Conduit Holdings Limited (CRE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the '24 Conduit results presentation. The team will present our results, but also an update on the tragic events that have occurred in Los Angeles. And with that, I will hand over to Trevor, and we will take questions afterwards, and the Q&A will be moderated by Brett Shirreffs, our Head of IR.

[Audio Gap] I'm pleased to be with you today to share our 2024 results, as well as provide updates on our January renewal performance and our exposure to the California wildfires. First, on premiums. During 2024, we continued to grow our portfolio when market conditions supported with gross premiums written increasing nearly 25% to $1.16 billion. Our approach to building the portfolio has been consistent by selectively deploying capacity to business lines that offer the best risk-adjusted returns. This means that over time, our relative growth by segment will rise or fall based on the various opportunities that we see in the market. During 2024, each of our 3 segments experienced growth with the overall picture led by Property and Specialty, while Casualty grew at a lower rate. Our discounted combined ratio was 86%, up from 72.1% in 2023 due primarily to increased catastrophe activity during the year. 2024 was a year with significant natural and man-made catastrophes and also a number of larger man-made losses occurring in the industry. With over $140 billion of insured loss, it ranks once again as one of the highest on record. The loss pattern during 2024 was somewhat different to what has been experienced in recent years with a high frequency of smaller and midsized cat events across the globe. Hurricanes Milton and Helene were 2 of the larger ones occurring, and we recorded an undiscounted net loss after reinsurance and reinstatement premiums of $68 million related to these events, which contributed 9.4% to our undiscounted loss ratio for 2024. This elevated catastrophe activity has continued into 2025 with the California wildfires, which I will comment on further in my report. Balancing this higher loss activity was a solid contribution from our investment portfolio. Net investment return was $66.1 million or 4% for 2024. This was down slightly from the prior year due to lower unrealized gains reflecting changes in interest rates and spreads. Importantly, a larger component of our investment return was from net investment income due to a higher book yield on our growing investment portfolio. In total, we produced $125.6 million of comprehensive income, representing a return on equity of 12.7%. Net tangible assets per share ended the year at $6.70. Including dividends paid to shareholders during 2024, the growth in our net tangible assets per share was 12.9%, a reasonable result in a challenging year with more than $140 billion of insured catastrophe losses and pressure on legacy casualty reserves for the industry. As we have commented previously, our balance sheet remains strong. We have the necessary headroom for further growth in 2025 and expect to focus in those classes where attractive conditions and returns and margins continue to persist. We have achieved meaningful scale, including more than $1.1 billion of gross premiums written in 2024 and more than $3 billion written since inception. This scale creates a growing and diversified portfolio of risk, while we also remain focused on being super selective with the risk that we write. Clients value our capacity, and market conditions have been very good over the past 4 years. And this has effectively acted as a tailwind to our growth achievement. Having said that, it is cycle management that remains the key to our strategy. We have always said we will pull back from classes when it's the right thing to do. And indeed, we have adjusted our capacity allocations for certain classes already over the last 12 months or more. Overall, the business is in a very good position currently and the progress over the last 4 years has been meaningful, and it is a strong reflection of the team and the quality that we have attracted to the company. Turning to the cost of doing business. This growth in our portfolio has resulted in positive operating leverage on our expense ratio. While we continue to invest in our business, both in terms of people and technology, our premium growth has outpaced our expenses and thereby driving this leverage. We have added to our staff in both senior and supporting roles, ensuring we have the right resources to manage the business growth. And now that we have this scale, we expect to maintain this fundamental expense advantage in our business, supporting our margins and returns whatever part of the cycle we are experiencing. While profitable underwriting is our primary focus, our investment portfolio has also made significant contributions to our bottom line in the last 2 years, increasingly facilitating a balanced overall earnings profile. Investments and cash have increased by approximately $400 million from the end of 2023 to year-end 2024, driving the investment leverage in our business. We have maintained a conservative investment strategy to support the underwriting business, but we have benefited from higher book yields on a larger portfolio to drive the increase in investment income. All in, we expect to continue our balanced approach to drive value for shareholders by generating the target returns and managing our capital effectively to grow our tangible net assets per share while returning an attractive dividend. The California wildfires are a major industry loss and have impacted many homeowners in the affected areas. This event is yet another reminder of the critical role that the insurance and reinsurance industry plays in our communities and the support the industry provides as rebuilding occurs. There is still considerable uncertainty around the event and the tail nature of it with the modeling agencies producing a typically broad range of initial loss estimates. We recognize these and the $35 billion to $50 billion range is broad, but clients that we are speaking to are very much still in their own loss evaluation process. Until more information comes to the fore, this range is likely to remain as a point of reference for the marketplace. Our approach to assessing Conduit's exposure is focused around a detailed contract-by-contract analysis, along with the review of the latest model losses from clients in our portfolio at various return periods. Based on this process, our preliminary undiscounted ultimate loss estimate across all divisions is between $100 million and $140 million, net of reinsurance recoveries and reinstatement premiums. As additional information emerges, our ultimate loss estimate may vary from this preliminary estimate. But given the magnitude of the wildfires, we thought it would be helpful to put the loss into context. And our mean expectation for nonpeak natural catastrophe model perils such as these is between $40 million and $50 million annually. While it is clearly only February, and we have experienced a very significant event early in the year, our current forecasts lead us to believe we can still deliver an ROE in the low to mid-teens for the year. That's clearly dependent on the loss activity with the rest of the year, plus investment markets to a degree, but with reasonable activity for the rest of the year, we believe this is achievable. As regards to how the loss impacts the property reinsurance market in general, we would expect to see a firming in the market around the perils of wildfire and more broadly, a hardening of catastrophe pricing, especially in the USA. The first signs of this will emerge as we enter the coming Q2 property cat renewal season. Further, we would comment that as regards to the response in the quota share market, the contracts here will actually begin to capture any market positive response immediately as those in-force treaters are writing business through the year continuously and renewing underlying policies now on a daily basis. Turning back to our performance in 2024. Gross premiums written increased by close to 25% or $231 million over the prior year. We achieved growth in each of our segments, led by Property and Specialty and risk adjusted pricing for full year 2024 was up 1%, net of inflation. Overall, we maintained appropriate balance within our portfolio while selectively allocating capacity to the risks that we view as best priced on a risk-adjusted basis. For 2024, Property represented 52% of gross premiums written compared to 50% in 2023. Casualty was 26% of gross premiums written and Specialty increased to 22% of gross premiums written. In total, this results in a similar balance to our premium split in 2024 compared to the prior year, and we continue to optimize the portfolio and the clients that we support. I will now hand it over to Greg to provide some more detail by segment and an update on the January renewals.

Thanks, Trevor. Our Property segment gross premiums written has grown 29% from '23 to 2024. This significant growth has been supported by our partnerships our underwriting team have worked very hard to develop, most notably in relation to our treaty reinsurance support of U.S. primary carriers. The sector continues to evaluate the impact of inflation, and more importantly, price for it with adequate increased premiums to cover the growth in underlying exposure. The non-cat loss ratios remain attractive and the core of our portfolio being primarily commercial risk. Our natural catastrophe exposure is somewhat more internationally diverse than our primary book, but still remains U.S. biased. This has been where we have seen the most opportunity to collect premium for the natural catastrophe perils that are covered within our requirement levels, both in terms of pricing and terms. Although the undiscounted combined ratios across all years have been influenced by nat cat losses, the combined ratios for 2021 and 2022 also reflected a lower premium base as we built out our portfolio. After a very favorable year in 2023, the undiscounted loss ratio rose in 2024, driven by the events during both Q3 and Q4, in particular, Hurricanes Helene and Milton. The portfolio is broadly where we planned it to be, and its composition reflects the build-out of our portfolio with the right partners. Across the portfolio of Property, we have benefited from plus 3% risk-adjusted rate change over the 2024 full year. This rate change is our view of net change after inflation, exposure and terms and conditions. So it also is reflective of some of the upwards pressure of increased ceding commissions or overrides on the primary business. When comparing 2024 June and July renewals, to those of the 1st of January 2024, we found that higher or more remote XOL contracts were showing some negative rate change, albeit from a historic high in absolute terms, and in our view remained priced with combined ratios remaining stable. The year was active from a major nat cat perspective with PCS alone reporting $94 billion of natural catastrophes in the U.S., which does include last week's industry loss increase to Hurricane Helene. Total industry nat cat losses look to be in excess of $140 billion for 2024 and supports our observations of increasing trend from an absolute dollar perspective. We moderated growth in the Casualty portfolio to an increase of 8% in gross premiums written, which is both a function of active portfolio management from Conduit Re and our partners modifying the texture of their primary accounts. For example, we have reduced our participation in classes such as D&O, where the rate and terms and conditions have become less favorable. This is positive cycle management from our partners and is what makes a longer-term relationship between primary carrier and reinsurer work very well. Beyond D&O, to which we do talk a lot about, general third-party liability, a much larger market, has numerous areas of interest for us right now. And generally, this class continues to reprice risk with increased rates, allowing for the consideration of claims inflation and acknowledgement of prior year deterioration. And prior year in this context is meaning years prior to Conduit Re being formed. Most importantly, in the general third-party liability class, I'm pleased to say that our partners demonstrate strong underwriting discipline with thoughtful and balanced limit deployment, the key to a healthy portfolio construction. The undiscounted combined ratio remained stable year-on-year. We remain patient, given the longer-tail nature of the portfolio and focus on building what we believe is the right portfolio and monitoring the underlying trends across both our own portfolio and the wider industry more generally. Risk-adjusted rate change is broadly flat across the portfolio. And based on our analysis of claims inflation, we believe the increases in primary pure rate continue to outpace inflation. And this is reflected in the premium growth in our portfolio. There are observational points shared with us by our partners, indicating that primary conditions could be improving even further as underlying trend is being better understood, which we believe may produce more opportunity. We have grown our gross premiums written in the Specialty portfolio by 39% for the full year of 2024. This is a result of developing some new business with core clients who provide us access to balanced books of multi-class business, bringing both growth and diversification. This has also introduced some additional geographic diversification away from the U.S., and we expect to build this out further in the future. The combined ratio increased in 2024 compared to 2023 driven by the impact of the Baltimore bridge collapse and other large risk events in the market. The risk-adjusted rate change is plus 1%, which is generated from a broad range of business and transaction types. Our core marine and energy portfolio has remained very stable, with growth coming from non-correlating exposures, enabling Specialty accumulations to remain well within appetite. The Baltimore bridge collapse provided the Specialty market with a large industry loss, with very specific contracts responding to it due to the type of coverage likely to respond to the claims emanating from the event. This will take time to settle, but due to the construction of our portfolio, we remain very comfortable with our ability to identify our potential exposures and indeed evaluate them. We continue to actively identify, investigate and evaluate multi-class opportunities. Our ability to do so is enhanced due to our underwriters all physically situated together at the one desk in Bermuda. The January renewal season was fairly orderly, with the market renewing contracts from a near historic high in terms of pricing levels. The significant loss activity from 2024, both nat cat and man-made, such as the Baltimore bridge collapse, gave sharp focus to pricing and capacity. Loss affected areas of the market across Property and Specialty responded to exposure increases and performance. The loss-free contracts were more sensitive to supply and demand, and this was best characterized by the variation observed generally in the property cat XOL contracts. The markets we have greatest focus on, though, remain well priced. While orderly, the market demonstrated some significant reinsurance buying strategy changes which affected some of the existing panels and probably caught them by surprise. The knock-on effect of this clearly caused some reactionary shifts in target risk deployments and pricing probably reflected this. Now taking each segment in turn, we recorded a risk adjusted rate change of minus 5% from property, which reflects a heavier skew towards primary quota share than the XOL portfolio. Variability in the XOL contracts was more like plus 5% to minus 15%, dependent on the performance and the attachment points. The effects of Hurricane Helene and Milton certainly supported the discipline of primary carriers to present business plans with risk-adjusted flat rates but there was certainly more interest from the reinsurance market in supporting these types of insurers. It is understandable given the underlying performance, but as with increased supply, pressure came on ceding commissions, and they grew and hence, perhaps reduced our absolute margins in this space. That said, although there were some pressure on terms and conditions, given the ample capacity, the market generally remained disciplined, and attachment points tended to remain stable. The casualty market continues to digest loss deterioration and significant nominal claims emergence from the back years, typified here by the period prior to 2020. This is the starting point in any actuarial analysis, and hence, this drives much of the evaluation. Generally, insurers are now writing very different books than back then with smaller limits and more premium spread across a greater number of towers, creating more balance across these books of business. We had a minus 1% risk adjusted rate change for Casualty, which reflects our view of inflation and trend after pure rate change, as well as any changes in underlying policy coverage. Although the rate change metrics for the Specialty portfolio largely mirror those in Property and Casualty, the diverse nature of this portfolio allows us to remain selective and continue to build an overall portfolio that remains attractive to us. We successfully placed our core outwards program at 1/1 and included some further expansion of the panel. We were able to secure the core placement at more favorable terms and as in past years, we will consider other purchases throughout the year. Since launch, our planned PMLs have grown both in absolute terms and as a percentage of our balance sheet as we have grown and scaled the business as would be expected. We have published our planned position each year calibrated to a July 1 viewpoint, and this chart summarizes our progress over the period. To date, our most significant modeled net PML has been either Florida wind or California earthquake depending on year and return period. This is based on our gross modeled position for a first occurrence and then netting down based on how our reinsurance would apply to these modeled events. Market conditions are also a factor. And in 2024, our plan showed lower PMLs than prior years. For 2025, we had anticipated the potential for improving market conditions and increased PMLs in our plan, most notably at the 1 in 250 return period. Though at 1/1, we saw an oversupply of capacity for excess of lost business. So our current PMLs are notably below our plan for the year. Our current position provides opportunity to deploy further through the year if the market conditions support it. Going forward, we don't expect our planned PMLs will grow from these levels without a corresponding growth in our balance sheet. Again, our views may change based on market conditions. I will now hand over to Elaine, to provide some more detail on the financials.

Thanks, Greg. We recorded $1.16 billion of gross premiums written for the year compared to $931.4 million for the prior year, almost a 25% year-on-year increase. Our business mix still favors quota share over excess of loss. So we have a little bit of the 2024 underwriting year that will continue to write into 2025, but subject to any ongoing adjustments to estimates, all other prior underwriting years are fully written now. Just over half of our 2024 underwriting year is earned, so a substantial amount remains to earn into 2025. Our reinsurance revenue, which broadly speaking, is IFRS 4 gross premiums earned less ceding commissions was $813.7 million for the year compared to $633 million for the prior year, a 28.5% increase year-on-year, reflecting our continued growth strategy. All 3 of our divisions showed growth in both gross premiums written and reinsurance revenue year-on-year with the largest dollar increase in Property, followed by Specialty and then Casualty, reflecting the market conditions Trevor and Greg have discussed. Ceded reinsurance expenses, which you can see in our RNS and are essentially our ceded premiums earned, excluding reinstatement premiums, were $93.7 million compared with $76.7 million for the prior year. Our average cover has increased year-on-year again as the inwards book has grown in addition to price increases at the January 1, 2024 renewals. We also sponsored our first cat bond in June 2023 with the cover from that having a 3-year term. That ceded reinsurance expense brings our net reinsurance revenue to $720 million and $556.3 million, respectively, with 29.4% year-on-year growth. On the loss side, 2024 was another active year in terms of industry losses, but with a different makeup of those losses than in 2023. The losses resulted from a broad mix of events, risk losses such as the Baltimore bridge collapse and several smaller and midsized natural catastrophe events as well as more significant ones such as Hurricane Milton. As a predominantly quota share underwriter, Conduit picked up its fair share of those losses. Across Hurricanes Helene and Milton, we had a net impact after reinstatement premiums of $68 million, which had a 9.4% impact on our undiscounted loss and combined ratio and an 8.5% impact on our discounted loss and combined ratio. Our net undiscounted loss ratio for the year was 84.4% versus 68% for the prior year, the difference being driven by the numerous events in 2024. Our net discounted loss ratio was 73.3% versus 58.2% for the prior year. You can see a higher impact from discounting on the 2024 ratio as compared to the 2023 ratio, driven primarily by the higher loss ratio, offset somewhat by the relative impact of the movement in rates year-on-year and also the reduction in duration of our reserves. Just a reminder here that we made a policy decision to use opening rates to discount our nonspecific incurred losses, the date of loss for material specific events. Our combined reinsurance operating expense and other operating expense ratios were 12.7% versus 13.9% in the prior year, trending down in line with expectations as previously communicated as the business scales and also partly down to business mix. Our combined ratio on a discounted basis was 86% versus 72.1% for the prior year and on an undiscounted basis was 97.1% versus 81.9%. Our net reinsurance finance expense for the year was $30.8 million versus $32.8 million in the prior year. Our interest accretion was $37.6 million compared to $26 million in the prior year. And the impact of changes in discount rates was a benefit of $6.8 million versus an expense of $6.8 million in the prior year. You can see these numbers in our RNS and our financial statements. The accretion has increased in line with expectations as a relatively new company with growing reserve balances. The remeasurement to current discount rates reflects the changes in yield. Our net investment return was 4% for the year versus 5.8% in the prior year. I'll come on to investments in a bit more detail in a moment on the next slide. But just to wrap this one up, our comprehensive income for the year was $125.6 million or an ROE of 12.7%. So here's the investment bit; book yield is now at 4.1% compared to 3.7% at the end of 2023. The portfolio is therefore earning more income than in the prior year. The business is also generating more cash now and our invested assets increased significantly year-on-year. So that produces more income as well, although the fourth quarter saw increasing yields, almost offsetting the strong mark-to-market gains we had in the third quarter. Overall for the year, we have a small net unrealized gain. And as noted in the previous slide, our investment return for the year was 4%. The 5.8% generated in the prior year was in part driven by the sizable reduction in yield in the fourth quarter of that year. Otherwise, around the portfolio, we continue to nudge duration up a little but remain relatively short, and our focus continues to be on maintaining a high-quality, highly liquid portfolio. Duration is currently 2.5 years versus 2.8 years on our net reserves. Average credit quality is AA, and you can see the usual pie chart here with our asset allocation. On this slide, you can see that as the business continues to grow and we remain highly cash generative, our invested assets also continue to grow. As our portfolio has become higher yielding over time, we produce more income and as our investment leverage increases over time, that contributes more to our ROE. I'll now hand back to Trevor for additional comments.

Thanks, Elaine. In closing, 2024 was a year of good progress for Conduit. We continue to generate robust growth across our portfolio as market conditions remained attractive. We experienced a high loss year in 2024 due to elevated natural catastrophes and risk losses and our comprehensive income of $125.6 million resulted in the ROE of 12.7%. This followed our 22% ROE in 2023. The scale and leverage we have achieved with the business, particularly in the last 2 years, will support our returns going forward. And as I have said, for 2025, despite the significant impact from the California wildfires, we expect to achieve a return on equity in the low to mid-teens. Our highly focused approach to building a well-balanced portfolio has been consistent at all times. We review our cedents on a ground-up basis to understand how they underwrite and manage risk within their portfolios and have selectively supported clients that demonstrate prudent behavior. This is particularly critical in casualty, where our experience to date suggests that the book continues to perform in line with our expectations. And we can underline here again that our original pricing picks remain solid. In our view, risk-adjusted pricing remains at attractive levels by historical standards. We saw rates softening through the Jan 1 renewal season, especially in property cat. And in response, we held back capacity as terms being presented to us were, in our opinion, less than ideal. However, this does follow several years of strong rate increases, relatively speaking, and our portfolio sits at a well-priced level from a technical perspective. In our view, the frequency and severity of natural catastrophes experienced during 2024 and into 2025 is more likely to support stable to firmer pricing looking forward. We expect to continue to deploy capacity into attractive market conditions. And as I have mentioned already, our quota share treaties are likely to immediately capture any market hardening and rate increases as our primary insurance partners manage their risk and are renewing business on a daily basis. So in closing, our balance sheet remains strong with over $1 billion in total capital at year-end with no debt and a conservative investment portfolio to support our underwriting. AM Best recently revised our financial strength rating outlook to positive from stable, and we continue to have the headroom for further growth and scaling the business. We are focused on driving long-term returns for shareholders, and we believe that we have built a business with a strong underwriting culture, a broad distribution reach and a very efficient cost structure that will enable us to deliver on our goals across the insurance cycle. So thanks for your time, and we are now ready to open the line for Q&A.

[Operator Instructions] And your first question is from the line of Derald Goh from RBC Capital Markets.

The first one, firstly, thank you for the new disclosure around your budget for nonpeak at [ $40 million ]. Could you maybe share what your overall cat budget is? I'm just trying to get a sense of what a so-called normalized combined ratio might look like. And then secondly, for your 2025 guidance, is -- I'm trying to look at an underlying basis for the combined ratio, is a low 80s normalized still valid? Or do you think it should be higher given everything that we've seen? And my third question is on the BSCR. So that 269%, what is the corresponding ECR ratio? Because historically, I think in the last few years, the ECR ratio was actually lower. So if you could tell us what that corresponding ECR ratio, please?

I'll kind of rumble around these a little bit. I think in terms of '25 guidance, the low 80s combined that we have been guiding to, we're clearly going to be higher than that this year given the wildfire events. So this is not a kind of normal year when we give normal guidance. And the guidance that we have been giving was also -- we said was emerging given the reserves. There's always a little bit in terms of risk adjustment on top of things. So hopefully, that helps a little bit. And as you know, we don't give details on our cat budget. So the disclosure that we have given this time around where we think that this sits in terms of our normal expectations on nonpeak perils was to help you guys get to revise your models and then work that through to get to an updated combined ratio and the ROE guidance is there to help you with that as well. I don't have an ECR ratio yet. We publish that in May. So you'll need to wait until then, unfortunately.

I mean any indication so far that ECR ratio will be higher or lower than 269%?

Yes. I don't have that number at hand. But typically, we don't tend to focus on it too much anyway. We prefer to look at how we look from a capital perspective through risk models as opposed to the MSM.

Your next question comes from the line of Andreas van Embden from Peel Hunt.

I've got 2 questions, please. Just on the L.A. wildfires, just a quick question around the caps you build into your quota share programs to sort of mitigate losses. I just wonder, have these been triggered in the L.A. wildfires, i.e., have those caps helped you mitigate increasing the gross loss to this exposure? And the second question I have is really on reserving. There was a small reserve release coming through from prior years, I think, $4 million. I just want to look into the casualty book. Lot of primary insurers in the U.S. have been increasing their loss picks and putting up additional reserves for the recent underwriting years, so from 2021 onwards. I just wondered whether Conduit Re had needed to strengthen their reserves as well on the back of what your cedents are doing.

Thanks, Andreas. I'll just take the casualty question, secondary one, and Greg can probably expand a bit more on quota shares and caps within the L.A. wildfires. On the casualty position, we're not pricing picks. Quite often get asked this. We started underwriting for the '21 year. And what I'd like to comment on is that it was a completely brand-new portfolio where we had a very selective approach for the business that came through and we were able to create a new portfolio from scratch. And when we looked at the various reports in the industry around those years, '21, '22, maybe even '23 starting to move adversely, we've done a lot of work both in-house and also with our consulting actors, and we just don't see that in our portfolio. One of the conclusions is that it was a brand-new portfolio. There was no drag from prior years where perhaps marginal business was renewed through. We were able to select it completely. And certainly, the pricing picks that we've made on the casualty book since we started, we have not moved that pricing pick. It is still as per the original selection. So it's something we watch. And certainly, the industry is reporting some larger development trends on those more recent years. So we watch it, but we're not seeing it in our portfolio. Greg?

Yes. And I just would add to that. I think some of the observations at the industry level for casualty, it's always a challenge to map the sort of business mix back from the industry level to a reinsurer's own risk appetite. Classes that have probably had more stress on them in the last sort of 3 years, that sort of period you're referencing, those later years, I would guess a big portion of that is probably excess auto, which is a class that is susceptible to concepts like nuclear verdicts and bits and pieces like that. And when we -- as Trevor said, we clearly had the advantage of building a book and a texture of casualty risk from the beginning, which we avoided. Auto, it's a distressed class. And there are some people who understand it really well. I'm sure they do a very good job of it. But for us, it was a very straightforward decision to avoid that class as we built up our book. And just to comment on the wildfires and quota shares and bits and pieces. I think you're quite right, as we've referenced in the past, caps and collars, quota shares, event limits, ag limits are very important to us as we structure these deals, and they are absolutely relevant in a case like this. And yes, I can say they are a part of the loss estimate. I can't comment on where they sit in there, but they're very much a part of that, and it does provide a lot of confidence in the way we build our estimates.

And just a quick follow-up. Have those caps and collars worked in line with your expectations for such a sort of tail event?

Yes. I think that's -- yes, I would agree that's a fair assumption, yes.

Your next question is from the line of Michael Huttner from Berenberg.

I had 3. The first one is on the low to mid-teens ROE going forward. So the starting point is kind of the same, 12.7%. I just wondered if you could kind of paint a waterfall chart picture of the moving parts if the wildfire is higher than your non-peak perils. So I think you gave a figure of $40 million to $50 million. So we're kind of $60 million or $50 million or $90 million higher, then that's one moving part I can see. But I'd be interested in how else you see the other moving parts. The second is to understand better your confidence on the $100 million to $140 million. I just wondered, you've given the figure of $68 million for the 2 large events, Hurricanes Milton, Helene. How did they -- that $68 million will compare to your initial estimate? And then the third question is on kind of going back to that combined ratio question, which we had before, the low 80s or whatever. And I think the way I understood it is you're beginning to add to build up buffer reserves. And I just wondered if my understanding is correct. And I have a fourth one, and I'm really sorry. On the renewals, so clearly, you held back in January. And I just wondered if you can give us the scale of holding back relative to what -- how much you would normally grow in January, just to get a feel for how much kind of spare capacity you've kept for the June, July renewals.

Okay. Thanks, Michael. Perhaps I'm going to get the easier end of this if I do the last one, and I suspect Elaine is going to have to cut with some of those other 3. Yes, just around the renewals in the renewals season, I suppose, but generally, the degree to which we have kept our powder dry, as this expression is often used, is largely driven around the excess of loss pricing. You obviously saw the planned figures or figures that we put in our plans over time and see what is provided for the '25 year. But the assumptions were originally when the plan was put together that just loss pricing would be holding up better than it actually did at Jan 1. So we received a lot of submissions, a lot of offers around the cat space. We looked to fit them through. And they just, in our view, weren't adequately priced enough to increase the position. So what you saw there with the lines on those pillars was a reflection of how we have basically held back from committing the company to that exposure at Jan 1. Going forward, remains to be seen. I think there is a position in the market that post the wildfire event the market will introduce some sort of correction. We'll watch that. We'll look at that. I think it's possible that we could deploy proactively after the Jan 1 season some of this capacity that we've held back. But in the main, that's the story of Jan 1. Just one last observation. Renewal season for us was generally successful. We saw good growth for us. Comparing the figure year-over-year, Jan 1 is sometimes difficult because some of the large treaties moving cat mandates. We have that experience through Jan 1 renewal season. But generally, we had good double-digit growth, but that certainly does start with the 2. And the book overall did move on satisfactory at Jan 1. Elaine?

Michael, in terms of the ROE expectations, we've looked at that in the context of how we forecast our business. And we generally have cat large loss attritional expectations in there. The wildfires have clearly been a tail risk event, and that's really how it's been talked about in the industry as well. So we've had to adjust for that beyond the normal expectations, but I'll try to give some kind of guidance around that. So in terms of the bits that can move in that over the rest of the year, we tend not to really think too much about reserve releases when we're thinking about our ROE expectations. There's obviously the book is maturing and there's always some hope that we'll be able to see some releases coming through from that. What happens around our reinsurance program, what happens with investments and mark-to-market movements there, and other opportunities for the rest of the year as well off the back of recent events. And we have still factored in some cat and large loss expectations into that guidance that we've given you there. But obviously, it really depends on the level of activity that we see over the rest of the year. And it is only February, we've had a very large event very early in the year. So we do still have some built in there. We'll wait and see what happens. On the reserving side in terms of the confidence around the Californian range, we hope that we've got a good range there. It's very early after that event as well, and then not an awful lot of information out there yet. So we've engaged as much as we can with clients and brokers and done as good a job as we can at this time. But obviously, it still has a long way to go before that's properly loss adjusted, and we can see anything more detailed in terms of reporting coming through on that. Where we were on last year's losses; Milton was really pretty solid in terms of the initial guidance that we gave there. We did see a little bit of creep on Helene from Q3 into Q4. But I think that that's broadly in line with what you'd have seen from others within the market as well. I think that, that was an event that happened very close to the end of Q3, and we did see that nudge up just a little bit in our numbers. But broadly comfortable with where we ended up in terms of our expectations. And then I guess, continuing on the reserving approach, if you like, and how that impacts our combined ratio. I guess 2 years ago, we talked about kind of the combined ratio on an IFRS 4 basis. We kind of translated that into an IFRS 17 basis and talked about that as emerging because we do end up when we go through the reserving process, work out what our actuarial best estimate is and then we have a management estimate, and you can see some transparency over that in our numbers now in terms of the risk adjustment that we disclosed in our financial statements. So there is a little bit of buffer, if you want to use that word, on there in terms of how we approach our reserves.

Your next question is from the line of Abid Hussain from Panmure Liberum.

I think I've got 3 questions. So the first one is on the ROE progression. I know there's been a number of questions already on this. But I just want to sort of delve a little bit deeper and get any further color if possible. I'm just trying to get to what you're assuming for the rest of the year in terms of nat cat over the remainder of the year to hit that ROE target, the ROE guidance rather. What would keep you on course and what might blow you off course? Any color on that would be helpful. And then the second question is on, I guess, the maximum potential losses for the year. I'm really thinking here, is there any aggregate retro cover that kicks in? And if so, sort of what level might that kick in? I guess I'm asking, is there a ceiling to your losses across the year as events tally up? And then the final question is on the growth opportunity set. Can you talk to what is the growth and margin opportunity set ahead of you? How has the landscape changed now versus when you set up the business? What sort of opportunities are you focusing on now?

I'll take your first one there. It will come as no surprise to you that I'm not going to give you a number, I'm sure. But just in terms of how we thought about the rest of the year, we do contemplate what I'll call kind of more attritional cat in our expectations. So that's the smaller stuff that you guys wouldn't necessarily see that much of in terms of what we report and disclose on the larger specific events. So we do have an expectation built in for those kind of things. And we also do continue to have an expectation built in for some of the larger cat events that would be the types of things that we would be disclosing if it did happen, so the likes of a Milton or whatever. And just to kind of round that one off, we do also have an expectation built into our forecast around large losses as well.

Thanks Elaine. I can pick up 2. Maybe, Greg, you can talk about the growth, third question. Yes, just around the outward protections a bit, we don't go into -- have done going into -- have gone into detail on these calls around the nature of how the reinsurance is structured. But we do have the overall stack of reinsurance that we buy, purpose of the cat bond, which has an aggregate element to it, an aggregate response feature. But probably it's suffice to say, in the main, our protections that we buy are more on a 1-event basis, they respond on a 1-event basis. The market this year at January when we renewed a large portion of that start of cover was a bit more amenable. We were able to buy more cover there, probably touching at slightly lower levels than compared to last year. So that's in place. But that's the mainstay of the start of cover that we buy in conjunction, let's say, with the cap on which is structured on an aggregate basis. Greg?

Yes, sure. So I think we've sort of referenced in the past the market that we've been building the business into has generally been a bit better than we planned, and you've seen that in the size of our business. I think if I talk about property specifically and particularly after the effects of both Q4 last year or Q3, Q4 events, Helene and Milton, coupled with the Los Angeles wildfire, there are a few things that come through from the primary market there. One is with an event with so many total losses, unfortunately, it does give a moment of revaluing underlying exposures. So where we have seen inflationary growth through the portfolio due to general inflation, you'll now get this massive data point from such a great number of total losses from an event like the wildfire reviewing underlying values. Generally, they go up. So there'll be -- I guess, what I'm describing is there's extra inflationary pressures there on underlying exposures. So we'd expect to see portfolios and underlying TIVs grow again. And it won't be restricted just to California, but that will give data points relevant to elsewhere, particularly around the U.S. So what happens there is those buying excess of loss contracts will likely look to reevaluate how much limit they're buying. So that's a possible cause for more limit to be bought. For the primary carriers, the premiums will grow with that as well, obviously, with primary rate moving as well. So it is a massive data point for the industry with such a large industry event and such a great number of claims. So yes, undoubtedly, that's going to fuel a further requirement for insurance and reinsurance.

Yes. Abid, I just want to add one thing. Trevor was very specific in his statement on the guidance that it assumes what we would call a reasonable or normalized cat year. And there are data points as to how the portfolio performed in '23, which was actually in itself quite a heavy nat cat year and '24. So in terms of the way we manage our risk, there is a track record to see how the portfolio has performed under circumstances like that. And it's -- those are the basis on which we will form a view on the guidance that we have given.

Your next question is from the line of Joseph Theuns from Autonomous.

Just kind of maybe adding on the back there. In terms of what would you consider a reasonable loss activity year, is it sort of 2023? Is that sort of the level? And thinking about this in terms of guidance, is the low 80s combined emerging? Is that still a long-term target, just given off the sort of the fact that we've seen 2 years of elevated cat losses, as you just said? The second question is just if I look at sort of the size of the losses relating to these wildfires, it's equivalent to a 1 in 250 PML then. What does that kind of say about the risk and exposure management of the firm? And do you think you need to make any remedial steps as you go through this year?

Thanks, Joe. Yes, I just pick up on the second question around the loss and size relative to PML. For us, the published peak perils, if you like, let's call it that, of hurricane and earthquake at 100 and 250 level, plainly the loss that was embedded in the distribution for California wildfire, we're sitting significantly in excess of that. We spend a lot of time and have done what we refer to as loading the models being suspicious of the tail. We do that for all of the peril events in different regions around the world that we write. This is one that needs looking at quite plainly from an industry standpoint and the way in which we apply loads to it. The models will undoubtedly take this is that phrase that's used as a data point. So the models will be adjusted, but in-house certainly is something which we're looking at. And I think at the tail, the models can be unreliable, I think, in this instance, that's an example of it. Elaine, you want to probably...

Sure. I think a good question in terms of what a reasonable loss activity is these days. I think the annual average expectation is definitely on the increase. I think we've had a series of years where we've had significant industry losses. And I think expecting something that's greater than $100 billion is easily standard these days. We're not changing our guidance on that combined ratio. I think the way to think about that is, and Neil kind of mentioned as well, '23 and '24 were both significant industry loss years with different makeup of those losses. And you can see how we performed in those. Also just in terms of the conversation we've had a little bit today about reserving again and how we think about that and developing our actuarial best estimate and our management best estimate, we have been doing that over the last 4 years. We're in year 5 now. More of that, I guess, sits within kind of our casualty book. We've been very cautious around that in terms of looking at that and assessing whether we want to take any of that down as well. So that's kind of also part of the equation in there. But overall, no change in guidance, although in terms of where we expect to go, but obviously a different year this year given the event that we've just gone through.

Okay. And if I might just ask a quick follow-up about sort of the wildfires. Can you give any color on sort of how and where it showed up? Was it all in property? Was it on any of your XOL business? Was it in quota share? Just kind of keen to maybe get an understanding of basically how it sort of developed given the sort of -- maybe it was sort of misread the exposure that you had in that geography.

Joseph, yes, I mean, I can say that the way we've built our estimate, as we've done with other large events, man-made or cat, we've certainly looked across Property, Casualty and Specialty to build that loss estimate. Specifically within Property, such is the size of the event, it certainly does involve both quota share and excess of loss contracts. As you'd expect with we've built it from a ground-up client-by-client basis. But as you'd expect from a -- as often cited at the moment, $35 billion to $50 billion industry event with PCS now already at $34 billion from their first report.

This is in addition to that, Joe, if you look at the $50 billion California wildfire loss definition or the way that's picked up in the models, it's acting or reacting equivalent to probably a wildfire -- sorry, a hurricane or a quake loss possibly double that size. So that's to put it in the context of where it sits, sort of in that distribution tail. And also, just picking up on Greg's point around the contracts impacted, you've got a range there that we produced comes from obviously a discrete number of contracts, the premiums around those contracts are several orders of magnitude than the loss that we put forward here. So it's a substantial position that premium volume that is written to clients and the nature of the quota share portfolio, there were loss picks made within that portfolio for events. Plainly, this is an outsized one, but the premiums associated with these contracts is several orders of magnitude bigger than the loss range that we put forward, just to put it into context.

And you have a follow-up question from Derald Goh at RBC Capital Markets.

Just a couple of follow-ups, please. So the quota share buyer strategy, why do you think that is still the right strategy given the industry trends that you're seeing and your own experience as well? And I guess, what reassurance can you give around your nat cat exposure, seeing that you plan to increase it this year as well? And then secondly, looking at your Jan renewal rates for property, so that's minus 5%, which seems to be in line with what we've read elsewhere. Why isn't that better given your loss experiences in 2024?

Yes. If I start from the end, so the minus 5% referenced, as a reminder, that's our net number, which for us reflects our view of the underlying exposure growth, any change in terms and conditions, any increase in acquisition costs, for example. I think I cited in my narrative that a lot of this very well-performing underlying business, particularly on the non-cat component as well, is quite attractive business, and we certainly saw pressure on that business through ceding commissions and overrides to respond to that. So our minus 5% certainly includes all of that in there as well. And I suppose that probably draws a contrast to some of the risk-adjusted rate change that might be referenced from a heavier XOL book where you saw the minus 15% and things like that floating around. So just to point out that minus 5% is heavily moderated from terms and conditions, exposure inflation adjustments.

And just more broadly, they're around the broader strategy of where you allocate capacity across either a ground-up contract or a sort of more volatile excess of loss. It's a blend over time. The clients that we write business to, we receive submissions on either quota share or excess of loss basis. And when you look at them in the round, it depends on the region and the pricing adequacy that's being received through. But we certainly believe that take a year such as last year, we're getting on for potentially $140 billion, $150 billion of natural perils losses in the industry. We've deployed into areas that have been impacted from a regional standpoint by those losses, but clients have actually managed and weathered the position reasonably well. So for us in terms of building a book around quota share versus excess of loss, I'm certainly back and reassess the clients that we've got on an ongoing basis. The quota share that we've got to them, we believe is written in a balanced way. And they charge an appropriate premium for the risk that they're taking. And overall, if we were to substitute that with an excess of loss product for those clients, I think we'd be seeing a lot more volatility in the expected results. So overall, it's a balance. It does change over time. It depends where the market adequacy is at point in the cycle. But there's a lot of areas that we analyze at the moment where the ground-up does make more sense. And as a mean result over time, we believe it's more so close to it.

You have a further follow-up question from Joseph Theuns from Autonomous.

First one, I just want to confirm you didn't give a peak payroll budget. I know obviously, you talked about the non-peak, but just about the peak peril. And how did the $68 million that you reported for Helene and Milton sort of fit within that? Was that kind of within the budget? Second question, just thinking about sort of your solvency constraints, how do you think about -- what's kind of binding constraint? Is it the internal risk model? Is it the ECR, BSCR? Just curious to see if -- to understand what's maybe -- if anything is holding back further growth.

Okay. I'll take a stab at those, Joe, and others can jump in. I think in terms of peak peril budget, I think when you look at the likes of Hurricanes Helene and Milton, they're not unexpected events. They're fairly kind of standard occurrences. We obviously can't predict the timing of when those kind of events will happen, but there's nothing really that's too surprising around those. So very different to things like the California wildfires. Around solvency constraints, so I think the way that we tend to look at that is a number of different ways. We have an internal capital model that we referenced and we use and look at various different outputs from that. We also use the rating agency models. We kind of tend to disclose the regulatory models because that's what others use and what we can publish and talk around. But generally, I would say that our rating agency models had a higher requirement than the regulatory models. So we would see them as more important in our consideration. But in terms of binding constraints, we're still not really at a point where we think of any of those as a binding constraint. We still have plenty of capital to execute the plan that we have in front of us.

Okay. So kind of reflecting on your first answer, kind of my takeaway is that you're within the sort of the Helene and Milton experience were kind of within a normal range, so to speak. It wasn't sort of an outlier.

Yes. I think Helene was probably the more unusual of the 2 in terms of the type of the event and where that impacted. But yes, certainly in terms of -- yes, but in terms of kind of industry loss estimates, in terms of the size of them, there's nothing that's kind of surprising in there.

Yes. I mean I would only reiterate that Helene and Milton probably were -- sort of on a combined basis, were about $40 billion in a cat year that delivered $140 billion. So there was exceptional frequency across the market. So I mean, in the context of what's going on, then as just reinforcing what Elaine has said, they are within expectations.

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

Yes. So I mean, in summary, the results in '24, it was a year that stress tested the model. We came in at 12.7% ROE. The loss we're seeing is it's a very, very unusual event. I mean it's in the top 4 cat losses that I've seen in my career, and it's left field. People write to and model for peak perils. And this is a very concentrated loss. The hurricane is spread over thousands of square kilometers and market share analysis is easier. Thank you for attending. But by the way, I do think it will have an impact on the marketplace. As the market metabolize what's happened, it will be fascinating to see what happens at the midyear on U.S. cat renewals. So that's my parting comment. Thank you for your time. Thank you for all your questions, and we will update you at the end of Q1.