Conduit Holdings Limited (CRE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Conduit Holdings Limited Q1 Trading Update Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to Brett, Head of Investor Relations. Good afternoon to you.

Good day, everyone, and welcome to Conduit's Q1 2026 Trading Update. Thank you for joining us today. Joining me on the call are Neil Eckert, Chief Executive Officer; Elaine Whelan, Chief Financial Officer; and Stephen Postlewhite, Chief Underwriting Officer. Please note our disclaimer language on Slide 2. I will now turn the call over to our CEO, Neil Eckert.

Thanks, Brett, and welcome, everyone. As mentioned on our 2025 results call, Stephen joined in January, and I'm delighted to have him with us today. As usual, today's update focuses on our top line underwriting experience during the quarter and our view of the market with Steve providing more details of each of our segments. Elaine will then cover the financial and investment highlights, including a review of our capital management strategy. In the first quarter of 2026, we continue to identify select areas for growth and increased gross premiums written by 4.9% over the prior year. Growth was again led by our Casualty segment, where risk-adjusted pricing has remained stable. The quarter saw heightened volatility in investment markets following the outbreak of the conflict in the Middle East. Against this backdrop, we were pleased with the performance of our investment portfolio, which generated a 0.3% return during the first quarter despite the volatility and higher fixed income yields and spreads. Importantly, our managed investments continued to grow by over $100 million since year-end and over $400 million during the last 12 months, reaching $2.3 billion. This added scale will continue to support our earnings going forward. Capital management remains a focus for us as market conditions soften. During the first quarter, we repurchased $22.9 million worth of shares. And this month, we substantially completed our previous $50 million buyback authorization. We remain confident in the strength of our balance sheet, and the Board has authorized a new buyback program, demonstrating our focus on shareholder returns. Turning to our top line underwriting performance for the first quarter. Our portfolio continues to grow into areas of the market where we have found attractive underwriting opportunities. We achieved 4.9% growth in gross written premiums, reaching $430 million in the first quarter. Our overall growth rate continues to moderate given increasing competition in the market, but we have identified select opportunities that align with our appetite, primarily in the Casualty segment. As we discussed on our last call, our reception in the market was strong at 1/1. And this performance is a direct result of the hard work of the team leading up to the renewal period. Market capacity continues to increase, driven by the strong retained earnings of the industry over the last several years. Prices are softening, and we observed a risk-adjusted rate decline of 5% for the first quarter. Property and specialty markets are experiencing more intense competition and rate softening, but pricing overall remains adequate in our view. Casualty rates are more stable, broadly keeping up with loss trend, and we have seen strong opportunities to grow that portfolio with existing and new cedents. From a loss perspective, the first quarter of 2026 was more benign than the prior year, which included the California wildfires, but was in line with longer-term averages for insured catastrophe losses for the industry. The market is also dealing with the rise in geopolitical uncertainty and the conflict in the Middle East. The event is ongoing and could impact several areas of the market, depending on the extent and duration of the conflict. We do have exposure to the conflict in some of our specialty classes and have recorded an initial loss estimate based on the latest information, which is not material to Conduit. With that, I will hand over to Steve for a deeper dive into our market experience across our segments.

Thanks, Neil, and good morning, everyone. It's great to be with you today. As Neil mentioned, I joined the team in January this year and have been working in the industry for nearly 3 decades. I'm very happy to bring this experience to the CUO role at Conduit. Over my career, I have served in senior positions within underwriting, risk management and actuarial functions. I've spent the first few months getting to know the team and the portfolio and have been pleased with the strength of the people and the opportunities for Conduit going forward. In Q1, the team selectively renewed or secured deals that align well with our strategic objectives, primarily seeking to protect our margins and improve earnings stability. Turning to the Property segment. Gross premiums written increased 1% over the prior year period to $248.8 million. This modest growth reflects our success of securing new business and increasing shares on well-priced accounts while reducing exposure or exiting treaties with poorer performance or terms that did not match our technical pricing standards. We continue to see a strong flow of business opportunities and submissions, and we are carefully picking our participations. As we expected, rates continued to soften in the quarter and risk-adjusted rates were down 9% across our Property portfolio. The rate softening comes on the back of several years of strong rate increases and profitable results for the industry. Despite the recent rate softening, we believe the pricing generally remains adequate, and we continue to find select opportunities. Softening was most notable within property catastrophe reinsurance lines, driven by robust returns over recent years, increased capacity and a relatively benign loss activity for the market. We expect these softening trends to continue through the midyear renewals, and we will remain nimble and proactive in the competitive environment to target well-priced business. Turning to Casualty. In Q1, the team continued to focus on expanding in classes where rate dynamics remain robust and with cedents that have demonstrated track records of prudent cycle management behaviors. Our casualty team has found select new business opportunities on top of strong renewals. The increase in this segment complements our short-tail Property and Specialty business and enhances overall portfolio diversification. For the first quarter, we reported $109.7 million of gross premiums written, representing a 23% increase over the prior year quarter. Expiring business was generally renewed at similar shares, while we made deliberate decisions to exit underperforming treaties where returns or terms were less attractive, supporting ongoing portfolio optimization. Growth for the quarter was largely attributable to U.S. general third-party liability, complemented by incremental gains in smaller subclasses that contributed to portfolio diversification. The rating environment remains attractive in our view, although some classes continue to demonstrate firmer prices than others. We continue to focus on areas of the casualty market with sustained pricing momentum. During the first quarter, risk-adjusted rates were down 1% after adjusting for inflation expectations. Looking ahead, we remain mindful of industry loss trends, including some signs of increased loss frequency and the past legacy concerns in certain areas. Against this backdrop, our focus is on carefully selecting our partners, improving diversification and expansion with our preferred partners across complementary classes. Turning to Specialty. Competition has increased, and we have scaled back the portfolio slightly to begin the year with premiums reducing 4% or $3 million compared to prior year to $71.8 million. Consistent with our plans, we have been able to leverage our strong trading relationships and quota share participations to successfully write some new higher-margin excess of loss business. This gradual repositioning will take time, but we expect it will help support our margins as the market softens. Risk-adjusted rates were down 7% in the quarter. The specialty market has become competitive and the team stepped back from a number of deals that did not meet our expectations or requirements. Instead, the team has prioritized protecting margins and ensuring written deals are adequately priced with the required terms and conditions. Loss impacted contracts and selected classes where there has been loss activity have experienced firmer pricing such as marine and aviation, and we have written a few new treaties in these areas. The first quarter has been quite active from a risk loss perspective in addition to the ongoing conflict in the Middle East. We don't expect the direction of the market to change, but there is potential for enhanced geopolitical risk awareness and the ongoing conflict to create further opportunities. We will stand ready to respond should the opportunities align with our appetite. I will now hand over to Elaine to go through our financial and investment highlights.

As you've heard, our growth continues into our sixth year of operations, albeit now at a much slower pace, as you would expect, given the rapid growth we experienced in our earlier years and also market conditions at the 1/1 renewals. We wrote $430.3 million of gross premiums written in the first quarter of the year compared with $410.2 million in the first quarter of 2025, a 4.9% increase year-on-year. We typically write the majority of our book in the first half of the year, certainly by [ 1/7 ], and we have tried to front-load our book a little given our market outlook. So we would expect that first quarter growth rate to moderate a bit by the half year, although we still expect to see growth for the year. Note that our gross premiums written exclude reinstatement premiums as they're not deemed to be revenue under IFRS 17, but are included within reinsurance service expenses as a loss-related amount. Our reinsurance revenue was $240.3 million compared with $213 million in the prior year, a 12.8% increase year-on-year. There hasn't been any significant loss activity in the quarter that has impacted the company. We do expect to pick up some losses related to the U.S. military campaign in Iran, but we don't expect these to be material to our results based on the current information available. Given that latest information, I would describe the loss level from the ongoing conflict is manageable and within our earnings expectations. Otherwise, not much to report on the loss front and prior year specific loss events are broadly stable. On the investment side, the portfolio yield offset the negative impact of the increase in yields in the quarter, and we generated a return of 0.3%. Book yield is 4.2%, in line with year-end on March 31 last year. We remain relatively short duration and maintain our focus on a high-quality, highly liquid portfolio, particularly given the recent volatility in the markets. Duration is currently 2.8 years on both our investments and our net reserves. Average credit quality is AA, and you can see the usual pie chart here with our asset allocation. And the only change to note is a small bank loan portfolio that we have started this year to help to diversify the portfolio and maintain yield. Otherwise, no real changes from prior quarters in that or our strategy. We started to include this slide on capital last year to explain how we think about capital. Our focus, first and foremost, is on maintaining sufficient capital to maintain our ratings and to support our underwriting portfolio. We then carry a buffer for opportunities and any other eventualities. Anything over and above that is where we consider capital returns or where else to deploy the excess. The option or blend of options depends on a number of factors, including market outlook and our share multiple. This month, we substantially completed the $50 million share repurchase authorization that our Board approved last year. This year, our Board have approved another program, and we intend to execute that as and when appropriate before our 2027 AGM. I'll now hand back to Neil for closing comments.

Thanks, Elaine. In closing, we remain focused on delivering shareholder returns, and we'll continue to execute our strategy to support that objective. We continue to make meaningful progress to stabilize the business. The key driver has been the renewal of our outward retrocession program at 1/1 with broader coverage for peak and secondary perils, reducing our net exposure to tail events. Board and leadership strength is an ongoing focus, and we are pleased that Steve Postlewhite has now settled in the CUO role and working well with his team. We have continued to make progress with our regular Board succession during the first quarter. Elizabeth Murphy has retired from the Board, and I would like to thank her for her dedicated service. Elizabeth was a founder director and has provided valuable guidance and insight as Audit Committee Chair during her tenure. Sadly, Stephen Redmond, a tremendous asset to the Board, passed away in March. His significant contributions and kindness will be missed by all those who had the privilege of working with Stephen. During the quarter, Nicholas Shott was appointed Board Chair and was joined by 3 new independent nonexecutive directors, Richard Lightowler, Peter Mullen and Penny Shaw, each bringing strong insurance industry experience. The market is softening, but we view most areas as remaining rate adequate. We found select growth opportunities in the first quarter, primarily within our Casualty segment, and we'll continue to adjust in response to changing conditions. Our Underwriting business is supported by a relatively conservative and growing investment portfolio that is now $2.3 billion. This increased scale will support investment income and returns going forward. Capital management remains a priority. We substantially completed the initial $50 million share buyback program and have continued to pay a consistent attractive dividend. The Board has authorized another share buyback program, reinforcing our focus on capital efficiency and shareholder value. Looking ahead, while we expect competitive market conditions to persist, we remain confident in our strategy, balance sheet and underwriting approach to generate value for shareholders. Thank you for your time and continued interest in Conduit. We would now be happy to take your questions.

[Operator Instructions] I wanted to start off the Q&A session with the first one here, which reads as follows. Gross premiums written only grew 4.9% despite a still large reinsurance market opportunity. What is preventing faster growth? And how should shareholders think about your long-term growth rate?

Right. So that growth was posted in spite of the fact that there is underlying rate reductions, particularly on property and specialty. So that growth does represent the net after the reduction in overall premiums. So it's a pleasing performance. It puts us probably at the upper end of our peer group in terms of Q1 reporting. We do have to accept the fact that we face a softening market at the moment, and we must manage our business accordingly and really make sure that we have high underwriting standards and do not compromise those standards. So my hope is we've struck the right balance and that, that growth rate is good whilst maintaining our underwriting discipline. Steve, do you want to take Peter's other question on Casualty?