Conduit Holdings Limited (CRE) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Conduit Holdings Limited Q3 2022 Trading Update. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to Neil Eckert, Executive Chairman, Conduit Holdings Limited to open the presentation. Please go ahead.

Thank you. So let's -- good morning, everyone. Right. Let's go straight into it, and go to Slide 3. This slide is very busy, but it gives an overview of what we think is happening in the market right now. We describe it as the perfect storm. And it's a coincidence of events that I don't think I've seen in my career because you have inflation on the one hand that is affecting both legacy on reserving. I think you will be observing sort of reserve strengthening happening. That obviously doesn't apply to us because of our legacy-free situation. . Inflation is also causing demand for increased limits in the Cat book. And that is creating a supply demand of the balance, which we had described as a capacity front. We've got mark-to-market unrealized, which is causing a certain amount of balance sheet stress. So all in all, we described this as the perfect storm, but it's a very bullish scenario for us. So with that, I'll hand over to Trevor.

Okay. Thanks, Neil. Next slide. Moving on to Page 4. Thanks. Good morning, everybody. Before we move into the numbers around the trading update, a few key points on this slide, which I'd like to illustrate, and particularly around our company approach and strategy and the way we go our business. The first 3 products on here basically articulate the strategy and approach to writing business. It was our view that our portfolio needs to be robust and able to withstand shocks, which seems an obvious thing to say really but it does need to have them built shock absorbers, if you like, to events when they hit, have intended to rock and shake out market assumptions and norms. I think we've seen that in the first couple of years, certainly since Conduit came into existence. I think at Conduit we've become known for a balanced approach, and being prepared to do work on ground up deals. That's our brand, if you like, in the market, and be known for that and focus on with data and attention to detail. There's not a bad thing on my mind. Fundamentally, this requires doing the hard yards to really understand clients ground up insurance business and that we like simply on pricing from model-driven metrics, which is where I think a lot of the industry has gone through in probably at least a decade. Though this isn't the most famous or headline catching part of the regional business, but we firmly believe it's where the true value lies in really understanding clients' margins. It's how [indiscernible] to extract optimal pricing and value from the chain. [indiscernible] was on product mix. I've always said that over the long term, those are market cycles, we will remain agnostic to the product type that from [indiscernible] it's still a firm belief that CapEx proportional quota share. And rather, it's the market cycle, the underlying margins within those different product types that will always dictate on. And building a heavily concentrated Cat portfolio is often easy to overextend in XL to an extreme tail, especially in the Cat space. For that reason, we always care from balance, how we bring volatility into the portfolio from what I would call the XL playing field. [indiscernible] here, at the end. I mean they refer to balance sheet aspects. Elaine will talk later on our approach to managing credit product situation on the asset side and a mark-to-market update. [indiscernible] comment around legacy or back book as many people often call it, essentially, I suppose we don't really have one. Greg Roberts can talk shortly in the underwriting conception and the broadly inflationary forces. Now they have an impact on all the industry's back book, but that's now underpinning forward pricing in the longer term classes. As I say, given that we came into being for the Jan '21 renewal season, we're in a position now of having the freedom and scope to deploy capital as the market conditions are not dictating and that's really important to us. Final 2 points on the slide refer to all the operational setup here at Conduit and our keenness to keep thinking current when it comes to design, management and money of the business and processes. A few words on this. We've now got just around 50 employees here in Bermuda, and 1 lesson that we are constantly reminded of as we've created this business is the value in having all as individuals in 1 location. It's really important for us, underwriters of all the functions around the modeling, pricing, risk management. And what we knew and it's certainly been brought to bear, that shortens the reaction time for business like ours when looking to make strategic decisions. If you like, in a car driving analogy, we can put our feet immediately on the various pedals, be the break or the accelerator, the circumstances dictate. And I think that's been the case. It's a big part of getting us to where we are now in 9 months through our second year. Page 5, next slide. Thanks. Yes, this is a trading update, so data points are understandably quite limited. But I think that the first 9 months of '22, the strength and certain resilience of the business problem that we're putting in place, and as we continue to roll out on the plan. 2022 estimated ultimate premiums are up 55% at just over $600 million compared to the 9 months ended September '21, and that's up 81% on a gross written basis over the same period. I think it shows not only substantial growth, which we've been experiencing, but also points to stable premium revenue flowing into the current year as '21 also continues to deliver. Elaine can touch on that. That's both on a written and earned basis. As regards major loss up during the quarter, [indiscernible], we're reporting an ultimate estimated loss net of reinsurance and reinstatement premiums of approximately $40 million measured as a percentage of first half year '22 shareholder equity, that equates to around 4.5%. By way of an update on the Ukraine-Russia crisis, we're maintaining our previous estimate, and that's unchanged at $24.6 million, again, net of reinsurance and reinstatement premiums. And I would reiterate that that's an ultimate estimate across all costs, including aviation. Both of these are significant industry events, as we know. And I think our net position speaks to some degree on the approach to managing the impact from these events on the company's bottom line, something we're always conscious of. So in 9 months into the year, looking ahead to '23, we really like what we see out there, and the business band to date is earning through in our pipeline, and that outlook is really favorable. Underlying business mix, it's probably worth mentioning again here that much of what we write at Conduit is the non-cat-exposed classes, currently, a large part of the regular narrative in the industry as we all know, sits around and focuses on Cat exposures on the latest headline loss of it. It's a so reminder that around 70% of the premiums that we take on board here at Conduit are actually the non-cat classes as we call them. And that's where real opportunities also lie. We've -- in the area, we're plainly being keen to have a major focus on it to date being at 70%. Going forward into '23 and beyond, we're probably equally as excited about the non-cat fees as we are as about the Cat, and that's a really attractive space for us to be as an engine within the Conduit earnings stream going forward. Perhaps to conclude, just before handing over to Greg, some words around how the market looks and feels versus others in the past. It's a reality that 20 years is actually 40th underwriting here and therefore, my 40th renewal season, which is quite a thought when you go back. There have been a number of times when the dynamic changed really materially. I think this is one of them. We've always said that prices are driven not just by losses, which is where people tend to go to in their immediate thinking but spy capacity. It's falling supply currently, not meeting a rising demand. And some of the reasons Greg will go into next, which is the market position now, and it's creating great opportunities for us as a reinsurer currently in the market. Greg will talk about this imbalance between supply and demand, and particularly relevant in the property space. So I'll pass over to you now, Greg.

Thanks, Trevor. Good morning, everybody. So Slide 6. Okay. So Slide 6 is -- so just a quick reminder of the strong pricing environment in which we are currently operating in. Now the chart is from March, and it's -- we've included this because it's a consistent it that we've referenced.

Can we go back 1 slide, please? The Slide 6.

Now for those of you can recall it from prior updates, it's worth remembering this is aggregated at a global level, and it shows -- and has been updated prior to Hurricane Ian. And I think we've put a line on the end to highlight that point. A good reminder here that the bars a bottle line represents a positive increase, which doesn't always come across from viewing the bars initially. It shows that albeit the pace of price increases has slowed in 2020. At a global level, price is still increasing to date by around 6% in this last quarter. Now Hurricane Ian sits expectedly on the chart, and for -- certainly for the property-related classes, anything with worldwide or U.S.-centric focus, we do expect to see a significant uptick. As Trevor mentioned previously, whilst our non-cap premium -- or risk premiums, if you will, receive the benefit of this uptick. We've already seen significant market adjustments occurring as the Cat space is clearly dislocated by the combined impacts of supply withdrawing from the market and property demand increasing simultaneously. Now the 1st of January renewal season is well underway. Submissions are flowing into reinsurers often with updated data cuts from the clients, which is really, really important. We're trying to present the most recent view of exposures. And the spectrum of demonstration of that shows some clients are very, very good, but showing the impact of inflation and how they have ultimately collected more premium for that same exposure. And some who are less good at it. And this is clearly, and historically has been from us from our very beginning, a key criteria in our acceptance of underlying exposure data sets from our clients. And bear in mind that we raised not just volatility products, but we are -- we have a significant interest in the underlying business and the concept of attrition. It's meant that it's in our DNA. I spent an awful lot of time looking at inflation and loss costs. And it's worth saying here within these submissions -- and we are, yes, at a position where we can see the full request of additional limit required at the 1st of January. But on property Cat there is significant limits being requested to be considered in the submissions thus far. The second bullet on the diagram, offers here some color. And around the casualty and longer tail lines to operate with a different set of dynamics at play. And the longer-term inflationary impact on back years, which, in our view, is certainly underpinning the broadcasting marketplace pricing differentials. As ever though, the spectrum of classes and risks offered to us differ greatly, and it's in classes such as D&O, currently where we'd concur that there is a worthiness of keeping under watch due to some of the rate reductions occurring. Classes such as this will, of course, remain under our scrutiny and full attention as we go through the January 1 renewal cycle. If we may move to Page 7. So this is a slide around rate change in the quarter, and we break it down again by casualty, specialty and property. But first, I'd like to remind attendees that we believe it is fundamentally clearer to show the true pricing impact when discussing rate change, net of inflationary loads, built into our pricing models and matrix. For year-to-date, the portfolio has seen a risk-adjusted rate change net of inflation of around 4% with particularly strong increases on the property side. Again, here, property has a significant components of Cat throughout the year. Rate increases massive inflation in the property count, ebb and flow between highs of 30s and 40s, risk-adjusted up to much flatter, near around our mean here. depending on where they are in the world and their loss experience as well. We were reminded that there has been significant loss activity to test some of these data points. And I'm pleased to say that the market is buoyant and reflective of that, and pricing additions are certainly responding. For specialty, Q3 is a relatively low-volume quarter. But we do continue to see broader recognition by underlying clients with the need to stay ahead of fundamental inflationary trends as the broader specialty market approaches Jan 1, there's no doubt the market here post-Ukraine is looking for a material revise of contract terms and coverage provisions, and this is for these reasons as much as pure rate improving, that we see real opportunities in the specialty reinsurance space going through 2023. On the casualty side, the 1% massive inflation that we show here is a good reminder of the netting down effect of the inflationary loads that we put through our pricing exercises. Now whilst our inflation assumptions vary across the subclasses in the casualty and longer tail lines, it is probably appropriate here to state that the single-digit number is wholly representative of where we are coming from when assessing claims inflation trends within the casualty portfolio. Can we move to Slide 8, please? Slide 8 is showing our premium growth trajectory. And yes, the slide shows our cumulative premiums bound since the inception of Conduit by quarter-to-quarter. Our team here at this point has generated almost $1.1 billion of cumulative down premiums. And as the COO, I'm certainly keen to emphasize that this growth has been with strict underwriting conditions, building a top quality book of business. The trend is pretty clear and just ahead of our IPO expectations when we put the 5-year plan together. So whilst the markets delivered shocks by the way of Ukraine, Ida, Burn and Ian among the way to date, what we see now as we approach year 3 is the marketplace significantly better and stronger than we were planning when we put our year 3 IPO plan together. Now for us, that means we're certainly looking to continue the forward momentum that we have, whilst we don't provide forward guidance around our top line premium numbers. I think we can say that we can accelerate our trajectory and we will bring years 4 and 5 closer to reality now. And on a general level, before I hand over to Elaine, I would sign off by reaffirming that broadly speaking, we see the high-level lineup in order of opportunity size, that is property first, followed by specialty, and then on to casualty. And the marketplaces for a new instant compromised many moving parts, which are docking to present paring quality of opportunity at different times. But by thinking of these broad classes in this order, it's probably the clearest way to articulate how we see that market presenting itself to us as we continue to build our book into 2023. On this point, I'll hand over to Elaine.

Thanks, Greg. Good morning, everyone. Can we move on to Slide 9, please? We talked about the growth at our ultimate and inventing premiums earlier in the presentation Trevor mentioned, I want to pick up a bit on the earning of those. In the 2021 underwriting year, we said we expect to be around 80% written by the end of that first year, is almost 100% written by the end of the second year. We also said we expected to have earned 45% to 50% by the end of the first year and around 95% by the end of the second year. The 2021 underwriting year is rising in earnings, largely in line with those statements. And given the business mix for the 2022 under 18 years, obviously depending on how Q4 actually ends up, we expect the 2022 underwriting year to write an earning of a very similar pattern. And currently, we expect a broadly similar pattern from 2023 underwriting year. If we can flip to the next slide, talk about investments, please? No real changes in strategy should expect for keeping duration of fairly low relative to our liabilities in the current environment, duration is currently 2.3 years, versus around 3 years on our reserves. We're comfortable with that for now on the although we might look to just registration a little bit, our unrealized loss of $74.8 million for the year-to-date, clearly mostly driven by rising rates -- rising rate expectations is aided by big moderation, and we also have any risk assets in our portfolio. So our portfolio remains high quality and again, on risk assets, we don't have any concerns about defaults or impairments. I'll hand back to Neil Eckert to wrap up.

Next slide please. All right. So we're now in a position where we have the capital. It feels to me like sort of we're reaching the end of the initial journey. Market conditions are as favorable as we hoped for and if anything, ahead of where we would have expected at the time of IPO. We have the capital to accelerate. And basically, we're just looking forward to probably one of the most fascinating renewal season that we have seen for a very long time. So with that, I think we'll hand over to -- get ready for Q&A.

[Operator Instructions] We will take our first question from Tryfonas Spyrou of Berenberg.

I just have 2 questions. So the first one is on your thinking around growing your property Cat exposures next year, and whether we should expect a slightly different sort of PML profile to the one you have now given that you are expected to deploy more capital in this area. And I guess, how should we think about the balance of the book next year, both in terms of premium diversification but also on the P&L side? And I guess, related to that, how should we think about your overall sort of retrospend given the location that is expected in that part of the market, which you pointed out? And the second question is on the selling commissions and whether we should expect sort of the improvement in sort of the property and casualty space next year. I appreciate to some new sources that a lot of the sort of London property Cat treaty some -- or we presumably to Bermuda to take advantage of better sort of conditions and ceding commissions there. So any comments wrong, that would be appreciated.

Okay. Thanks very much. Yes, coming off the first point around PML and cat growth. For us, when we got the plan together, and we were pretty clear in the way that we saw our -- if you like, our P&L net appetite growing in conjunction with the global growth in the premium volume. So it keeps -- we keep it in proportion as we move through our 5 years -- our original plan. And I guess the best way to think about that is we have stuck to that as we got through here and into year 3 is where we're going. Year 4 and 5 in our plan, we factored in an increasing appetite forecast. I think that was basically moving from the kind of the 5% level where we are now on 100 year, Florida is a good example, up through 6.5%, I think it was 7.5% in year 4. And so for us, as the market presents itself to a particularly around the property space, which as Greg has said is, if you like, the main area for opportunity that we see. I think that kind of level and that kind of PML, if you like, GFOs is the way that we would think about it. And so maybe it's an advancement of what we were looking at doing in year 4, and moving that forward into the current year. And it will depend on how the market presents itself, and we sit around the difference between the different classes of business. Cat XL is obviously being very distressed at the moment. But we do have various ways of bringing that portfolio of Cat on board. We can do that through various product types. And in many cases, we have been able to bring that in without immediately just putting it on to what you would refer to as a vertical PML. So we have tools at our disposal. And retrospend, yes, good point. Obviously, retro is being squeezed probably as, if you like, the tertiary product in the industry. We have a very strong panel in place with us when we started the business for the first year in '21, renewed through in '22. I think it's a feature in our plan that we budgeted for reasonably sizable increases in that, that will be sensible. But the one thing for us is we know that those carriers are in play and in place. We've had conversations with them already. I think it's a position that we're in that some of the industry losses that have been generated. We have relied on the reinsurance program to a limited degree. It's by no means been stressed either last year or this year. And I think in that respect, we've probably got some winning partners who are still willing to grow with us on that. Greg, just if you want to talk about ceding commissions because that's really the blend between the 2 P&C.

Yes. I mean, ceding commissions are an area we obviously spend a lot of time focusing on -- Trevor's referenced the combination of, in particular, loss ratio and acquisition costs prior parts of the cycle and comparing them to this part of the cycle. And we see those changing still. There is widest commentary and a view that ceding commissions have peaked in lines of business such as casualty, and we have evidence of that starting to back out. On the distribution of business, we have from day 1 worked with intermediaries all over the world, both in London, outside of London, regional offices here in Bermuda. And so that's been our design from the very beginning. And we're happy to say that works very, very well.

The next one is from Abid Hussain of Panmure.

I've got 3 questions, if I may. So the first one on accelerating growth. So if the market does turn from hard to hardening, i.e., even better rates, which is, I think, where we're heading into on the 1/1 renewals. How aggressively do you wish to grow premiums? And what are your constraints around growing into 1/1? So that's the first question. And then the second question is on inflation. It's probably less applicable to you, but I'll ask the question anyway. It's been topical at some of your peers. How confident are you on your base assumptions on your back book -- and obviously, your back book is relatively small. But just your inflation assumptions in your back book versus the current inflation -- the elevated current inflation that we're seeing versus the long-term outrage. And then if I may squeeze in a third question, just on Hurricane Ian. I think you've said that the expected loss is $40 million. Can we infer that sort of level your retro program is kicking in?

Okay. Thanks, Abid. Yes, just taking the last one first. So yes, we are in the $40 million. It is after a representing reinsurance recovery on the reinsurance program, but it's certainly not -- as I said before, it's certainly not stressing our reinsurance partners. So there is a recovery in there, but not been stressing the probe without going into complete specifics on that. Inflation for us on the back book. You're quite right, we simply have 2 years worth of trading to date, particularly around the casualty classes for us. It's a book which has no motor in there. And certainly, we have dialed down classes right from day 1 on medical. So for us, it's a portfolio of business that would always be under review to our own actuarial processes, and also through the independent factors, which we work with on it. There's an ongoing review quarterly and also from the client's underlying data. So a big part of what we do, every quarter's review, the underlying clients' development patterns, particularly on the gross share side. And that feeds into our overall sort of industry picks around where inflation, we believe, is moving and indeed being stressed. And as I said, the third component is coming back into us through independent actuarial reviews that we use. So certainly, where we are and having written casualty business in what is predominantly a relatively high inflationary environment for the last 2 years. We certainly feel very comfortable around the position and the extent of our back book, as we refer to it. Question around growth and where we can go with that for Jan 1 and into 2023. For us, I touched it in my note, the big part of what we do is not Cat business. it's that risk business, fire risk in property terms. That is an unbelievable opportunity for us. And we saw this emerging certainly over a year ago. It's one of the reasons that we're majoring that space. There aren't many constraints on growth in that class of business because it's not generating a high contribution to our own Cat PMLs. The flow of business that we've seen in that class, in non-Cat, has really continued to overdeliver, if you like, and certainly exceed our expectations. And so for us, the client base that we've got, the flow of business and the ability to pick and choose our way through the great position for January and through and beyond. The real constraint on growth is, as we've touched on earlier, is that Cat PML. We're really sensitive to that. So for us, looking at the blend between XL and quota share and the way cat business is brought into the company is a big part of it. And I guess that you'd probably articulate that as that's the main constraint around growth. But I think we've already indicated where we believe a reasonable P&L and reasonable risk appetite typically in our portfolio for next year.

If I can just add to that. So the -- I think in summary, so long as we maintain the balance of our accounts, so long as we have that laser focus on our net PMLs, then we are in a period where we can achieve profit.

The next one is from Derald Goh of RBC.

A few questions. Maybe I'll ask them in order. So the first 2 is just on Nat Cat. So on the Hurricane Ian, I'm just keen to hear about your industry loss estimate for the event, and also maybe -- any thoughts around the nature of the loss? I mean, were there any surprises there? So for example, is it purely from Cat XL contracts as you would have expected? Or maybe some came through D&F or quota shares and whatnot? And the second question, Nat Cat is, can you say what was the tally of Nat Cat losses at the 9-month stage? And how is it tracking against your internal budget?

Greg, can you take the first part?

Yes. So industry loss range on Ian -- there's some obviously, huge variability out there, modeling companies, PCS, and you've got a little inconsistency of what's included in those indexes, PCS, for example. So we sort of see it on our working sort of $50 billion to $60 billion as a range. And we see the NFIP, which is a big contributor to the industry loss -- national. Yes, sorry, national flood insurance program in the U.S., which is the -- effectively the issue of a lot of primary flood, which is clearly a component of Hurricane Ian, and you think of the imagery from the landfalling counties much so than being underwater. So a lot of that is sitting with the NFIP and those who support the NFIP, and I think they publicly show that as well as a reinsurance on. But with the industry, the makeup -- obviously, property is the dominant class producing losses for Ian. And on the sort of form of reinsurance contract, you're most definitely going to have quota shares, excess of loss contracts, all included such as the size of the event. And as a reminder, quota shares for us are structured and set up with event limits and get some pieces they behave much like XL just like that. But yes, certainly, that. And some elements of specialties, well, which is pretty stance or something like that. You'd see images of boats on tumors and things like that. Often, they're uninsured, but some of them are insured facts as well.

So just -- I mean that's industry background data, to be clear, we've given a figure of $40 billion, and there is a range around that, which is fairly tight. And that's probably irrespective of whether it's at the bottom or the top end of the range that Greg discussed. Trevor? Elaine?

Derald, it's Elaine. Just on the budget question, we don't disclose cap budgets or something else out there, but because postage or any other most budgets for that matter. So I think it's safe to say that we've had that in about launch year, but also within that and state or out with the development of our earnings. Yet still a development phase of that. So -- and they're not quite there yet to absorb these kind of losses, but I think to put that in context, I think we've done a pretty good job on that front.

A couple of follow-ups, if I may. So firstly, I mean, it's pretty encouraging to hear about how you're potentially accelerating your plans there. I'm just curious to know about the source of the business within that plan. I mean do you have a lot of scope to expand your share with existing clients. Or does the need to actually compete to get into new panels to support that acceleration? And Secondly, just going back to our topic of inflation, so risk-adjusted rates, plus 4%, unchanged from H1. And I guess at the same time, there's just the back of Q3 releases, you're hearing some of your peers, including larger ones, reviewing the inflation assumptions as well. I mean how comfortable with you -- are you with your inflation assumption within that 4% of rates? Because I think we're approaching year-end, so you will be getting some new data from your [indiscernible] and as they complete the AN reserving review. I'm just worried about the risk of yourself having to revise that assumption the -- so any comments on that, please?

Okay. Yes, just picking up on the acceleration piece, the first part of your question. For us that's really driven our growth to date and certainly looking forward is driven out of the renewal book that we've got, which is now becoming very substantial, and the enormous amount of new submissions, which we receive every year. In our first 2 years, we've received hundreds of additional submissions, which we've evaluated. We haven't mandate didn't make the hurdle. And the business we found, obviously, did. So for us, we have all of those previously, if you should we say, decline contracts, which allowed due to be represented and they're being represented in the new world. There's a new normal in terms of rating, pricing and hurdles. So when we look at that portfolio that is due to through both renew and the previously declined. It's a massive volume of business, which we can continue to select from. And in essence, the best way to think about that is, in the rising tide of the market and rates are of those will meet our hurdle going forward. But going into further details, Greg, particularly on the property side, is inundated currently with request to call some clients and new clients who are all looking to purchase more in a rising demand market. So we know there's generally new business there, but also it's the portfolio that we've got, and we've seen that will now hit our hurdle rate. And perhaps around the inflation. I want to touch on this with the previous question. We have amazingly granular insight into our clients' underlying portfolios through that quota share book of business. The dataset which we created in the 2 years across the industry development pattern, let's call it, those from clients through that quota share is incredibly valuable too. It gives us a great insight into specific classes, product type and by geography. And actually, the work that we engaged with, as I touched on earlier, is sharing that with our independent actuarial reviewers, and it's a great dataset to be able to look at and just see what's emerging. Last point on it, we've said in previous in updates and quarterly reviews that the main reason that we have not matched with clients and have declined. A very large portion of casualties is because of our casualty assumptions -- our inflation assumptions around casualty. That's been the main, if you like, block on growth of casualty for us. And that's -- it's been a good house key macro to have in there. So for us, we know we're probably at the higher end of the spectrum that's being presented in terms of claims assumptions. I don't see that changing. And it's just a hurdle which we have in place. And I think it's -- it reflects our conservative approach to what is an emerging pattern in the industry.

The next one is from Andreas van Embden of Peel Hunt.

Just have 2 questions. One is on Hurricane Ian. Could you maybe mention how much of your exposure in Florida was released through the local insurance companies and/or citizens? And then how much really was through the nationwide programs? So just trying to get a feel for whether it's local exposure or whether it's sort of across the larger sort of programs in the U.S. And the second one on Ian is, have you benefited at all from the hurricane Cat fund and your quota share program? And how big was that benefit was that very material? And my final question is on capital. You raised around $1 billion of capital back in 2020. And it's been a volatile number of years. I think you say in your press release, you've got around $800 million of capital going into 2023. I just wondered how much of your current renewal book is utilizing that capital? Is that sitting at around 60%, 70% or 80%? Or how much do you have unutilized that you could deploy for growth next year? And would you consider raising debt if the opportunity is really that sort of attractive that the most of the deals you're seeing meet your hurdle rates that you would say, well, let's raise some debt and write more business?

So first question, so the construction of portfolio is really what we're talking about here. So from the beginning of our portfolio -- property construction in particular, we were quite clear on saying we struggled the most with finding rate adequacy with nationwide excess of loss contracts. We've talked extensively about coverage in those contracts, that's not really explicitly priced for when you think of it on a kind of a payroll basis. So nationwide is very small part of our portfolio. Now within Florida, businesses themselves. And I think you're referencing the sort of demo-tech style businesses. Again, due to sort of fundamentals with capital levels, et cetera, with those companies. That was always a very difficult area for us to find risk advertising. So Florida, they obviously did it very well, in our opinion, and issue property insurance contracts in a form in which they know their exposures, they know their underlying business and they price appropriately. Those are the contracts that are interesting to us. Now from a deployment perspective, quota share exposure or otherwise, the FHCF as a range -- yes, sorry, Florida Hurricane Catastrophe Fund, which is the effectively the reinsurance of last resort in Florida, and that is available to personal lines rises -- insurance companies to purchase. Then where we follow that business either by a quota share or excess of loss. We would, obviously, obtain and take benefits of recoveries from the Florida Hurricane Catastrophe Fund. And in fact, last year was the first year in which the new products and use of support mechanism that the wrap was issued. And again, we would also take benefit from that as well, and the Florida Hurricane Cat fund where it sits from an industry attachment point and what is, in fact, designed to do takes a significant proportion of the rental losses that would have occurred, particularly around those counties of the [indiscernible].

Okay. Thanks. Elaine?

Andreas, on the capital question. I'll fully start with the stock financial reforms, which we don't disclose that. Joking aside, the people we have staffing regulatory capital levels in our year-end disclosures, so you think you can look at that, but we did raise capital for 5-year plan with buffers in there. So we're very comfortable with the capital position that we've got and the excess capital that we have there. A couple of tough years in terms of loss performance, but I think it's in the context of the book fill that we have been going through and the level of maturity of the earnings in those years. So given the excess capital position that we've had and that book build, we don't have to trim anything to put something else in and it's Cat that drives the agency model. And we've talked about kind of 30% Cat exposure that we've got there. So we certainly don't have any concerns about the availability of capital to take advantage of the market that we're seeing ahead of this. And that might be something that we consider at some point in the future, but there isn't a need to spend now, and if there's no need just now and I don't think it's attractive to the issuing. So does that answer your question?

Okay. Yes.

The next one is from Barrie Cornes of Panmure Gordon.

Can you hear me now?

Yes.

Okay. I've got 3 general questions, if I may. First of all, just wondered your views on the background to the capacity squeeze that we were very aware of. Just wonder if you think it's driven more by industry losses or perhaps more by the expectations of increased frequency in quantum of claims of their cats going forward? That's the first one. Second one, I just wondered, as others exit the market. I just wondered if you see an opportunity to expand either underwriting teams or classes of business that you write. And my last question, I just wanted a bit more -- if you could give us some more color on just being taking place between brokers and either yourselves or you think other reinsurers about 1 more renewals. And any color on discussions coming out of Monte Carlo and [indiscernible]?

Okay. Thanks very much, Barrie. I'll take the first couple there, and Greg can put some color around some of the Monte Carlo and early renewal discussions with reinsurers. Capacity squeeze -- you said, is that driven by frequency of current or sort of forward view? I think it's a combination of both. Probably the main driver is the performance to date, so the increased frequency and what we refer to as the model misses that have been coming through. So our portfolio is being put together with quite extreme tails. The model really being the main route to guidance, if you like, in terms of putting those portfolios together. And the surprise is being delivered. So I think to a degree, it's the -- probably more the frequency of claims that have been coming through. But allied with the size of those, I think that's probably the main reason for the reduction in capacity. Just on team's expansion, we're always alert to that and the aligned to that. We do obviously make the case of being a diversified writer. It's really in our interest to have that balance across the various classes. We're really well set up with the structure we've got and the way that we've gone to market currently. The 1 area we've always said is that -- and it was the reason that we did it around specialty, initially, keep our interest very focused around specific classes that we knew we had the skill set in, especially it's a very broad church. There is some very broadcast of the business to sit within there, and that's probably -- that's the 1 area where we would look going forward to add to specific skill set in an area such as specialty. That's probably the 1 area. On the renewal is Greg, early discussions, Monte Carlo, et cetera.

Yes. Sure, Barrie. So yes, Monte Carlo was obviously very lively and active with discussions and telegraphing needs for reinsurance. I think what was always stands out for me is brokers as intermediaries, clearly know their clients and their clients' needs very well. And they spent a lot of time working with them on that. But the best brokers know their markets very well as well. And in an environment where supply of capacity, and we sort of tend to focus on property Cat here as the best example is not increasing and in fact, not meeting the demands of the increased limit. The best brokers manage that very rapidly and secure the capacity for their clients at a faster pace. And I suppose that is in part what we're seeing 1 of January, renewals even now with some of the firm orders that are being issued to the market with large limit purchases there are either increasing or rising by attachment point, particularly here on the excess of loss side, and paying increased prices, and therefore, for us as reinsurers to increase margins. And those anecdotally for even single region, single territory, single perils. We have examples of sort of plus 30% risk-adjusted as we speak today. So I think responding quickly, recognizing the market dynamics and moving quickly to secure capacity at what's ultimately are going to be significantly increased risk-adjusted terms is a smart move.

Can I just add one thing back to your question. One of the fundamental drivers is inflation. So at Monte Carlo, [ Carpenter ] estimated that there would be demand for between $20 billion and $30 billion of new coverage, and that's at a time when we are seeing some withdrawal of capacity. And that -- so with the background, it's a confluence of factors, and it's not just loss driven, but there is definitely a supply-demand imbalance.

There are no further questions on the conference line. I will now hand over to the SparkLive team to read out the written questions.

There's been 1 question submitted via the webcasting page, and that comes from Ben Cohen at Investec. And he asks, other Cat losses in the quarter. How close are you to target mid-80s underlying COR in Q3? Should this outlook not be improving given outlook for pricing into 2023?

Yes. And I will take that one. And here's about the cat losses in the quarter [Audio Gap] hailstorms but nothing material or pretty small in the overall scheme of things. And in terms of that target [indiscernible] that was a development number, if you like. And the first couple of years are very much [indiscernible]. We think that as we move into our feed that some [indiscernible] teach at in terms of the earnings coming through. OpEx ratio will start to come down a little bit, all those kind of things. So that's -- as we see a medium-term operation and further beyond that or probably able to comment too much more at this stage. But I think certainly after we've gone through the monthly renewals, and then we get you into Q1 and [indiscernible].

Thank you. There are no further questions. So I will hand back to Neil Eckert for closing remarks.

Okay. Well, thank you, everyone, for attending. I think you get the general sentiment. We are looking forward to the renewal season. Great work, and good luck, Greg [indiscernible] in the next 2 to 3 months, [indiscernible] on taking any holidays. And yes, it's -- hopefully, as each quarter goes by, our mantra is just to deliver. I think we have a solid foundation, and we look forward to further updating to you. I mean the next 2 or 3 months will be fascinating because we feel like the market is [indiscernible] promises. We will have many more data points when we report in February, and that will really, I think, see a path emerging. So thank you, everyone, for your time, and we look forward to updating you in a few weeks' time.