cat generally in the general reinsurance industry non-cat or what we call the risk business that we write is also very significant. And that's given us great opportunities during the year. So non-cat typically be pretty much off the casualty. Large proportions of the specialty are non-cat risk. But even our property portfolio is getting on for 40% risk business, i.e., not directly related to cat exposures. So overall, that will give a blend to the individuals looking at portfolio as to how the metrics are made up. Within it, as Elaine referred to earlier, $458.5 million for the year, the current ultimate estimated band. We do have a small margin improvement around that in the way that we estimate the quota share premiums into the portfolio just to build that into our final estimates around client data that's provided to us. This is a chart which many people on the call probably familiar with, it appeared in our original IPO deck, and we've continued to show this. It's a very broad global measure insurance price change, but it's one which we're consistently showing, and it reflects the underlying insurance price changes on the global stage. It's one which you'll see on the next slide coming up because largely mirrored that trend, particularly through '21. The downward trend in rate increase, that's important to stress that above the line is still positive rate. That trend down rating through down to 30 on a global stage [indiscernible] in March is largely reflected in our own metrics from our own underlying portfolio. So this, again, we call this indicative renewal price change, and these are taken from the underlying clients that we have, their reporting rate change on their underlying portfolio. So obviously, there's a large cross-section of business within property, for instance, across a range of subclasses, but it shows the trend through the year cross on a blended basis, 13% down to 11%. And these are the pure rates that the clients are reporting. So this is before any inflation adjustments, which we would apply to drive a net rate change. You'll see that trending down just from that 13% to 11% through the 4 quarters. Just an observation that particularly some of the cohorts are quite small so for instance, in Q4, which is a quiet renewing period in the industry, plus 6% property plus 17% specialty, slight outliers, but the cohorts are quite small this contract count in that quarter.

Right. So this slide also is one that you would be familiar. And what it shows is 2021 being the fourth costliest reported year in recent history. It shows a continuing trend on the Guy Carpenter Rate Online Index. And I would expect -- we said that sort of we're optimistic on the outlook for rates. I think that the markets will get interesting through this year, people are worried about volatility. So this just shows the continuance of what we think will underpin hard market conditions and enable us to continue to get rate rises above claims inflation.

Okay. So cat losses through the calendar year 2021. Again, as we refer to reported as the fourth highest cat year for us and total net losses $50 million, just under $54 million. For us, that was made up of the 2 that you see there, but it's also Texas Uri, New South Wales, a small degree and then of course later in the year. Those are all relatively low single-digit losses for us, those last 3, but they carry informed part of our overall cat incurred total for the year. I think it's -- our cat losses -- it was a good stress test for us in the way we built the portfolio. We have mentioned several times about building what we would call a flatter PML profile, particularly around the peak zone. That's been possible through the quota share structures that we have put in place in terms of what we have written and the kind of the dynamic of that is that for every dollar of premium that you're taking on board relatively the event and limits that have been provided around particular quota share structures are lower than a typical large [indiscernible] excessive loss. So that's enabled us to continue to grow out into the portfolio and keep the -- what we would call the zone PML spikes, relatively flatter to probably a typical property cat reinsurance premium.

On investments then, our return for the year was negative 0.3%, with that negative return, as I mentioned earlier, being generated towards the end of the fourth quarter with the rise in treasury yields, driven by expectations of the Fed rate hikes. Average credit quality, you can see there is AA-. And you can see the pie chart the allocation across the different asset classes that we've got on the slide. No real changes there, no real surprises in there and no change in our strategy either. We do still intend to stay high quality, highly liquid trying to limit the downside as much as possible in the portfolio. We are going to stay on the shorter end of duration in the near term and as we watch by watch how those rate hikes materialize. Operations then the spend for the year is broadly in line with plan, slightly different mix than the plan, just a slightly lower employment costs and higher consulting costs just given the time it took us to hire a team and a little bit more spend on systems as well. And there's been a lot of work on systems upfront. And as you can see there, our underwriting and cat exposure management systems are fully integrated. There's further work ongoing in the rest of our systems over the course of this year and into next, of course, but the front-end part is done. And you can see from the chart that we have in the corner there. We're over 40 people now from starting the year with 12. So that's been quite a build out. Very pleased with the quality of the people we've been able to attract to the organization. And we'll add a few more in 2022, but we're largely there in terms of building out the team.

Okay. And then an update on the one season that's just as we've just gone through. When one sees an increase in premium year-on-year of plus 70% or more, it's a large number, but pretty much that was within our plan to grow into the second year, as you referred to at the start -- faulty amount or depending a year of engaging with clients, sharing with them our appetite, understanding their own portfolios. So as we came into Jan 1, a lot of that groundwork has been laid already in terms of submission flow and deal flow. And we knew that we would be able to again, sort of going to the market with the full team. And with, I guess, you'd say probably a stronger understanding of what those client's work were going to be purchasing. So very successful of renewal season through property casualty specialty, we've got the split of it there. The comment on net rate change at the end, we're showing our rate change metrics on a net basis after the impact and adjustments for claims inflation, particularly. And that's a true message, we believe, in a true measure of the underlying health of the business and the underlying business classes. You can relate some of the gross rate changes back to the earlier slide, which we showed you how the clients report that on a gross basis. On a net basis, particularly with the degree of what I would call the risk business that's in there as opposed to cat we're getting a good positive rate over and above the underlying claims trends. So a successful renewal season selection rate for us. That's really what we referred to as our hit rate, around about 20%, a sort of one in 5 of offerings that we're able to match with and bind. That's very strong submission closing stake, and that's key to our strategy of being able to deploy selectively into the different classes and self-classes indeed. So it's really QS versus XL showing their registered plan, simply reflecting the flat good. Primary markets have continued to move on ahead of what we would call the more commodity-like excess of loss programs. We stay alive to the XL offerings -- I think is a way to phrase it. We are in a position where we have got a portfolio that we're still growing into. We're able to look at the existent loss business that's shown to us through different regions and grow into that as we deem appropriate. We're not in a position of having a large profile of excess loss business that we're having to shrink down. It's one that we can grow into selectively. I think it's a good position to be in. Then just a final comment there around the retrocession program of predominantly one-one attachment for us that was renewed in January. And we grew that in line, as you say, with the expanded limits and expectations. So we're still growing into that requisition program through the year as the '22 business grows. So I think we are relatively successful that brought new partners on board and essentially within our sort of budgeted parameters.

Right. So momentum continues. We will see, as Elaine mentioned, the earned premium from '21 flow through, particularly in the first half '22. As Trevor said, we've come in -- January ahead of our own expectations. And the one point I would make is that we had a very strong January. It would be wrong to try and extrapolate the 74% but because we have staffed up and we're staffing up throughout the year, but we are still extremely positive on the outlook. And we have the full team in place. We've got operational. Everything is now working. And I think Conduit really has established itself with brokers and clients and as a brand. So I mean, overall summary, the outlook really does remain extremely positive, and we would expect to deliver on the objectives that we set ourselves at the outset. So I think that concludes the presentation. Obviously, very happy to take questions, which Karen and I will or you will manage?

[Operator Instructions] Ben, sorry, [ Stefanos ] first, do you want to?

That was very helpful. I have 3 questions. So one would be -- I was wondering if you can give us any color on the potential exposure of the European storms we had earlier this month. The second question is on acquisition costs. Given the lag, obviously, between the net earned premiums and ultimate premiums, I was wondering if you can give us some indication of how we should be looking at this going into 2022. You did say that this will drop down, but any more color will be lovely. And following off from that, any comments on ceding commissions and whether these are expected to increase further throughout the year? And consequently, how disease may or may not impact your decision to maintain your higher quota-share waiting. And then thirdly, I was interested in the comment you made in the report about -- I think it's around 75% of your losses are still IBNR. Just very keen to understand if this was above your expectations and whether this is more related to not cuts or is more -- is not driven by the fact that quota share claims and indications are usually sort of lagging. So that's my question.

Thanks, Stefanos. Just on euro storms, the recent one, early days, obviously. And we are engaged with some of the brokers and some of the clients there. We have a relatively low footprint in U.K. and Europe, particularly through the excess of loss. That's largely driven through where we saw the rates over the last couple of years. And so we've seen a lot of European business and U.K. business, but it's pretty tough at the levels of rating that's been offered. First on euro storm, I think at this stage, the market is referring to them being impacting into the lower layers of the cat program for us, early days, but we're probably looking at kind of a low single digit, I would say as regards an involvement in them. So euro burned was obviously a larger number, and you've got some guidance there. The others we will watch, but we don't have a big footprint in the ceding commissions, different stories for different classes really. Casualty is the one that's probably mainly in the headlines, [indiscernible] they've trended up over the last couple of years. We're seeing those now being largely renewed in our portfolio, probably as is. There were some requests to push those on. There was -- what I would call the actual market a bit of a standoff later on in December in our portfolio that largely renewed to as is on the cash side. Property was a different story, particularly on property quota share for us, if any, that trended down at Jan 1. So we were able to put together our portfolio and then renewed on top of being book are largely with slightly reduced commissions on property, especially, I'd say a flat in commissions on especially that we were certainly flat.

Yes, sure. So on acquisition cost then I think we've been splitting that into the different divisions where we've been talking to people in terms of trying to give a bit more color on what's going on there. I think when we're looking at the different types, and we're looking at the quota shares, the ceding commissions that you see in the headlines are largely what we're seeing as well as in the kind of low 30s. And the XL is in that kind of 12% to 15% type range and the quota share of XL contracts we have can sit in the middle there, somewhere in between. But we do expect there will be -- our acquisition costs will come down by a good few points in 2022, just as that relative weighting of the quota share works its way through the book, and we have a little bit more of a balance towards the Xs this year. So you should see that coming through. On IBNR, the question that you had there, the high proportion we've got there at the moment is partially due to the reported in quota share. There is a lag on that. We don't have a lot of report coming through on that, but also just in terms of the events that we've had, that there's not a great deal of paid and reported on those either. So it's a combination of the 2 really.

Thanks, Stefanos. [ Ben ], do you want to go next?

I really had 2 questions. Firstly, could you go into a bit more detail about the catastrophes in the discrete fourth quarter? I guess it looks overall for the year that actually the 2 named parallel throw only half of the cat losses that you incurred. So could you say more there? And my second question was really in terms of expectations for this year. I know you've given some more detail around how premiums expect, how you expect premiums to earn -- but I just wonder if you could just break it down a little bit more simply in terms of the sort of combined operating ratio that you think you should be able to achieve this year? And also how much growth in top line and earned premium you would expect to achieve this year?

First. Yes. So thanks, [ Ben ]. So cat losses in Q4, I guess the one that we've reserved a gains most significantly is the cost. We posted a reserve against that. I think there's a bit of prudence sitting within that. And we'll watch how that emerges through. But that for us was a late event that we reserved against. But it's also touching on to the IBNR issue -- around the overall cat events that we've got. We still are then posting on top of that, do we are prudent, and we have to do that in our first year, particularly, but carrying a degree of IBNR around the cat events as well. So we have a big detail exercise in how we build up the loss that's coming to us being reported from individual sees. We then have to carry on top of that, what I call a prudent load as well. So they are essentially smaller events, sort smaller events reported in and then we have to apply a degree of prudence to those -- to the other piece.

Sure. Yes, Ben, I guess in terms of think about earnings, aside from kind of showing you how we actually do the detail work behind them. Generally, we've been kind of thinking about the book in terms of the '21 year will be about 95% written by the half year this year and about 80% earned, and that really some works reasonably well. I also think if you look at where we are in terms of gross earned to gross written this year, it's about 60%. We do expect that to increase as the quarter share comes through as the mix blends a little bit more. So I think you could expect on a full year basis, growth arena written for '22 to be in the 80% kind of range there or thereabouts. And thereafter, as we get further out into '20 and beyond, we should be kind of into the 90s. So hopefully that gives you a bit of a steer on how to think about that. In terms of the growth in the top line, as Neil said, that 1-1 renewal percentage, you shouldn't apply that across the board. We did have most of our underwriting team in place kind of February, March and into April last year. But we do have the benefit of our renewing book there now. We do expect to see growth across that, but it wouldn't be about same magnitude. But I think if you apply a more moderate growth factor off of the numbers that we reported in '21, then you should have a reasonable outcome from that. And in terms of combined ratio guidance without my cat crystal ball handy, I think given where we are with loss ratios, I think the benefit of quota share is less volatility around that loss ratio, but there is that increased acquisition costs. So I think that, that probably puts our combined ratio into kind of the low 80s as being in the kind of at range at least for the current year in terms of until that washes through a bit more.

Could I just ask one follow-up in terms of the sort of the cat load that you would expect in a normal year when the book is kind of fully mature whenever that would get to, I guess, versus the, what was it, close to 30% of the earned premium in 2021.

Yes. I mean, I think if you took out IDA and the European floods, if you take them away, then we're probably looking at something that looks more like a min year. In terms of the ratios for this year, it's a little bit too early to give a very strong guidance in terms of where that takes us in the future as the book is still building. I think we might be able to give a bit more of a view on that in half year full year this year.

Thanks, Ben. [ Barry ]?

I've got a couple of questions, in fact, most of mine have been answered already, but I wonder if I could ask you, in terms of -- given the frequency of the cat losses, what you've seen over the last few years, whether or not there needs to be a recalibration of some of the financial modeling for cat losses? That's the first question. Second one, in terms of staff retention, now you're almost up to speed. I just wondered how easy it is to retain staff in Bermuda now that everyone is almost on board. And the last question I had was in terms of -- I know that a number of carriers seem to be exiting classes of reinsurance almost on a daily basis. And is it this which is giving you the confidence that you think rates are going to go continue to be relatively hard into 2022 or is it something else other than that?

Yes on the models, Barry, we absolutely do they need to be calibrating, yes. But 2D, they are being recalibrated. The way that those vendor models work, essentially new events, you types of events that are folded in and then updates our issue. I mean the reality is, though, and we said from day one, we have a healthy -- I wouldn't say mistrust or this regard, but healthy skepticism around the tail metrics that come from the models. Consequently, we've always applied some pretty significant loadings to the model output. But then we took the view that you manage that through the structures that you issued. So quota shares for us the tighter event caps is a way for us of putting our own portfolio in a position where we're not exposed to that significant, if you like, tail uncertainty. And that's been really important for us. So yes, I think weak calibration is happening constantly in the industry. But for us, we have a healthy skepticism around the tail metrics. On existing classes as we've seen that to the piece. Is that driven by losses, yes, should agree if that's the experience that they have been reporting. But the -- I think, at the moment, the confidence that probably exists in the industry and within the way that we put our portfolio together is more driven by what I would call the underlying management's awareness of claims trend. So I'd imagine the risk managers and the ceded buyers and the Boards of our clients have the same conversations that we do around emerging claims trends, social inflation and the like. And in my time in the industry, a few decades now, it's certainly much more visible topic and a visible measure that I think all in the industry have to report on. So I think it's that element there and being aware of needed to stay ahead of underlying claims trends, which give us certainly, I think as we build our portfolio, more confidence around our position that we've taken.

I mean Barry, the feedback that we're also getting is that there are some very big U.S. renewal seasons coming up, sort of 1, 5, 6 and 7. And there has definitely been an element of pain in the retro-sectional market. And I think people are finding access to capital is more constrained now. So that would leave me. So it's a mixture of capital constraint inside ILS in particular and certain withdrawals, which I do think in terms of claims, I think the average burn for the last 10 years is about $80 billion. Yes. So '21 can be seen as an above-average year in severity. But I think people are adjusting to the real world. That number is out there.

Okay. And just coming back on the staff retention. Is that something you have a problem with on the end?

No, I was going to say, Barry, it's a startup and so we have people change the desks in the cat cape. So that's kind of a lot of work with our staff potential kidding. I think a start-up environment attracts a certain kind of person and we've done that. And I think year one is always a lot of hard work in it. It's not for the fat hearted, but we're -- it's people who wanted to be part of that and enjoyed the creativity and the drivers there. We've got a very flat structure and the management team is very accessible. So I think there's very much a sense that we're all kind of working together in there, which is great. We also do have our Head of HR, who joined us a short while ago. And he's charged with making sure that we're taking care of all that stuff and bedding in the things that we were doing probably on a more ad hoc basis in our first year.

Thanks a lot, Barry. Hi, [ Andreas ].

I just had actually just one question around your property book. There is a quite a big chunk of that is quota share. Could you maybe sort of highlight what types of property quota share business you're writing? And sort of linked to that as well, you mentioned, I think, Trevor, in your comments that writing quota share is flattening your PML profile. And I think you said 60% of that to the property book is cat exposed. What type of cat are you writing in that property book? Is that primarily primary insurance cat linked sort of risk? Or is this your traditional excess of loss type cat, let's say, Gulf of Mexico wind and European wind that type of cat?

Okay. Thanks very much. So the property book overall is probably our largest submission flow. We cast on it very wide there through brokers and then to clients, but it's very broad. And commercial property forms one part of it. But the -- I guess, the largest offerings that we have and where we've been able to match best is on the larger residential homeowners type portfolios -- that are very, what I would call, either state or region or country specific. So we put that portfolio together, particularly on that -- the residential side is look at very defined regions and territories where we can put our capital to work, get paid for that for risk and cat. We have very detailed submission and historical data from clients on the underlying attrition on large and then cat claims ratios that they've incurred. And that we've got up a picture for the exposure of that to cap versus attrition but always looking to keep those blocks of business as uncorrelated that's the right word as possible. Within the property, you do have at the other end of the spectrum away from the kind of the lower values it does go into areas such as a small amount of energy. -- onshore energy or high tech, may fall more into our specialty division usually, but there are certain portfolios which come through, which just have a higher, if you like, individual asset ratio to value. On Gulf of Mexico, widen, you mentioned that one. It's a class, which I think we have one contract, basically tiny contract covering our specific Gulf of Mexico win. It's been underpriced probably for it's probably 10 years in our view. It goes through cycles, particularly post large events take Katrina [indiscernible] 405. When it really spikes up, tend to spike up for 2 or 3 years, that's the time to play in that class. And at the moment, if you're looking at balancing exposures between, let's say, Texas and Louisiana onshore versus offshore, you want to be onshore and particularly in the E&S market where the rate has been incredibly strong. So that's kind of how we think about it. It's a wide submission flow and you benchmark contract basis than B and just which is the best place to deploy that then they could be exposed to a same event.

And I think, Trevor, it's the emphasis on regional and diversity away from nationwide. That's also very much report.

So how does that flatten your PML?

So for us, if you think of it, if we are presented with an option to write a large tower of nature, let's think of the state's nationwide excessive loss, where some of these clients would buy a program that could stretch up to $2 billion or more. And that covers all of the United States of America for any event that the model is producing through. [indiscernible] you essentially putting your fit the model is predicting the level of extreme loss that's going to come through into that tower. That is where the models in our view, have a great degree of unreliability. So what we do is look at that and trans that with operating in the quota share space where we get 100% of all the underlying premium, but we are only prepared to take a certain amount of PML limit with that. So when we write that credit share, we have a PML event cap, which is relatively low. And then the tail that we just referred to that we would have been picking up in the excess program, essentially, we pass that back to the client and the client then handle that tail. So we're not sitting with a significant exposure in that tail that has the effect of flattening the PML, particularly when as just pointed out, we write task shares on a regional basis. So the exposure, so if you like, going forward on all more than it goes vertically.

Thanks, Andres. Hi. [ Daryl ]?

I hope you can hear me okay. 2 areas of questioning, if I can. So the first one is just around the 2021 loss ratios. Maybe any more comments around how those loss ratios have performed across the 3 divisions. Looking at specialty, it's quite surprising that they're not the highest. I would have thought that given the net cats, maybe property would have been a bit worse. So maybe any more comments around that, please? And the second area is just around your business plans maybe. So I understand you've spoken about some of the challenges you've seen in specialty, which explains why growth has been a bit lower. Do you have any ideas around maybe supplementing this with more growth in property and casualty? And maybe also any more comments around which specific areas within specialty that have been particularly challenging, please?

So specialty for us, as a class, we have a current focus around bringing the energy risk for the online offshore. And also within there is a degree of call the political violence and terror exposures that site that. The areas of specialty that we have declined to, if you like, get into and involve ourselves at the moment, areas such as cyber, we're not a writer of cyber. Currently, we continue to evaluate that through this year. We'll continue to look at that. Cyber at some stage will probably become a class that is especially reinsurer, has a better balance between risk and events at the moment. There's still, I think, a significant imbalance there in the way that Cyber is a product to reinsurers has large tail event commitments that we would have to make. In terms of the specialty loss ratio to date in '21, it's relatively lower earned premium that's come through on that, a couple of larger losses within there. I think we've referred to previously that the events around the international group, so the marine liability, there's California oil spill, which we're carrying a reserve for and then another grounding loss -- and even though they're relatively small events in the scale of our overall portfolio on a relatively low premium specialty, it's a lower denominator in terms of net earned premium. So the year, are we looking to expand into PMC to offset, especially not explicitly. Each of our divisions is tasked with underwriting their portfolio on a gross basis in its own right. Any growth that you would see around property will always be, I suppose, somewhat limited or constrained by the PML, zone, restrictions and tolerances that we have. But certainly, as long as contractors plant is providing opportunities for us. We're always alive for that, and we'll continue to be so.

And just a quick follow-up, if I can. So I guess maybe it's more of a hypothetical one. Say, assuming come the end of 2022, you're set with a lot more quota share and a lot less casualty than what you had planned for. Would you consider updating that initial 5-year business plan or is it still too early to say that? And maybe are there any kind of like constraints or additional factors to think about where you -- if you will make an update to those plans, things like your rating agency capital, et cetera?

Yes. I think we need to be something fairly extreme to make us deviate too significantly from those plans at this stage. We're very comfortable with the classes that we're in. And -- in terms of the agency models that I presume you're referring to S&P, we're not rated by S&P currently. So Investec is our rating agency and they updated and changed their models a few years ago now, so that that's the models that we use to build the business, put the business done together. So we don't see any impact from that. If anything, I think S&P might be moving a little bit more towards the way that [ AM Best ] is looking at the tail. But we do think that there may be some impact in the market, at least in the short term, it introduces some uncertainty with that. There might be some opportunity for us.

Thanks, Daryl. Hi [Annie ].

I had a question on your property ex of loss. So if I look at '21, I guess it's roughly 21% property excess of loss, including both that as well as quota share excess of loss. So is that roughly where you plan to be on property cat excess of loss? Or would you be looking at trading that down or increasing it up? I mean, I just want to understand that.

Okay. Yes. So I think as I referred to the slide deck, property excess and loss for us, we see many hundreds of submissions through the course of the year. We balance those alongside the other ways in which we can deploy within a region. Very broadly, I'd expect, I mean the market to continue to respond as it did after European storms earlier this year. So rates are up. We had a degree of success in some of those programs being able to participate on the back of some of those rate increases. But in many cases, particularly within Europe, the loss correction of sort of the rate correction to the loss was certainly muted so for us, probably a disappointment. Overall, we have a growing risk tolerance as the net earned premium grows, and we've always said that within our plan. So we're still growing into our overall skin through this year and into '23. So I would see property exercise remaining around about the similar percentage, but we're very happy to move some of the QS captive, if you like, or exposure that we've got into a matching excess of lass if the rates are. So I think factors remain alive to it, the portfolio is alive. And the opportunity there, we would potentially consider switching over. But it's very much regionally focused.

And there was a question also earlier about cat load. And you mentioned that's too early to kind of talk about that. But if I look at your peers, I mean, roughly on a 15% kind of cat exposure, they have anywhere like a 8.5% cat load. So translating that to you guys on a 21% kind of a cat exposure that would be like a 12% kind of a cat load. Is that a reasonable number to start off with or I mean, on a way off base?

Yes. I think we capped with that a little bit earlier on the call. I think if you look at where we are with our overall cat impact for the year we've said it's 27.7 points there and about 14.4% from the bigger events. And if you back them out, we end up looking at a little bit more man, the caution around that is we are building the book. So it's a little bit early to think any kind of strong guidance in that area. So I wouldn't want to get stuck on a number at this point.

Got it. And if you back out the cash and if I look at your attritional ratios, that has -- your attrition loss sections definitely reduced a lot from H1 to H2. I mean it's just because you're the process of building out books. So there are some structures because of that? Or because if I look at your peers, then they are not looking at Asian loss picks that are that low on attritional business, just curious.

I think if you look at what's left there, it's a combination of attritional and large and we do have large loss exposure across our divisions. So you need to back out a little bit for that to get back to the attritional. And if you look at some of the quota shares that we've written across some of our classes with a larger loss component, the reason you're seeing that tick up is because the earnings are coming through more in the second half of the year.

I think unless there's any more hands appear that probably concludes the question session. I mean thank you, everybody, for attending. And my takeaway is that we're in a good place. We've achieved a lot, which we spoke about in the RNS. We've laid the foundations, the earned premium will start to flow through more strongly, I think, as we get into next year. So I really look forward to talking to many of you individually over the next few weeks, and there will be a quarterly update and then there's the interims in early August so thank you, everybody, and we will no doubt speak to.

Thanks, everyone. As usual, if there are any further questions or anything we missed out, it wasn't clear, please don't hesitate to get in touch