Conduit Holdings Limited (CRE) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Conduit Holdings Limited Full Year Results. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to the management team of Conduit Holdings Limited to open the call. Please go ahead.

Good morning, and good afternoon, everyone. Welcome to Conduit Re's Full Year 2022 Results Call. Today's call will be covered by Neil Eckert, our Executive Chairman; Trevor Carvey, our CEO; Elaine Whelan, our CFO; and Greg Roberts, Chief Underwriting Officer. The forward-looking disclaimer is now on the penultimate page of the deck. So I'm now pleased to give the floor to Neil Eckert.

Thanks, Antonio. You may remember that in Q3, we spoke to the perfect storm for reinsurance going into year end. I do not intend to go through all of these items, but I do believe there's no widespread agreement that we have seen one of the best market environments of the last decade, largely driven by the equilibrium between supply and demand. Inflation has been a key driver of this. Everyone was talking about it before Monte Carlo and before Hurricane Ian, but inflation is still one of the biggest drivers. We're seeing significant reserve strengthening across the industry. And I don't think that this reserve strengthening is done yet. Clearly, conditions are better today that we envisaged at the IPO and Conduit Re is in a perfect place to take advantage. So we're well positioned to scale our model. And this slide shows the 3 facets that gives us that fundamental belief. Our underwriting is a simple portfolio. It's pure reinsurance. Our balance sheet strength gives us ample capital to lean into this market. It's legacy free, and we've seen the impact of inflation across the sector. Finally, operational excellence. We underwrite out of one location. The command chain is short, and we can respond to our customers' needs. And with that, I'll leave it to Trevor to comment on the '22 results.

Thanks Neil. The growth in gross premium written that we've seen in 2022 has been a tremendous reflection of the continued development and broadening of the premium base of the business. We will talk later around the more specific details on the class by class evolution. We're showing a 68% to $637 million over 2021 is a solid progression. And actually, it's also broadly in line with the rate of growth that we gave in our inaugural 5-year plan. In that regard, if we look at the ultimate estimated premiums for 2022, these are $659.9 million, and that's versus the original year 2 round figure that we gave of $626 million. Looking at underwriting performance in 2022. As we all know, it was incredibly [indiscernible] large event losses that reportedly in excess of $120 billion in natural catastrophe losses as well as the significant and ongoing Russia/Ukraine situation. As regards to our underwriting performance, we've produced a small underwriting profit, effectively a breakeven number. And given that the company's first underwriting year was in 2021, and we have no material prior impact in our numbers. It is in many sense, a pure look through into the company's performance in this extreme industry loss year. Turning to the combined ratio of 107%, that includes a 7.1% operating expense component, which is a reduction from the 15.8% in the prior year and continues the downward trend in line with our expectations. Net investment loss was $52.8 million in the year, largely driven by the movement in yields and the aim spend more on this later in the presentation. But suffice to say for now that our investment strategy, we maintain our approach of maintaining a high-quality portfolio with the risk very much being taken on the underwriting account we seek to minimize the risk on the asset side. On dividend, we have declared our standard dividend of $0.18 being the same as last year. Moving finally to the 2023 underwriting year and the activity seen through the January renewal season, we did provide a market trading update value in January, where we reported a healthy 60% premium growth across our 3 combined divisions of property, casualty and specialty. Coming out of the '22 year, we had around $260 million of business due to renew at January 1. And with the consideration of increasing rates, increasing deal flow and our ability to lean immediately into this market, the team grew the January attachments to $421 million on estimated ultimate basis. We think that's a great result to start the 2023 year, and Greg will have more to say on this in his slides later. A slide here on the makeup of the 2022 business and in reference to the original plan that we articulated. First point to note is the high-level split and the property class being pretty much on the planned percentage with specialty being lower than the original plan. And that's a reference to our continued view that we had as much of what we saw on specialty to '21, '22, we're still pricing at less than what we've referred to as the hurdle rate. We've spoken before of an often lack of transparency in the specialty deals being structured and presented in the market over the last few years. And this is a major explanation as to why we resisted deploying more into the space. As we have said, we plan to have no crystal ball around events and also is emerging from situations such as Ukraine/Russia. But it does underline the premise that unless you are getting paid [indiscernible] for the risk that you know you're taking on, makes no sense to offer a blanket style cover for risks that you don't know are being covered also. Thankfully, the market has corrected significantly in this space now, and 2023 certainly presents a better or perhaps fairer plane field for reinsurers. On casualty, we gave that a larger allocation through '22 than the original plan as we were able to sit in a normal volume of business from our brokers and clients and many thanks to them for their continued support. We talk often of our risk triage or risk selection process in this class, and our hit rate on casualty is between 10% and 15% of risk being presented through 2022. I am being able to assimilate the data set and finally narrow down to select the contracts has set us alongside really solid core casualty underwriters in the insurance space, seen to us the logical place to go. We really like the casualty book we have in place. And as a core base, it's what we are building off of for 2023. On the overall makeup of our underlying premium base, it's worth noting here that our book continued in 2022 to skew heavily towards the commercial sector rather than the personal lines. For instance, we are not a motor writer. And yes, whilst that class is now showing signs of correction, we think that the commercial pricing is a better place to be skewed towards. Finally, a word on cat versus non-cat. Across the total premium base that we write, we are broadly 2/3 non-cat versus 1/3 cat, and that is deliberate. We're looking to build a balanced book that could withstand shocks, have shock absorbers actually built in, if you like. It's obvious that an overreliance on cat works against that goal with the increased volatility inherent. We like the way cat pricing is moving, of course, and expect to see more of that class coming to our pricing window, but also we are seeing extremely healthy margins still on the non-cat or risk side of the account. We deploy more heavily into the non-cat space in '22 and really like the margins in place here as we go into '23. And with rates moving and conditions improving, it creates an engine that can earn through over time and being non-cat in nature, actually, there is much less requirement and dependency on retro protection, which again puts us in a good position in the market in our view. In growing the book in 2022, it is useful to reference that in the context of the '21 year and the cumulative gross premiums written since inception, a powerful aspect of the return to treaty arena is always the renewing book for the previous year, especially in an environment of improving prospects and contracting terms. And this slide shows that with the impact of the prior year renewals acting as the base from which the prior year premium is incrementally added to, it puts us in a very strong position. Our growth has been measured though. And whilst showing the $1 billion number here by Q4 2022, is in itself a testament to the team and the platform built. More importantly for me, it's a discipline followed and getting there. The book has been built in an environment through '21 and '22, where aspects of the market were in flats and also some classes just needed to be avoided to be frank. But the book in place now and that is renewing through to my mind, puts us in a great position to build on and add to for the coming year. And on that, I will hand over to Elaine for the 2022 financial highlights.

Thanks, Trevor. We wrote $637.5 million of gross premiums written for the year compared to $378.8 million for the prior year. This year's gross premiums written includes $86.3 million of 2021 underwriting year premiums. Subject to any ongoing adjustments to estimates due to reported the 2021 underwriting year is now essentially fully written and about 95% earned, in line with expectations. At year end, the 2022 underwriting year was roughly 85% written and about 50% earned. We have approximately $355 million of remaining ultimate premiums written to earn out, most of which will come through in 2023. 2023 as our third year of underwriting is really when we expect to see some maturity in our written and earnings. The differential that we have seen over the first 2 years between ultimate premium written and gross premium written really falls away in year 3 with deferrals from prior years being more or less offset by deferrals from the current year. We will also be transitioning to the new IFRS 17 accounting standard, where gross premiums written will no longer exist. Although we expect to continue to report on our gross premium written in some form, we do intend to move on from the discussion of reporting around ultimate and quota share versus excess of loss. Our combined ratio for the year was 107% versus 119.4% for 2021. Similar to the prior year, 2022 was characterized by above-average loss activity across the industry. The major events of the year for us was the Russian invasion of Ukraine at Hurricane Ian. While we recorded loss estimates for some of the other loss events that occurred in 2022, none were individually significant for us. For the Ukraine crisis, our net loss impact after reinsurance recoveries and reinstatement premiums was $24.6 million. That's unchanged from previous disclosure. The contribution to our loss and combined ratio was 5.1%. For Hurricane Ian, our net loss impact after reinsurance recoveries and reinstatement premiums was $40.9 million, in line with previous disclosure at the third quarter. The contribution to our loss and combined ratio is 8.8%. Our loss ratio, absent these 2 events would have been 57.7% and our combined ratio of 93%. Our acquisition ratio remains in the high 20s, given the continued proportion of quota-share business we've written as reduced sales to the prior year as the proportion of property and specialty earnings increase relative to casualty. With over $120 billion of natural catastrophe losses for the industry in 2022 and in only our second year of operations, we're pretty pleased that we've been able to produce a small underwriting profit for the year. If it was a tough year for industry losses, it was also a tough year for investments in the face of the significant rise in interest rates. While we have a very plain vanilla conservative fixed maturity investment portfolio, it produced a negative 5% return for the year, largely driven by the impact of net underwriting losses in the year of $67.8 million. We do expect that to largely unwind over time, and we did see some benefit of the increase in rates in our investment income for the year, with our book yield increasing from 0.9% at the end of 2021 to 2.4% at the end of 2022. Our market yield at the end of 2022 is 5.2%. All in, ROE for the year was negative 9.1%. Despite this, we're very happy with where we're positioned from both an underwriting and investment portfolio standpoint. Lastly, on results, we've declared a final dividend for the 2022 financial year of $0.18 per share, the same amount as last year and in line with our dividend policy to drive between 5% and 6% of IPO capital raised. Our other operating expense ratio was 7.1% for the year compared to 15.8% in the prior year. As 2021 was our first year of underwriting, the other operating expense ratio was elevated due to the deferral of earnings from that year. This year's ratio reflects the impact of the loss events in our performance for the year, but also the fact that our earnings are still not material that we're in. We've added to our staff cut over the course of this year as we continue to build our team. As a result, we expect the dollar amount of expense to continue to increase, but we do expect our other operating expense ratio to reduce as earnings mature and to be in the 5% to 6% range as we achieve that scale of maturity into year 3 and beyond. Moving on to investments in a bit more detail, you can see our average credit quality is AA and the allocation across different asset classes on the chart at the top of the page. No surprises in there and no change in strategy either. We intend to maintain a high-quality, highly liquid portfolio and aim to limit downside risk and volatility as much as possible. We've deliberately been on the shorter end of duration relative to our liabilities through the risk interest rate hiking cycle. Duration is currently 2.2 years on our investment portfolio versus 3.1 years on our net reserves. As the hiking cycle begins to slow and our reserve duration begins to lengthen, we will push the average duration of our portfolio out moderately over the next 6 months or so. No major changes and no risk assets planned, just maintaining an eye on our liability duration as well as our asset duration and also taking some advantage of the better yields currently available. I'll hand back to Greg now for an underwriting update.

Thanks, Elaine. As stated by Trevor earlier in the presentation, the underwriting team has continued to build a portfolio and scale up into the hard market. We've grown our premium base by almost 70% with planned business mix of property, specialty and casualty. And this business mix is a strategic response to the market conditions in front of us, whilst ensuring the business is not skewed inappropriately to one distinct division. This was and remains the plan. For 2022, gross premiums written increased to $637.5 million with a renewing book providing a substantial base development. The renewal retention ratio by contract count was in excess of approximately 84%. On the property side, we continue to blend the quota share product with the XL product. We continue to see healthy margins on the property quota share rising, where we raise a substantial volume of non-cat premium within areas such as commercial property risk, showing very healthy technical margins in our view. As we have underlined previously, cat XL continued to improve later through the year, with tail risk being increasingly recognized in market pricing levels as capacity started to withdraw. We remain consistent in our view that property and property cat, in particular, forms a solid platform for the portfolio, but tail risks should always be a key focus of our risk management approach. Our casualty premium grew also being largely as a result of increased underlying rating levels, along with strengthening shares on our renewing book. Having spent significant time establishing the core casualty classes in the book throughout 2021, we now see the benefits here as increased premiums for treaties come through the pipeline from cedents who we view as very disciplined risk takers. This is especially relevant at this time to be alongside such partners when discipline needs to be demonstrated in this higher inflationary environment that we continue to experience. On specialty, as Trevor has mentioned already, the level of growth through 2022 was lower, although we did see some rating levels rise post the Ukraine/Russia event. However, through the second half of 2022, they did continue, in our view, to be somewhat reluctant in the market to appreciate the extent to its structural changes and the unbundling of contracts was required. And in that regards, I surmise that I could say that we kept our powder dry in specialty through the second half of the year. And this was probably benefiting us in deploying more readily as the January 2023 renewal season unfolded. Here, we see the quarter-by-quarter, year-on-year net rate change, after allowing for terms and conditions and inflation. The January 2023 numbers show a directional shift across the various classes. Property at 39% is heavily influenced by pure rating levels. And whilst tightening wordings in clauses contributed also, it is more about the absolute premium levels driving this number. Casualty net rate levels, as we've remarked previously, continued to stay ahead of underlying inflation and loss trends. As we mentioned previously, as our long-term and core clients continue to respond to these inflationary challenges, we continue to see good alignment and this casualty book is a solid contributor to our portfolio composition over time. On specialty, it reflected a structural kick forwards in pricing, and this 14% increase compromises a blend of both pure premium, but with a very much improved set of terms and conditions. This is no surprise and was due as we've often remarked that the reinsurance market has been providing for some time, a series of somewhat overly broad coverage forms. Simply put, the correction in contract language was due. The result of this is in a number of specialty classes are now warranting our attention and come into our risk habitat. January 1 placements were certainly late again, partly as a function of partial paralysis from the reinsurers. Prices were clearly rising. In fact, this was clear prior to Ian, and so the hurricane purely amplified the awareness and need for rate. With this in mind, the Conduit Re team where as an advantage of being unable to negotiate and secure terms due to not having uncertainty in our capital base. Terms and conditions were a significant part of the renewal negotiations. We communicate frequently about our view of tail risk, and the team were once again able to manage and match risk to return. It was most evident in property risk, particularly around the level of occurrence capping on quota shares. I'm pleased to say that we obtained our requirements and at the same time, acquisitions were reduced. Effectively, more cents in the original premium dollar were passed on to us as the reinsurers. Clearly, this is important for our longer term risk management. So given this, placements were slow due to uncertainty and appetite, in part caused by uncertain capital strategies. Third-party capital markets, as you know, as heavy writers of retro were generally with reduced risk appetite, causing a compounding effect for the leveraged capital plans. The philosophy and approach to our underwriting and managing of tail risk remains unchanged. Tail risk and volatility assumed by all our divisions is a driving part of our original risk management. Our continued application of events in aggregate caps on property quota shares allows us to control the tail and in some cases, therefore, pass back excess tail to the cedent. With regards to XL placements, simply put, this is about identifying zonal accumulations outside of the pure modeled results and ensuring premium allocation is achievable. Our retro placement secured at the 1st of January was broadly as per our plan going into the January renewal season, albeit as a late and tighter market, so it meant that we had to adjust the structure and realign limits to provide us more acutely. For 2023, currently, we have a larger plane with new partners added to the existing list. We bought more limits and the spend was higher, but within our business plan range, so we are pleased with this. As a final commentary, Hurricane Ian has a circa $55 billion industry event was a recoverable claim from the program in 2022. And our ultimate net loss was approximately $41 million after retro recoveries and reinstatements. So at this point, I will pass back to Neil for closing comments.

Thank you, Greg. So we're generally excited about prospects for '23. We crossed some milestones during '22. We saw our first underwriting profit. And I'm very excited about the business that Trevor and his team have built. We are perfectly positioned to take advantage of these conditions. We have a strong pipeline premiums coming through as the book matures. Our operating expense ratio continues to trend downwards. And during '22, we did see a reduction in acquisition costs. It is nice to have seen a recovery in our stock price in September. So on a total shareholder return basis, we are back to IPO territory. And if sell-side analysts are correct, then '23 will see our dividend payments covered. So thank you with this, we'll conclude the presentation and hand back to Antonio for Q&A.

Thanks, Neil. Yes, let's move on to the Q&A, please. Let's keep it to 2 questions per person so that there is time for everyone to ask them. Operator, please go ahead.

[Operator Instructions] And our first question is coming from Tryfonas Spyrou from Berenberg.

I have 2 questions. The first question is on Hurricane Ian. We've seen some of your median peers reduce some of the estimates for Ian losses, and it seems that industry loss figures that initially came out probably somewhere higher than what recent claims experience has shown. So I just want to get a sense of how you're thinking your loss at this point? How much of this is still a now and whether there's some conservatism still embedded in the original figure? That's the first question. The second is a bit of a critical one. But I'll be interested to hear your thoughts on the scenario where we have a rerun of 2022 in caravans and also Ukraine in light of the much higher reinsurance pricing attachment [indiscernible] better terms of conditions, you alluded to, what will be the impact to the accident year loss ratio? I'm just trying to get a sense of the economic impact of reviewers on your bottom line.

Okay. Thanks for that. Greg, could you handle the question?

Sure. So Hurricane Ian, there is still a lot of uncertainty in our view as to the ultimate industry loss. There are examples of large cedents showing deterioration in their loss picks. That's been reported in the industry, perhaps. That's not to say those are clients we're not familiar with, but we sort of made the same observation. Hurricane Irma in 2017, I suppose it wasn't that long ago, and the experiences from that I think are considered and thought about in the loss reserving for the best clients in that geography, be fully aware of the loss deterioration. So I think at this point, we obviously are remaining very comfortable with our loss estimate for Ian. I do make the observation that some of the industry losses are starting to drop and other carriers are revising their numbers. I still think it's a little bit early to see any significant movement around the sort of industry loss figure of $55 billion that we continue to observe.

I think just in terms of how much of that is IBNR most of it at this stage. And on the rerun of '22 events, we are in a higher pricing environment. So that is a benefit to us. And we do have more earnings to absorb cat and quote more well card large losses like Ukraine. We do have a different [indiscernible] we do have a different reinsurance program in 2023, so there's an impact from that as well. So we don't really comment in terms of what a rerun would look like, but hopefully that puts into some context for you.

Yes. Thanks, Elaine. I'd probably just add to that, that just in the general inability of portfolios to withstand shocks in '23, there's no doubt, just for general pricing that lifted up, the portfolio is in a stronger position. That's true for us and probably true for other reinsurers. Yes, there are increased retentions, which applied generally on reinsurance programs, but that's in our more than offset by the underlying pricing. And as an interest the earnings strength, I suppose, that is there to absorb that. So after overall, nobody wishes for rerun of '22. But I think the portfolio is in a stronger position than it probably would have been a year ago.

The next question is coming from Abid Hussain from Panmure.

I've 2 questions, if I can. Firstly, just on renewals. Is there any signs or any early indications of how renewals might go on the 1st of April? I mean you also know that's another key date. Any sort of chasing around that? Any color would be very helpful just as your views broadly as well beyond the 1st of April as well, please? And then the second question is on capital. I might be jumping the gun here slowly, but I'm just wondering, given the favorable conditions across the reinsurance sector, are you focused on fully utilizing your own capital base? Or do you believe there will be a point when you need to consider raising further capital? And I'm just really thinking about the one way of your existing capital base versus the clearly favorable conditions in the sector and the growth opportunity that lays ahead of you.

Sure, I'll take the renewals question. So the first point to make is that we have a lot of non-cat premium-based renewal business to look at throughout the rest of the quarter. And as we've said before, tension on that is what's happening in those underlying markets, original rates, inflation. And ultimately, for us, is the reinsurers typically on the proportional quota share side. The how many sets in the original risk make their way through to as the reinsurer. So that's about acquisition as well as original loss ratio. So ultimately, that remains our focus. With regards to more sort of property cat, which I think is often more talked about, Japan comes up in the coming months. Our team flew out to Japan, checked in with clients there to understand better some of the pressures there with inflation, underlying valuations, et cetera. So we are up to date there. With attachment points, I think the excess of loss market is talking often about what is the new sort of attachment point for a cedent 1/1 you referenced to sort of averaging of 10-year attachment points was kind of deemed to be a minimum. How that flows through to other non-U.S. markets will be really interesting, but the direction of travel there is increased attachments as well as increased rates of reserve.

Abid, just on the capital question. In terms of what we raised at the IPO, we raised for a 5-year plan with buffers in there. So there isn't a need for us to raise any capital. We do want to maintain the balance within our books. So we are in a growth phase, which is what we had planned anyway. I think there'll be a bit more growth than expected into year 3 than it was an initial plan, but we still got plenty of buffers in there to do what we need to do and what we want to do. If there were any opportunities that came our way, they would obviously assess them on the merits at the time.

Okay. Understood. So you're looking to eventually accelerate the growth plan or the business plan if the opportunities present themselves this year and next year?

Yes.

The next question is coming from Derald Goh from RBC.

2 questions, please. So the first one, I'm just trying to get a sense of the underlying full year combined ratio and basically how that might bridge towards the mid-80s target? I know you gave some comments at the half year stage last year, which is really hopeful. I was just wondering if you could repeat that exercise because it seems to me as though on the loss ratio side of things, the -- it's quite a bit -- it's a bit higher than I expected. I know that there might be some premium earned through effects to consider as well. So I mean any thoughts there, please? And then secondly, it's just going back to this mid-80s combined ratio ambition, so I mean when you first disclosed that rates were about plus 4%, now you're looking at plus 19% and then that's obviously benefit from acquisition costs that you've called out, the business mix changes as well. I guess my question is that -- I'm trying to get a sense of the conservatism behind maintaining the mid-80s at this stage, please?

Derald, in terms of that mid-80s, I think the way that we had described that was that we were beginning to see that emerging. And some of that is the maturity of earnings and getting to scale within the business. And we do expect that operating expense ratio to come down as the earnings mature. We have been working on keeping the acquisition costs as low as we can there as well. I think around the loss ratio and just to put that in context, it's a $120 billion cat loss here. So there are other smaller losses in our loss ratio that there aren't significant individually for calling out, but there's been instant hailstorms, or Australian floods, plus some other little bits and pieces over time. And we do have a reserving process that we follow as well, which we would hope is prudent over time, but it will take some time for that to emerge for us to really see that through there. And our overall view in terms of our loss ratio, given the business mix that we've followed and we put through is that there's less risk around that loss ratio given the quota share focus and caps and quota shares there, but it will just take some time for that to come through, particularly on the likes of the casualty book. Again, that for the whole duration you're covering as well.

Yes. So I guess, I mean, again, not trying to pin you down to cat budgets or anything like that. But if I add Ian and Ukraine, it's about 14 points of the combined ratio. I mean could you say if that 14 was kind of normal-ish or because from your commentary, it sounds like that's quite a bit higher than what you expect?

I think it's fair to say that we've been an above-average year in terms of the losses for the industry. So I'd put it in that context.

Yes. Derald, Trevor. Just to add to that and of what Elaine said, that the figure of north of $120 billion of cat losses that we saw globally, there's several of those events, which she said are not worthy of significant as you call out and disclosure within our own reporting, but they all have up over time. There's a series of kind of attritional cat probably for us. We're not major in the territories of Australia, France and New Zealand, for instance, but they all add up to form part of what we refer to as sort of cap bulk. There's an element to our reserving process where those attritional cats get somewhat lumped together, and that's a provision that we put on and also the additional prudence that Elaine referred to around some of the longer tail lines. So we really like our pricing, what's emerging through '21 and '22. On the risk side, we say on the non-cat side, is great first to it, is in a great place. I really like that book of business that's earning through. So we know we're in the right space, and I think we skewed the portfolio in the right direction. So it's a book of business that currently we really like the look and feel, but there's just other noise around some of those other smaller events again.

Yes. Got it. And maybe just a second question around the mid-80s mid-term ambition.

Sorry, I didn't catch that. Could you repeat that?

Yes, sure. So when you first communicated that mid-80s at the half year last year, rates were about plus 4%. Now that plus 4% is going to plus 19%, also calling out benefits to your acquisition costs, and there might be some benefits to -- well, so my question is really, I'm trying to get a sense around the conservatism in that mid-80s combined ratio seeing that you're not changing that today?

No, I think we're still in the early stages of building our book and pricing is obviously significantly better than our initial plan, but we did have a view on that as we were putting together our mid-term plan for 2023 anyway. I think things like Hurricane Ian occurrence just gave us a bit more certainty on our review of the market at that time. We have just gone through a very successful 1/1 renewal, but there's quite a long way to go for the rest of the year, and we'll have we update you as we move through the year.

The next question is coming from Andreas van Embden from Peel Hunt.

First question is, if I look at the 39% rate increase across the property book, would you have a sort of give us a sense of what that rate increase would be post the retro protection you've been buying. So what is the rate increase on the property book on a net basis? And the second question is about the risk appetite. Your PMLs have grown or your exposure has grown post the 1 Jan renewals. Are you now sort of happy with the risk appetite where you're sitting? Or do you think you'll be growing your risk appetite further at the U.S. renewals in the middle of the year?

Andreas, yes, just around relative pricing, I guess, is what you're saying between inwards property and that was retro spend, they both moved obviously. You've got here in the slide deck, the degree to which the underlying property, cat and property, cat-related pricing moved. Really pleased with that. That's great. Retro prices are up as well, as we said before. We budgeted for a higher spend through '23, large volume of our program is actually placed and we bought more limit at January, basically in place for the year now. So there isn't an explicit measure, which I could give you, it's A minus B to produce the net, but writing a book of business now that has property cat in there and that we are then protecting it's a better dynamic this year than last. There's no doubt about that. And there's a whole host of additional, let's call it, margin or ability to absorb losses that's now within the portfolio. So there isn't an explicit measure I can give you, but it's definitely a better place to be. Around the cat PML and appetite, I guess we remain flexible to that and how it looks midyear. I think that's what you're referring to as regards Atlantic hurricane season. It's very much in cat that comes out through the year in the U.S. that sort of fights for capacity within our overall portfolio. There's a lot of other ways that we write business that has cat exposure, but it's not explicit cats are through some of the risk business and also through specialty and also quota shares. So the number that we gave you in the slide deck is a forward-looking number around our PMLs 100-year Florida and 250 Cal quite return periods. Those are a pretty good guide to where we see the year evolving, I mean treat those as pretty much kind of the upper bounds where we expect it to be. And that's why we produce it on a forward-looking basis. But the way in which we get there may well change. We may well see that parts of that U.S. win book doesn't exactly respond to the way that we expect it to on an XL basis. There's other ways of us accessing that exposure. And if we see pricing elsewhere, that moves. So yes, so it's a flexible feast, I suppose, and we remain open, but the numbers that we've given you are pretty much a forward-looking.

The next question is coming from Barrie Cornes from Panmure Gordon.

A couple of questions from me. First of all, your Russia/Ukraine reserve at $24.6 million hasn't obviously moved, remains static. I'm just wondering how are you increasing confident that, that figure is right as obviously time goes by? And just wondered whether or not you surprise others within the sector that to increase their reserves? That's the first question. Second one, just wondered if there's been any impact from any losses in 2023 so far? Obviously, thinking about the very tragic events following the earthquake, either that one or any other ones that may be perhaps below the radar, which we wouldn't be aware of?

Barrie, yes, the first piece around Russia/Ukraine, yes, the loss pick we made is an ultimate loss pick, it includes all of our exposures from the class and from the scenario from the event. We didn't see a whole list of updated movements or updated loss estimates from clients. There were some that gave specific inflation. And should we think granularity around their current loss picks and where we got as a $24.6 million is essentially a solid number because we have such a relatively small contract base is exposed to the event. We weren't major aviation writers. We weren't particularly large political violence and terrorism writers at the time. The context we have done the caps around them. And that's just a function of the treaty world and the treaty business in those lines. So I would concede it makes it much easier for us to put an ultimate loss pick around the number and have a high level of confidence there. So that's really what's driving our methodology. And if new information does emerge, then we will keep it under the only way, but we're very comfortable with where the pick is made. I can't comment on other entities in the market who have a direct insurance involvement, they're pretty closer to the events as they're emerging, and each company has to make their own judgment on how they project the ultimate position. Losses in the Turkey and Syria, okay, a quick comment around that. We don't have any meaningful exposure in either of those regions, obviously, a terrible event that's unfolding still as we go. So for us to watch it, it's a, say, minimal exposure to us in the class and many losses that would come through there, we would expect to be pretty minimal.

The next question is coming from Tryfonas Spyrou from Berenberg.

I just have a follow-up question. I think, Elaine, you mentioned that you kindly -- your investment portfolio is shorter in duration than your liabilities, and that would -- is expected to increase as your liabilities would increase. How I was expecting maybe excuse me if I'm wrong, but on the liability side, obviously, property and specialty are growing faster than casualty, so I would expect a 3.1 year duration to maybe slightly come down in the shorter term? And maybe as a follow-up to that, maybe, Greg, if you can help us with some more color on which specialty classes you said you're looking to expand into which of this part of the asset class is coming within your hurdle rate, that will be pretty helpful.

Tryfonas, I didn't quite catch all of that. But I think the question was around the liability situation versus the assets so jump in if I got that wrong. I think given the high quota share nature of the casualty, we do expect that to continue to increase in terms of the building reserves. They also sit around for a bit longer. The kind of contrast to that is if we get the kind of the cat and large losses to impact the property and specialty book, then they tend to have shorter duration. So if there's reserves up on those kind of books and they bring it back down. So where we don't expect our liability duration to get massively longer than where we are just now, pick we just creep up a little bit, and we want to just be mindful of that when we're looking at the asset duration as well and keep them within a reasonable band of each other. Hope that answers your question.

Yes, that's exactly right.

Just a couple of -- just a comment on specialty. So yes, I mean it's a class of business that is very easy to identify cat components in. So our desire there continues to be to identify non-cat driven specialty business. Obviously, cat has had a big influence on pricing, and that's driven a lot of the pricing. But clearly, the underlying factors with valuation changes, inflation that affects a lot of those specialty classes like construction and engineering, which are of interest to us, but they are -- and have their margin requirements for us. So again, as we see some of these classes unbundling from these broader coverages, we look at them very closely, but our metrics and desires remain the same.

There are no further questions on the conference line. I will now hand over to Neil Eckert, Chairman, for closing remarks.

Thank you, everyone. So in summary, we remain sort of extremely confident about conditions, what's going forward. We won't be contemplating raising capital in the near future. We don't need to. We have sufficient capital to grow within our current plans. And we look forward to reporting to you at the interims. Many thanks.