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Building resilience in
a changing world
Conduit Holdings Limited Annual Report and Accounts 2022
Conduit Holdings Limited Annual Report 2022
About us
Conduit Re is a pure-
play global reinsurance
business.
We have proven experience
across our business to make
dynamic decisions throughout
the market cycle.
We have a disciplined and
collaborative culture,
underwriting in a single
location on a legacy-free
balance sheet.
We use differentiated
technology to provide insight
and bespoke solutions to
support our clients.
Social responsibility and
inclusiveness are at the core
of how we operate.
Conduit Holdings Limited Annual Report 2022
In this report
Case Study – Capacity
Operational capacity and a strong capital
base provide the resilient foundation to
execute our plan and operate as a
responsible public company
Find out more on page 29
Case Study – The Conduit
Foundation
As a responsible company Conduit
supports the local community
Find out more on page 35
Strategic report
5-37
Key performance indicators
5
Executive Chairman's statement
6
CEO's report
8
CUO's report
12
CFO's report
18
Business review – finance
20
Enterprise risk management report
23
ESG summary
30
Section 172 statement and
stakeholder engagement
36
Governance
38-84
Board of Directors
39
Executive Chairman's introduction to
corporate governance
44
Corporate governance and compliance
with the UK Corporate Governance
Code 2018
47
Nomination Committee report
51
Audit Committee report
53
Directors' remuneration report
58
Directors' Remuneration Policy
60
Notes to the Director's Remuneration
66
Policy
Annual report on remuneration
70
Directors' report
80
Directors' responsibilities statement
84
Financial statements
85-134
Independent Auditor's report
86
Consolidated statement of
comprehensive loss
91
Consolidated balance sheet
92
Consolidated statement of changes
in shareholders' equity
93
Statement of consolidated cash flows
94
Notes to the consolidated
financial statements
95
Additional performance measures
135
Glossary
137
Advisers and contact information
141
Conduit Holdings Limited Annual Report and Accounts 2022
1
Business model
Our vision is to build Conduit Re as a leading global
reinsurance business, delivering sustainable long-
term returns through the market cycle
We are...
•
a pure-play reinsurer
in a single location in
Bermuda
•
a business with no
conflicts of interest
with our cedants
•
client, geography and
product neutral
We use...
We embrace...
• an open culture where
• a broad view to
knowledge transfer is
exploring solutions in
facilitated and
ever-changing market
collaborative challenge
conditions, unhindered
is encouraged
by legacy systems
• modern, modular
and issues
technology to
• an integrated approach
provide enhanced
to ESG, building this
portfolio insight
into our operations,
underwriting and
investment activities
to enable...
to create...
to deliver...
• fast, flexible and
• a diverse, inclusive, fun
informed decision
working environment
making
•
long-term sustainable
benefits for our
stakeholders
Underpinned by our culture:
Transparent, collaborative, responsible, enabled and forward-thinking
Conduit Holdings Limited Annual Report and Accounts 2022
2
At a glance
Bermuda-based reinsurer
Class 4
Staff
54
Financial strength rating (AM Best)
A- (Excellent)
Final dividend for 2022
$0.18 per
common share
($0.36 full year)
2022 Gross premiums written
$637.5 million
(2021: $458.5 million)
2022 Gross premiums written by class
Underwriting
Property
Catastrophe and non-
catastrophe property
business lines.
Proportional and non-
proportional
Casualty
Directors and officers liability,
financial institutions liability, general
liability, medical malpractice,
professional liability and
transactional liability.
Proportional and non-
proportional
Specialty
Aviation, energy, marine, political
violence and terrorism, and whole
account.
Proportional and non-
proportional
Conduit Holdings Limited Annual Report and Accounts 2022
3
At a glance
continued
Our key business objectives
Building a sustainable business
in the long-term interests of our
stakeholders
Delivering on our cross-cycle targets
for profitability and RoE
Why invest in us?
1
Proactive cycle
2
A balanced underwriting
management
approach
We are committed to active portfolio
We are committed to creating a
management to optimise returns
robust and diversified portfolio across
through the market cycle.
the breadth of property, casualty and
specialty classes.
3
5
7
Strong balance sheet
We have a strong capital base to support
our business and maintain our AM Best A-
(Excellent) rating, giving us the ability to
deploy meaningful capital as opportunities
present.
Multi-skilled team
Our team is drawn from a wide range of
industry skill-sets blended into our open
culture, where knowledge transfer is
highly valued.
Low-risk investment
strategy
We maintain a conservative investment
portfolio with high average credit quality,
strong liquidity and low duration, to protect
capital while generating an income stream.
4
6
8
A focused growth business
Since our launch in 2020, we have
focused on building out the
foundations for success. Those
foundations are now in place,
providing a platform for significant
scaleability.
Shareholder return
We are well positioned to deliver
attractive capital gains over time. We
have also paid out a dividend since
inception and we are committed to
maintaining a regular dividend pay-out.
Integrated ESG approach
ESG principles are embedded into our
underwriting and investment guidelines
and into our operational activities.
Conduit Holdings Limited Annual Report and Accounts 2022
4
Strategic report
Key performance indicators
Gross premiums written
$637.5m
(2021: $378.8m)
RoE
(9.1)%
(2021: (4.0)%)
Combined ratio
107.0%
(2021: 119.4%)
Total net investment return
(5.0)%
(2021: (0.3)%)
Total shareholder return
5.5%
(2021: (12.2)%)
Net tangible asset value per share
$5.08
(2021: $5.93)
Gross premiums written: $637.5 million
Gross premiums written is an important metric to show
how the business grows and its size relative to peers.
Conduit Re has grown during our second year of
operations, continuing the excellent progress made in our
first year. Conduit's focus remains on building and
maintaining a balanced and diversified portfolio, in
furtherance of our core underwriting philosophy.
RoE: (9.1)%
RoE enables Conduit to compare itself against other
peer companies. It is also a key measure internally and
is integral in the performance-related pay
determinations. RoE is calculated as the profit for the
period divided by the opening total shareholders' equity.
RoE for 2022 was negatively impacted by above-
average industry loss events and unrealised investment
losses associated with increasing interest rates.
Combined ratio: 107.0%
The combined ratio is the sum of the net loss ratio, net
acquisition expense ratio and other operating expense
ratio. The combined ratio for 2022 was driven by major
loss events impacting the industry during the year.
Total net investment return: (5.0)% Conduit’s principal
investment objective is to preserve capital and provide
adequate liquidity to support the payment of losses and
other liabilities. In light of this, Conduit looks to generate
an appropriate total net investment return. Conduit
bases its total net investment return on the sum of non-
operating cash and cash equivalents and fixed maturity
securities. Total net investment return is calculated daily
and expressed as a percentage.
The negative performance for 2022 is largely due to the
Federal Reserve raising interest rates and the resulting
negative mark-to-market unrealised loss booked against
the investment portfolio.
Total shareholder return: 5.5%
Total shareholder return allows Conduit to compare itself
against other peer public companies. Total shareholder
return is calculated as the percentage change in Common
Share price over a period, after adjustment for Common
Share dividends. The Conduit share price at the beginning
of 2022 was 433 pence and it closed the year at 428
pence. In February 2022, Conduit declared a final
dividend relating to 2021 of $0.18 (£0.14) and, in July
2022, an interim dividend of $0.18 (£0.15) in respect of
2022, in line with our IPO plans.
Net tangible asset value: $5.08 per share Year-end
shareholders’ equity includes the profit/ (loss) for the
financial year and dividends declared. Intangible assets
consist of capitalised costs related to our internal
software development. Intangible assets are excluded
from shareholders’ equity to calculate the net tangible
asset value per share. Net tangible net assets for Conduit
at year-end were $813.0 million and the number of
common shares outstanding was 165,239,997.
The decrease in net tangible assets per share during
2022 was due to the above-average industry loss events
and unrealised losses on investments, in addition to the
dividends paid by Conduit during the year.
Conduit Holdings Limited Annual Report and Accounts 2022
5
Strategic report
Executive Chairman’s statement
"Our efficient underwriting platform and strong
balance sheet put us in a wonderful position to
continue our growth in exceptional market
conditions"
Having established a high-quality
underwriting platform in our first year, our
focus in 2022 has been on the continued
execution of our vision. In 2022 our team
has demonstrated the business’s
operational capabilities in constructing
a high-quality and well-balanced portfolio
while exhibiting the strong, healthy and
inclusive culture which is already a core
element of the Conduit DNA.
In a period that has seen heightened loss activity, inflation
and rising interest rates, we have been able to focus on
underwriting and deploying our capital into the business
which provides the best balance of risk and reward. It’s
this ability to assess the risk and reward of different types
of business, and nimbly underwrite where we see the best
opportunities, that fills me with so much excitement
moving into 2023, where we are well positioned to take
advantage of current exceptional market conditions.
An extraordinary combination of events converged in
2022 to create the biggest shift in reinsurance market
conditions that I have seen in my career, significantly
beyond what we envisaged when the IPO plan was
written in 2020. Since then, inflation and increasing
interest rates, against a backdrop of significant losses
from Hurricane Ian and other major events, with an
overarching fear of climate change, have driven a
fundamental rebalancing in the reinsurance market. As a
result we are experiencing very high rate increases,
increasing deductibles, more restrictions in coverage and
a tightening in terms and conditions. This new
environment suits us perfectly, playing to the
strength of our business model to achieve our
target returns.
Climate change is increasingly impacting the market. The
simple facts are that the frequency and severity of natural
peril losses are on the rise. In last year’s annual report,
Trevor wrote about whether the loss experience of 2017
to 2021 should be considered the 'new normal'. 2022 loss
activity only serves to reinforce this view and reinsurance
pricing has reacted accordingly.
Exceptional rating environment
While many business sectors will feel recessionary
pressures this year, the reinsurance industry will benefit
from increased demand and strong pricing, with more
stringent terms and conditions. During the softening
phase of the last market cycle, coverages were bundled
and expanded with no corresponding improvements in
price or terms and conditions. This situation must now
reverse. Even before Hurricane Ian, at the Monte Carlo
Rendezvous and the Baden Baden conference (the
Conduit Holdings Limited Annual Report and Accounts 2022
6
Strategic report
Executive Chairman’s statement
continued
two most significant reinsurance market gatherings),
there was much discussion about the unbundling of
coverage in both property and specialty and the
increasing use of 'named peril' coverage which should
enable a more realistic assessment of natural peril risk.
There is plenty
of data around climate change. It is when coverage is
broad and complex that failure occurs.
Culture and sustainability
Our successful journey throughout the start-up phase in
2021 can be directly attributed to the strong culture we
have created and to the hard working, high-performing
team that we have built: a team with a very clear sense of
purpose and mission. Over half of our employees and a
third of our board are female. The culture at Conduit Re is
transparent, collaborative, responsible, enabling and
forward thinking. All this, coupled with our flat structure,
has a lot of advantages, not the least of which is the agility
to adapt, without legacy constrictions, to market
conditions. These strengths have been put to good use in
2022, as we have responded to a highly evolving market,
and will stand us in good stead going into 2023 and
beyond.
As a Bermuda-based reinsurer, we were always going to
run the business from a single location. This comes with
several social responsibilities which we continue to
address as part of our charitable and social goals as
overseen by our ESG Committee. We are grateful for the
work carried out by the ESG Committee and the Board in
overseeing the process and ensuring the integration of
ESG into our underwriting, investments and also the fabric
of our business and culture. There is still work to be done,
but we have made significant progress as evidenced by
our improving score in the ClimateWise annual survey.
In summary, operationally and financially Conduit is in a
wonderful position for significant growth and has a
capital base to comfortably carry us through our original
IPO plan.
Conclusion
The sum of the hard work put in by the team is the
pleasing progress we have made against the plan, strong
financial performance and a clear pipeline of future
revenue. On this basis we are pleased to maintain the
final dividend for 2022 at $0.18 (approximately 15 pence)
per share, making it $0.36 for the full year (approximately
30 pence).
I would like to thank all of my Board colleagues
and all the Conduit team, led by Trevor, for their
tremendous efforts, which have taken us so far in
a very short space of time. I would also like to thank
the broking community and our customers for their
continued support. We are all looking forward to
the future with confidence and enthusiasm.
Neil Eckert
Executive Chairman
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
7
Strategic report
CEO’s report
"Our key differentiator as a pure-play global reinsurer is
our unwavering commitment to allocate capital
efficiently and effectively to where the most attractive
opportunities lie"
Reflections on 2022
We launched Conduit Re in December
2020, with a five-year business plan
centred on building a robust business
with a diversified portfolio. The industry
developments we have seen since 2020
now present a 2023 landscape that is well
beyond those original expectations. Our
team, pulling together from
one location, is ideally positioned
to respond to this.
Throughout our first two years, we remained focused on
our approach and plan, pursuing our core underwriting
philosophy: to identify the relative value in the
reinsurance product chain and technically underwrite a
balanced and diversified portfolio. Across our target
classes, we have been able to build scale and presence
– key elements in establishing Conduit’s footprint,
resilience and relevance.
The heightened extent of industry natural-catastrophe
losses in 2022 is being described as an ‘above average’
year with estimated loss figures in excess of $120.0
billion. Increasing frequency and scale of natural-
catastrophe losses are factors for which the industry
should be prepared. Responsible deployment of capital
in catastrophe-exposed classes should remain a key
focus of portfolio construction.
2022 performance
In 2022, our gross premiums written have grown 68.3% to
$637.5 million and, on an estimated ultimate premiums
written basis, by 43.9% to $659.9 million. While our
overall result for our second full year of operations was a
comprehensive loss of $89.7 million or $(0.55) per share,
the pure underwriting result was a profit of $0.3 million
and a combined ratio of 107.0%. This is a commendable
outcome by the team in only our second year, given the
significant claims and other challenges that impacted the
industry in 2022. It goes , long way to validating our focus
on underwriting a balanced and diversified portfolio
through careful risk selection across our target classes.
Beyond underwriting, the 2022 results were affected by
the impact of the increased interest rates on our invested
assets, with an investment return of (5.0)% mostly driven
by a mark-to-market effect over the 12 months of $(67.8)
million. Our principal approach remains to actively
monitor and position the duration of our investments, to
accumulate cash and reinvest when opportunities
present themselves, and to avoid realising losses
unnecessarily. We have always said that our strategy is
to assume risk in our underwriting and to seek to protect
our asset base to maximise our
Conduit Holdings Limited Annual Report and Accounts 2022
8
Strategic report
CEO’s report
continued
solvency capital and, consequently, we will continue to
deploy our investments conservatively, maintaining a
lower-risk profile with high average credit ratings (AA at
the end of 2022).
Our operational set-up and efficiencies are already
producing $11.8 million of gross premiums written per
employee through year-end 2022 – a figure that we
expect to increase significantly as we develop and deliver
on our five-year plan. Within that plan, we set out a glide
path towards our other operating expense ratio target of
5% to 6% and, at 7.1% for 2022, we are well on the way
to achieving the target set, given the evolution of the
expected earned premium base.
The more than $120.0 billion insured losses in the year
impacted several regions, with North America alone
incurring circa $90.0 billion of losses. Hurricane Ian
comprises a significant element of this number (up to
$55 billion according to some estimates) with our
estimated net loss exposure to this storm being $45.4
million ($40.9 million net of reinsurance recoveries and
reinstatement premiums).
In building a balanced view of risk, we continue to have
the majority of our premium dollars emanating from non-
catastrophe-exposed classes. This has enabled us not
only to establish a great pipeline of margin-healthy, more
predictable business but also to continue to grow through
2022 while still retaining the important balance in the
overall portfolio.
The impact on Conduit Re from the Ukraine-Russia
conflict is a good example of our underwriting philosophy,
which is focused on achieving consistent technical
profitability. Given the typical structure of the reinsurance
treaty contracts that we underwrite, with event and
aggregate limitations in place for the relatively small
number of contracts that have exposure to the conflict, the
ultimate impact from the event has been estimated at
$24.6 million net of reinsurance recoveries and
reinstatement premiums. Our approach is to be as
transparent as possible with our disclosures and we
believe that this is shown in our estimated ultimate net
loss to the ongoing crisis being across the whole portfolio
– primarily our property and specialty reinsurance books,
via classes such as aviation, war on land and marine war
– in both Ukraine and Russia.
While we plainly had no crystal ball prior to the Ukraine-
Russia conflict, the loss impact on the Conduit portfolio
from it was limited since it was clear to us some time ago
that contract pricing in certain specialty areas did not
reflect the underlying risk, causing us to decline many
specialty submissions.
Underwriting view
As 2022 progressed into the fourth quarter beyond
Hurricane Ian, it became apparent that a major re-forming
of the marketplace was under way, with the supply versus
demand imbalance starting to take real effect. A
fundamental shift in the rating of property catastrophe risk
was occurring, driving the market to embrace both a
significant increase in premium rates and, crucially an
improvement in the terms and conditions being offered.
The positive momentum behind the improvements in the
pricing and terms and conditions of catastrophe-
exposed property business has also been driving
improvements in our margin expectations in the non-
catastrophe-exposed business. This is enabling us to
build upon our significant existing non-catastrophe-
exposed property book.
We have spoken several times about the differing product
forms – quota share or excess of loss – available to a
reinsurer when accepting risks and the fundamental
differences between them. Both forms have merit at
differing points of the cycle and we see both as being able
to contribute in the present market environment. However,
in 2021 and 2022 our strategy was to lean away from the
greater volatility we saw in the catastrophe-exposed
excess of loss product and we focused more of our
attention on the more predictable earnings stream
available in writing the quota share product showing
attractive margins with lower inherent volatility. We are
now seeing the benefits of the quota share earnings
stream coming through, which gives us an excellent base
on which to grow. Going forward as the market dynamics
change we will of course keep this product mix under
review as evidence of pricing improvement emerges in the
various excess of loss classes.
Conduit Holdings Limited Annual Report and Accounts 2022
9
Strategic report
CEO’s report
continued
The casualty business, in our experience through the
year, remained on a relatively stable track with the
underlying insurance market continuing to behave
responsibly in managing and pricing for claims inflation.
We have been very selective in underwriting the casualty
book and we have a high renewal retention here with the
business in our view being well risk managed by the client
base. The data and analysis shared with us informs our
decisions to deploy or not in any one casualty class,
occupancy, or indeed geographic region. Where the
submissions have not met our risk appetite we have not
written the business. This was often the case with
European and broader non-USA casualty risks. Overall,
however, the longer-tail casualty business that met our
underwriting criteria continues to be a valuable contributor
to our overall broad risk diversification strategy.
Turning to the specialty reinsurance market, our
experience has been that it has been a tough place to find
consistently good quality business with adequate
embedded margins. There has been an increasing trend
to bundle different classes of risk into broad composite
covers, with minimal transparency on underlying risk and
exposure profiles and consequently this has inhibited the
ability of reinsurers to price the risks satisfactorily. Starting
in 2022 and continuing into 2023 we have seen the
specialty market change behaviour and loss-impacted
classes are seeing a significant uplift in rates. Those risks
previously lost in a bundled approach are now in the
open, to be evaluated on a class-by-class and client-by-
client basis. The recent renewal season was in our
opinion the real start of this process and, alongside the
growth in our property book, the specialty classes offer a
significant opportunity for us to deploy more capital into
the space. Specialty reinsurance remains an attractive
proposition overall for Conduit, especially when the
natural-catastrophe correlations with our property classes
remain at lower levels, enabling us to capture attractive
technical margin from premium flows that are not
predominantly associated with natural-catastrophe risks.
As regards distribution, the excellent support that we
have received from clients and brokers in this, our
second year of trading, is very much appreciated. The
channels that we have established to access business
are deep in all of our product lines and our strong capital
position will enable us to continue to grow. To that end,
the 1 January 2023 renewal period did indeed deliver
exceptional business growth, both in renewing and new
business for us and on the back of continued
improvements in pricing and terms and conditions. We
see this as an enduring environment, creating
the opportunity for improved margins in our
business throughout 2023 and beyond.
Conduit Re's key differentiators
Though we may no longer be considered a start-up, we
have retained several key differentiators from our first
days in operation. Over and above the energy and
forward-facing mindset that comes with launching a new
business, we have none of the legacy issues of more
established businesses. Given the market’s re-calibration
on prior year reserves in this new inflationary
environment, these legacy issues are now very much front
and centre in the broader industry cross hairs and we are
pleased not to be impacted by such distractions.
On the asset side of the industry the combination of
heightened catastrophe losses, mark-to-market impacts
on investments and the legacy reserving issue has had
a significant impact on capital management and the
ability to deploy capital optimally to take advantage of
fast-emerging opportunities. At this point in the cycle a
freedom to deploy capital is crucial, as is being able to
lean swiftly into a significantly improving market.
Along with a strategic approach to capital deployment
goes the need for efficiency and quality of decision
making in the business. Our experience continues to
show the clear advantages to having a localised ‘hands
on’ control of business being written. This is especially so
at the moment, where the pace of change in the market
has been rapid.
People
Our progress over the last 24 months would not have
been possible without the hard work, application and
passion of our teams. We have been committed from day
one to build our own culture, by seeking out and attracting
high-quality people. We are now at 54 employees and in
2022 we conducted our first in-house employee
engagement survey. I was very pleased with the positive
results and feedback. One final comment: in the post-
COVID world we have already adopted a return to ‘in
office’ working as our norm and we believe both the
business and our employees benefit from this approach
as it improves the information flow and knowledge ‘pass
down’ through the entire organisation.
Conduit Holdings Limited Annual Report and Accounts 2022
10
Strategic report
CEO’s report
continued
Outlook
When Conduit Re was formed it was against
a backdrop of several years of industry
underperformance including the impact of the
COVID-19 pandemic. We were quietly confident
that, over the next two to three years, we would
experience a broad reinsurance market correction,
and what we are witnessing now is a fundamental
shift in risk versus return metrics presenting
opportunities to accelerate our growth plans.
Our underlying book of business remains on track
to deliver a mid-80s combined ratio in the medium
term and benefits from an efficient and effective
business model here in Bermuda.
I have witnessed several moments of significant
market disruption in my career and what we are
experiencing in the industry right now is one of the
most dramatic in scope and impact. In my view, it is
at these moments that the greatest opportunities
present themselves and I firmly believe that Conduit
Re is extremely well positioned to respond to these
opportunities as we continue to grow.
Trevor Carvey
CEO
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
11
Strategic report
CUO's report
"By design, we have built an underwriting team with a
thorough understanding of the underlying insurance
classes – they are best placed, in our view, to identify
and respond to both key emerging trends and specific
risk opportunities"
Our underwriting approach
A team is only as strong as its component
parts and, in that respect, we have been
committed to targeting underwriters with
both a strong understanding of the
underlying insurance business and a solid
technical background.
Deliberately, we have sought out individuals with a
broader grasp of the reinsurance value chain and the
various products within it. It has been a clear objective of
the underwriting approach at Conduit Re from day one
that we should remain geographically impartial and also
largely product neutral between quota share and excess
of loss, with the goal being to optimise our returns class-
by-class and region-by-region.
Key to this ground-up approach is a strict focus on active
cycle management and the steep changing shape of
returns seen in the market when measured over time. We
believe the resulting portfolio is therefore robust and has
greater ability to withstand shocks.
As a reinsurer, we have invested in processes enabling
access to an enormous level of underlying insurance
information that then informs the reinsurance contracts
that we either bind or decline
– we seek to put our reinsurance underwriters in the
shoes of the insurer when considering the interplay of risk
transfer from the underlying insurance business to the
reinsurance contract.
Ultimately, however, success boils down to the breadth
and depth of talent and experience we have to make the
best of the opportunities we are presented with and I am
delighted to have recently brought in the very
experienced Peter Kiernan as Head of Property, bringing
more depth and support to the team. We are a dynamic,
evolving business, and I anticipate fully that, as we grow,
we will add to the team's experience while continuing to
support, invest in and nurture our existing talent.
Maturing relationships
The relationships we now enjoy with brokers and
intermediaries are testament to our strategy. Our
presence is very relevant in the marketplace and our
approach is understood. The market certainly
understands the dimensions of our risk appetite, our
view of risk and, indeed, our approach to risk pricing.
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What that means for Conduit Re is that we are now being
presented with a very large number of opportunities from
which to select. At this evolving point in the cycle, that is
a good place to be.
Market conditions
Both Neil and Trevor have already provided their views
as to where we are in the cycle. I endorse their positive
outlook as we are seeing a fundamental and ongoing
correction in response to a combination of several
factors, both economic and related to specific loss
events.
In 2022, across the board, we saw a move towards
greater transparency and clearer definitions in
the reinsurance treaty market, driven by the impact
of incurred claims on the horizon and perhaps the
benefit of hindsight. What we have observed in
the last 12 months is that there has been a
narrowing of coverage terms, and a real willingness
to sell that coverage in a more specifically defined
manner. In addition we have seen a far greater
degree of discipline within the market in
demanding that information necessary for
reinsurers to calculate an appropriate price for
the risk being assumed.
From the launch of our business, outwards reinsurance
has been a core part of our risk management strategy.
The outwards reinsurance contracts were placed in 2022
with our incumbent partners, while also broadening our
panel with some new markets. The programme is actively
managed in line with our plan.
Underwriting
Overall, for the year ended 31 December 2022 our
estimated ultimate premiums written were $659.9
million (2021: $458.5 million), after adjustments. This
planned growth has been achieved by both expanding
our current positions and developing new relationships.
Conduit Re's overall risk-adjusted rate change across
the portfolio, net of claims inflation, in 2022 was 4%.
Property
Estimated ultimate premiums written in the property book
for the year ended 31 December 2022 were $319.3
million (31 December 2021: $205.0 million). Gross
premiums written for the same period were $299.6 million
(31 December 2021: $183.4 million).
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In 2021 and 2022, the market experienced some of the
largest catastrophe losses ever. In these initial 24
months of our business existence, we have been tested
against $240.0 billion or more of estimated insurance
industry natural-catastrophe losses.
Conduit Re’s portfolio has natural-catastrophe exposure
but, where such exposure does exist, we price in a
consistent and, we think, robust manner. In constructing
the property portfolio we have resisted the somewhat
easy practice of loading with large amounts of low
probability risk, which would have produced a huge strain
and demand on our balance sheet, for return levels
outside of our plan. We consider tail risk or remote risk as
a scarce resource, structuring transactions to simplify the
management and quantification of these exposures. This
consistent approach allows the underwriting team to
constantly monitor the market value of natural-
catastrophe pricing.
The pricing metrics of volatility contracts improved
throughout 2022. The significant loss activity across the
class, from building collapse, a European war and
traditional natural-catastrophes, put increasing upwards
pressure on prices. Hurricane Ian made landfall in
Florida at a time when natural-catastrophe excess of loss
contracts had not experienced the risk-adjusted rate
increases captured from the quota share placements.
A significant portion of the excess of loss capacity is
bought by the personal lines carriers, which sits
conversely to the more commercial lines-driven quota
share purchases. This was one of the factors
in our favourable consideration towards writing
structured quota share contracts.
Hurricane Ian is currently reported by PCS (an
industry provider of estimates of catastrophic
insured property losses) as a $52.9 billion loss
event, including loss adjustment expenses.
However, our estimated net loss of $40.9 million (net of
reinsurance recoveries and reinstatement premiums)
demonstrates our portfolio’s balanced texture and
robustness to significant natural-catastrophe loss activity.
I believe that the characteristics of Hurricane Ian, the
quantum of loss it caused coupled with its physical
parameters (particularly radius to maximum winds and
wind speeds) will cause insurance carriers to reassess
their protection levels. For this reason, I expect to see
further demand for natural-catastrophe capacity, albeit in
differing forms by the insurance market at nominally
higher margin levels for sellers of reinsurance.
While there were a number of other smaller catastrophe
events which gave further tests to Conduit Re’s growing
and diversified portfolio, such as European storms Eunice
and Dudley, hailstorms in France, floods in Australia and
South Africa, and winter storm Elliott in the United States,
none of these had a material impact on our 2022 results.
It is accurate to say that our appetite for European
exposure was limited due to both the margins and the
terms and conditions of reinsurance contracts.
Here again the blend and texture of our portfolio has
served us well. We have continued to sit alongside our
quota share partners in the improving original rating
environment, with both attrition and natural-catastrophe
premiums increasing in margin. I am certain that the risk-
reward balance in respect of reinsurance volatility
products will develop favourably for us.
Our risk-adjusted rate change in our property
segment, net of claims inflation, in 2022 was 7%.
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Casualty
Estimated ultimate premiums written in our casualty book
for the year ended 31 December 2022 were $234.4 million
(31 December 2021: $182.4 million). Gross premiums
written for the same period were $236.7 million (31
December 2021: $129.0 million).
Our risk-adjusted rate change in our casualty
segment, net of claims inflation, in 2022 was 1%.
During 2022, we benefited from further improvement in
underlying casualty loss ratios, which are, arguably, the
best for a very long time. We remain focused on
professional/financial lines and general liability casualty,
continuing to avoid motor. This, together with compound
rate increases,
puts the underlying business in a much healthier position
and I don’t see a reversion of this in the short term. The
biggest challenge we faced in casualty was a mismatch
between our view of inflation and that of many of our
clients. There are differing opinions in the market on the
longevity of the current heightened inflationary
environment. However, Conduit Re has the advantage of
having been established in a high inflation environment
so the concept of inflation is firmly embedded in how we
think about risk. Our most successful client relationships
have taken and will continue to take a similar view and
this is clearly visible in the data they share with us. This
partnership and cycle management creates the
discipline that reverberates through the risk transfer
chain, creating consistency between business
objectives.
There are certainly some significant themes in the
commercial casualty market, with sub-classes such as
workers' compensation and public D&O evidencing signs
of slowdown in rate increases. This is the point at which
an insurance partner underlines to us their strategy to
manage this phase of the cycle. Though loss ratios have
been improving due to rate increases, reaction to and
management of a prolonged period of both core and
social inflation requires reinsurance structure rebalancing,
particularly when considering quota share placements. As
a general observation, best-in-class casualty partners
responded with reductions in ceding commissions or
simply shared less of the more difficult sub-classes.
The underwriting team continues to monitor the industry
behaviour post COVID, continually testing our views on
trend and inflation. Despite evidence of softening of
primary rate increases, our partners show the drive for
rate increases in excess of trend, tighter terms and
conditions and discipline in capacity deployment. During
2022 global exposures began accelerating once again,
and
in the context of insurance offering wealth and business
interest protection, there is an increasing demand for
our product.
We continue to watch with interest the
development of the cyber class market and the
rapidly evolving changes to structures, coverage
and rating. In 2022 we did not write any
standalone cyber risks, with exposure limited to that
assumed as part of the broader coverage contracts
that we write.
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Specialty
Estimated ultimate premiums written in our specialty
book for the year ended 31 December 2022 were
$106.2 million (31 December 2021:
$71.1 million). Gross premiums written for the
same period were $101.2 million (31 December 2021:
$66.4 million).
Our risk-adjusted rate change in our specialty
segment, net of claims inflation, in 2022 was 2%.
The specialty segment contains a variety of differing
product classes, with each of them at differing points in
their own self-contained market cycles and therefore
requiring specific attention from our pricing and
underwriting teams. Within the
broad range of specialty classes there are several
which, although we monitor them, have continued to fall
outside our risk appetite, such as mortgage, trade
credit, surety and motor.
The main specialty classes of business we write include
aviation, energy, marine, renewables, political violence
and terrorism and are offered on both a specific and a
whole account basis. Estimated ultimate premiums
written grew almost 50% year-on-year and we
continued to have some success in the quota share
support of those clients where embedded technical
margins remain attractive.
In the marine classes, the market for hull and cargo
required a significant degree of risk selection on our part
as the relative profitability of these classes within different
regions of the world vary enormously. While the North
America region tends to be where our property and
casualty capacity can be extensively deployed, when it
comes to the marine classes there exists a more heavy
supply of reinsurance capacity and this has the obvious
effect of dampening margin on the treaty reinsurance
being presented. This is not a recent trend but rather a
feature that has existed for some time – prior to the
existence of Conduit – and we continue to tread carefully
there.
The offshore energy market continues to be reasonably
balanced in the supply versus demand equation. The
rate change metrics presented by clients indicated that
the non-capacity projects showed signs of rate
improvement in the primary insurance markets. The
rates on capacity installations held firmer, we believe,
as they often have insurance demands still running
beyond $5.0 billion in limit or more and therefore rely to
a greater extent on the treaty reinsurance market for
continued capacity and support.
The onshore energy market has continued to produce
reasonably solid results in the broader marketplace and
as such has warranted our support over the last two
years. Rates have moved up significantly in previous
years and have either held firm or deteriorated slightly
over the year but, from a technical margin standpoint, the
class continues to offer attractive overall returns. The
catastrophe exposure remains relatively well controlled in
this class, and data modelling is readily available, giving
us more comfort in allocating capacity to it.
In the political violence and terrorism class, we continue
to allocate more capacity to contract forms where the
exposure is specifically detailed for these risks rather than
being covered in a broader
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bundled treaty type. The market has embraced this
transparent unbundling of risks more since the
Ukraine-Russia conflict and consequently, we think,
it continues to offer a reasonable technical margin.
The issue in writing this class is around the need to
manage the potential for contract accumulations
and this was a feature in limiting our exposure to
events such as the Ukraine-Russia conflict.
We remain a very small participant in the aviation
specialty classes but we saw evidence in the second
half of 2022 of rate increase and terms and
condition improvement. In response we were able
to increase the flow of business in the class over this
period. We saw evidence of initial rate increases in
the primary markets. The reinsurance capacity has
also been attracting higher rates and better terms
and conditions, which is encouraging.
In summary, we view the specialty lines as very
much complementary to our property and casualty
offerings. Recognising the breadth of knowledge
and experience that needs to be employed in
evaluating the differing specialty submission types,
we endeavour to bring the resources of the entire
underwriting and pricing team to bear, to arrive at
a team consensus approach to contracts written.
Given that many of the specialty lines have limited
exposure to natural-catastrophe loss events, the
class can often present an attractive proposition
with lower embedded volatility – always providing
of course that technical margin is present.
Greg Roberts
CUO
3 March 2023
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"Our performance, given the extent of this year’s
market-loss events, was a pleasing affirmation of
our strategy"
We have come a long way in the past two
years and the decisions that we made in
the pursuit of high-quality earnings and
lower investment risk are starting to bear
fruit. As a relatively young business, it
naturally takes some time to build the book
and for earnings to mature, particularly
given our deliberate bias towards quota
share over excess of loss contracts.
That bias towards quota share, driven by market
dynamics, has stood us in good stead over the last two
years. With those years both bringing higher-than-average
industry natural-catastrophe losses, plus an extreme
outlier event in the Russian invasion of Ukraine, we
believe our strategy, approach and risk selection has
allowed us to contain the financial impact of those events
on Conduit Re. Despite Hurricane Ian looking like it could
be the second largest catastrophe event ever, behind only
Hurricane Katrina in 2005, Conduit Re produced a small
underwriting profit for the year. In only our second year,
and a year where current industry loss estimates for
natural-catastrophes are as much as $120 billion, this is a
significant achievement.
We have continued to grow the business, largely in line
with the IPO plan for ultimate premium, and over our first
two years of operation we have bound $1,118.4 million of
ultimate premiums versus the IPO plan of $1,098 million.
While there is a higher acquisition cost in doing quota
share business, this is partially offset in a lower loss ratio,
albeit not on a 1:1 basis, but also in lower volatility around
that loss ratio. This has been borne out in our
performance in the losses of the last two years. Going
forward, in potentially the best market conditions for
decades, we are exceptionally well placed to build from
here with both our broad existing relationships and new
business opportunities. Our lack of prior year legacy
means that, with no need to consider material inflationary
increases on back year reserves, the capital raised in our
five-year plan is more than adequate to deploy to meet
our underwriting goals.
There have been two major events that have impacted the
business this year. On Hurricane Ian, we incurred $40.9
million of net losses, after reinsurance recoveries and
reinstatement premiums. That equates to 4.2% of our
opening shareholders’ equity. While there is potential
variability in any loss estimate, we believe the range
around our Hurricane Ian loss is relatively small given how
our reinsurance programme operates.
On the Ukraine crisis, we have recorded $24.6 million of
net losses, after reinsurance recoveries and
reinstatement premiums. That equates to 2.5%
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continued
of our opening shareholders’ equity. With the war
ongoing, humanitarian aspects aside, there is clearly
considerable uncertainty around the impact of this event.
That is especially true for the industry and even more so
for the aviation sector. For us, with a relatively small
number of contracts exposed – and with caps on
exposure in place – we have been able to come up with
what we believe is a robust assessment of our ultimate
potential loss.
On the other side of the balance sheet, Conduit has
clearly been impacted by rising rates and rising rate
expectations, as other companies in our sector have
been. Our investment return for the year was (5.0)%,
driven largely by unrealised losses of $67.8 million. With
a short duration, highly liquid, high-quality portfolio and
with no risk-assets - meaning no equities, high yield or
alternative investments – we have no concerns around
defaults and impairments. For the most part, we will allow
our existing portfolio to mature – albeit with some
rebalancing – and reinvest proceeds and new cash flows
cautiously. We will therefore see some benefit from rising
rates but, as ever, our primary aim is capital preservation
and liquidity to support our underwriting. Markets remain
volatile and uncertain, so we will ensure that we have
more than adequate liquidity available in these
challenging times.
We have continued to investigate funds or other
investments that meet our risk appetite, while also having
a positive impact from an ESG perspective, but we have
not yet found opportunities that have the right fit. We
have, however, taken further steps to avoid exposure to
investments that contribute to identified types of
environmental or social damage, as detailed in our ESG
Report, published on our website. We will continue our
research in this area.
2023, finally, brings IFRS 17 implementation. With that,
other than presentational differences, we expect the
biggest impact to Conduit to be from discounting our
liabilities. That brings greater matching with the asset
side of our balance sheet. While we have not fully
deployed our capital, and our asset duration of 2.2 years
is shorter than our gross reserve duration of 2.9 years in
the current environment, a degree of mismatch remains.
We do expect that to lessen over time as we continue to
deploy our capital. Our IFRS 17 implementation project is
relatively advanced, with our system development
substantially complete and entering the testing and
parallel running phases of the project. We expect to be
able to provide more detail on the financial impacts ahead
of our interim reporting at the half year.
Elaine Whelan
CFO
3 March 2023
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Business review – finance
Premiums
We have continued to build a balanced and diversified
portfolio with the focus on high-quality quota share
business, allowing us to benefit from the improving
pricing and terms and conditions in the primary markets.
We consider quota share business to have provided the
best balance between price and risk as we build out our
underwriting portfolio, and we will continue to have an
increased weighting towards quota share contracts
versus excess of loss business in the near term. This
sets up an embedded pipeline of premium, which will flow
through to income. While quota share contracts typically
have higher acquisition costs associated with them, there
tends to be less volatility in the underlying loss ratio,
which we've experienced first hand with the elevated loss
events of 2022.
During 2022, Conduit Re continued to show growth
across all segments, benefiting from new business,
high retention of renewal business and improving
rates. Client count and submission numbers have
increased in line with Conduit Re's growth strategy.
Rate change continues to be positive, outpacing
inflation.
Ultimate premiums written
For the year ended 31 December:
2022
2021
Change
Change
Segment
$m
$m
$m
%
Property
319.3
205.0
114.3
55.8
Casualty
234.4
182.4
52.0
28.5
Specialty
106.2
71.1
35.1
49.4
Total
659.9
458.5
201.4
43.9
Gross premiums written
For the year ended 31 December:
2022
2021
Change
Change
Segment
$m
$m
$m
%
Property
299.6
183.4
116.2
63.4
Casualty
236.7
129.0
107.7
83.5
Specialty
101.2
66.4
34.8
52.4
Total
637.5
378.8
258.7
68.3
As Conduit concludes its second year of operations, and
as its earnings mature, the ratio of net premiums earned
to net premiums written was 83.0% for the year ended 31
December 2022 compared with 56.1% for the prior year.
Pricing
Pricing and terms and conditions continued to improve in
the markets we targeted. We were presented with an
increasing number of opportunities to deploy our capital
into the areas and products which we know well, and
where both renewal and new prospects met our
profitability requirements.
Conduit's overall risk-adjusted rate change, net of
claims inflation, in 2022 was 4%, and by segment was:
Property
Casualty
Specialty
7%
1%
2%
Premiums ceded
Ceded reinsurance premiums for the year ended 31
December 2022 were $56.6 million compared to $32.6
million for the year ended 31 December 2021. The
increase in cost relative to the prior period reflects
additional limits purchased as the inwards portfolio and
exposures grew over the period.
Losses
Both 2021 and 2022 were characterised by higher-than-
average natural-catastrophe losses for the industry, with
2022 also experiencing losses from the crisis in Ukraine.
The Group's net loss ratio was 71.7% compared with
73.2% for 2021. The accident year loss ratio for 2022,
including the impact of foreign exchange revaluations, was
72.9% compared to 73.2% for 2021.
Hurricane Ian made landfall in Florida as a strong
Category 4 hurricane on 28 September 2022, resulting in
estimated industry losses of approximately $55 billion. It
continued its path north-east across Florida before
making a second landfall in South Carolina. Our ultimate
loss estimate, net of reinsurance recoveries and
reinstatement premiums, for Hurricane Ian is $40.9
million, which is in line with previously reported estimates,
and contributed 8.8% to the net loss ratio. Our net loss
ratio for the year, absent the impact of Hurricane Ian, was
62.9%.
As regards the ongoing conflict in Ukraine resulting from
the Russian invasion commencing on 24 February 2022,
Conduit has potential exposure across its property and
specialty reinsurance books, via classes such as aviation,
war on land and marine war. There is significant
uncertainty in estimating losses emanating from the
conflict, not least as it is an ongoing event. Based on
current information, Conduit's previously announced
estimated ultimate loss, net of reinsurance recoveries and
reinstatement premiums, in relation to the conflict
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continued
is unchanged at $24.6 million, which represented
5.1% of the net loss ratio. Our net loss ratio for 2022,
absent the impact of the Ukraine conflict, would have
been 66.6%.
While there were a number of other smaller catastrophe
events, such as European storms Eunice and Dudley,
hailstorms in France, floods in Australia and South
Africa, and winter storm Elliott in the United States, none
of these had a material impact on our 2022 results.
During 2021, we experienced net losses from the
significant events of Hurricane Ida and the European
floods of $27.1 million, net of reinsurance recoveries and
reinstatement premiums. Absent these events our loss
ratio would have been 58.8%.
Our ultimate loss estimates, net of reinsurance
recoveries and reinstatement premiums, for the
previously reported 2021 loss events remain
relatively stable.
Our loss and reserve estimates have been derived from a
combination of reports from brokers and cedants,
modelled loss projections, pricing loss ratio expectations
and reporting patterns, all supplemented with market data
and assumptions. We will continue to review these
estimates as more information becomes available.
Investments
We continue to maintain our conservative approach to
managing our invested assets, with a strong emphasis on
preserving capital and liquidity.
Our strategy remains maintaining a short duration,
highly creditworthy portfolio, with due consideration of
the duration of our liabilities. Our portfolio mix shows our
conservative philosophy (more information on the
portfolio mix is set out in the risk disclosures on page
111). Our asset allocation is dictated by our approved
investment guidelines. There are currently no risk
assets held in the portfolio. Risk assets will generally
only be considered to diversify and protect the portfolio,
and where the risk return profiles are appropriate.
We currently have two portfolio categories – short-tail
and long-tail – to match our underwriting categories and
the differing obligations associated with different classes
of business across our property, casualty and specialty
divisions. Liquidity preferences are monitored for each.
Conduit’s cash inflows are primarily derived from net
premiums received (including reinstatement
premiums), losses recovered from reinsurers and net
investment income, plus the sale and redemption of
investments. Cash outflows are primarily the
settlement of claims, the payment of ceded
reinsurance premiums (including reinstatement
premiums), payment of other operating expenses, the
purchase of investments and the distribution of
dividends or other forms of capital returns. Excess
funds are invested in the investment portfolio.
As part of our investment strategy, we seek to maintain a
level of liquidity that we believe to be adequate to meet
our foreseeable payment obligations. We believe that our
liquid investments and cash flow will provide us with
sufficient liquidity to meet our obligations to settle losses.
However, the timing and amounts of actual claims
payments vary based on many factors, including large
individual losses, changes in the legal environment and
general market conditions.
Investment performance
The Federal Reserve raised rates seven times in 2022,
and has indicated further increases going forward. As a
result, the portfolio return is negative 5.0% for the year
ended 31 December 2022, mostly due to unrealised
losses. Conduit recorded a small loss on the investment
portfolio in the year ended 31 December 2021 due to
rising yields in the fourth quarter of the year. While we
expect market volatility to remain elevated in the near
term, Conduit expects to be able to reinvest at higher
rates as the existing portfolio matures.
Net investment income, excluding realised and unrealised
losses, was $17.8 million for 2022 compared to $5.5
million for 2021. Total investment return, including net
investment income, net realised gains and losses, and net
change in unrealised gains and losses, was a loss of
$52.8 million for 2022 compared to a gain of $3.1 million in
2021.
The breakdown of the managed investment
portfolio as at 31 December is as follows:
2022
2021
Fixed maturity securities
91.3%
95.3%
Cash and cash equivalents
8.7%
4.7%
Total
100.0%
100.0%
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continued
Key investment portfolio statistics for our fixed
maturities and managed cash as at 31 December
were:
2022
2021
Duration
2.2 years
2.4 years
Credit quality
AA
AA-
Book yield
2.4%
0.9%
Market yield
5.2%
1.2%
ESG considerations are incorporated into our
individual portfolio investment guidelines. We believe
that, all other things being equal, it is less risky to own
securities with strong ESG ratings. More information
about the ESG approach to our investments is
contained in the CFO’s report on page 18 and in the
ESG summary on page 30.
Other operating expenses and equity-
based compensation
Other operating expenses were $34.3 million for the year
ended 31 December 2022 compared with $30.6 million for
the prior year, while our equity-based incentives expense
was $2.1 million compared with $0.3 million.
Other operating expenses contributed 7.1% to
Conduit’s combined ratio in 2022 compared with
15.8% for the same period of 2021.
The prior year ratio was a reflection of our start-up
nature with earnings yet to mature but with employment
costs and technology platform development costs
incurred upfront.
Capital and dividends
Conduit remains well capitalised to achieve its objectives
with a legacy-free balance sheet. Total capital and
tangible capital available to Conduit was $0.81 billion at
31 December 2022 (31 December 2021: $0.98 billion).
Further information on capital management is set out in
the risk disclosures on page 118 and in the financing
arrangements on page 130.
During 2022, Conduit continued on-market purchases of
its shares under a share purchase programme
announced on 29 December 2021, where shares may be
repurchased pursuant to authority obtained at Conduit's
most recent Annual General Meeting. Shares
repurchased by Conduit and Conduit's EBT during 2022
amounted to $19.9 million and will be held in treasury
and/or trust to meet future obligations under Conduit's
variable incentive schemes.
Further details of the share repurchase scheme are set
out in the Directors’ report on page 81 and in note 18 to
the consolidated financial statements on page 131.
On 22 February 2023 Conduit’s Board of Directors
declared a final dividend of $0.18 (approximately 15
pence) per common share, resulting in an aggregate
payment of $28.8 million. The dividend will be paid in
pounds sterling on 21 April 2023 to shareholders of
record on 24 March 2023 (the “Record Date”) using the
pound sterling/ US dollar spot exchange rate at 12 noon
BST on the Record Date.
Conduit previously declared and paid an interim
dividend during 2022 of $0.18 (approximately
15 pence) per common share. Consequently, the full 2022
dividend dividend is $0.36 (approximately 30 pence) per
common share in line with our stated dividend policy.
Conduit’s dividend policy and information on the final
dividend declared in respect of 2022 can be found on
page 44.
There is no debt and there are no off-balance sheet
forms of capital.
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Enterprise risk management report
"Our risk profile reflects our freedom from legacy
constraints and organisational complexity. As we
transition from the start-up phase, at this time of
enhanced opportunity, we have established a
business that is ready to grow"
Enterprise risk management in a modern, legacy-
free environment
At launch in December 2020, Conduit set
out to be a modern, forward-looking
organisation where risk management is
integral to our culture, guiding strategic
and operational plans.
The Company's increasing maturity in 2022 was such that
we have been able to revisit and evolve key policies with
minor refreshes to the Risk Policy, Stress and Scenario
Testing Policy and Commercial Insurer’s Solvency Self-
Assessment Policy, alongside the evolution of the
Underwriting Guidelines and formalisation of our Pricing
Policy. I'm happy to report that our objective to have risk
management integral to what we do is being delivered
upon.
The risk function has provided quarterly reporting to the
Board and/or Board Committees addressing our
response to risk, compliance with risk appetite and
tolerance statements, key risk indicators, and the
response to any risk events or near-misses.
Our deployment of portfolio management tools gained
pace and robustness in 2022, across both
underwriting and investments, with analysis also
supported by the maturing and increased adoption of
our underwriting pricing tool which provides rich data
for the analysis of rate adequacy and movement.
Similarly, our toolset to manage operational cyber
threats also matured during the year, working in
collaboration with our cloud-based system providers
and technology partners. Our work on key risk
indicators progressed during the year, but further work
remains.
Emerging risk has also been a consideration during 2022,
with an emerging risk register maintained and substantive
discussions held on this topic as part of the strategy
sessions of the Board, notably including various
considerations associated with climate risk and cyber risk.
Our risk profile reflects our freedom from legacy
constraints and relative organisational simplicity, with
systems developed to ensure transparency and
auditability in all our activities. This, together with our
limited appetite for investment risk, allows a focus on
underwriting, which is the core of our business.
Conduit Holdings Limited Annual Report and Accounts 2022
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Enterprise risk management report
continued
Risk profile
Conduit Re is well capitalised and has now completed
the baseline operational build-out, with staffing
increasing from 41 to 54 during 2022, as it transitions
from start-up to being an established business. Further
operational growth is now expected to be supportive of
organic business growth.
Underwriting risk is the risk that we seek and is our
primary risk. During 2022, we increased the
operational and modelling support to our underwriters.
We conducted a proof of concept on a more
advanced approach to casualty accumulations. We
plan to further advance this in 2023 with potential to
expand to certain specialty classes. This will bring a
similar level of sophistication as our aggregation
control toolset for property, and natural-catastrophe-
exposed specialty business.
Conduit Re maintains a balanced portfolio of
reinsurance classes, geographical exposures and
strict limits on our exposures to natural-
catastrophe s and man-made loss events.
Recognising the current favourable market
conditions, we have accelerated our exposure
appetite growth, to be deployed if market
conditions support.
Our target gross exposure, per our 2023 business
plan and 2022 business plan, for our largest single
peril/region combinations at the 1 in 100 and 1 in
250 return periods increased from $131.2 million
to $190.3 million and from $202.2 million to
$249.0 million respectively. The same combinations
on a net basis increased from $54.2 million to
$65.0 million and from $77.9 million to $98.7 million.
These targets are calibrated to 1 July viewpoints,
for a first occurrence, and may change. Our actual
gross modelled exposures at 1 July 2022 were
broadly in line with plan while our net exposure
was lower, due to the availability of competitive
outwards reinsurance.
We buy high-quality outwards reinsurance to manage
peak exposures and use reinsurers who are
individually approved by our Counterparty Security
Committee.
We seek to minimise other risks including investment risk,
where our primary aim is to protect capital, and
operational risk, where our simple corporate and
organisational structure supports risk containment.
By starting life as a public company, we are less exposed
to the short-term growth pressures that can be faced when
private capital providers are motivated by seeking a
liquidity event in the medium term. We are focused on
long-term performance and building our business in a way
that is sustainable and compatible with our responsible
ESG values.
The overall risk policy and enterprise risk framework have
remained relatively stable during 2022, with continued
work on tools, risk indicators and the commencement of
work on our internal capital model.
Our summary risk appetite and exposures are set out
on the next pages.
Conduit Holdings Limited Annual Report and Accounts 2022
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continued
Risk category
Overall –
capital
adequacy
Relative appetite/preference
Low
We maintain capital to support a minimum rating of A–
by AM Best and to provide a surplus over the
regulatory enhanced capital requirement of twice that
prescribed as an early warning buffer by the BMA.
Trend
Commentary
AM Best affirmed our A–
rating and we have
substantial capital to
deploy. The value of our
available assets has been
reduced by mark-to-market
losses but is expected to
recover as held assets
approach maturity.
Underwriting
– premium
High
This is the risk we seek in order to generate return.
The risk is managed by seeking a target portfolio
based on our view of rate adequacy and target
diversification, supported by event and/or aggregate
retrocessional protections.
After a market-loss heavy
2022, industry capacity is
expected to be constrained
and this can lead to greater
volatility. There is
opportunity to take on the
same, or greater, risk at
improved rate.
Underwriting
Medium
Overall, our portfolio has
– exposure
We underwrite catastrophe-exposed reinsurance
been slightly less exposed
to catastrophe losses
and
through our property and specialty classes, and
than we initially planned,
business exposed to other aggregations, notably
aggregations
but a volatile market and
across casualty lines. We seek to understand and
manage our exposures generally to a lower level
decreased market risk
capacity increase risk.
than our Bermuda peer group.
Underwriting
Medium
Our current reserves have
– reserve
We underwrite a mix of classes including those
been impacted by
elevated catastrophe
where reserves take time to develop. We seek to
losses, but the absence of
minimise reserve risk through rigorous data
legacy means the impact
analytics using market data, and benefit from an
of inflation is limited. The
external loss reserve specialist review.
volatility of reserve risk
reduces as our overall
book grows.
Investment –
market
and liquidity
Low
Our primary aim is to protect capital and,
consequently, we have a low appetite to expose our
capital base to investment losses and a low appetite
for volatility.
Our limited risk portfolio has
meant that our investment
performance has performed
favourably in comparison to
peers. Our strategy remains
unchanged with mark-to-
market losses expected to
substantially unwind over
time.
Conduit Holdings Limited Annual Report and Accounts 2022
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Enterprise risk management report
continued
Risk category
Relative appetite/preference
Trend
Commentary
Credit
Low
All retrocessionaires
We use reinsurance to provide protection and
continue to be high
quality and approved
therefore select reinsurers who provide limited
by the Counterparty
credit risk.
Security Committee.
Operational
Low
Our operational risks have
and systems
We seek to minimise our operational risk within
continued to decrease as
we transition from the
the context of operating as a reinsurer. We seek
start-up phase and we
to attract and retain high-quality staff and gain
expect this to continue
competitive advantage by use of high-quality and
as we mature.
integrated systems.
Strategic
Low
We have executed on
We seek to manage risk by keeping a clear and
strategy to date and
favourable market
focused strategy as a single balance sheet
conditions further reduce
reinsurer based in one location.
strategic risk.
Reputational
Low
Public coverage is
A focus on maintaining and enhancing brand and
favourable to date and
good progress is being
franchise value with support from the ESG
made on transparency
Committee, established by the holding
on ESG-related matters,
company board.
with our first ESG Report
to be published alongside
this Annual Report
and Accounts.
Legal,
regulatory
and litigation
Very low
We seek to minimise our legal, litigation and
regulatory risk by investing in our systems and
people. We have no appetite for censure by
regulators and tax authorities.
The initial period of elevated
risk during start-up phase
has passed. The rate of
change on global fiscal
initiatives and political
volatility in key locations we
are exposed to appear to
have reduced, providing a
more stable environment.
Conduit Holdings Limited Annual Report and Accounts 2022
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Enterprise risk management report
continued
Conduit Holdings Limited Annual Report and Accounts 2022
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Enterprise risk management report
continued
Risk governance
The Board is required under The UK Code to establish
procedures to manage risk, oversee the internal control
framework, and determine the nature and extent of the
principal risks the Company is willing to accept in the
context of achieving its long-term strategic objectives. To
this end, the Board is supported by the CHL Audit
Committee and the CRL Board and committees, most
notably the CRL Risk, Capital and Compliance
Committee.
The Board prescribes risk preferences that guide the
CRL Board and committees as they establish risk
appetite and tolerance statements. The Board also
monitors the effectiveness of the overall enterprise risk
management framework, leveraging the work
undertaken by the CRL Board and committees.
CHL directors are invited to attend CRL Board and
committee meetings and are provided with the
associated materials and minutes. In addition, four CHL
independent Non-Executive Directors also serve as
Directors on the CRL Board.
CRL operates under a ‘three lines of defence’ risk
management model, with the CRO reporting directly to
the CRL Board’s Risk, Capital and Compliance
Committee. This reporting includes regular reporting of
compliance with risk appetite and tolerance statements,
emerging risks, risk event reports, key risk indicators and
the solvency self-assessment. Membership of this
committee includes directors who also serve on the
boards of both CHL and CRL.
The risk function provides independent challenge and
oversight of the identification, measurement,
management and monitoring of risk by the first line of
defence, supporting the CRL Risk, Capital and
Compliance Committee and the CHL Board.
Day-to-day oversight of the management of risk by the
first line of defence and the independent challenge
provided by the second line is supported by the CEO and
the Executive Committee.
Outputs from other second line of defence functions
(Compliance and Actuarial) and from the third line
(Internal Audit, External Audit and the Independent Loss
Reserve Specialist) are fed back into the overall risk
assessment. Regular meetings between the second-line
functions and Internal Audit commenced during 2022.
Outputs from all such functions may be used, where
appropriate, to support independent validation,
alongside the risk
function’s own reports and those of other
independent third parties.
The capital management aspects of the risk framework
have, to date, focused primarily on rating agency and
regulatory requirements, with significant buffers being
held. Development of our own internal capital model
commenced in late 2022 and is expected to continue
through 2023.
Conclusion
Overall, I remain confident that the management of risk
is progressing in line with the initial vision set out with
first-line ownership of risks: a small, focused risk team
working closely with, now deepened, actuarial,
modelling and data resources.
During 2022, my own responsibilities were expanded to
also specifically address how we respond to climate and
sustainability across our operations. This is very much
complementary to my existing role as CRO, with our
approach to climate and sustainability, like risk, being
integral to how we work on a day-to-day basis.
Looking ahead to 2023, I expect a continuation of the
market volatility we have seen in 2022. My view is that
our now well-established operational capability and
growing portfolio are well positioned to carefully embrace
the market opportunity.
Andrew Smith
CRO
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
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Enterprise risk management report
continued
Case study
Capacity
To grow a successful and sustainable
business we need both the operational
capacity to analyse, price, manage and
administer our underwriting portfolio; and
the capital base to back the risks that we
assume and to operate as a responsible
public company.
Over the first two years of operation, our headcount has
grown from nine at the close of the IPO in December 2020
to 54 at year-end 2022. We have a buzzing office in the
heart of Bermuda’s business district, and we have
implemented a myriad of computer systems.
From a capital perspective, the current drivers of our
capital requirements, on both a regulatory and a rating
agency basis, are premium risk and catastrophe risk.
Reserve risk will become an increasing feature as our
book matures, with diversification being a growing offset
to our overall capital needs. Other risk categories such as
investment, market and credit have a limited impact on
our required capital. AM Best affirmed Conduit Re’s
Financial Strength Rating of A- (Excellent) in December
2022, noting Conduit Re’s “conservative investment
strategy focused on debt securities and a reinsurance
programme of excellent credit quality”.
AM Best added: “Conduit Re’s balance sheet strength is
underpinned by the strongest level of risk-adjusted
capitalisation, as measured by Best’s Capital Adequacy
Ratio (BCAR). BCAR scores are expected to remain
comfortably in excess of the strongest threshold as the
company executes its business plans and grows its
reinsurance portfolio.”
We have an efficient, well-capitalised underwriting
business which is delivering a high-quality portfolio in
increasingly favourable market conditions. It is an exciting
time for Conduit Re, as we seek to deliver a sustainable
phase of profitable growth.
Conduit Holdings Limited Annual Report and Accounts 2022
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ESG summary
Introduction by the Chairman of the ESG
Committee, Lord Soames
When Neil asked me to chair Conduit’s
ESG Committee before the launch in 2020
I was impressed, but not surprised, as to
the thought that had gone in to
embedding ESG principles into Conduit
from day one. What I’ve seen over the first
two full years of operation is testament to
that commitment.
Throughout the year, I’ve been particularly delighted
seeing the mission of the Conduit Foundation start to
deliver on its objectives more substantially for the local
community. Building on the initial donations and support
it made during 2021, in 2022 it has provided a total of
nearly $300,000 of donations across more than a dozen
charities, including additional support for charitable
events and via a matched staff giving programme.
What has struck me is the real interest and engagement
of all members of the ESG Committee in the actions being
taken to have impact in the community, led by the CEO
and Deputy CEO. I can see that the few individuals who
moved to Bermuda to launch Conduit feel as much part of
the community as the majority who joined the team with
existing strong local connections.
More broadly, as I reflect on the progress and
achievements during 2022, I remain confident that as a
small, young company Conduit continues to have a
strong ESG focus and is playing its part in supporting
the transition to a more sustainable world.
Key highlights include a few ‘firsts’:
1.
Standalone ESG Report produced for year-end
2022, providing a greater level of insight and
transparency as to Conduit’s actions.
2.
Independently conducted ESG materiality
assessment that spoke with a range of
stakeholders to understand their ESG
priorities.
3.
Public disclosure of ClimateWise reports for
2021 and 2022.
4.
Participation in an organised internship
programme.
5.
Multi-year funding commitments to
select charities.
From a governance perspective, I’ve seen the operation of
the ESG Committee and its interactions with executive
management and the boards of both the holding company
and the operating company evolve. The Committee was
further strengthened when Heather Mello, Head of HR,
and Andrew Smith, in his expanded role as Chief Risk and
Sustainability Officer, joined.
Finally, last year in this section of the Annual Report and
Accounts, Neil commented on the need to “walk the walk”
and on his personal passion for ESG matters. Neil does
‘walk the walk’ and I congratulate him on his recognition
through the ESG Insurer Lifetime Achievement Award,
which I was honoured to be with him when he received. I
am also very much encouraged by seeing that same
passion that Neil has in the wider team.
Nicholas Soames
Chairman, ESG Committee
Conduit Holdings Limited Annual Report and Accounts 2022
30
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ESG summary
continued
Summary
As mentioned in the introduction by Lord Soames,
recognising the importance of clear and transparent ESG
reporting, we have produced a standalone ESG Report,
which can be found on our website. Thus, in this Annual
Report and Accounts, we draw attention to specific
matters of note and signpost our wider Task Force on
Climate-related Financial Disclosures (TCFD) reporting as
we deliver on our ESG ambitions:
1.
positively impacting our stakeholders;
2.
supporting the transition to a sustainable world; and
3.
minimising our negative impact on the
environment.
We remain a relatively small company and enjoy the
benefits of being legacy-free in all its forms. This means
we can take deliberate, purposeful and impactful steps as
we seek to deliver on those ambitions. In 2022 key
milestones have included:
1.
becoming a signatory to the UN’s Principles for
Sustainable Insurance;
2.
being an inaugural signatory to the Sustainable
Markets Initiative, Insurance Task Force, Supply
Chain Pledge;
3.
making the commitment to be a Beyond Plastics
Bermuda Champion;
4.
making our first detailed public ESG disclosures.
For our public disclosures we have produced an ESG
Report, which incorporates a stakeholder materiality
assessment conducted by H/Advisors, and a more
structured, ClimateWise report which focuses on our
response to the risks and opportunities of climate change.
Additionally, in this Annual Report and Accounts, we
summarise our carbon emissions for 2022.
ClimateWise represents a growing global network of
leading insurance industry organisations. ClimateWise
provides a framework developed by the University of
Cambridge Institute for Sustainability Leadership to
support insurers and reinsurers with meeting their TCFD
reporting obligations using a consistent framework. The
process of ClimateWise reporting also involves each
report being independently assessed and we seek to
have year-on-year improvements in the assessment of
our report, which we have seen from 2020 to 2021.
Conduit Holdings Limited Annual Report and Accounts 2022
31
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ESG summary
continued
Carbon emissions
We have included in the table below our Scope 1 to 3 emissions for our first two years of operations. As we are a new
company, we look to grow as sustainably as possible, with a focus on the average emissions per employee. For details
on our methodology, to see our five-year emissions plan and details on our carbon offsets, please refer to section 4 of
our ClimateWise report.
2022
2021
Emission type
Activity
Basis of measurement
Quantity
tCO2e
Quantity
tCO2e
Scope 1
Direct
None
-
-
-
-
Scope 2
Indirect energy
Electricity
kWh
95,712
67,153
– location based
69
39
– market based
66
35
Scope 3
Indirect other
Business travel
Kilometres
1,545,335
188
708,575
86
Hotels1
Nights
256
17
150
18
Staff commuting2
Kilometres
163,867
18
96,711
12
Total gross emissions from our operations
Gross emissions (location based)
292
155
Gross emissions (market based)
289
151
Carbon offset applied
(289)
(151)
Net carbon impact from operations
-
-
Gross emissions per average employee
Average number of employees
47
31
Location based
6
5
Market based
6
5
Gross emissions including our share of suppliers' emissions
Total gross emissions as per above market-based approach
289
Share of suppliers' emissions
747
Grand total
1,036
1.
In 2021, our estimated emissions for hotel nights were based on a five-star hotel in Bermuda, with usage driven primarily by COVID. The lower emissions per
night in 2022 reflect the use of lower hotel classes internationally.
2.
During 2022, we changed our source for petrol vehicle emissions to UK Government-issued data. To support comparability, we have shown the associated 2021
emissions using that source. This reduces our 2021 reported emissions by 2.2 tCO2e from that reported in the 2021 Annual Report and Accounts. Further
details of this change can be found in section 4 of our ClimateWise report.
Conduit Holdings Limited Annual Report and Accounts 2022
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ESG summary
continued
TCFD reporting
Below is a summary of our TCFD disclosures, which are intended to provide context alongside a reference to where
each topic is explored in more depth. ClimateWise provides an industry-specific framework for TCFD reporting and is
most meaningfully read as a standalone document, so has not been reproduced in full in the Annual Report and
Accounts. Our ESG Report is a free-form disclosure in which we add additional context and commentary, notably in
relation to our ESG metrics and the relevance of climate to each member of executive management. Both documents
can be found on our website.
TCFD pillars
TCFD recommended disclosures
Governance
A
Disclose the organisation's
Describe the Board’s oversight
governance around climate- of climate-related risks and related
risks and opportunities. opportunities.
Disclosure status and reference to
where disclosures have been made
See section 1.1 of our
ClimateWise report.
The Board has held strategy sessions
that have considered climate-related
risks and opportunities and have
established parameters within which
management can operate. It receives
regular reports and is also supported
by the ESG Committee.
B
Describe management’s role in
assessing and managing climate-
related risks and opportunities.
See section 1.2 of our ClimateWise
report and the governance section of
our ESG Report.
Climate-related risk is integrated into
various management policies. Each
Executive Committee member has
specific climate responsibilities set out
in our ESG Report.
Strategy
Disclose the actual and potential
impacts of climate-related risks
and opportunities on the
organisation’s businesses,
strategy and financial planning
where such information is
material.
A
See sections 2.1 and 2.2 of our
Describe the climate-related risks
ClimateWise report.
Climate-related risks and
and opportunities the organisation
opportunities exist across our
has identified over the short,
underwriting, investments and
medium and long term.
operations.
B
See section 2.3 of our
Describe the impact of climate-
ClimateWise report.
related risks and opportunities on
the organisation’s businesses,
strategy and financial planning.
C
Describe the resilience of the
organisation’s strategy, taking into
consideration different climate
related scenarios, including a 2°C
or lower scenario.
See the environment section of our
ESG report, where we describe the
Board’s strategic discussion on climate
scenarios. Our current processes do
not yet fully comply with the guidance
for insurance companies and asset
owners, given scale and availability of
information.
Conduit Holdings Limited Annual Report and Accounts 2022
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ESG summary
continued
TCFD pillars
TCFD recommended disclosures
Disclosure status and reference to
where disclosures have been made
Risk management
Disclose how the organisation
identifies, assesses and manages
climate-related risks.
A
Describe the organisation’s
processes for identifying and
assessing climate-related risks.
See section 3.1 of our
ClimateWise report.
Our processes are very much
integrated with our wider risk
management framework described in
the ERM Summary in the Annual
Report and Accounts and in our
Financial Condition Report.
B
Describe the organisation’s
processes for managing climate-
related risks.
See section 3.1 of our
ClimateWise report.
Our processes are very much
integrated with our wider risk
management framework described in
the ERM section of the Annual Report
and Accounts and in our Financial
Condition Report.
C
Describe how processes for identifying,
assessing and managing climate-
related risks are integrated into the
organisation’s overall risk management.
See section 3.1 of our
ClimateWise report.
Our processes are very much
integrated with our wider risk
management framework described in
the ERM section of the Annual Report
and Accounts and in our Financial
Condition Report.
Metrics and targets
Disclose the metrics and targets
used to assess and manage
relevant climate-related risks and
opportunities where such
information is material.
A
See the environment section
Disclose the metrics used by the
of our ESG Report.
Our metrics relate primarily to
organisation to assess climate-
carbon neutrality and to our
related risks and opportunities in line
with its strategy and risk
business partners’ commitment
to climate matters.
management process.
B
Disclosed in this section of the
Disclose Scope 1, Scope 2 and, if
Annual Report and Accounts.
Further detail can also be found
appropriate, Scope 3 greenhouse
in our ESG Report.
gas (GHG) emissions, and the
related risks.
C
See the environment section
Describe the targets used by the
of our ESG Report.
Our metrics relate primarily to
organisation to manage climate-
carbon neutrality and to our
related risks and opportunities and
business partners’ commitment
performance against targets.
to climate matters.
Conduit Holdings Limited Annual Report and Accounts 2022
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ESG summary
continued
Case study
The Conduit Foundation
The Conduit Foundation was established
in 2021, recognising the important part
that companies – such as Conduit Re –
play in Bermuda’s society.
The Conduit Foundation supports local charitable causes
in Bermuda as we believe this enables us to have the
greatest impact in our community. The charities selected
for support are typically suggested by employees, and
after initial consideration by the Head of Human
Resources a formal proposal from each charity is
considered by the Foundation’s Protector Committee.
During 2022 more than 80% of total Foundation
disbursements were to charities initially recommended by
Conduit’s staff. The Foundation seeks to align its
contributions both to its objectives and the UN
Sustainable Development Goals. During 2022 it
supported 15 of the 17 UN categories.
The Foundation had an active year in 2022, making
donations to more than a dozen local charities. Details of
the donations made can be found in our standalone ESG
Report, published on our website.
Additionally, the Foundation supported more than half
a dozen charitable events with financial contributions
and made more than ten contributions under the staff
matched giving programme. The supported charitable
events included the Bermuda Youth Climate Summit
and various seasonal campaigns to provide food or
other essentials to families in need.
Conduit Re staff with representatives of Bermuda Sloop Foundation, Big
Brothers Big Sisters of Bermuda, Friends of Christchurch, Tomorrow’s
Voices, SCARS, Bermuda College Foundation, Home, Bermuda Red
Cross, Living Reefs Foundation, Vision Bermuda, Waterstart Ltd.
Conduit Holdings Limited Annual Report and Accounts 2022
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Section 172 statement and stakeholder engagement
Provision 5 of The UK Code notes that the Board should
understand the views of the Company’s key stakeholders
and describe in the Annual Report and Accounts how
their interests and the matters set out in Section 172 of
the UK Companies Act 2006 have been considered in
Board discussions and decision making. The Company is
a Bermuda-incorporated issuer and the Board is obliged
to follow Director duties under Bermuda company law.
Although the Company is not required by law to prepare a
Section 172 statement it has chosen to do so as a matter
of best corporate governance.
Section 172 requires a director to have regard,
among other practical matters, to the:
•
likely consequences of any decision in the
long term;
•
interests of the company’s employees;
•
need to foster the company’s business
relationships with suppliers, customers
and others;
•
impact of the company’s operations on the
community and environment;
•
desirability of the company maintaining a
reputation for high standards of business
conduct;
•
need to act fairly between members of the
company.
Stakeholder engagement
In our second year of operations, Conduit continued to
expand its efforts in engaging with its key stakeholders, to
understand perspectives and the potential long-term
consequences of decisions and matters of strategic
importance to Conduit.
The Board discussed broker and client relationships,
shareholder and employee engagement, government and
regulator engagement, rating agency interaction,
environmental matters, and Conduit’s impact on, and
relationship with, the local community, and considered
these matters in its decision making.
Brokers and clients
•
Relationships with the reinsurance broking community
and cedants are key to Conduit’s success. In
considering Conduit Re’s strategy and business
planning, the Board received reports on, and noted the
extent of, the broker and cedant support received by
Conduit Re.
Shareholders
•
The Executive Chairman, the CEO, the CFO and the
Head of Investor Relations regularly met with
shareholders throughout the year, both quarterly to
review trading results and on an ad-hoc basis to
discuss various matters, including
remuneration. Meetings were held one-on-one with
investors and via group calls. Feedback from these
meetings was presented to the Board on a regular
basis and informed Board debate and decision making
on strategy and business planning. Some of our larger
shareholders were also consulted as part of the
materiality assessment carried out as part of our ESG
Report.
•
Our Directors and management recognise the benefits
that come from dialogue with shareholders and we
have embraced an active engagement strategy to
discuss with our shareholders the issues that are
important to them, hear their expectations of us and
share our views.
•
The Board strives to be proactive, transparent and
interactive with shareholders, who are always welcome
to ask questions. For further information, and contact
details, see Investor Relations and Regulatory News
Service on the Conduit Re website
(conduitreinsurance.com).
Employees
•
Malcolm Furbert continued as the Company's
Non-Executive Director responsible for
engagement with Conduit’s workforce.
•
Malcolm met with our COO and Head of HR regularly
to discuss employee engagement for Conduit. The
Board received reports of Malcolm's and HR's
activities, ensuring workforce views were considered in
Board and management decision making.
•
During 2022, the Head of HR conducted
a detailed review of Conduit's HR policies and
procedures to ensure that those in place remain robust
and competitive within the market. Having a supportive
and inclusive culture is important to us and we track
how employees feel about working at Conduit. In 2022,
we conducted our first annual employee engagement
survey. The results were shared with Malcolm who
provided his own observations on the findings to the
Board, which also received a summary of the revised
policies which were approved during 2022 to support
employees.
•
The Board was kept apprised of Conduit's recruitment
activities throughout 2022, during which time
headcount grew from 41 to 54 people as at 31
December 2022.
•
In 2022 all staff participated in compliance training
which covered key compliance topics including
sanctions, information security and cyber risk, anti-
money laundering, anti-terrorist financing, anti-bribery
and corruption, conflicts of interest, and compliance
with tax and regulatory operating guidelines. Training
was also provided
Conduit Holdings Limited Annual Report and Accounts 2022
36
Strategic report
Section 172 statement and stakeholder engagement
continued
which covered Conduit’s code of conduct and
whistleblowing procedures.
Government and regulators
•
The Board recognises the need to monitor changes in
law and regulation, and to work closely and openly
with all relevant regulatory and supervisory bodies.
Conduit's main operating subsidiary, CRL, is regulated
by the Bermuda Monetary Authority (BMA). The Board
received regular reports covering governmental, legal,
regulatory and supervisory matters and was kept
apprised of communications with and from relevant
bodies, in particular quarterly meetings with the BMA,
and this information was factored into strategy and
business planning.
•
In June 2022, Bermuda's Minister of Economy and
Labour, The Honourable Jason P. Hayward, JP MP,
was welcomed in our offices. During this meeting, the
COO and Head of HR presented data to the Minister
around Conduit's growth and commitment to Bermuda
since inception.
•
In late 2022, a successful application was made to
obtain reciprocal jurisdiction reinsurer status in the
State of Louisiana, United States.
Rating agencies
•
CRL having and maintaining an AM Best Financial
Strength Rating of A– (Excellent), and a Long-Term
Issuer Credit Rating of “a-” (Excellent) is critical to
Conduit’s success and is factored into Board decisions
with respect to capital adequacy and risk management.
•
Management regularly kept AM Best apprised of
developments within CRL and fed back to the Board
the results of meetings and interactions with AM Best.
•
In December 2022, AM Best reaffirmed CRL's AM
Best Financial Strength Rating of A– (Excellent) and a
Long-Term Issuer Credit Rating of
“a-” (Excellent).
Our community and the environment
•
As set out in the ESG summary on pages 30 to 35,
environmental matters and the community are a key
focus for the Company.
•
Board decision making is influenced by Conduit’s
commitment to achieving and maintaining net-zero
carbon and to giving back to the community via
initiatives such as the Conduit Foundation.
Principal decision
The principal decision made by the Board in 2022 was to
affirm the current strategy, covering a three-to-five-year
horizon. The Board determined that this approach
continues to validate and build on the original strategy as
set out in the IPO prospectus.
The Board participated in a two-day strategy session
before making its decision not to change the current
strategy. Our strategic aims continue to focus on building
out our team as appropriate, to pursue organic growth
over the foundations built in our first year, to review
interest rate risk and our approach to managing it, and to
consider our capital requirements and mix. We still
consider these aims appropriate but would reconsider in
the face of significant or unexpected losses or changes in
the market or our operating environment.
In 2022, the Board also considered and approved,
facilitated by advice from Conduit’s independent
remuneration advisers, the Conduit Remuneration
Policy which was approved by a binding shareholder
vote at the 2022 Annual General Meeting of
shareholders. Refer to details of the approved
Remuneration Policy on pages 60 to 65.
Trevor Carvey
Elaine Whelan
CEO
CFO
3 March 2023
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
37
Governance
Conduit Holdings Limited Annual Report and Accounts 2022
38
Governance
Board of Directors
Neil Eckert
Executive Chairman
Appointed to the Board:
7 October 2020
Skills and experience:
Neil Eckert is Executive Chairman and an Executive
Director of CHL.
Neil Eckert is an entrepreneur with four decades of (re)insurance
industry experience and has a proven track record in the industry
having held various roles since 1980, many of which involved
starting new enterprises.
Beginning as a reinsurance broker, he rose through the ranks to
board member at Benfield, Lovick & Rees & Co. Neil then
founded Brit Insurance in 1995 and remained its CEO until
2005, following which he served as a non-executive director of
the company until 2008. He was co-founder and CEO of
Climate Exchange PLC, and founded Aggregated Micropower.
External directorships:
Incubex Ltd, Ebix Inc., Boutique Modern Limited, Chalvington
Management Limited, NCX Family Office, Chalvington Batteries
Limited, Bellaroma Investments Limited, Bishopsgate Solar 1
Limited, Seago Yachting Limited, Ripe Village Stores, Ripe Foods
Limited, Natural Capital Exchange Limited, Wingrove House
Limited, Whetstone Properties Limited, Titan (South West)
Limited, Cricket Management Limited.
CHL Board Committee memberships:
n/a
Trevor Carvey
Executive Director and
Chief Executive Off͏icer
Appointed to the Board:
18 November 2020
Skills and experience:
Trevor Carvey is Chief Executive Officer and an Executive
Director of CHL.
Trevor has a track record of profitable build-outs in the
reinsurance industry. Having led the consolidation and
subsequent profitable turnaround of the GE Frankona Marine
& Energy Global portfolio in the 1990s, he then became a
founding underwriter and leader at Arch Re Bermuda in
2002.
In 2007, Trevor joined Harbor Point Re in the UK to lead the
build-out of its reinsurance operations. He became CUO
Europe of the Alterra Re business after Harbor Point’s merger
with Max Re in 2012. Trevor was then responsible for the
successful integration of Alterra Re’s Global Re unit into
Markel.
In 2015, Trevor joined Hamilton Re to assist in building out a
new treaty reinsurance strategy in the UK and subsequently
served as active underwriter for three years from 2016 to 2018.
Trevor has led Conduit since its launch in 2020. As well as
serving on the Board of Conduit Holdings Limited, he is a
director of CRL and chairs the Executive Committee.
External directorships:
Triple R Industries Limited, Beneficial House (Birmingham)
Regeneration LLP, Stanley Dock (All Suite) Regeneration LLP.
CHL Board Committee memberships:
n/a
Conduit Holdings Limited Annual Report and Accounts 2022
39
Governance
Board of Directors
continued
Elaine Whelan
Executive Director and
Chief Financial Off͏icer
Appointed to the Board:
14 January 2021
Skills and experience:
Elaine Whelan is the Chief Financial Officer and an
Executive Director of CHL.
Elaine is an accomplished and experienced public company CFO
who has worked in the (re)insurance industry for over 25 years.
She is a member of the Institute of Chartered Accountants of
Scotland, a member of the Chartered Professional Accountants
of Bermuda and a member of the Institute of Directors.
After qualifying as a chartered accountant, Elaine joined
Coopers & Lybrand in Bermuda in 1997.
From 2001 to 2006, she held a number of positions at Zurich
Insurance Company, Bermuda Branch, ultimately as Chief
Accounting Officer. In 2006, she joined the Lancashire Group
as Financial Controller.
She subsequently performed various financial and
management roles for the Lancashire Group, including as
CEO, Lancashire Insurance Company Limited. From
January 2011 to February 2020, Elaine was Group CFO,
Lancashire Holdings Limited, and she was also a main board
director from January 2013 to February 2020.
Elaine is responsible for all aspects of Conduit Re’s financial
management and reporting, is also a Director of CRL and is a
member of the Executive Committee.
External directorships:
n/a
CHL Board Committee memberships:
n/a
Sir Brian Williamson CBE
Senior Independent Director
Appointed to the Board:
18 November 2020
Skills and experience:
Sir Brian Williamson has held a number of chairmanships and
directorships in banking, exchanges, funds, investment trusts and
private equity. Sir Brian was Chairman and Chief Executive of
Gerrard Group PLC. A member of the Court of the Bank of
Ireland, a director of HSBC Holdings PLC, where he was also
Chairman of the Nomination Committee, and a director of the
NYSE Euronext and Chairman of the Remuneration Committee.
Sir Brian was one of the four founders of the London
International Futures Exchange and twice Chairman. In the US,
Sir Brian has been a board member of both Nasdaq (additionally
serving as Chairman of its international advisory board) and the
New York Stock Exchange. In the UK, he was a director of The
Climate Exchange PLC.
Sir Brian is currently a director of Incubex, which is in
partnership with the European Energy Exchange, part of the
Deutsche Borse Group and Nodal Exchange in the US.
Sir Brian has served on regulatory bodies in both the US and
the UK, the National Association of Securities Dealers and The
Financial Services Authority.
External directorships:
Edenberg Trust Corporation Limited, R.J. Fleming & Co Limited,
Vice Chairman of Bergos Fleming Zurich, Director Politeia, and
Incubex Inc.
CHL Board Committee memberships:
Remuneration Committee (Chair) and Nomination
Committee.
Conduit Holdings Limited Annual Report and Accounts 2022
40
Governance
Board of Directors
continued
Elizabeth Murphy
Independent Non-Executive
Director
Appointed to the Board:
18 November 2020
Skills and experience:
Elizabeth Murphy has worked in the insurance and
reinsurance industry for more than 30 years. Elizabeth
qualified as a chartered accountant with Coopers & Lybrand
in London and moved to work for them in Bermuda. She
continued her career with ACE Tempest Reinsurance Ltd as
Chief Financial Officer from 1993 to 2000 and as Treasurer
of ACE Limited for the next two years.
From 2002 to 2006, Elizabeth worked for Scottish Re Group
Limited, as Chief Financial Officer and executive Vice President.
From 2006 to 2008 she was an Executive director of Kiln
Limited, Chair of the Compensation Committee and non-
executive member of the Audit Committee and she also served
on the Board of SCPIE Holdings Inc. where she was a member
of the Audit Committee and Stock Option Committee. From
2009 to 2015 Elizabeth was an executive director and Chief
Financial Officer of Amlin Bermuda Ltd.Amlin AG and a member
of the Risk Committee.
External directorships:
Bernina Re Holding Ltd Bernina Re Ltd.
CHL Board Committee memberships:
Audit Committee (Chair) and Nomination Committee.
Ken Randall
Independent Non-Executive
Director
Appointed to the Board:
18 November 2020
Skills and experience:
Ken Randall is a certified accountant and has worked in the
insurance industry for more than 46 years. During the early
1980s, Ken was Head of Regulation at Lloyd’s which was then a
self-regulated institution. From 1985 until 1991 Ken served as
Chief Executive of the Merrett Group, which managed a number
of prominent syndicates at Lloyd’s.
In 1991, Ken left Merrett to set up his own business in
partnership with Alan Quilter. Over the next eight years they
developed the Randall & Quilter Group’s principal subsidiary, the
Eastgate Group, into the UK’s largest third-party provider of
insurance services with 1,300 employees and a turnover of over
£80m per annum. Eastgate was sold to Capita PLC in November
2000.
Following the sale of Eastgate, Ken and Alan refocused
Randall & Quilter onto the acquisition of non-life legacy run-off
portfolios and again developed an insurance - servicing
business in London and the US; initially, the Randall & Quilter
Group’s service offering focused on legacy portfolios and in
recent years has also developed a fast-growing programme
management business in Europe and the US.
Ken retired as a director of Randall & Quilter Investment
Holdings Ltd. and all of its subsidiary companies on 31 March
2021.
External directorships:
Roosevelt Road Ltd, Roosevelt Road Re Ltd, Renaissance
Capital Partners Limited, Financial Guaranty Insurance
Company Ltd Leamington Insurance Advisors Ltd (Bermuda).
CHL Board Committee memberships:
Audit Committee, Nomination Committee (Chair) and
Remuneration Committee.
Conduit Holdings Limited Annual Report and Accounts 2022
41
Governance
Board of Directors
continued
Malcolm Furbert
Independent Non-Executive
Director
Appointed to the Board:
18 November 2020
Skills and experience:
Malcolm Furbert is a corporate and regulatory lawyer with over
30 years’ experience including as a corporate lawyer, with one of
Bermuda’s leading law firms and over 15 years’ diverse in-house
legal counsel and management experience with Bermuda-based
insurance and reinsurance companies (including American
International Company Limited, Catlin Insurance Company
Limited and XL Catlin), most recently as General Counsel and
Head of Compliance & Regulatory Affairs for the Bermuda
operations of XL Catlin, a Bermuda-based global (re)insurance
company (following the acquisition of the Catlin Group by XL
Capital).
In these roles, he provided general and transactional legal
and regulatory advice and support to all business areas and
had oversight over the Bermuda compliance function. He
also acted as Company Secretary to both regulated and non-
regulated group companies.
He is a member of the Bar of England and Wales and the
Bermuda Bar.
External directorships:
Somers Corporate Services Limited.
CHL Board Committee memberships:
Remuneration Committee and Nomination Committee.
Dr. Richard L. Sandor
Independent Non-Executive
Director
Appointed to the Board:
26 November 2020
Skills and experience:
Richard Sandor is an entrepreneur and economist and is
Chairman and CEO of the American Financial Exchange
(AFX) and CEO of Environmental Financial
Products (EFP).
Richard is currently the Aaron Director Lecturer in Law and
Economics at the University of Chicago Law School and an
honorary professor at the University of Hong Kong and the
school of economics at Fudan University. He formerly taught at
graduate and undergraduate levels at several universities
throughout California, Illinois, New York, China and England.
Richard was awarded the title of Chevalier de la Légion
d’honneur (Knight of the Legion of Honour) in France, for his
accomplishments in the field of environmental finance and carbon
trading. He is a member of the Advisory Board of the Center for
Financial Stability, a member of the board of governors of the
School of the Art Institute (SAIC), a Senior Fellow of the Milken
Institute and International Emissions Trading Association and a
member of the Advisory Committee of the Ronald Coase Centre
for Property Rights Research at the University of Hong Kong.
He has served on the boards of leading commodity and futures
exchanges in the US, such as the CME and ICE, and in London
and China, as well as one of North America’s largest utility
companies, American Electric Power, and several philanthropic
and not-for-profit organisations.
External directorships:
American Financial Exchange, LLC, Environmental
Financial Products, LLC.
CHL Board Committee memberships:
Remuneration Committee and Nomination Committee.
Conduit Holdings Limited Annual Report and Accounts 2022
42
Governance
Board of Directors
continued
Michelle Seymour Smith
Independent Non-Executive
Director
Appointed to the Board:
15 September 2021
Skills and experience:
Michelle Seymour Smith has over 20 years of experience in the
insurance and reinsurance industry. During her career, Michelle
has built a reputation of making strategic initiatives a reality and
building effective teams and operations to support sustained
growth in global organisations.
Michelle began her career with Arthur Andersen in 1995. She
went on to hold positions at Zurich Insurance Global Energy and
XL Capital Ltd. In 2004, she joined Arch Reinsurance Ltd as
Vice President, Controller. She performed several roles at Arch
Re including Chief Financial Officer and Chief Operating Officer,
building and overseeing the financial operations of the
insurance, reinsurance and mortgage divisions and their
international subsidiary reinsurance division. She served as the
Chief Transformation Officer of Arch Capital Group Ltd until
2019, leading a global programme to grow business and
improve operational efficiency.
Michelle has been named as one of 100 Influential Women in
Insurance and Reinsurance by Intelligent Insurer. She is a
member of the Chartered Professional Accountants of Bermuda
and the Institute of Directors.
External directorships:
Transport Intermediaries Mutual Association Ltd., Bermuda
Public Accountability Board, Muuvment, Association of Bermuda
International Companies, Centennial Foundation, Friends of
Bermuda Railway.
CHL Board Committee memberships::
Audit Committee and Nomination Committee.
Greg Lunn
General Counsel and
Company Secretary
Appointed:
3 November 2020
Skills and experience:
Greg Lunn is General Counsel and Company Secretary and
leads the compliance function.
Greg has held various industry roles in Bermuda and London
over the past 25 years, initially with the ACE Group and later
with Lancashire Holdings Limited, where he was Group
General Counsel and Company Secretary. At Lancashire, in
addition to his legal and corporate governance work, he also
had responsibility for the internal audit function.
Greg is responsible for all legal, compliance and corporate
secretarial aspects of Conduit’s business. Greg serves on the
board of Conduit Reinsurance Limited and is a member of the
Executive Committee.
Conduit Holdings Limited Annual Report and Accounts 2022
43
Governance
Executive Chairman’s introduction to corporate governance
Introduction
Since our inception in 2020, we have built an effective
governance structure that supports our pure-play
reinsurance business operating from a single location in
Bermuda. We measure corporate governance compliance
against the requirements of The UK Code published by
the UK FRC, 2018. The Company also monitors its
compliance with applicable governance requirements
under Bermuda law and regulations.
In 2022 physical quarterly Board and committee meetings
resumed following the pandemic which had previously
prevented the entire Board from meeting in person.
Information sessions were also held throughout the year
where some directors participated over Zoom or Teams.
Feedback from the Board performance evaluation is that
the atmosphere in the boardroom allows for open
contribution, constructive debate, candid discussion and
critical thinking, supported by good quality written
presentations.
In May, the Board met for a full two days to review
Conduit’s strategy and discuss other topics of relevance
to the business, including:
•
business objectives;
•
the brokers’ view of the market;
•
technology and systems;
•
Human resources;
•
finance and investments;
•
emerging risks;
•
investor perspectives;
•
ESG;
•
building business and brand value.
The current strategy, previously approved by the Board in
2021, covers three-to-five-year horizon that validates and
builds on the strategy we set out in the IPO prospectus,
was affirmed in 2022 by the Board.
Dividend policy and dividend
The Company may pay dividends at such times (if any)
and in such amounts (if any) as the Board determines
appropriate and subject to the Board being satisfied
that to do so will not prejudice CRL’s ability to maintain
at least an AM Best A– (Excellent) Financial Strength
Rating and subject to applicable law and regulations.
The Company expects to generate significant returns
over time for its shareholders and to provide an ongoing
and progressive dividend, recognising that some
earnings fluctuations are to be expected. The Company
is targeting a dividend of approximately 5% to 6% of
equity capital raised at the IPO, allocated between an
interim and final
distribution. On 21 February 2023, the Board declared a
final dividend of $0.18 (approximately £0.15) per
Common Share resulting in an aggregate payment of
$28.8 million. This final dividend followed an interim
dividend of $0.18 (approximately £0.15) per Common
Share declared on 26 July 2022.
Depending on Conduit’s results and general market
conditions, CHL may also from time to time consider the
payment of special dividends and returns of capital to
shareholders by way of share buybacks.
During 2022, Conduit continued with on-market
purchases of the Company’s shares under a share
purchase programme. Shares repurchased during the
year will be held in treasury and the EBT to meet future
obligations under CHL’s variable incentive schemes.
Further details of the share repurchase scheme are set
out in the Directors’ report on page 81 and in note 18 to
the consolidated financial statements on page 131.
Special dividends (if any) are likely to vary
significantly in amount and timing.
All dividends and returns of capital will be subject to the
future financial performance of Conduit, including results
of operations and cash flows, Conduit’s financial position
and capital requirements, rating agency considerations,
general business conditions, legal, tax, regulatory and
any contractual restrictions on the payment of dividends
and any other factors the Board deems relevant in its
discretion, which will be taken into account at the time.
Opportunities and risks
We launched Conduit Re in favourable market
conditions, which support our vision to establish
Conduit Re as a leading reinsurance underwriting
franchise over the next five years. In our first two years
of operations, we have made enormous progress
towards delivering on this objective.
There are a number of uncertainties underpinning the
improvements in market conditions including, but not
limited to:
•
the future impact of climate change; and
•
economic and social inflation.
We believe, as a business with a legacy-free balance
sheet, we are in a strong position to incorporate the
potential impact of these risks into our underwriting and
reserving.
Conduit Holdings Limited Annual Report and Accounts 2022
44
Governance
Executive Chairman’s introduction to corporate governance
continued
We also need to be mindful that, although we go to
great efforts to manage the volatility in our underlying
exposures, we are in the business of protecting our
clients against uncertainty, and consequently our
underwriting results are always subject to the vagaries
of major loss events, both natural and man made.
A full set of risk factors is set out in section 3 of the notes
to the consolidated financial statements.
Stakeholder engagement
Malcolm Furbert, charged with employee engagement,
continued his role with diligence and enthusiasm by
meeting regularly with Heather Mello, our Head of HR,
and with Stuart Quinlan, Deputy CEO and COO.
My colleagues have continued to hold regular, routine
quarterly update meetings with CRL's regulator, the
Bermuda Monetary Authority, to keep the regulator
apprised of business progress and other developments at
CRL.
I, together with the Head of Investor Relations, and often
the CEO and the CFO, have held numerous meetings
with shareholders, in addition to hosting quarterly
investor and analyst calls. The Senior Independent
Director also participated in several meetings with
shareholders.
More information on our stakeholder engagement is
contained in the Section 172 report on page 36.
Purpose, values, strategy and culture
Our strategy reflects our business culture, our core
values and our views on risk, including emerging risks,
and includes stakeholder considerations. These factors
inform our annual business planning cycle and the
setting of risk appetite.
Our business objectives:
•
Building a sustainable business in the long-term
interests of our stakeholders
•
Delivering on our cross-cycle targets for
profitability and RoE
Our core values shape everything we do and play a key
role in helping us to achieve our objective of building a
reinsurance business that will stand the test of time. We
expect all directors and employees of Conduit to consider
and apply these core values when making decisions,
carrying out duties and representing Conduit. Our culture
can be characterised as follows:
•
An open and transparent approach where all ideas
are welcome, and mistakes are a part of
developing and learning.
•
Information sharing is a daily occurrence
•
Communications are strong, constant and not just
top down.
•
Everyone is welcome and can be themselves – we
embrace individuality and recognise that inclusivity
will not only create a positive environment but will
enhance our overall achievements.
•
We are a lean group where everyone works hard.
•
Formality and hierarchy is kept to a minimum and
flexibility and responding to individual needs is key.
•
A trust-based culture rather than one of rules,
where decisions are taken quickly .
•
Significant opportunities for developing skills and
careers. Potential will be identified, and
colleagues will be appointed into new roles
wherever possible and will be supported in
realising their potential through training and
coaching.
•
A vibrant, fun environment where working as a
team is a given and a pleasure. Our people like
and want to work together.
•
We celebrate success.
•
We embrace technology.
In-camera sessions
In addition to the activities of the each of the
committees described in the respective reports
below, regular in-camera sessions of the
Independent Directors, led by the Senior
Independent Director, were held at each regularly
scheduled Board meeting without management
present.
Conduit Holdings Limited Annual Report and Accounts 2022
45
Governance
Executive Chairman’s introduction to corporate governance
continued
Induction
All of the CHL Non-Executive Directors have been
through an induction process, covering their duties
and responsibilities as Directors of a company
whose shares are admitted to trading on the
main market of the LSE the Company has a
comprehensive induction procedure.
During 2022, the Company did not induct any
new Directors.
Feedback from the strategy days held in May
is that the sessions were highly informative and
educational, assisting the Board in gaining further
valuable insights into the business of Conduit
which will help strengthen the Board’s oversight
of the business.
The year ahead
In 2023 our governance will be focused on
supporting the execution of the strategy we have
set out to follow.
Neil Eckert
Executive Chairman
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
46
Governance
Corporate governance and compliance with the UK Corporate
Governance Code
The UK Code
As a company with a standard listing on the LSE, the
Company is not required to comply, or otherwise explain
non-compliance, with the requirements of The UK Code
published by the FRC in July 2018. However, the
Company has chosen to comply (or explain non-
compliance) with The UK Code, because the Board is
committed to the highest standards of corporate
governance.
Compliance statement
The Board considers that for the financial period
ended 31 December 2022, the Company has
complied with the provisions of The UK Code, save
that:
•
The Company did not comply with Provision 10 of The
UK Code as Neil Eckert is Executive Chairman and
was not independent at appointment as he was a
founder of the Company. However, 75% of the Board
(excluding the Chair) are Non-Executive Directors
whom the Board considers to be independent, and the
roles of Chair and CEO are not exercised by the same
individual. Further, the Board believes that effective
business leadership is provided by Neil Eckert as
Executive Chairman and Trevor Carvey as CEO, while
at the same time appropriate checks and balances
and scrutiny will be maintained through the balance of
the Board as a whole, the strong and relevant
experience of the independent Non-Executive
Directors and the clear separation of duties between
the Senior Independent Director, Sir Brian Williamson,
the Executive Chairman and the CEO, as set out on
the Company’s website.
•
In one respect, the Company does not comply with
Provision 37 of The UK Code which provides that
remuneration schemes and policies should enable the
use of discretion to override formulaic outcomes. At
the time of the Company's establishment, it was
determined that an absolute calibration to the The
Management Incentive Plan (MIP) programme with no
discretionary assessment was appropriate in the
circumstances. The MIP was put in place prior to the
IPO, with no further awards to be made under the
Remuneration Policy approved by the shareholders in
May 2022. Malus and clawback provisions apply to the
MIP programme with further details set out in more
detail on page 58.
Governance framework
Conduit maintains a relatively simple corporate
structure and corporate governance framework. The
Board maintains overall responsibility for Conduit and
has established an Audit Committee, a Nomination
Committee and a Remuneration
Committee – whose terms of reference are available on
the Company’s website and updated as necessary. It has
also established a non-Board committee focused on
Conduit’s approach to ESG, chaired by Sir Nicholas
Soames, a senior and independent industry figure who is
not otherwise involved with Conduit as a director or
officer.
The Audit Committee oversees the effectiveness of
management’s processes for monitoring and
reviewing the effectiveness of risk management and
internal control systems in relation to the Company’s
financial reporting process, further details of which are
set out on pages 53 to 57.
In relation to the day-to-day operations in Conduit’s
reinsurance business, the Board relies on a strong Board
at CRL operating company level, which includes four
independent Non-Executive Board members (Ken
Randall, Elizabeth Murphy, Malcolm Furbert and Michelle
Seymour Smith) who serve at both the CHL Board and
CRL operating company Board level, each of whom has
extensive board and operational level experience of
regulated reinsurance companies in Bermuda.
The CRL Board has, in turn, established four sub-
committees: Risk, Capital and Compliance; Audit;
Strategy; and Underwriting. It has also established an
Executive Management Committee comprising of the
chief and senior executives.
CRL operates a strict 'three lines of defence' model with
all second-line functions (for example risk and
compliance) reporting to the CRL Risk, Capital and
Compliance Committee; and the third line (Internal and
External Audit, Independent Loss Reserve Specialist)
reporting to the CRL Audit Committee.
While four independent Non-Executive Directors
serve on the Board of CRL, all independent Non-
Executive Directors are encouraged to attend as
observers at any Board or Board committee
meetings across Conduit, subject to any conflict
management limitations. Conduit is committed
to being open and transparent from a governance
perspective.
Conduit has a comprehensive set of policies and
procedures aimed at bolstering governance and
compliance. Conduit's code of conduct, whistleblowing
policy and procedures, and other compliance policies
and procedures, including policies covering anti-bribery
and corruption, anti-money laundering and anti-
terrorism financing, conflicts of interest and gifts and
hospitality are made available to staff via the Conduit
intranet. Regular compliance training is provided.
Conduit
Conduit Holdings Limited Annual Report and Accounts 2022
47
Governance
Corporate governance and compliance with the UK Corporate
Governance Code
continued
has contracted an external independent specialist
whistleblowing service provider to enable staff to report
whistleblowing incidents, anonymously or otherwise,
over the phone or in writing via online submission.
The Board
Conduit has a Board with a strong blend of experience
and expertise in diverse professional backgrounds
including insurance and other financial services,
accounting, regulatory, governance and other areas. The
Board has overseen and will continue to oversee the
Company’s trading and operation as a public company.
Biographical information for each of the current Directors
of the Company, including each Director's experience,
qualifications, attributes and skills is on pages 39 to 43.
Succession planning was discussed at Board level in
2022 and is a key topic for 2023. More information is
contained in the Nomination Committee report on page
51.
Non-Executive Director independence
The UK Code recommends that at least half the Board of
Directors of a UK-listed company, excluding the Chair,
should comprise Non-Executive Directors determined by
the Board to be independent in character and judgement
and free from relationships or circumstances that may
affect, or could appear to affect, this judgement.
The Board has determined that all of the Non-Executive
Directors (being Sir Brian Williamson, Elizabeth Murphy,
Ken Randall, Michelle Seymour Smith, Malcolm Furbert
and Dr. Richard Sandor) are free from any business or
other relationship that could materially interfere with the
exercise of their independent judgement and are
therefore '‘independent Non-Executive Directors' within
the meaning of The UK Code. The Company has three
Executive Directors (including the Executive Chair) and
six independent Non-Executive Directors.
Board meetings and attendance
The Board schedules meetings quarterly and receives additional updates in the months where no formal meetings are
scheduled. Additional meetings have been and will be arranged as necessary, including in relation to the business of the
committees. All Directors receive an agenda and meeting packs in advance of the meetings. The number of Board and
committee meetings attended by each Director for the purposes of Provision 14 of The UK Code in the year ended 31
December 2022, relative to the number of meetings held during their time in office, was as follows:
Nomination
Remuneration
Audit
Board
Committee
Committee
Committee
Neil Eckert
5/5
n/a
n/a
n/a
Trevor Carvey
4/51
n/a
n/a
n/a
Elaine Whelan
5/5
n/a
n/a
n/a
Sir Brian Williamson
5/5
3/3
3/3
n/a
Elizabeth Murphy
5/5
3/3
n/a
4/4
Ken Randall
5/5
3/3
3/3
4/4
Malcolm Furbert
5/5
3/3
3/3
n/a
Dr. Richard Sandor
4/5
3/3
3/3
n/a
Michelle Seymour Smith
5/5
2/22
n/a
4/4
1.
Trevor Carvey was unavailable to attend a portion of one of the Board meetings held in 2022.
2.
Michelle Seymour Smith was appointed to serve on the Nomination Committee on 22 February 2022.
As part of the Company’s risk management framework, Conduit follows regulatory and tax operating advice and guidelines, common for groups established in
Bermuda, that require the situs of the Company’s Board and committee meetings and decision making to be Bermuda.
Board responsibilities
The Board is responsible for leading and controlling the Company, and has overall authority for the management and
conduct of its business, strategy and development. The Board is also responsible for ensuring the maintenance of a
sound system of internal controls and risk management (including financial, operational and compliance controls) and for
reviewing the overall effectiveness of systems in place as well as for the approval of any changes to the capital,
corporate and/or management structure of the Company. To ensure transparency and accountability of the business to
the independent Non-Executive Directors, the CHL Board was invited to attend (and did attend) CRL Board-level and
underwriting committee meetings, and are provided with all minutes and records of such subsidiary board and committee
meetings. The Board
Conduit Holdings Limited Annual Report and Accounts 2022
48
Governance
Corporate governance and compliance with the UK Corporate
Governance Code
continued
has established procedures for Directors to take independent professional advice at the expense of the Company in
the furtherance of their duties. Each Director also has access to the General Counsel and Company Secretary to
ensure that good governance and compliance is implemented throughout Conduit. The division of responsibilities
between the Executive Chairman, CEO and Senior Independent Director is summarised below and is available in full
on the Company’s website.
Executive Chairman
CEO
Senior Independent Director
Ensures the effective running of
Leads the executive management
Ensures that there is a culture of
the Board and supports the CEO
team in the day-to-day
openness and debate, in particular
in an advisory role in the execution
management of the Group to
by facilitating the effective
of the CEO's responsibilities
pursue Conduit’s commercial
contribution of Non-Executive
(including with respect to ESG
objectives and execute and deliver
Directors and ensuring
matters), makes sure that the
Conduit's strategy, as approved
constructive relations between
views of the Board and
by the Board.
Executive and Non-Executive
shareholders are taken into
Directors.
account, and acts as the
primary ambassador for Conduit
in respect of Investor Relations
and ESG matters.
Ensures that the Board as a whole
Ensures, with the executive
Is available to shareholders if they
plays a full and constructive part
management team, that Board
have concerns that contact
in the development and
decisions are implemented
through the normal channels of
determination of Conduit's
effectively and that significant
the Executive Chairman or other
strategy and overall commercial
decisions made by the executive
Executive Directors has failed to
objectives, with due consideration
management team are
resolve or for which such contact
to Conduit's responsibilities to its
communicated to the Board
is inappropriate.
shareholders, its suppliers, clients,
in line with granted authority.
customers, employees and other
stakeholders.
Shapes the culture in the boardroom,
encouraging all directors to engage in
Board and committee meetings by
drawing on their skills, experience
and knowledge; and fostering
relationships based on trust, mutual
respect and open communication –
both in and outside the boardroom –
between Non-Executive Directors and
the executive team.
Provides clear leadership, inspires
and supports Conduit's employees in
all areas of Conduit's business,
including the development of ideas,
products and operations. Ensures that
there is effective communication by
Conduit with its workforce, including
with respect to governance matters.
Assists in the maintenance of the
stability of the Board and Company,
particularly during periods of stress.
Promotes the highest standards of
integrity, probity and corporate
governance throughout Conduit and
particularly at Board level.
Manages Conduit’s risk profile, with
the CRO and other members of the
executive, in line with the extent of
risk identified as acceptable by the
Board, and ensures that appropriate
internal controls are in place.
Acts as a sounding board for the
Executive Chairman, providing
support in the delivery of the
Executive Chairman’s objectives.
Conduit Holdings Limited Annual Report and Accounts 2022
49
Governance
Corporate governance and compliance with the UK Corporate
Governance Code
continued
Board activities
In addition to monitoring closely Conduit’s core
underwriting business, Board activities in 2022 were
focused on overseeing the transition from the start-up
phase (which necessarily concentrated on establishing
the initial business and processes, hiring staff and building
technology) to process improvement, refinement of
technology, business growth and enhancing the
application of ESG matters. The Board received regular
written and oral progress reports from executive
management on progress in each of these areas. The
Board also participated in a session straddling two days to
review strategy considering the wider market and risk
environment. It was determined that there would be no
changes to the strategy approved in 2021, the objective of
which is to promote the long-term success of the
Company. Board meetings were held in Bermuda to
approve all key actions, documentation and agreements.
Board effectiveness
Our Board continually seeks to improve its performance.
Each year, the performance of the Board, its committees
and the individual Directors is evaluated. An internal
Board performance evaluation, using a questionnaire and
interview approach, was conducted for the financial year
ended 31 December 2022, led by Sir Brian Williamson,
the Senior Independent Director, and supported by the
Company Secretary. The evaluation was conducted
internally via one-on-one interviews. The evaluation
raised no concerns regarding the Board’s composition or
diversity,
or how effectively members worked together to achieve
objectives. However, the Board recognises that,
somewhat uniquely, given the compressed timeframe
between establishment of Conduit and the IPO, a
number of the Non-Executive Directors will all complete
their initial three year service period at the same time in
late 2023. Consequently, implementation of an orderly
succession plan will be a priority in 2023.
The evaluation did not identify any deficiencies in the
effectiveness of each Director and no concerns were
identified in respect of Non-Executive Director
independence or external time commitments. The
Executive Chairman (and in respect of the Executive
Directors, the Senior Independent Director) considers that
(1) each Director is effective, demonstrates commitment
to their role and has sufficient time to meet their Board
responsibilities and (2) both the Board and its committees
will provide effective leadership and exert the required
levels of governance and control.
The performance evaluation will be externally
facilitated in 2023.
Workforce engagement mechanism Malcolm
Furbert acts as the Company’s Non-Executive
Director responsible for workforce engagement.
See details on page 36 of the Section 172
statement.
Conduit Holdings Limited Annual Report and Accounts 2022
50
Governance
Nomination Committee report
Introduction
I noted a year ago that it was a remarkable achievement
to set up a new $1 billion reinsurance company from
scratch, with an entirely new team, during a pandemic.
Recognising that a lot has been accomplished in a short
space of time during Conduit's start-up phase, we have
had the last 12 months to see how the working Board was
gelling following the end of travel restrictions. While
pleased with the Board make-up and the way it has
worked, the Nomination Committee has recognised that,
for the next phase of Conduit's existence, there is a need
to address some gaps in Board balance. In particular, due
to the speed at which Conduit was established, Conduit's
Non-Executive Directors were almost all appointed on the
same date in 2020 and thus have served for an identical
time period.
A plan is now being implemented to manage an
orderly, staggered succession.
Nomination Committee membership
The Committee members are Ken Randall (Chair),
Elizabeth Murphy, Sir Brian Williamson, Malcolm
Furbert, Michelle Seymour Smith and Dr. Richard
Sandor.
Independence and experience
All Committee members are independent Non-
Executive Directors, each with many years of
relevant experience serving as directors and/or
working in the reinsurance industry. Detailed
biographies are available on pages 39 to 43.
As Chair, I am responsible for an annual review of the
Committee membership, and I am satisfied that the
current members are each independent and capable of
carrying out the committee role and responsibilities.
Role and responsibilities
The Nomination Committee’s duties are set out in its
terms of reference, which are available on Conduit’s
website, The duties include, but are not limited to:
•
Director induction, training and development
•
identifying and nominating candidates to fill
Board vacancies.
Details on how we performed these key responsibilities
in 2022 is set out in the remainder of this report.
2022 meetings
The Nomination Committee is required to meet at least twice annually, or more frequently if required, to discharge
its duties. In 2022, there were three committee meetings. In addition to the members, other individuals such as the
Executive Chairman and the Head of HR attended all or part of the meetings.
Maximum possible
Name
Appointed
meetings
Meetings attended
Ken Randall
18 November 2020
3
3
Elizabeth Murphy
18 November 2020
3
3
Sir Brian Williamson
18 November 2020
3
3
Malcolm Furbert
18 November 2020
3
3
Michelle Seymour Smith1
22 February 2022
2
2
Richard Sandor
30 November 2020
3
3
1.
Michelle Seymour Smith was appointed to the Nomination Committee on 22 February 2022 and was only eligible to attend two of the three meetings held in
2022.
Performance evaluation
The Committee reviewed the results of the Board performance evaluation for the period ending 31
December 2022 as described on page 50.
Except with respect to the coincidence of service time, the 2022 evaluation raised no concerns regarding the Board’s
composition or diversity, or how effectively members worked together to achieve objectives.
The evaluation did not identify any deficiencies in the effectiveness of each Director and no concerns were identified in
respect of Non-Executive Director independence or external time commitments.
Conduit Holdings Limited Annual Report and Accounts 2022
51
Governance
Nomination Committee report
continued
Board and committee composition and
succession planning
As noted in my introductory remarks, implementation of
a long-term succession plan is a priority in 2023, bearing
in mind the somewhat unique situation where almost all
Conduit's current slate of Non-Executive Directors have
served Conduit from the same appointment date. In late
2022, the Nomination Committee discussed with the
Board how succession planning would address this
situation and afford the Board an opportunity to bring in
new Non-Executive Directors with additional skills and
experience, while cognisant of the latest applicable
listing rules on diversity and board composition.
In addition, as Conduit moves past the start-up phase,
a succession plan for other key leadership positions
will be developed.
In the meantime, Conduit maintains a robust
emergency succession plan in place for the Board and
senior management, which was reviewed by the
Committee and updated in 2022.
Director induction and training
The Committee ensured that an appropriate and
comprehensive plan is in place for inducting new
Directors and Conduit’s leadership team. Induction is
tailored to the needs of each individual but
includes meetings with the executive leadership
team, department heads and advisers, technical
briefings and office visits.
A strategy and planning session was held over two days
in May 2022. It also served as training for Directors, as
diverse topics were covered including the future of
technology in the industry, the state of the market, stock
market perspectives from the Company’s financial
advisers and emerging risks, including environmental
liabilities and global tax reform.
The Board also attended specific training sessions in
2022 on IFRS 17.
Diversity and inclusion (“D&I”)
Diversity and inclusion has been a priority since the
Company’s inception. Management and the Board
believe that valuing diversity and inclusiveness is a
competitive differentiator, enabling us to achieve our
vision to create unmatched value for our customers,
colleagues, business partners and shareholders.
The Company's D&I Policy reflects the Company’s
principles for recruitment and advancement at all levels
of the Company and underlines the fact that the
Company is committed to recruiting, retaining and
developing people with diverse backgrounds and
experiences at all levels of Conduit’s business, in a truly
inclusive environment.
As an equal opportunities employer, Conduit does not
tolerate discrimination or harassment of any kind in any
aspect of employment. Conduit fully supports and
celebrates differences, which could include but are not
limited to race, age, gender, gender identity, sexual
orientation, disability, beliefs, background (except as may
be pertinent to the requirements of a role, such as
educational qualifications or prior employment
experience), socio-economic group, family or marital
status or nationality.
As at 31 December 2022 one-third of the Board was
female.
Priorities for 2023
In 2023 the Committee will implement succession
planning with a view to satisfying Conduit’s medium- to
longer-term succession needs at Board and senior
management levels.
Ken Randall, Chair
Nomination Committee
3 March 2023
52
Governance
Audit Committee report
Introduction
I am pleased to present the Audit Committee’s report for
the year ended 31 December 2022, which outlines how
the Audit Committee discharged its responsibilities
during Conduit’s second year of operations and the key
topics it considered.
The main areas of focus in 2022 were monitoring the
integrity of external financial reporting and the continued
monitoring of the development of systems, processes
and the control environment.
The Committee also prioritised the IFRS 17
implementation project, developments in climate and
ESG reporting, and audit practice reforms impacting
Conduit.
Audit Committee membership
The Audit Committee membership comprises of
independent Non-Executive Directors. For the full year
2022, the members were Elizabeth Murphy, Ken
Randall and Michelle Seymour Smith.
The Audit Committee membership is the same for CRL,
which strengthens governance and oversight of
Conduit’s main operating subsidiary.
Independence and experience
All Audit Committee members are independent Non-
Executive Directors with recent and relevant financial
experience and competence in accounting and/or
auditing, and all have competence relevant to the
reinsurance sector in which Conduit operates. Detailed
information on the Audit Committee members’ experience
and qualifications is set out in the directors’ biographies
on pages 39 to 43.
2022 meetings
The Audit Committee held four meetings during the year. Members of senior management, internal and external
auditors were invited to present at each meeting. The Audit Committee also met privately with the external auditors
and in an executive session with the CFO present. The Chair of the Audit Committee held regular meetings with the
CFO and the external and internal auditors outside of the formal committee meetings.
Maximum possible
Name
Appointed
meetings
Meetings attended
Elizabeth Murphy
18 November 2020
4
4
Ken Randall
18 November 2020
4
4
Michelle Seymour Smith
15 September 2021
4
4
There were no points of concern arising out of the Board’s performance evaluation regarding the Audit
Committee’s performance during 2022.
Role and responsibilities
The Audit Committee is required to carry out duties in the areas listed below for CHL and Conduit as a whole, as
appropriate:
•
Monitoring and reviewing financial and narrative reporting
•
Keeping under review internal controls and risk management systems
•
Reviewing compliance and fraud procedures and controls
•
Monitoring and reviewing the effectiveness of the internal audit function
•
Advising on the appointment of the external auditor and overseeing the relationship with the external auditor,
including their independence and effectiveness
More details around how these key responsibilities were performed are set out below. The Audit
Committee’s terms of reference are available on Conduit’s website.
Conduit Holdings Limited Annual Report and Accounts 2022
53
Governance
Audit Committee report
continued
Monitoring and reviewing financial and
narrative reporting
The Audit Committee reviewed the Company’s quarterly
trading updates, the annual audited consolidated
financial statements and the interim unaudited
condensed consolidated financial statements for the
purposes of recommending their approval by the Board.
The Audit Committee received reports from the external
auditors on the consolidated financial statements,
including an interim review report and a year-end audit
results report. These reports were discussed with the
external auditors at the Audit Committee meetings, both
with management present and with the Audit Committee
in private session.
Throughout the year the CFO and the Audit Committee
Chair communicated and met regularly to discuss
matters related to the preparation and presentation of
Conduit's financial statements, including the progress of
the external audit.
The Audit Committee also received regular and ad-hoc
reports on the following:
•
Accounting treatment and policies in respect of
business and investment activities (see pages 95 to
103)
•
Loss reserving developments and the reserving
process (see page 128)
•
Development and implementation of finance
systems
•
Recruitment and development within the
finance team
•
Accounting and financial reporting developments,
including IFRS 17 and IFRS 9 and the related
implementation project
•
Finance reports from CRL including with respect to
BMA filings (via the overlap with the CRL Audit
Committee)
•
Significant judgements and estimates and going
concern assessments
•
Management’s assessment of fraud risk
The Audit Committee also attended training sessions in
2022 delivered by management to the Board on IFRS
17. The IFRS 17 training sessions covered the key
technical requirements and accounting policy principles
of IFRS 17, changes to the presentation and disclosure
of the financial statements that will occur under IFRS
17, industry developments and emerging practice, and
programme risks and governance.
Keeping under review internal controls and risk
management systems
The Board has ultimate responsibility for ensuring the
maintenance by Conduit of a robust framework of
internal control and risk management systems.
Monitoring and review of these systems has been
delegated to the Audit Committee. The system of internal
controls is designed to manage rather than eliminate the
risk of failure to achieve business objectives, and can
only provide reasonable, not absolute, assurance
against material misstatement or loss.
During 2022, the Audit Committee received quarterly
reports from Conduit's CRO covering:
•
risks events, including control failures, and
commentary on the Company’s risk profile;
•
risk appetite and tolerance statement
compliance;
•
capital adequacy;
•
update on the establishment of the risk function
including its plans and team.
The Committee reviewed management's assessment of
the effectiveness of the risk management and control
environment and continued to review and approve
applicable policies and arrangements. All members of the
Committee also participated in discussions on emerging
risk and were briefed on Conduit's response to specific
risks including the risk of fraud, climate risk and cyber risk.
The Committee also received updates on the ongoing
development of IT systems.
The Committee also received reports and updates from
Internal Audit on aspects of internal control as
determined in the Internal Audit Plan.
Further detail of the emerging and principal risks affecting
Conduit, including those matters that have informed the
Board’s assessment of Conduit’s ability to continue as a
going concern, as well as the risk mitigation procedures in
place to identify and manage them, can be found in the
risk disclosures on page 103 of the Annual Report and
Accounts.
Reviewing compliance and fraud procedures
and controls
The Audit Committee received regular compliance
reports from the General Counsel, covering:
•
regulatory interactions with the BMA,
regulatory reporting and updates on the
regulatory environment;
•
the establishment of the compliance function;
•
the compliance plan and its implementation;
•
compliance and regulatory training;
•
roll-out of compliance policies, including anti-
money laundering, anti-bribery and financial crime,
conflicts of interest, whistleblowing, sanctions and
Conduit’s code of conduct.
Conduit Holdings Limited Annual Report and Accounts 2022
54
Governance
Audit Committee report
continued
The Audit Committee receives reports on the number of
whistleblowing cases reported to Conduit’s
whistleblowing service, the proportion of reports that are
designated as instances of whistleblowing, the number
of substantiated cases and summaries of the action
taken. The Audit Committee reviewed and approved
updates to Conduit's whistleblowing policy and
procedure in 2022 and the Audit Committee Chair has
received training from Conduit’s third-party
whistleblowing service provider on how whistleblowing
reports raised to them will be handled.
Monitoring and reviewing the effectiveness of the
internal audit function
EY Bermuda Ltd (EY) is the Company’s outsourced
internal auditor. EY has extensive and current relevant
experience, providing outsourced and co-sourced
internal audit services to reinsurance businesses in
Bermuda and internationally and they are considered to
have the necessary skills and resources to deliver the
internal audit function effectively. The internal auditor
reports directly to the Audit Committee.
During the year, Internal Audit have provided updates
on their risk assessment, audit plan and
management's progress in addressing findings. The
Committee reviews the audit plan, internal audit
reports and management action plans, and makes
approvals or recommendations as applicable. The
Committee also met privately with the internal
auditor.
In May 2022, the Audit Committee approved the internal
audit charter and a three-year rolling plan. The internal
audit plan was based on an updated risk assessment.
Internal Audit provided quarterly written and oral reports
to the Audit Committee. The findings of each internal
audit are reported at the Committee’s quarterly
meetings. The Committee reviews actions
recommended to management for the improvement of
internal controls and the status of implementation of the
actions.
The Audit Committee also evaluated the
independence of the internal auditors, and no
concerns were identified. The effectiveness of the
internal audit function is kept under review at a high
level annually and will also be formally reviewed at
least every three years.
Overseeing the relationship with the
external auditor
KPMG Audit Limited (KPMG) was originally
appointed as the Company’s external auditor in
December 2020. At the Company’s 2022 AGM,
KPMG was reappointed as external auditors of
the Company until the conclusion of the 2023 AGM.
The lead external audit partner is James Berry who
was appointed at the same time as KPMG was
appointed as the Company’s first auditor in
December 2020.
The Audit Committee met with KPMG regularly during
2022 (both in private session and with management
present) and reviewed and approved the external audit
work plan for the year ending
31 December 2022. The Audit Committee receives
reports from KPMG, which include the progress of the
audit, key matters identified and the views of KPMG on
the significant estimates and judgements outlined below.
KPMG also reports on matters such as their observations
on the Company’s financial control environment,
developments in the audit profession, key upcoming
accounting and regulatory changes and certain other
mandatory communications.
The Audit Committee continues to monitor
developments, recommendations and legislative
proposals related to the quality and effectiveness of the
external audit and anticipates it will formally review the
effectiveness of the external audit function every three
to five years.
Auditor independence and objectivity
The Audit Committee assesses the external auditor’s
independence annually and has assessed that they are
independent. To assist in maintaining the external
auditor’s independence and objectivity, Conduit has
adopted a formal policy governing the engagement of the
external auditor to provide non-audit services, taking into
account the relevant ethical guidance on the matter. The
policy describes the circumstances in which the auditor
may be engaged to undertake non-audit work for Conduit.
The Audit Committee oversees compliance with the policy
and will consider and approve requests to use the auditor
for non-audit work when they arise, if appropriate. Except
for procedures conducted by KPMG with respect to the
Company’s unaudited condensed interim consolidated
financial statements for the six months ended 30 June
2022, there were no instances of the external auditors
performing non-audit work, or requests to perform non-
audit work, in 2022. The non-audit services policy is
available on the Company’s website. Implementation of
the policy is reviewed annually by the Audit Committee.
Conduit Holdings Limited Annual Report and Accounts 2022
55
Governance
Audit Committee report
continued
Auditor reappointment
The Company is required to appoint auditors at every
general meeting of the Company at which financial
statements are presented to shareholders. KPMG,
acting as external auditor to the Company in the
Company’s second year, has advised of its willingness
to stand for reappointment in 2023.
The Audit Committee and the Board consider KPMG to
have extensive experience auditing publicly traded
reinsurance businesses. The Committee has concluded
that KPMG’s appointment as auditors for the
forthcoming year continues to be in the best interests of
the Company and its shareholders. The resolution to
reappoint KPMG will propose that KPMG holds office
until the conclusion of the next Annual General Meeting
at which accounts are laid before the Company, at a
level of remuneration to be determined by the Board.
Significant areas of judgement and estimation
Annually, management provides the Audit Committee
with an analysis of significant areas of judgement and
estimation in the preparation of the consolidated financial
statements. Semi-annually, management provides the
Audit Committee with an analysis of the appropriateness
of preparing the statements on a going concern basis.
As discussed in our risk disclosures on page 103, the
most significant estimates made by management are in
relation to losses and loss adjustment expenses, both
gross and net of ceded reinsurance. Less significant
estimates are made in determining the estimated fair
value of certain financial instruments and estimates
made in determining premiums written and earned.
Valuation of losses and loss adjustment expenses
The valuation of losses and loss adjustment expenses,
including IBNR, involves a significant amount of
judgement. As stated in our accounting policies, it is a
complex process and it is reasonably possible that
uncertainties in the reserving process and delays in
cedants reporting losses to Conduit, together with the
potential for unforeseen adverse developments, could
lead to a material change in estimated net losses and
loss adjustment expenses.
The Audit Committee receives a quarterly report from
the Company’s Reserving Actuary. The Committee
reviews the adequacy of Conduit’s loss reserves and
challenges the methodology and judgements applied.
The Committee also receives reports from the
independent loss reserve specialist semi-annually. The
Committee was able to compare their
evaluation of loss reserves to Conduit's and
understand the differences which naturally arise
between them.
The Committee also received semi-annual reports from
the external auditors on the adequacy of the loss
reserves.
The Committee focused in particular on:
•
the reserving for natural-catastrophe and large-loss
events which occurred during the year;
•
the use of selected attritional reserving ratios,
given the lack of historical data for Conduit;
•
the difference in management’s estimates versus
the independent loss reserve specialist, noting that
the differences are within a reasonable range;
•
the adequacy of disclosure on the uncertainties of
the loss reserve estimates.
The Audit Committee was satisfied that all its queries
were appropriately addressed and noted that there
were no material differences between the loss
reserves calculated by the Company’s Reserving
Actuary and the independent loss reserve specialist.
The Committee was therefore satisfied that the
valuation of losses and loss adjustment expenses was
appropriate.
Fair value of certain financial instruments The asset
types Conduit is invested in are not complex with lower
estimation uncertainty in determining fair value. The
assets are highly liquid and are of high credit quality. As
disclosed in note 12, all of Conduit’s assets are Level
(I) or Level (II) securities. There are no equities, hedge
funds or derivative instruments.
Conduit’s investments are fair valued through the income
statement (“FVTPL”) to minimise changes in accounting
treatment on the adoption of IFRS 17 and IFRS 9.
Conduit does not therefore have any judgement around
impairment charges.
Estimates of premiums written and earned Our
quota share policies in particular are subject to
estimates. Some management judgement is exercised
in determining the initial ultimate premium estimate
from which to establish the recognition of gross
premiums written. While underwriting only commenced
on 1 January 2021, the policies underwritten are
largely mature and known to the underwriting team
and therefore establishing an appropriate estimate is
not deemed to be a significant risk.
Conduit Holdings Limited Annual Report and Accounts 2022
56
Governance
Audit Committee report
continued
Going concern assessment and longer-term
viability statements
The Audit Committee reviewed and advised the
Board on Conduit’s going concern and longer-term
viability statements included in the Annual Report
and Accounts and the assessment reports prepared
by management in support of such statements. As
part of this review, the Audit Committee assessed
the methods, assumptions and judgements
underpinning the going concern assessment. The
Audit Committee was satisfied by the level of
analysis presented during the year, the related
approach taken and statements made in Conduit’s
key external reporting. More information on the
going concern and viability statements can be
found on page 95.
Annual Report and Accounts
The Audit Committee reviewed and approved
Conduit’s preliminary unaudited results issued on
22 February 2023 and drafts of the Annual Report
and Accounts together with the external auditor’s
report. The Audit Committee advised the Board
that, in its view, the 2022 Annual Report and
Accounts, taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess Conduit’s
position and performance, business model
and strategy.
Priorities for 2023
The Audit Committee’s priorities for 2023 include
the following:
•
Continued monitoring of the development of systems,
processes and the control environment.
•
To monitor the implementation and the completeness
of disclosures in financial reporting for IFRS 17 and
IFRS 9.
•
Continue to monitor developments in climate and
ESG reporting.
•
To continue to monitor developments in
corporate governance including audit
practice reform.
Elizabeth Murphy, Chair
Audit Committee
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
57
Governance
Directors' remuneration report
Introduction of Directors remuneration report I
present the Directors’ remuneration report for 2022
which consists of three sections:
1.
This introduction, which explains our approach to
remuneration and summarises the key decisions
made by the Committee during the year (pages 58
to 59).
2.
Directors’ Remuneration Policy – this sets out our
Remuneration Policy, which was approved by a
binding shareholder vote at the May 2022 AGM at
which 97.6% of the votes cast were in favour (pages
60 to 69).
3.
Annual Report on Remuneration – this sets out in
detail how we’ve applied our Remuneration Policy in
2022, the remuneration received by Directors for the
year and how we will apply the policy in 2023. This
report will be put to an advisory shareholder vote at
the 2023 AGM (pages 70 to 79).
Performance for the year under review
There continued to be a significant effort involved in
setting up Conduit for the future and building Conduit’s
book of business during 2022. The combined impact of
loss events and mark-to-market unrealised losses on
our investments has had an impact on RoE. For 2022,
RoE continues to be negative; however, we expect to
begin seeing improvement through 2023 and beyond.
Remuneration at this stage continues to be a
reflection of Conduit’s evolution as we continue to
build and implement the business strategy post-IPO.
Annual bonuses for 2022 were based 75% on financial
(RoE) targets, and 25% on the personal and strategic
objectives of each Executive Director.
It is the opinion of the Remuneration Committee and the
Board that the Company’s management has done an
outstanding job to continue to build a successful
business beyond the foundation year. Management has
recruited an excellent team, now more than 50 strong,
and continued to build upon the technologically modern
operating platform. At the same time, the business has
continued to build a strong book of diversified, quality
business.
The remuneration outcomes in respect of 2022 reflect
these achievements, but also acknowledge that RoE at
year-end was negative, impacted by a number of factors
as noted in both the CEO report on pages 8 to 11 and
the CFO report on pages 18 to 19, including higher-than-
average natural-catastrophe losses, the Russian
invasion of Ukraine, and the impact of increased interest
rates on our
invested assets which resulted in a negative mark-to-
market effect.
The Committee considered whether it was appropriate to
pay bonuses in light of the financial element not having
been achieved for 2022 and the resulting 0% pay-out of
the financial element. The Committee determined that no
additional negative discretion needed to be applied to the
personal element pay-out. Details of the bonuses can be
found on pages 71 to 73.
As per the Remuneration Policy, up to half of any bonus
may be deferred into shares, with malus and clawback
provisions in place.
Our Executive Directors participate in our legacy MIP,
which was detailed in the IPO prospectus and there were
no additional long-term incentive awards made to the
Executive Directors during the year. The first tranche of
the bonus deferral award made to Executive Directors and
staff from their 2021 annual bonus awards will vest in
March 2023.
Remuneration for 2022 and beyond
As expected, 2022 has been a transition year as Conduit
moves forward from start-up into its post-foundation
phase and the forward-looking remuneration will
continue to reflect this as the business grows. As a non-
UK incorporated company, Conduit does not need to
comply with the requirements of the relevant provisions
of the UK Companies Act. As part of its commitment to
high standards of corporate governance, the Committee
put the Remuneration Policy to a binding shareholder
vote at the May 2022 AGM. At this meeting, the policy
was approved with
97.6% votes in favour, and therefore it is in place for a
three-year period ending with the 2024 business year.
The Remuneration Policy seeks to ensure our Executive
Directors are fairly and appropriately rewarded while
ensuring alignment with our shareholders. The policy was
developed considering market best practice and the
provisions of The UK Code.
For 2023, base salaries of the Executive Directors will be
increased by 3.0%, while the average increase across the
wider workforce is 3.7%. Pension and benefits will remain
unchanged, with pension contributions aligned to the
wider workforce. Annual bonuses will again be based 75%
on financial targets and 25% on personal objectives.
Executive Directors will not receive the new cost-of-living
allowance that is being awarded to staff across the wider
workforce in 2023 in response to the inflationary market
impacts. Further details can be found on pages 78 and
79.
Conduit Holdings Limited Annual Report and Accounts 2022
58
Governance
Directors' remuneration report
continued
As mentioned in previous disclosures, the Executive
Directors participate in the legacy MIP, with no further
long-term incentive awards expected to be granted to
them over the course of the current Policy. At present, the
Company does not have an ongoing plan under which
long-term incentives can be granted to employees.
However, in 2022, the Company commenced a review of
long-term incentive plan (LTIP) structures. It is intended
that a new LTIP will be implemented during 2023. In line
with the current Remuneration Policy, Executive Directors
will not be eligible for awards under this LTIP under the
current, shareholder-approved, Remuneration Policy.
The Remuneration Committee takes into consideration
the views expressed by shareholders and other
stakeholders in making its decisions. In 2022, I and the
Executive Chairman met with several significant
shareholders and discussed Conduit’s remuneration.
I and the rest of the Board remain acutely aware that
we must continue to work with investors and be
responsive and balanced in all key aspects of
remuneration.
Remuneration Committee membership
I was appointed as Chairman of the Remuneration
Committee at the time of the IPO in 2020. The other
members of the Remuneration Committee are Ken
Randall, Malcolm Furbert and Richard Sandor, all of whom
are independent Non-Executive Directors.
2022 meetings
The Remuneration Committee held three meetings during the year.
Maximum possible
Name
Appointed
meetings
Meetings attended
Sir Brian Williamson, Chair
17 November 2020
3
3
Ken Randall
17 November 2020
3
3
Malcolm Furbert
17 November 2020
3
3
Richard Sandor
24 November 2020
3
3
Role and responsibilities
The responsibilities of the Remuneration
Committee include the following:
•
Determining the policy for Directors' remuneration
and setting remuneration for the Executive Chair of
the Board, Executive Directors and senior
management including the Company Secretary (the
Executive Group).
•
Reviewing the ongoing appropriateness of
workforce remuneration and related policies.
•
Reviewing the ongoing appropriateness and
relevance of the Remuneration Policy.
•
Determining all elements of the remuneration of
the Executive Group.
The Remuneration Committee’s terms of
reference, which also set out the Committee’s
reporting obligations and authority to carry out its
responsibilities, are available on the Company’s
website.
There were no points of concern arising out of the
Board’s performance evaluation regarding the
Remuneration Committee’s performance during
2022.
Key activities in the year
•
Established a Remuneration Policy for Executive
Directors, which was approved by the Company's
shareholders at the May 2022 AGM.
•
Approved the DSBP, and initial Awards under the
Plan to staff and Executive Directors.
•
Reviewed the remuneration for Executive
Directors in line with the Policy.
•
Reviewed the business plan and resulting RoE to
set appropriate links to annual bonus parameters.
•
Reviewed total compensation for the
Executive Group.
•
Reviewed overall bonus arrangements for staff.
Conclusion
The Committee is dedicated to an open dialogue with
our investors, and I therefore welcome views on any
part of our remuneration arrangements.
Sir Brian Williamson, Chair
Remuneration Committee
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
59
Governance
Directors' Remuneration Policy
This section sets out the Directors’ Remuneration Policy
(“Policy”), which was approved by a binding shareholder
vote at the May 2022 AGM, updated where appropriate
to reflect the passage of time. This Policy came into
effect from 1 January 2022 and it is intended that this
Policy will apply for a three-year period unless amended
before then.
As a non-UK incorporated company, Conduit does not
need to comply with the requirements of the provisions
of the Companies Act 2006 and Schedule 8 of the Large
and Medium–sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2008, however
it has chosen to do so voluntarily. The Policy has been
developed considering market best practice and The UK
Code, noting that as a standard listed company it
complies with The UK Code on a voluntary basis,
reflecting the Board’s commitment to high standards of
corporate governance.
The Remuneration Committee may make minor changes
to this Remuneration Policy to support its operation or
implementation (for example, for regulatory or
administrative purposes), provided that any such change
does not materially advantage any Directors, without
obtaining shareholder approval for such changes.
Conduit’s approach to senior executive reward
(including the legacy MIP) is shaped by the
following key principles, where it is intended to
deliver:
•
Balancing short- and long-term goals – provide a
package with an appropriate balance between short-
and longer-term performance targets linked to the
delivery of the Company’s business plan and the
generation of sustainable long-term returns for
shareholders.
•
Shareholder alignment – ensure alignment of the
interests of the Executive Directors, senior
management and employees to the long-term
interests of shareholders.
•
Competitive remuneration – maintain a competitive
package in order to attract, retain and motivate
high-calibre talent to help ensure the Company
performs successfully.
•
Fairness – take an active interest in the
development of good practices to deliver fair
remuneration at all levels of the organisation.
•
Performance-focused compensation – encourage
and support a sustainable, high-performance culture
in line with the build plan and with the agreed risk
profile of the business.
In addition, the approach to senior reward (including the
MIP) is tested against the six factors listed in The UK
Code:
•
Clarity – the Policy is designed to be simple and to
support long-term sustainable performance so
should be well understood by participants and
shareholders.
•
Simplicity – the Remuneration Committee is mindful
of the need to avoid overly complex remuneration
structures – the executive remuneration policies and
practices are relevant to the continued development
of the business and simple to communicate and
operate.
•
Risk – the Policy is designed to ensure that
inappropriate risk taking is not encouraged and will
not be rewarded. Appropriate limits are set out in the
Policy. A balance of financial and non-financial targets
is used, which is designed to be stretching but
achievable to ensure the arrangements do not
encourage excessive risk taking. The Committee
retains discretion to override formulaic outturns. There
is a significant role played by equity in the incentive
plans, with up to half of any annual bonus deferred
into shares, the legacy MIP, and shareholding
(including post-cessation) requirements. Malus and
clawback provisions are in operation.
•
Predictability – the Policy contains appropriate caps for
the different pay elements. The potential reward
outcomes are set out in the illustrations provided,
which clearly show the potential scenarios of
performance.
•
Proportionality – there is a clear link between individual
awards, delivery of strategy and long-term
performance. In addition, the significant role played by
incentive/‘at-risk’ pay is designed to ensure that poor
performance is not rewarded.
•
Alignment to culture – the Policy encourages
performance that is aligned to the culture of
Conduit and in accordance with accepted
behaviours and values.
Conduit Holdings Limited Annual Report and Accounts 2022
60
Governance
Directors' Remuneration Policy
continued
Executive Director remuneration
Base salary
Purpose and link
Base salary is a key element to recruiting, retaining and incentivising
to strategy
executives of the right calibre to successfully execute Conduit’s
business strategy.
Operation
Base salaries are normally reviewed annually, with any changes usually
effective from 1 January. Exceptionally, an out-of-cycle review may be
conducted if the Committee determines it is appropriate.
When setting base salary levels, the Committee will take into account
several factors including (but not limited to):
• The Director’s role, skills and experience
•
The economic environment
•
Overall business performance
• Salary levels and pay conditions across the wider Group
•
Individual performance
• Market data for similar roles in comparable companies (including
reinsurance company peers)
• Changes to the size and complexity of the business
The process for salary review is consistent for all employees.
Maximum opportunity
There is no maximum base salary level.
The process for salary review is consistent for all employees and increases
for the Executive Directors are normally considered in relation to the
wider salary increases across Conduit.
Higher increases may be permitted where appropriate, for example
development in role or a change in position or responsibilities.
Performance metrics
There are no formal metrics, although individual and Group performance
is taken into consideration as part of the annual review.
Conduit Holdings Limited Annual Report and Accounts 2022
61
Governance
Directors' Remuneration Policy
continued
Executive Director remuneration
Benefits (including pension benefits)
Purpose and link
Benefits support recruitment and retention and facilitate a healthy
to strategy
workforce.
Operation
Pension benefits
Conduit’s pension schemes are based on defined contributions or
equivalent cash in lieu or salary sacrifice, subject to applicable law and
local market standards. For all staff, including Executive Directors, a cash
allowance of up to 10% of salary is paid in lieu of the standard employer
pension contribution, or a combination of pension contributions and cash
allowance, totalling 10% of salary. Any changes in the workforce pension
arrangements may be reflected in Executive Director remuneration.
Other benefits
Other benefits reflect normal market practice, are determined on a basis
consistent with all employees, and are set within agreed principles.
Benefits include, but are not limited to:
• Bermuda payroll tax and social insurance
• Medical, dental and vision insurance
•
Life assurance
• Long-term disability scheme
• Gym and club membership
•
Travel allowance
• Housing allowance for Bermuda-based Executive Directors
Additional benefits may be provided as the Remuneration Committee
considers appropriate and reasonable based on market practice.
Executive Directors are included in the directors’ and officers’ indemnity
insurance policy.
Maximum opportunity
There is no maximum value of benefits; the value is set according to
recruitment and retention needs bearing in mind local market standards
and requirements.
Pension contributions for Executive Directors will normally be in line with
the wider workforce, currently 10% of salary.
Performance metrics
None.
Conduit Holdings Limited Annual Report and Accounts 2022
62
Governance
Directors' Remuneration Policy
continued
Executive Director remuneration
Annual bonus
Purpose and link
To reward the achievement of financial results and key
to strategy
objectives over the financial year, which are linked to Conduit’s
strategic priorities.
To facilitate and encourage share ownership to align senior
employees with CHL shareholders through the use of deferral
into shares.
Operation
Annual bonus awards for the Executive Directors are based on the
financial performance of Conduit and the performance against
personal and/or strategic objectives of each Executive Director
during the financial year, with performance measures and objectives
set by the Committee at the beginning of the financial year.
At the end of the performance period, the Remuneration Committee
will determine the actual bonus awards for each Executive Director.
The Remuneration Committee aims to ensure that awards for
Executive Directors are based on performance viewed holistically
rather than on a formulaic outcome and has the discretion to adjust
the formulaic outcome.
Up to 50% of any bonus earned will be deferred into shares, which
normally vest over three years with one-third of the award vesting
in each of the following three years. Participants may also be
entitled to receive dividend equivalents which have accrued on
unvested shares during the vesting period, such dividend
equivalents to be paid at vesting.
Bonus awards are subject to malus and clawback provisions.
Maximum opportunity
The maximum bonus achievable for the Executive Directors is 300%
of base salary.
Performance metrics
The majority of the performance measures will be based on financial
performance (for example, RoE). The financial component will
normally comprise at least two-thirds of the overall opportunity. For
the current Policy, the Committee has set the financial component
at 75% of the overall opportunity.
A financial performance hurdle applies before any bonus is payable
in relation to the financial component, which is reviewed annually.
Where performance is deemed to be below a pre-determined
hurdle, payouts for the financial component will be nil. 25% is
payable for threshold performance.
The Committee has the discretion to make an award under the
personal performance component.
Conduit Holdings Limited Annual Report and Accounts 2022
63
Governance
Directors' Remuneration Policy
continued
Executive Director remuneration
Shareholding requirement
Purpose and link to strategy
To ensure Executive Directors are aligned with
shareholder interests.
Operation
Each of the Executive Directors is required to build and
maintain a shareholding in the Company of 300% of salary
while in post.
The portion of any future bonuses which is paid in shares
(post-tax and vested) and other share awards will accumulate
until this requirement is met. There is a seven-year period from
the date of IPO in which to achieve compliance.
Post-cessation shareholding requirements apply which will
require Executive Directors to retain for two years following
cessation of their employment by Conduit the lower in
value of:
• such number of shares on cessation that have a market
value equal to the shareholding guideline in place at that
time; and
• the number of shares they hold at that time.
Shares that are acquired by the Executive Director out of
their own funds will be excluded from this post-cessation
holding requirement.
Maximum opportunity
None.
Performance metrics
None.
Conduit Holdings Limited Annual Report and Accounts 2022
64
Governance
Directors' Remuneration Policy
continued
Non-Executive Director remuneration
Fees
Purpose and link to strategy
To provide an appropriate fee level to attract and retain
Non-Executive Directors who have a broad range of skills
and experience to oversee the implementation of
Conduit’s strategy.
Operation
Non-Executive Directors receive an annual fee in respect
of their Board appointments together with additional
compensation for further duties (for example, Board
committee membership and chairperson roles).
The fees paid are determined by reference to market data
and the skills and experience required by the Company, as
well as the time commitment associated with the role.
Fees are normally reviewed every two years, but not
necessarily increased.
Non-Executive Directors are not eligible for participation
in the Company’s incentive plans.
Travel and other reasonable expenses incurred by Non-
Executive Directors while performing their duties for the
Company are reimbursed (including any tax where these
are deemed to be taxable benefits).
Non-Executive Directors are included in the directors’ and
officers’ indemnity insurance policy.
Maximum opportunity
The amount of any remuneration payable to Non-Executive
Directors shall be determined by the Board (excluding the
Non-Executive Directors).
An aggregate remuneration limit applies under the Company
Bye-laws and shall not exceed $1.3 million per annum (unless
otherwise approved by the shareholders).
Performance metrics
None.
Conduit Holdings Limited Annual Report and Accounts 2022
65
Governance
Notes to the Director's Remuneration Policy
Performance targets
The Committee aims to ensure that performance
targets for the annual bonus awards to Executive
Directors are closely aligned to Conduit’s short-term
and long-term objectives. Each year, the Committee
reviews and selects the most appropriate performance
measures, considering the key priorities of Conduit at
the time over both the short and long term.
The measures and their weightings may change from
year to year to reflect the needs of the business.
Details are included in Conduit’s Annual Report and
Accounts each year, subject to limitations with regards to
commercial sensitivity for the annual bonus (where
general terms will be provided), and the full details
disclosed following the end of the financial year in
Conduit’s next Annual Report and Accounts, again,
subject to limitations with regards to commercial
sensitivity for the annual bonus (if appropriate).
Malus and clawback
The Remuneration Committee will have the discretion
to reduce a bonus award (malus) or require
repayment of a bonus award (clawback) where it
considers that there are exceptional circumstances.
Such exceptional circumstances are limited to:
•
material misstatement of results, financial or
otherwise;
•
material breach of any post-termination
employment covenants; or
•
fraud or a financial criminal act, which affects
Conduit and carries a custodial sentence during the
course of employment.
Clawback will apply for a period of three years
following vesting/payment of an award.
Committee discretions
The Committee operates under the powers it has been
delegated by the Board. The Committee operates the
incentive plans in accordance with the plan rules and
applicable legislation where relevant. Within the incentive
plans, the Committee retains a number of discretions to
ensure effective operation of the plans. These discretions
are standard market practice and include (but are not
limited to) the following:
•
Selecting the participants in the plans.
•
Determining the timing of payments/grants of
awards.
•
Determining the quantum of awards and/or payments
(within the limits set out in the Policy).
•
Determining the choice of (and adjustment of)
performance measures and targets for each
incentive plan in accordance with the Policy and
rules of each plan.
•
Determining the extent of pay-out based on the
assessment of performance.
•
Overriding formulaic annual bonus outcomes,
taking account of overall or underlying Company
performance.
•
Determining whether and to what extent dividend
equivalents should apply to awards.
•
Determining whether malus and/or clawback shall
be applied to any award in the relevant
circumstances and, if so, the extent to which they
shall be applied.
•
Making appropriate adjustments required in
certain circumstances, for instance for changes
in capital structure (or any similar corporate
event).
•
Application of the holding period.
•
Determining good leaver status for incentive plan
purposes and applying the appropriate treatment.
•
Agreeing to early payment of deferred bonuses to
Executive Directors on an exceptional basis.
•
Undertaking the annual review of weighting of
performance measures and setting targets for the
annual bonus plan from year to year.
The Remuneration Committee can relax the share
ownership requirement in exceptional circumstances and
may alter the operation of the guidelines to reflect
changing market practice, the expectations of institutional
shareholders and/or such other matters as the
Remuneration Committee considers appropriate.
If an event occurs that results in the annual bonus plan
performance conditions and/or the targets being deemed
no longer appropriate (e.g. material acquisition or
divestment), the Committee will have the ability to adjust
appropriately the measures and/or targets and alter
weightings, provided that the revised conditions are not
materially less challenging than the original conditions. In
addition, the Committee may exercise its discretion to
make other non-material decisions affecting the Executive
Directors’ awards in order to facilitate the plans.
Any use of the above discretion would, where
relevant, be explained in the Company’s annual
report on remuneration of Directors.
Legacy arrangements
For the avoidance of doubt, any commitments entered
into by Conduit prior to the approval and implementation
of the Policy outlined above may be honoured, even if
they are not consistent with the
Conduit Holdings Limited Annual Report and Accounts 2022
66
Governance
Notes to the policy table
continued
policy prevailing at the time the commitment is
fulfilled.
This includes the MIP, which was in place prior to this
Policy. Details of this plan can be found on page 37 of the
2020 Annual Report and Accounts. This may also include
commitments to future Executive
Directors where the terms were agreed prior to (and not in
contemplation of) promotion to Executive Director, which
includes satisfying awards of variable remuneration based
on the terms agreed at the time the award was granted.
Illustration of the policy
The charts below set out the potential values of the remuneration package of the Executive Directors for 2023
under various performance scenarios.
Notes
•
Minimum: Fixed pay only (salary, benefits and
pension).
•
Target: Fixed pay and annual bonus at 50% of
maximum.
•
Maximum: Fixed pay and maximum achievable
annual bonus.
•
Salary represents annual for 2023.
•
Benefits have been included based on the
actual 2022 value of benefits (including
housing allowances).
•
Pension represents the value of the annual
pension of 10% of salary contributed by the
Company.
As a legacy arrangement, the MIP is excluded and no
scenario showing maximum with share price growth on a
long-term incentive plan is included as no further awards
of a long-term nature for Executive Directors is provided
for in the Policy.
Service agreements – Executive Directors
The Company’s policy is for Executive Directors to have
service agreements which may be terminated by the
Company for breach by the executive or with no more
than six months’ notice from the Company to the
Executive Director and six months’ notice from the
Executive Director to the Company.
On 18 November 2020, Neil Eckert and Trevor Carvey
each entered into service agreements with CHL, which
have since been transitioned to agreements with CSL.
On 13 January 2021, Elaine Whelan entered into a
service agreement and was appointed as an Executive
Director and the CFO.
If notice is served by either party, the Executive Director
can continue to receive base salary, benefits and
pension, per the terms of their service agreement, for the
duration of their notice period during which time the
Company may require the individual to continue to fulfil
their current duties or may assign a period of garden
leave. Service agreements do not contain liquidated
damages clauses.
The Company may elect to make a payment in lieu of
notice equivalent in value to a maximum of six months’
base salary and benefits, including pension contribution
but excluding bonus (which would be considered
separately in the appropriate circumstances), payable in
monthly instalments, which would be subject to mitigation
if alternative employment is taken up during this time.
Alternatively, the Remuneration Committee retains
discretion to provide this payment as a lump sum.
Conduit Holdings Limited Annual Report and Accounts 2022
67
Governance
Notes to the policy table
continued
In some cases, an Executive Director may be determined
a good leaver. Good leavers may receive an annual
bonus payment, which will normally be subject to the
satisfaction of the relevant performance criteria tested at
the normal date and, ordinarily, the outcome will be
calculated on a time pro-rata basis to date of departure.
The Committee retains discretion on whether the whole
bonus payable is paid in cash, or whether part of it is
deferred either in cash or shares.
In the event of termination for cause (e.g. gross
misconduct) neither notice nor payment in lieu of notice
will be given and the Executive Director will cease to
perform their services immediately. In addition, and
consistent with market practice, the Company may pay
a contribution towards the Executive Director’s legal
fees for entering into
a statutory agreement, may pay a contribution towards
fees for outplacement services as part of a negotiated
settlement, or may make a payment to settle claims the
Executive Director may have. There is no provision for
additional compensation on termination following a
change of control. Payment may also be made in
respect of accrued benefits, including holiday not
taken.
In the event of a change of control or similar event,
awards may vest early subject to performance and,
normally, any bonus entitlement would be subject to
prorating on a time apportioned basis.
The Committee may at its discretion determine that
awards shall not be subject to time prorating or be subject
to prorating to a lesser extent if it considers it appropriate
in the circumstances. Alternatively, following an internal
reorganisation which results in a change of control,
awards may be rolled over into awards in the acquiring
company.
Service agreements – Non-Executive Directors Non-
Executive Directors are typically expected to serve two
three-year terms but may be invited by the Board to
serve for an additional period.
Any term renewal is subject to Board review and AGM
re-election. Notwithstanding any mutual expectation,
there is no right to re-nomination by the Board, either
annually or after any three-year period.
Director
Date of Appointment
Expiry of first three-year term1
Elizabeth Murphy
18 November 2020
18 November 2023
Ken Randall
18 November 2020
18 November 2023
Malcolm Furbert
18 November 2020
18 November 2023
Sir Brian Williamson
18 November 2020
18 November 2023
Richard Sandor
26 November 2020
26 November 2023
Michelle Seymour Smith
15 September 2021
15 September 2024
1.
Succession planning for Board positions is discussed on page 48.
Recruitment of Directors – approach to
remuneration
Consistent with best practice, remuneration packages
for any new appointments to the Board and senior
employees (including those promoted internally) will be
set in line with the Policy which remains unchanged.
In setting base salaries for new Executive Directors, the
Committee will consider the individual’s level of skills and
experience. Where it is appropriate to offer a below
market-salary on initial appointment, the Committee will
have the discretion to allow phased salary increases over
a period of time for a newly appointed Executive Director
up to an appropriate salary for the appointment, even
though this may involve increases in excess of those
awarded to the wider workforce.
Benefits will be offered in line with the Policy table. For
both external and internal appointments, the
Committee may consider it appropriate to pay
reasonable relocation or incidental expenses,
including payment of reasonable legal expenses. This
will ordinarily be for a reasonable but fixed period of
time and will be disclosed on appointment. Pension
will normally be in line with the wider workforce.
Annual bonus will be in line with the Policy table and will
be prorated in the year of joining to reflect the period of
service. In setting the annual bonus, the Committee may
set different performance metrics (to those of other
Executive Directors) in the first year of appointment.
For external appointments, the Committee
recognises that it may need to provide
compensation for forfeited awards from the
individual’s previous employer. To the extent
possible, the design of any buyout will be made
on a broadly like-for-like basis and shall be no more
Conduit Holdings Limited Annual Report and Accounts 2022
68
Governance
Notes to the policy table
continued
generous than the terms of the incentives they are
replacing, taking into account the performance
conditions attached to the vesting of the forfeited
incentives, the timing of vesting and the likelihood of
vesting. In addition, it may be necessary to make an
initial forward-looking LTIP award.
Conduit does not currently operate an LTIP under which
future grants can be made to Executive Directors.
Although not subject to the requirements of the Listing
Rules as a standard listed company to seek shareholder
approval for an LTIP in which Executive Directors may
participate (or which may involve the issue of new
shares), it would in practice seek such approval.
Therefore, the Committee may also use the flexibility
provided (being best practice rather than a requirement)
under the Listing Rules to make awards as provided for
under Rule 9.4.2 (2) without prior shareholder approval.
For an internal appointment, any variable pay
element or benefit awarded in respect of their prior
role may be allowed to continue on its original
terms.
The terms of appointment for a new Non-Executive
Director will be in accordance with the Policy for Non-
Executive Directors as set out in the Policy table.
Executive Directors’ external appointments Executive
Directors may accept external appointments as Non-
Executive Directors of other companies, as long as the
companies concerned are not competitors of Conduit, and
the appointment will not adversely affect the performance
of the Executive Director for the Company, and with the
specific prior approval of the Board in each case. Any
fees receivable may be retained by the Executive Director
concerned.
How shareholders’ views are taken into account The
Committee considers the views of shareholders when
reviewing the remuneration of Executive Directors and
other senior executives, and takes into account published
remuneration guidelines and the specific views of
shareholders and proxy agencies. The Committee will
consult with the Company’s key shareholders when
considering significant changes to the implementation of
the Policy and when the Policy is being reviewed
(typically ahead of an AGM binding vote on the Policy).
The Committee will consider shareholder feedback
received before and after an AGM. The Committee
values feedback from its shareholders and seeks to
maintain a continued, open dialogue.
Broader employee context – consideration of
employment conditions elsewhere in Conduit
In accordance with the Committee’s terms of reference,
when setting remuneration for Executive Directors and
the Executive Chairman, the Committee reviews the pay
and conditions across Conduit. Conduit aims to provide a
market competitive package to all employees and the
Committee considers executive remuneration in the
context of the wider employee population.
The Policy for Executive Directors is weighted more
towards variable pay than for other employees, with a
greater part of their pay therefore at risk to them and
conditional on the successful delivery of Conduit’s
business strategy. The operation of the bonus scheme for
the Executive Directors is consistent with Conduit’s other
senior employees. Bonus pools are determined based on
financial performance against a target (reviewed
annually). Arrangements tailored to roles and
responsibilities are operated for selected positions.
Bonuses for more junior employees are calculated using a
more formulaic approach.
While employees are not directly consulted on matters of
remuneration policy for Executive Directors, the
Committee liaises with the Head of HR to ensure that
there is an appropriate level of consultation between HR
and Conduit's employees on remuneration matters. The
results of any employee feedback, whether direct
feedback or as part of the annual employee engagement
survey process, is reported to the Committee.
Conduit Holdings Limited Annual Report and Accounts 2022
69
Governance
Annual report on remuneration
This section summarises the Directors’ remuneration for
the period ending on 31 December 2022 and how the
policy will be implemented for the year ahead. This report
on remuneration together
with the Chairman’s statement, as detailed on
pages 58 to 59, will be put to an advisory vote at
the 2023 AGM.
The following sections in respect of Directors’
remuneration have been audited by KPMG Audit
Limited:
•
Single figure of remuneration
•
Non-Executive Director fees
•
2023 annual bonus payments in respect of 2022
performance
•
Deferred bonus awards
•
Directors’ shareholdings and share interests
Executive Directors’ single figure of remuneration
The table below sets out the total remuneration (in $’000) for Executive Directors for the financial period ending 31
December 2022.
Pension or
payment
Annual
Total fixed
Total variable
Total
Executive Director
Year
Salary
Benefits3
in lieu4
bonus5
LTIP6
Other
remuneration
remuneration
remuneration
Neil Eckert
2022
$546
$1
$14
$307
$-
$-
$561
$307
$868
2021
$530
$1
$14
$919
$-
$-
$545
$919
$1,464
Trevor Carvey
2022
$824
$329
$82
$464
$-
$-
$1,235
$464
$1,699
2021
$800
$318
$88
$1,443
$-
$-
$1,206
$1,443
$2,649
Elaine Whelan1
2022
$603
$243
$60
$395
$-
$-
$906
$395
$1,301
2021
$553
$213
$56
$1,069
$-
$-
$822
$1,069
$1,891
Mark Heintzman2
2022
$-
$-
$-
$-
$-
$-
$-
$-
$-
2021
$51
$55
$16
$-
$-
$-
$122
$-
$122
Notes to single figure table
1.
Joined the Board on 14 January 2021. For 2021, disclosures were prorated for time in employment.
2.
Left the Board on 13 January 2021. For 2021, disclosures were prorated for time in employment. In accordance with the leaver terms outlined on page 65 of
the 2021 Annual Report and Accounts.
3.
Benefits for Bermuda-based Executive Directors comprise Bermuda payroll taxes (employee obligations paid by the Company), Bermuda social insurance
(employee obligations paid by the Company), medical, dental and vision coverage (employee obligations paid by the Company), life insurance (employee
obligations paid by the Company), housing and other allowances paid or to be paid by CHL in line with standard market practice. Benefits for Neil Eckert, who is
UK-based, are a reflection of the annual well-being/gym allowance paid; there are no additional benefits under his terms and conditions.
4.
The Executive Directors’ pension provision is aligned to that of the rest of the workforce, at 10% of pensionable earnings. Executive Directors may elect to take
cash in lieu of pension, subject to compliance with applicable law. For 2021, the amounts paid also included any back-dated pension contributions owed for
services in 2020 when Conduit schemes had not yet been set up. Neil Eckert is on a split employment contract to delineate his UK and Bermuda duties. Therefore,
pension benefit for Neil is a reflection of his UK contractual benefit requirement; there are no Bermuda-based benefits which he is eligible for under his terms of
employment.
5.
Executive Director bonus awards are stated as the full value of the bonus award; up to 50% of bonuses awarded are payable as a deferred share award of an
equivalent value.
6.
Other than the legacy MIP, Executive Directors do not currently participate in any LTIP. Details of the MIP can be found on pages 75 and 76. No awards
vested under the MIP during the year.
Conduit Holdings Limited Annual Report and Accounts 2022
70
Governance
Annual report on remuneration
continued
The following chart summarises the above disclosed remuneration of each Executive Director for 2021 and 2022:
Annual bonus
Following the approach that was set out in the 2021 Annual Report and Accounts, annual bonus awards for the
Executive Directors were based on the financial performance of Conduit and the personal contributions of each
Executive Director, with the financial component making up 75% of the overall opportunity and 25% based on personal
contribution and/or meeting strategic objectives. The financial measure for 2022 was RoE. The Remuneration
Committee determined the actual bonus awards for each Executive Director, based on the following criteria.
Financial Performance (75%)
Financial
Threshold
Target
Maximum
Actual
element
RoE
5.7%
8.7%
13.7%
(9.1)%
0%
Executive Directors’ performance objectives (25%)
Each of the Executive Directors was evaluated against their performance objectives for the year.
Detailed objectives
Neil Eckert
Effectively perform the duties of the
•
Effective leadership
Chairman’s role, primarily achieved
and management of
through overseeing the business and
the Board of
investor relations strategy plus managing
Directors
the Board of Directors.
•
Development of the
investor relations and
Perform a leading role in promoting ESG
general business
principles across the business.
strategy
•
Advocate for
Support the CEO to ensure the efficient
Conduit’s ESG
operation of Conduit.
strategy
Assessment
Despite being primarily based in the
UK, Neil has provided valuable
oversight and input into the continued
growth and development of Conduit’s
Investor Relations strategy and
relationships.
Neil has played a critical role in
partnering with internal stakeholders to
progress Conduit’s ESG initiatives and
developing ways for ESG principles to be
incorporated into the way we work at
Conduit.
As co-founder, Neil continues to make
valuable contributions to the Company
and continues to provide guidance to the
executive group and the Board.
Conduit Holdings Limited Annual Report and Accounts 2022
71
Governance
Annual report on remuneration
continued
Detailed objectives
Assessment
Trevor Carvey
Effectively perform the duties of the
•
Effective leadership
CEO role: managing the business in line
and management of
with the strategy and business plan,
the senior executive
participation in relevant Committee
team and Group
meetings including leading the executive
•
Development of the
team and making recommendations to
general business
improve business operations.
strategy
•
Incorporate ESG
Lead the executive team, ensuring they
principles into the
are all contributing to business strategy
business
growth and development, including
fostering strong relationships with
our investors.
Perform a leading role in promoting ESG
principles across the business.
This year, Trevor has been able to further
focus his efforts on his oversight and
management of the business in his role
as CEO, having handed over the role of
CUO to Greg Roberts during the year.
This has ensured that Trevor has been
able to focus more valuable time
managing key investor and stakeholder
relationship engagement.
Trevor has led Conduit through another
successful growth year, and the business
team has further developed a diverse
book of business to support the business
strategy. Trevor and his executive group
have worked tirelessly to ensure that
Conduit is well positioned for the current
market cycle.
Elaine Whelan
Effectively perform the duties of the
•
Effective leadership
CFO role: managing production of
and management of
financial reports which are required as a
the finance and
public company, participation in relevant
investments and
Committee meetings including making
treasury functions for
recommendations to improve capital
Conduit
efficiency and risk-adjusted returns.
•
Contribution to the
general finance and
Demonstrate leadership and
investment strategies
management of the finance team.
•
Incorporation of ESG
principles into the
Manage Conduit’s investment portfolio
investment portfolio
while working in conjunction with the
investment committee and CEO.
Perform a leading role in promoting
ESG principles within the investment
portfolio. Manage our rating agency
relationships, update the CEO on matters
which will get rating agency attention
and recommend action/communication.
Contribute, as a member of the
executive team, to the efficient operation
of Conduit.
Elaine continues to play a key role in
leading the finance team and all related
aspects of finance systems build and
integration to support the business and
ensure timely and accurate financial
reporting.
Elaine has continued to consider ESG
principles around Conduit’s investment
strategy and portfolio while also
managing the portfolio through volatile
markets.
Elaine is a valued member of the
Conduit executive team, working
collaboratively with the executive
team to ensure efficient business
management.
Conduit Holdings Limited Annual Report and Accounts 2022
72
Governance
Annual report on remuneration
continued
As a result of the performance assessment outcomes, the Committee determined bonuses for the Executive Directors
as follows:
Financial
Personal
element pay-out
element pay-out
Actual bonus
(% of weighted
(% of weighted
pay-out (% of
element)
element)
maximum)
Neil Eckert
0
150.0
19.0
Trevor Carvey
0
150.0
19.0
Elaine Whelan
0
175.0
22.0
Bonuses are subject to a maximum of 300% of base salary. Up to 50% of bonuses awarded are payable as a deferred
share award of an equivalent value (with the number of shares calculated using the average of the share price at the
close of the market over the five days prior to the day that the award is granted). These awards vest under the terms
defined in the scheme rules, over three years with one-third of the award vesting (including dividend equivalents) in
each of the following three years. The Committee considers this to be an appropriate structure with the deferral serving
as a retention mechanism over the three-year period. Deferral over three years is also more in line with the expected
duration of Conduit’s reserves.
Actual bonus
Cash bonus
Bonus
pay-out
Maximum
Actual bonus
paid,
deferred into
(% of
opportunity
pay-out
Outcome
$'000
shares, $'000
maximum)
(% of salary)
(% of salary)
($'000)
(50%)
(50%)
Neil Eckert
19
300
56
307.1
153.5
153.6
Trevor Carvey
19
300
56
463.5
231.7
231.8
Elaine Whelan
22
300
66
395.4
197.7
197.7
Long-term incentive plan
As previously disclosed, the Executive Directors participate in the legacy MIP scheme, which was detailed in the IPO
prospectus and subsequent Annual Report and Accounts. The MIP is currently Conduit’s only long-term share-based
incentive plan. Details of the plan can be found on pages 75 to 76.
No awards under the MIP vested in the year under review.
Payments for loss of office
No Executive Director left the employment of Conduit during the year under review.
Payments to past Directors
No payments were made to former Directors during the year.
Non-Executive Directors
The Non-Executive Director fees have been determined in accordance with the Remuneration Policy set out on page 65.
The Non-Executive Directors’ basic fee is $75,000 per annum, with additional annual fees payable in respect of
membership of Board Committees of $15,000 per committee and $25,000 for appointment as Chair of a committee (and
$15,000 for appointment as Senior Independent Director). The Non-Executive Directors do not participant in incentive
schemes.
There were no Non-Executive Director appointments during 2022.
Conduit Holdings Limited Annual Report and Accounts 2022
73
Governance
Annual report on remuneration
continued
For the year ended 31 December 2022, under the terms of their appointments the Non-Executive Directors of CHL
were paid the following fees:
Aggregate fees paid (including in respect of CRL) $’000
Non-Executive Director
2022
2021
Sir Brian Williamson
$130
$130
Elizabeth Murphy
$140
$140
Ken Randall
$155
$155
Malcolm Furbert
$130
$130
Dr. Richard Sandor
$105
$105
Michelle Seymour Smith1,2
$128
$31
Total
$788
$691
1.
For 2021, fees were prorated from 24 September 2021, the date of appointment.
2.
For 2022, fees include prorated fees for additional Board Committee appointment (Nomination Committee) with effect from 22 February 2022.
The aggregate remuneration paid for the year to 31 December 2022 by way of fee for all the Non-Executive Directors
was $787,813 made up of $687,813 in respect of CHL and $100,000 in respect of CRL.
Directors’ shareholdings
Details of the Directors’ interests in shares are shown in the following table. Executive Directors are required to build and
retain a holding of the Company’s shares equivalent to at least 300% of their base salary.
Details of awards under the DSBP
As previously disclosed, there is no LTIP in place that Executive Directors can participate in;, however, up to 50% of an
Executive Director's annual bonus is deferred into shares under the DSBP. Details of the 2022 awards, from the 2021
annual bonus for the Executive Directors, are below.
Awards
Awards
Awards
granted
vested
exercised
Awards held
Awards held
during the
during the
during the
at 31 Dec
Grant date
at 1 Jan 2022
year
year
year
2022
Neil Eckert
25-Mar-221
-
95,726
-
-
95,726
-
95,726
-
-
95,726
Trevor Carvey
25-Mar-221
-
150,253
-
-
150,253
-
150,253
-
-
150,253
Elaine Whelan
25-Mar-221
-
111,371
-
-
111,371
-
111,371
-
-
111,371
1.
The vesting dates for the DSBP awards are subject to the Company being out of a closed period and are as follows: 2022 award –
vests 33.33% per year over a three-year period, being 25 March 2023, 25 March 2024 and 25 March 2025.
Conduit Holdings Limited Annual Report and Accounts 2022
74
Governance
Annual report on remuneration
continued
Shareholding
Beneficially
Share awards
Share awards
Beneficially
held – deferred
held – deferred
owned as at
owned as at
bonus
bonus
Guideline % of
Director
1 Jan 2022
31 Dec 2022
(vested1)
(unvested2)
base salary
Guideline met3
Neil Eckert4
597,112
669,657
-
95,726
300%
Yes
Trevor Carvey
180,000
295,630
-
150,253
300%
No
Elaine Whelan
65,950
153,053
-
111,371
300%
No
1.
No awards under the DSBP vested during 2022.
2.
Share awards under the DSBP are calculated as up to 50% of the annual bonus award, with the number of shares calculated using the average of the share
price at the close of the market over the five days prior to the day that the award is granted. See page 74 for details.
3.
As at 31 December 2022, Neil Eckert met the shareholding requirement set for Executive Directors. The other Executive Directors (Trevor Carvey and Elaine
Whelan) have seven years from appointment to build their shareholdings in order to meet the requirement.
4.
Neil Eckert's beneficially owned shares includes 35,873 shares owned by his spouse, Nicola Eckert.
Beneficially
Share awards
Share awards
Beneficially
held – deferred
held – deferred
owned as at
owned as at
bonus1
bonus1
Non-Executive Director
1 Jan 2022
31 Dec 2022
(vested)
(unvested)
Sir Brian Williamson
15,000
20,000
N/A
N/A
Elizabeth Murphy
15,000
15,000
N/A
N/A
Ken Randall
55,000
55,000
N/A
N/A
Malcolm Furbert
8,000
8,000
N/A
N/A
Dr Richard Sandor
15,000
15,000
N/A
N/A
Michelle Seymour Smith
-
20,000
N/A
N/A
1.
Non-Executive Directors do not receive an annual bonus and therefore do not participate in the DSBP.
A share incentive plan, the MIP, was put in place prior to Admission for Neil Eckert and Trevor Carvey (the founders of
Conduit) and other senior managers who are expected to make key contributions to the success of Conduit from
Admission. The table below sets out the respective MIP Share allocations for each of the Executive Directors at 31
December 2022:
USD MIP
GBP MIP
Percentage
Name
Shares
Shares
of MIP
Neil Eckert
45,000
45,000
45.0%
Trevor Carvey
30,000
30,000
30.0%
Elaine Whelan1
5,000
5,000
5.0%
Total
80,000
80,000
80.0%
1.
Elaine Whelan’s MIP award is in the form of a nil-cost option.
Success in the MIP will be measured by share price performance and investor returns, and the MIP
arrangements reflect these key metrics. The MIP was facilitated by the subscription for shares in CML
(a direct subsidiary of CHL, which is an intermediate holding company of CRL). Under the MIP, Executive
Directors and other senior managers invited to participate subscribed for shares or were issued nil-cost
options in CML (“MIP Shares”). Half of the MIP Shares are denominated in sterling (“GBP MIP Shares”)
and half in US dollars (“USD MIP Shares”).
Subject to vesting in the hands of the relevant holder of MIP Shares, if the Performance Condition is satisfied at the time,
the MIP Shares will be automatically exchanged for common shares of CHL for an aggregate value equivalent to up to
15% of the excess of the Market Value of CHL over and above the Invested Equity (the “Growth”) (7.5% of the Growth
based on calculations in sterling for the GBP MIP Shares and 7.5% of the Growth based on calculations in US dollars for
the USD MIP Shares).
Conduit Holdings Limited Annual Report and Accounts 2022
75
Governance
Annual report on remuneration
continued
If (1) the Performance Condition is satisfied for either or both of the GBP MIP Shares or the USD MIP Shares on each of
the fourth, fifth, sixth and seventh anniversaries of Admission and (2) no takeover of CHL or sale or liquidation of CML
has taken place before any of those dates, one-quarter of the relevant MIP Shares (delivering 1.875%. of the Growth to
the relevant shares) (each a “Tranche”) will be automatically exchanged for such number of common shares of CHL as
have an aggregate value (at the closing share price for the trading day immediately prior to the date of the exchange)
equal to 1.875% of the Growth at the date of the exchange. Whenever the Performance Condition has not been satisfied
on the relevant anniversary date in respect of a Tranche, those MIP Shares which might otherwise have been
exchanged will not be exchanged and will automatically exchange at the next anniversary date on which the
Performance Condition is satisfied. If the Performance Condition is satisfied, any MIP Shares that have not automatically
been exchanged for common shares of CHL before that date will on the effective date of any takeover of CHL or sale or
liquidation of CML be exchanged (delivering the remainder of the 7.5% of Growth for each of the USD MIP Shares and
the GBP MIP Shares).
If on the seventh anniversary of Admission, the Performance Condition is not satisfied, all MIP Shares to be exchanged
for commons shares of CHL on that date will be redeemed for 1 pence (sterling) in aggregate. Similarly, on a takeover
of CHL or sale or liquidation of CML, if the Performance Condition is not satisfied, all of the MIP Shares will be
redeemed for 1 pence (sterling) in aggregate. MIP Shares are subject to customary leaver provisions and
malus/clawback principles.
Performance graph and table
This graph shows the value of £100 invested in Conduit Holdings Limited compared with the value of FTSE 250
(excluding Investment Trusts) since Admission. This index has been selected as it comprises companies of a
comparable size and complexity and provides a good indication of the Company’s relative performance.
CHL relative to FTSE 250 (2/12/20–31/12/22)
Conduit Holdings Limited Annual Report and Accounts 2022
76
Governance
Annual report on remuneration
continued
CEO single figure of remuneration
The table below shows the pay information of our CEO (in $’000).
2022
2021
2020
CEO total remuneration
$1,699
$2,649
$606
Actual bonus as a % of maximum
19%
59%
N/A
Actual share award vesting as % of the maximum
N/A
N/A
N/A
Percentage change in CEO remuneration
Given Conduit was only incorporated on 7 December 2020 and was listed for less than a month in 2020 following the
IPO, a year-on-year comparison in remuneration for 2020 versus 2021 is of limited use. Market-loss events and mark-to-
market unrealised losses on our investments have had a negative impact on CEO remuneration in 2022 as shown in the
above table.
Relative importance of the spend on pay
The table below shows the Company’s expenditure on employee pay compared to distributions to shareholders for
the period under review. Given that the Company was only incorporated on 7 December 2020 and the period of
listing for 2020 was only three weeks, no comparison data for 2020 is shown.
2022
Percentage
2021
change
$m
$m
%
Distributions to shareholders
$59.3
$29.7
99.7
%
Total employee pay
$22.3
$19.0
17.4
%
CEO pay ratio
The majority of our employees are based in Bermuda, with fewer than 250 employees globally. As a result, we are not
required to publish a CEO pay ratio.
External advisers
The Committee can seek independent external advice if it deems it appropriate to do so. No such advice was sought in
2021. However, in early 2022, the Committee appointed specialist remuneration advisers at Alvarez & Marsal Taxand
UK LLP ("A&M"), a firm with no other connection to the Company or individual directors. A&M is a member of the
Remuneration Consultants’ Group and is a signatory to its Code of Conduct, requiring the advice provided to be
objective and impartial. Based on the above, the Committee is comfortable that the advice provided was independent.
During 2022, $65,411 was paid to A&M on a time and materials basis.
Statement of shareholding voting
At the 2022 shareholder AGM, the first Policy and Directors’ Remuneration Report was submitted to
shareholders. Disclosure of the voting results at the AGM is presented below.
Vote to approve 2021 Annual
Vote to approve 2022-2024
Report on Remuneration
Remuneration Policy
(at the 2022 AGM)
(at the 2021 AGM)
Total number
Total number
of votes
% of votes cast
of votes
% of votes cast
For
132,758,002
99.98
131,008,002
97.60
Against
22,914
0.02
3,222,914
2.40
Total
132,780,916
100.0
134,230,916
100.0
Abstentions
1,450,000
-
Conduit Holdings Limited Annual Report and Accounts 2022
77
Governance
Annual report on remuneration
continued
Remuneration for 2023
We disclose here the remuneration approach we have implemented for Executive Director and senior
management remuneration in 2023.
Impact of inflationary environment on employees
Management have modelled various scenarios on how the impact of inflation on our employees can be minimised.
Management have approved a fixed-term cost-of-living allowance ("COLA") for our staff, excluding Executive Directors.
In determining the appropriate level for the COLA, management's focus was to ensure that those with the greatest
need (i.e., those at the lower end of the salary scale) received the greatest assistance.
While the COLA is not intended to be permanent, it will be subject to review in 12 months' time, ahead of the determined
end-date, to evaluate if the circumstances within the market have changed, resulting in an extension or termination of the
COLA, or its replacement by another mechanism.
Salary increases across Conduit
A standard salary increase of 3.0% was applied to Executive Directors when setting the 2023 salaries. Across the wider
workforce for Conduit, the average increase is 3.7%, including adjustments for promotions or market alignment.
Additionally, the wider workforce are eligible to participate in the cost-of-living allowance which is noted in more detail
below, and Executive Directors are not eligible for this additional allowance. When accounting for annual salary and the
cost-of-living allowance, the average increase in fixed pay across the wider workforce is 5.2%.
All salary increases are with effect from 1 January 2023 and for Executive Directors are as follows:
Executive Director
2023 salary
2022 salary
Neil Eckert
$562,277
$545,900
Trevor Carvey1
$848,720
$824,000
Elaine Whelan
$620,627
$602,550
1.
Trevor Carvey's 2022 salary has been restated from the 2021 report statement to accurately reflect the salary awarded for 2022.
Housing allowances
Housing allowances for the Bermuda-based Executive Directors remain unchanged from the prior year and are as
follows:
2023
2022
Monthly
Annual
Monthly
Annual
housing
housing
housing
housing
Executive Director
allowance
allowance
allowance
allowance
Trevor Carvey
$17,500
$210,000
$17,500
$210,000
Elaine Whelan
$10,000
$120,000
$10,000
$120,000
Conduit Holdings Limited Annual Report and Accounts 2022
78
Governance
Annual report on remuneration
continued
Bonus target and maximum parameters
Current bonus target and maximum opportunities for the senior executives also remain unchanged from the prior year.
They are as follows:
2023
2022
Maximum
Maximum
Executive Director
Bonus target
bonus
Bonus target
bonus
Neil Eckert
150%
300%
150%
300%
Trevor Carvey
150%
300%
150%
300%
Elaine Whelan
150%
300%
150%
300%
For the 2023 bonus scheme for Executive Directors, 75% will relate to financial performance based on RoE and 25% will
relate to personal performance aligned to key strategic objectives. The target RoE generated by the annual business
plan process is considered when setting the appropriate targets for calculating the financial element of target bonuses,
with actual bonus payments calculated subject to a range of RoE levels. A minimum RoE financial performance hurdle
applies before any bonus is payable. The Remuneration Committee believes that these targets are suitably challenging
for Conduit’s operations. Details of the targets will be disclosed retrospectively in next year’s report.
Up to half of any bonus award will be deferred into shares. Consistent with best practice, malus and clawback
provisions will be operated at the discretion of the Remuneration Committee.
Other benefits
Other market-typical benefits for Executive Directors working in Bermuda have been provided, including normal
health and welfare benefits, travel allowances and the Company’s payment of the employee’s obligations for
Bermuda payroll taxes and social insurance.
Pension
The Executive Directors’ pension provision for 2023 is aligned with that of the rest of the workforce at 10% of
pensionable earnings. Executive Directors may elect to take cash in lieu of pension, subject to compliance with
applicable law.
Long-term incentives
Executive Directors participate in the legacy MIP, with no new long-term incentive awards to be granted in 2023 in
line with the approved Remuneration Policy which is in effect through 2024.
Conduit Holdings Limited Annual Report and Accounts 2022
79
Governance
Directors' report
The Directors of Conduit Holdings Limited present their
report for the year ended 31 December 2022. This report
includes the additional information required to be
disclosed under the Disclosure and Transparency Rules
of the Financial Conduct Authority. Certain information
included in the Strategic Report, the Corporate
Governance report, the Audit Committee report, the
Nomination Committee report and the Directors’
Remuneration report are incorporated by reference into
the Directors’ report in addition to the following topics.
Overview
Conduit Holdings Limited was incorporated in Bermuda
on 6 October 2020 under registration number 55936 and
has three subsidiaries incorporated in Bermuda: Conduit
MIP Limited, an incentive-related entity (registration
number 56057), Conduit Reinsurance Limited, the main
operating company of Conduit (registration number
55937), and Conduit Services Limited, a services
company (registration number 56189). Conduit
Reinsurance Services Limited is a wholly owned services
company registered in England (registration number
12947450).
On 7 December 2020, all of CHL’s common shares
were admitted to the standard listing segment of the
Official List of the UK Financial Conduit Authority and
admitted to trading on the LSE’s main market for listed
securities.
Principal activity
Conduit’s principal activity, through its main operating
subsidiary Conduit Reinsurance Limited, is to provide
reinsurance products and services to its clients
worldwide.
Principal risks and financial internal controls and
risk management
Conduit’s principal risks and a description of the risk
management framework and governance are set out in
the ERM summary on pages 23 to 28; information
regarding financial internal controls and risk management
is set out on page 54.
Board of Directors
The Directors of the Company who served during the
financial year and through to the date of this report are
listed on page 48.
Biographies are set out on pages 39 to 43.
Dividends
On 26 July 2022, the Board declared an interim dividend
of $0.18 (approximately £0.15) per Common Share,
resulting in an aggregate payment of $29.6 million.
On 21 February 2023, the Board declared a final
dividend of $0.18 (approximately £0.15) per Common
Share resulting in an aggregate payment of $28.8
million.
Insurance and indemnification
Conduit purchases insurance to cover Directors and
Officers against their costs in defending themselves in
civil proceedings taken against them in that capacity and
in respect of damages resulting from the unsuccessful
defence of any proceedings.
The bye-laws of the Company also provide that the
Company shall, to the extent permitted by law, indemnify
the Directors in respect of their acts and omissions and
that the Company shall advance funds to Directors for
their defence costs. The indemnity provisions set out in
the bye-laws were in force during the financial year.
Insurance and indemnity arrangements will not provide
cover where the Director has acted fraudulently or
dishonestly.
Recent developments
Recent developments are discussed on page 134.
Stakeholder engagement
A review of the Company’s engagement with
stakeholders is set out in the Section 172 statement on
pages 36 and 37.
Diversity and inclusion
A discussion of D&I is set out in the Nomination
Committee report on page 52.
Compliance with the Code
A review of the Company’s compliance with the Code
is set out on pages 47 to 50.
ESG
The ESG summary on pages 30 to 35 provides an
overview of the Company’s approach to ESG,
including charity and climate.
Carbon emissions
Details of Conduit's carbon emissions for 2022 can be
found in the ESG summary on page 32 of this report.
Conduit Holdings Limited Annual Report and Accounts 2022
80
Governance
Directors' report
continued
Political donations
No political donations were made by Conduit in the year
ended 31 December 2022, nor in 2021.
Share capital
Details of the structure of the Company’s share capital
and changes in the share capital during the year are
disclosed in note 18 to the consolidated financial
statements. The common shares of $0.01 par value each
is the only class of shares of the company presently in
issue carrying voting rights. There are no nil or partly paid
shares in issue. All common shares rank pari passu in all
respects, there being no conversion or exchange rights
attaching thereto and all common shares have equal
rights to participate in capital, dividend and profit
distributions by the Company. The common shares are
freely transferable and there are no restrictions on
transfer, except as set out in the bye-laws or
as may from time to time be imposed by law and
regulations.
On 10 May 2022, the Company's share premium was
reduced from $ 1,054,983,424.67 to nil and credited to
the Company’s contributed surplus account following
shareholder approval at the 2022 AGM.
Bye-law amendments
A copy of the Company’s bye-laws is available for
inspection on the Company’s website and at the
Company’s registered office. Changes to the Company’s
bye-laws are governed by Bye-law 84, the text of which
is repeated here in full: “84.1 Subject to Bye-law 84.2, no
bye-law shall be rescinded, altered or amended and no
new bye-law shall be made until the same has been
approved by a resolution of the Board and by a
resolution of the Members.
84.2 Bye-laws 43, 44, 45, 47, 84 and 86 shall not be
rescinded, altered or amended and no new bye-law shall
be made which would have the effect of rescinding,
altering or amending the provisions of such bye-laws, until
the same has been approved by a resolution of the Board
including the affirmative vote of not less than 66% of the
Directors then in office and by a resolution of the
members including the affirmative vote of not less than
66% per cent of the votes attaching to all shares in issue.”
Transactions in own shares and Employee
Benefit Trust
In 2022, the Company continued to make on-market
purchases of its own shares pursuant to the
announcement it made in December 2021. The purchases
were made pursuant to shareholder approval obtained in
CHL’s AGM in 2021, updated in the general meeting held
in May 2022.
Further details of the share repurchase programme are
set out in note 18 to the consolidated financial
statements on page 131.
CHL established an Employee Benefit Trust during the
second quarter of 2022 with the sole purpose of
managing the equity incentives granted to executives
and employees of Conduit.
Further details of the EBT are set out in note 22 to the
consolidated financial statements on page 133.
Conduit Holdings Limited Annual Report and Accounts 2022
81
Governance
Directors' report
continued
Directors’ interests
Directors’ beneficial interests in the Company’s common shares as of 31 December 2022, including interests notified to
the Company in respect of Directors’ closely associated persons within the meaning of the Market Abuse Regulation
(MAR) were as follows:
Common shares
Common shares
held as of
held as of
Directors
31 December 2022
31 December 2021
Neil Eckert, Executive Chairman
669,6571
597,1121
Trevor Carvey, Chief Executive Officer
295,630
180,000
Elaine Whelan, Chief Financial Officer
153,053
65,950
Sir Brian Williamson, Senior Independent Non-Executive Director
20,000
15,000
Malcolm Furbert, Non-Executive Director
8,000
8,000
Ken Randall, Non-Executive Director
55,000
55,000
Richard Sandor, Non-Executive Director
15,000
15,000
Elizabeth Murphy, Non-Executive Director
15,000
15,000
Michelle Seymour Smith, Non-Executive Director
20,000
-
1.
Includes 35,873 shares owned by his spouse, Nicola Eckert.
Shareholding guidelines require Executive Directors to build and maintain a shareholding in the Company of 300% of
salary while in post. Where not met at admission, any portion of future bonuses that are paid in shares and other share
awards or purchases will accumulate until this requirement is met. Further details are set out in the remuneration report
on pages 74 to 76. As at 31 December 2022, Neil Eckert was in compliance with the share ownership guidelines
applicable to Executive Directors. Trevor Carvey and Elaine Whelan continue to build out their share ownership and
have almost five years remaining to achieve compliance under the policy.
Major shareholdings
As at 1 February 2023 Conduit Holdings Limited has been notified (via forms TR-1: Standard form for notification of
major holdings in accordance with DTR 5.3.1R(1)) of the following interests of 5% or more in the voting rights in its
common shares.
Number of shares
% of shares notified
Shareholder
February 2022 (m)
per Form TR1
Aviva PLC and affiliates
24,277,267
14.70
JO Hambro Capital Management Limited (London)
8,263,209
5.00
FIL Limited
16,433,270
9.99
Going concern and viability statement
A review of the financial performance of Conduit is set
out on pages 20 to 22. The financial position of Conduit,
including its cash flows and its borrowing facilities, are
included in the financial statements starting on page 85.
Conduit is well capitalised and has a well-balanced book
of business.
The Board will consider Conduit’s strategic plan for the
business annually on a rolling basis using a three-to-five-
year time horizon. This period aligns to Conduit’s
liabilities and business model, allowing Conduit to adapt
capital and solvency quickly in response to market
cycles, events and opportunities.
This is consistent with the outlook period set out in
Conduit’s IPO prospectus.
Building on the strategy and plan presented in the IPO
prospectus, the Board conducted its annual review of
strategy in 2022 and updated Conduit’s planning over a
three-to-five-year time horizon, taking into account
perspectives on the external business environment and
the principal risks and material uncertainties affecting
Conduit and examining how Conduit’s capital and
operational capacity can best be aligned to support
Conduit’s objectives over the next three years. Further
information on Conduit’s principal risks can be found on
pages 25 to 26. The risk disclosures section of the
consolidated financial statements on pages 103 to 119
sets out the principal risks to which
Conduit Holdings Limited Annual Report and Accounts 2022
82
Governance
Directors' report
continued
Conduit is exposed, including reinsurance risk, market
risk, liquidity risk, credit risk, operational risk, and
strategic risk, together with Conduit’s policies for
monitoring, managing and mitigating its exposures to
these risks. As part of the consideration of the
appropriateness of adopting the going concern basis,
Conduit uses stress and scenario analysis, and testing, to
assess the robustness of Conduit’s solvency and liquidity
positions. To make the assessment, Conduit analysed
and tested a number of scenarios individually and in
combination, including applying reverse stress tests. The
Board considers an aggregated occurrence of all these
scenarios to be remote and that under the assessed
scenarios Conduit remained adequately capitalised.
The Audit Committee also considered a formal "going
concern" analysis from management at its February
2022 and November 2022 meetings (for further
details, see page 57 in the Audit Committee report).
After reviewing Conduit’s strategy, budgets and
medium-term plans, and subject to the principal risks
faced by the business, the Board has a reasonable
expectation that Conduit has adequate resources to
continue in operational existence through the period to
31 December 2024. For this reason, the Board
continues to adopt the going concern basis in preparing
the accounts.
Disclosure of information to the auditors
Each of the persons who is a Director at the date of
approval of this Annual Report and Accounts confirms
that:
•
so far as the Director is aware, there is no
relevant audit information of which the
Company’s auditors are unaware; and
•
the Director has taken all the steps that
he or she ought to have taken as a director in
order to make himself or herself aware of any
relevant audit information and to establish that the
Company’s auditors are aware of that information.
Auditors
KPMG Audit Limited has expressed its willingness to
remain in office and the Audit Committee has
recommended its reappointment to the Board.
A resolution to reappoint the auditors and to
authorise the Directors to determine their
remuneration will be proposed at the AGM of the
Company.
Powers of Directors
The powers given to the Directors are contained in the
Company’s bye-laws and are subject to relevant
legislation and, in certain circumstances (including in
relation to the issuing and buying back by the Company of
its shares), approval by shareholders in a general
meeting. At the AGM in 2022, the Directors were granted
authorities to allot and issue shares and to make market
purchases of shares and intend to seek renewal of these
authorities in 2023.
Appointment and replacement of Directors The
appointment and replacement of Directors is
governed by the Company’s bye-laws and the
Bermuda Companies Act 1981 and related
legislation. In accordance with The UK Code, all
Directors will stand for annual re-election.
Annual General Meeting
The 2023 AGM will be held at 10:00 a.m. Atlantic time on
17 May 2023 at the Company’s headquarters at Ideation
House, 94 Pitts Bay Road, Pembroke, Bermuda. The
Notice of the AGM will be sent to shareholders in a
separate circular.
The deadline for submission of proxies will be 20
hours before the meeting.
Approved by the Board of Directors and signed on
behalf of the Board
Greg Lunn
Company Secretary
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
83
Governance
Directors' responsibilities statement
The Board is responsible for preparing the Annual
Report and Conduit’s consolidated financial statements
in accordance with applicable law and regulations. Our
responsibilities include ensuring that the Company
maintains proper accounting records which disclose
with reasonable accuracy the financial position of
Conduit and that the financial statements present a fair
view for each financial period.
Legislation in Bermuda governing the preparation and
dissemination of the consolidated financial statements
may differ from legislation in other jurisdictions.
Directors’ confirmations
We confirm that we consider the Annual Report and
Accounts, taken as a whole, is fair, balanced and
understandable, and provides the information necessary
for shareholders to assess the Company’s and Conduit’s
position, performance, business model and strategy.
Further, we confirm that to the best of our
knowledge:
•
The consolidated annual financial statements are
prepared on a going concern basis in accordance with
IFRS. Where IFRS is silent, as it is in respect of
certain aspects relating to the measurement of
insurance products, US GAAP has been considered.
In such instances, Conduit’s management determine
appropriate measurement bases, to provide the most
useful information to users of the consolidated
financial statements, providing a true and fair view of
the assets, liabilities, financial position, and profit or
loss of Conduit, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
issuer and the undertakings included in the
consolidation taken as a whole; and
•
The Strategic Report on pages 5 to 37 which serves
as the management report, includes a fair review of
the development and performance of the business
and position and the undertakings included in the
consolidation taken as a whole, together with a
description of the principal risks and uncertainties they
face. Information required by the following sections of
the Disclosure and Transparency Rules of the UK’s
Financial Conduct Authority.
The audited consolidated financial statements were
approved for issue on 3 March 2023 and the Directors
responsible for authorising the responsibility statement
on behalf of the Board are:
Trevor Carvey
Elaine Whelan
Executive Director
Executive Director
and CEO
and CFO
3 March 2023
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
84
Financial
statements
Conduit Holdings Limited Annual Report and Accounts 2022
85
Financial statements
Independent Auditor's report
KPMG Audit Limited
Telephone
+1
441 295 5063
Crown House
Fax
+1
441 295 9132
4 Par-la-Ville Road
Internet
www.kpmg.bm
Hamilton
HM 08
Bermuda
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of Conduit Holdings Limited
Report on the audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Conduit Holdings Limited (the “Company”) and its subsidiaries
(the “Group”), which comprise the consolidated balance sheet as at 31 December 2022, the consolidated statements of
comprehensive loss, changes in equity and cash flows for the year then ended, and notes, comprising significant
accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at 31 December 2022, and its consolidated financial performance and
its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards
(IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the Consolidated Financial
Statements section of our report. We are independent of the Group in accordance with International Ethics Standards
Board for Accountants International Code of Ethics for Professional Accountants (including International Independence
Standards) (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Bermuda and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the IESBA Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
consolidated financial statements of the current period. We summarize below the key audit matters (unchanged from
2021), in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit
procedures to address those matters. These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
Conduit Holdings Limited Annual Report and Accounts 2022
86
Financial statements
Independent Auditor's report
continued
The risk
Our response
Loss and loss adjustment expense reserves (gross and net)
(2022: $459.3 million gross, $382.7 million net of outwards reinsurance, of which incurred but not reported reserves represented
$361.2 million gross, $307.4 million net of outwards reinsurance; 2021: $171.6 million gross, $122.7 million net of outwards
reinsurance, of which incurred but not reported reserves represented $145.6 million gross, $96.7 million net of outwards reinsurance)
Refer to the Audit committee report on pages 53 to 57 and the following in the notes to the consolidated financial statements:
note 2 ‘Significant accounting policies’, note 3 ‘Risk disclosures’ and note 14 disclosures on loss and loss adjustment expense
reserves.
A significant and critical judgement and estimate made by
management is the estimation of loss and loss adjustment
expense reserves (gross and net). The Group establishes its
reserves for losses and loss adjustment expense reserves by
taking outstanding losses, adding an estimate for incurred but
not reported losses (IBNR) and, if deemed necessary, additional
case reserves (ACR) which represent the Group’s estimate for
losses related to specific contracts that the Group believes may
not be adequately estimated by the cedant as of that date.
Subjective valuation
The valuation of the ACR and IBNR liabilities is a complex
process which incorporates a significant amount of
judgement with high estimation uncertainty such as initial
expected loss ratios and estimates of ultimate premium.
Amounts recoverable from reinsurers are estimated using the
same methodology and judgements as for the underlying
liabilities.
Estimated IBNR reserves may also consist of a provision for
losses which have occurred but have not yet been reported by
cedants. IBNR reserves are estimated initially using expected
loss and loss adjustment expense ratios which are selected
based on information derived by the Company’s underwriters
and actuaries during the initial pricing of the business. The
judgements and estimates used in establishing loss reserve
calculations may be revised as additional experience or other
data becomes available. In addition, an allowance is made for
specific risks. The determination of this allowance is a
subjective judgement based on the perceived uncertainty and
potential for volatility in the underlying claims.
The effect of these matters is that, as part of our risk
assessment, we determined that the valuation of gross and net
loss and loss adjustment expense reserves has a high degree
of estimation uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the consolidated
financial statements as a whole, and possibly many times that
amount.
Our procedures included:
Control design and implementation:
-
We evaluated the design and implementation of the Group’s
key controls regarding review and approval of the loss and loss
adjustment expense reserve. We performed the tests below
rather than seeking to rely on any of the Group’s controls
because the nature of the balance is such that we would
expect to obtain audit evidence primarily through the detailed
procedures described.
Assessing valuer’s credentials:
-
We evaluated the competence, capabilities and
objectivity of the Group’s internal and independent
experts;
-
We (together with our own valuation specialists) performed
enquiries of these experts to understand their processes and
models.
Our valuation expertise:
-
We used our own valuation specialists in assessing and
challenging the reasonableness of the methods and
assumptions utilised by the Group’s experts (on a gross and
net of outwards reinsurance basis) – including the assessment
of selected loss ratios, adjustments to arrive at management’s
best estimate and reserves held for specific large loss and
catastrophe (CAT) events. We also compared the Group’s
reserving methodology with industry practice.
Assessing observable inputs:
-
We agreed the underlying data utilised in the actuarial
analyses to accounting records. We agreed a sample of cedant
CAT loss estimates to supporting documentation where these
formed the basis of reserving for CAT events.
Assessing transparency:
-
We evaluated the adequacy of the Group’s disclosures on loss
and loss adjustment expense reserves in accordance with the
requirements of relevant accounting standards.
Conduit Holdings Limited Annual Report and Accounts 2022
87
Financial statements
Independent Auditor's report
continued
The risk
Our response
Accuracy of premium estimates on proportional business
(2022: $637.5 million 2021: $378.8 million) included within Gross premiums written.
Refer to the Audit committee report on pages 53 to 57 and the following in the notes to the consolidated financial statements:
note 2 ‘Significant accounting policies’.
Subjective valuation
Proportional business constitutes a significant portion of
business written during the year; pricing for which is based on
estimates of ultimate premiums provided by ceding companies
supplemented by management estimates. Management
exercises judgement in determining the ultimate estimates in
order to establish the appropriate premium value. These
judgements are based on experience with the ceding
company, familiarity with each market, timing of the reported
information and its understanding of the characteristics of each
class of business.
As part of our risk assessment, we determined that the
accuracy of inward premium estimates on proportional
business has a higher degree of estimation uncertainty, with
a potential range of reasonable outcomes greater than our
materiality for the consolidated financial statements as a
whole.
Our procedures included:
Control design and implementation:
-
We evaluated the design and implementation of the Group’s
key controls regarding review of the premium estimates
recorded. We performed the tests below rather than seeking to
rely on any of the Group’s controls because the nature of the
balance is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Assessing assumptions and methodology:
-
For a statistical sample of policies, we agreed the estimated
ultimate premium to third party supporting documentation and
challenged assumptions applied by the Company including
judgements made by management’s underwriters. In assessing
the appropriateness of assumptions applied by management,
we have evaluated the comparison of estimated and actual
premiums for prior year policies.
Assessing transparency:
-
We evaluated the adequacy of the Group’s disclosures on
premium estimates in accordance with the requirements of
relevant accounting standards.
Other information
Management is responsible for the other information. The other information comprises the Annual Report, but does
not include the consolidated financial statements and our auditor’s report thereon.
Except as described in the Report on Other Legal and Regulatory Requirements section of our report, our opinion on
the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
Conduit Holdings Limited Annual Report and Accounts 2022
88
Financial statements
Independent Auditor's report
continued
Responsibilities of management and those charged with governance for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism
throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
•
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to continue as
a going concern.
•
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
Conduit Holdings Limited Annual Report and Accounts 2022
89
Financial statements
Independent Auditor's report
continued
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
Report on other legal and regulatory requirements
Directors’ remuneration report
The Group voluntarily prepares an annual report on remuneration in accordance with the provisions of the United
Kingdom (UK) Companies Act 2006. The Directors have engaged us to audit the part of the annual report on
remuneration specified by the UK Companies Act 2006 to be audited as if the Company were a UK registered
company.
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in
accordance with the UK Companies Act 2006, as if those requirements applied to the Company.
Corporate governance statement
We have been engaged to review the part of the corporate governance statement on pages 47 to 50 relating to the
Group’s compliance with the provisions of the UK Corporate Governance Code that would be specified by the Listing
Rules of the UK’s Financial Conduct Authority for our review if the Group had a premium listing on the London Stock
Exchange. We have nothing to report in this respect.
In addition, the Directors have engaged us to review their statements on going concern and the longer-term viability on
page 82 as if the Company was a United Kingdom registered company with a premium listing on the London Stock
Exchange. Our review was substantially less in scope than an audit and only consisted of making inquiries and
considering the Directors’ process supporting their statements.
Based on the knowledge we acquired during our audit of the consolidated financial statements, we have nothing
material to add or draw attention to in relation to:
•
the directors’ confirmation within the Longer term viability statement on page 82 that they have carried out a robust
assessment of the emerging and principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity;
•
the directors’ explanation in the Longer term viability statement page 82 as to how they have assessed the prospects
of the Group, over what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and
meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
•
the related going concern statement made in conformity with the Listing Rules set out on page 82.
The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s shareholders and Board of Directors, as a body. Our audit work has been
undertaken so that we might state to the Company’s shareholders and Board of Directors those matters we are required
to state to them in an auditor’s report and the further matters we are required to state to them in accordance with the
terms agreed with the Company and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company’s shareholders and Board of Directors, as a body, for our audit
work, for this report, or for the opinion we have formed.
The Engagement Partner on the audit resulting in this independent auditor’s report is James Berry.
Chartered Professional Accountants
Hamilton, Bermuda
3 March 2023
Conduit Holdings Limited Annual Report and Accounts 2022
90
Financial statements
Consolidated statement of comprehensive loss
For the year ended 31 December 2022
2022
2021
Notes
$m
$m
Gross premiums written
4
637.5
378.8
Ceded reinsurance premiums
4
(56.6)
(32.6)
Net premiums written
580.9
346.2
Change in unearned premiums
4
(99.6)
(152.8)
Change in unearned premiums on premiums ceded
4
1.0
0.8
Net premiums earned
482.3
194.2
Net investment income
5
17.8
5.5
Net realised losses on investments
5
(2.8)
(1.0)
Net unrealised losses on investments
5, 12
(67.8)
(7.6)
Net foreign exchange losses
‒
(0.5)
Total net revenue
429.5
190.6
Insurance losses and loss adjustment expenses
4, 14
386.1
191.0
Insurance losses and loss adjustment expenses recoverable
4, 14
(40.2)
(48.9)
Net insurance losses
345.9
142.1
Net insurance acquisition expenses
4, 6
136.1
59.1
Equity-based incentives
7
2.1
0.3
Other operating expenses
4, 7, 8, 15, 22
34.3
30.6
Total expenses
518.4
232.1
Results of operating activities
(88.9)
(41.5)
Financing costs
9, 15
(0.8)
(0.5)
Total comprehensive loss for the year
(89.7)
(42.0)
Loss per share
Basic and diluted
21
$(0.55)
$(0.25)
Conduit Holdings Limited Annual Report and Accounts 2022
91
Financial statements
Consolidated balance sheet
As at 31 December 2022
2022
2021
Notes
$m
$m
Assets
Cash and cash equivalents
11, 17
112.9
67.5
Accrued interest receivable
5.5
3.7
Investments
12, 13, 17
1,021.7
1,008.4
Inwards premiums receivable
260.5
155.0
Reinsurance assets
– Unearned premiums on premiums ceded
1.8
0.8
– Reinsurance recoverable
14
76.6
48.9
– Other reinsurance receivables
12.8
0.3
Other assets
3.6
1.6
Right-of-use lease assets
15
2.2
2.9
Deferred acquisition expenses
69.4
44.6
Intangible assets
16
1.4
1.1
Total assets
1,568.4
1,334.8
Liabilities
Reinsurance contracts
– Losses and loss adjustment expenses
14
459.3
171.6
– Unearned premiums
252.4
152.8
– Other reinsurance payables
15.0
‒
Amounts payable to reinsurers
16.2
7.3
Other payables
8.7
19.0
Lease liabilities
15
2.4
2.9
Total liabilities
754.0
353.6
Shareholders' equity
Share capital
18
1.7
1.7
Own shares
18
(20.1)
(0.2)
Other reserves
19
1,058.1
1,056.0
Retained loss
(225.3)
(76.3)
Total shareholders' equity
814.4
981.2
Total liabilities and shareholders' equity
1,568.4
1,334.8
The consolidated financial statements were approved by the Board of Directors on 3 March 2023 and signed on its behalf
by:
Trevor Carvey
Elaine Whelan
CEO
CFO
Conduit Holdings Limited Annual Report and Accounts 2022
92
Financial statements
Consolidated statement of changes in shareholders’ equity
For the year ended 31 December 2022
Total
Share
Other
Retained
shareholders'
capital
Own shares
reserves
loss
equity
Notes
$m
$m
$m
$m
$m
Balance as at 31 December 2020
1.7
‒
1,055.7
(4.6)
1,052.8
Total comprehensive loss for the year
‒
‒
‒
(42.0)
(42.0)
Purchase of own shares
18
‒
(0.2)
‒
‒
(0.2)
Dividends on common shares
19
‒
‒
‒
(29.7)
(29.7)
Equity-based incentives
7, 19
‒
‒
0.3
‒
0.3
Balance as at 31 December 2021
1.7
(0.2)
1,056.0
(76.3)
981.2
Total comprehensive loss for the year
‒
‒
‒
(89.7)
(89.7)
Purchase of own shares
18
‒
(19.9)
‒
‒
(19.9)
Dividends on common shares
18
‒
‒
‒
(59.3)
(59.3)
Equity-based incentives
7, 19
‒
‒
2.1
‒
2.1
Balance as at 31 December 2022
1.7
(20.1)
1,058.1
(225.3)
814.4
Conduit Holdings Limited Annual Report and Accounts 2022
93
Financial statements
Statement of consolidated cash flows
For the year ended 31 December 2022
2022
2021
Notes
$m
$m
Cash flows from operating activities
Comprehensive loss
(89.7)
(42.0)
Depreciation
15
0.9
0.1
Interest expense on lease liabilities
9, 15
0.1
0.1
Net investment income
5
(18.7)
(6.2)
Net realised losses on investments
5
2.8
1.0
Net unrealised losses on investments
5
67.8
7.6
Net foreign exchange losses (gains)
0.3
0.3
Equity-based incentives
7
2.1
0.3
Change in operational assets and liabilities
– Reinsurance assets and liabilities
239.6
82.0
– Other assets and liabilities
(2.0)
5.5
Net cash flows from operating activities
203.2
48.7
Cash flows used in investing activities
Purchase of investments
(304.9)
(1,570.4)
Proceeds on sale and maturity of investments
206.2
558.9
Interest received
21.1
7.5
Purchase of intangible assets
16
(0.3)
(0.9)
Purchase of property, plant and equipment
‒
(0.5)
Net cash flows used in investing activities
(77.9)
(1,005.4)
Cash flows used in financing activities
Lease liabilities paid
15
(0.6)
(0.1)
Dividends paid
18
(59.3)
(29.7)
Purchase of own shares
18
(19.9)
(0.2)
Net cash flows used in financing activities
(79.8)
(30.0)
Net increase (decrease) in cash and cash equivalents
45.5
(986.7)
Cash and cash equivalents at the beginning of the year
67.5
1,054.0
Effect of exchange rate fluctuations on cash and cash equivalents
(0.1)
0.2
Cash and cash equivalents at end of year
11
112.9
67.5
Conduit Holdings Limited Annual Report and Accounts 2022
94
Financial statements
Notes to the consolidated financial statements
For the year ended 31 December 2022
1.
General information
CHL was incorporated under the laws of Bermuda on 6 October 2020 and, on 7 December 2020, all of its common
shares of par value $0.01 per share were admitted to the standard listing segment of the Official List of the UK Financial
Conduct Authority and admitted to trading on the LSE’s main market for listed securities. CHL’s registered office is
Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. CHL's consolidated financial statements as at, and for
the year ended 31 December 2022 include the Company's subsidiaries (together referred to as the “Group”). The
principal activity of Conduit is to provide reinsurance products and services to its clients worldwide.
A full listing of Conduit's related parties can be found in note 22.
2. Summary of significant accounting policies
The basis of preparation, use of judgements and estimates, consolidation principles and significant accounting policies
adopted in the preparation of these consolidated financial statements are set out below. Excluding percentages, share
and per share data or where otherwise stated, all amounts in tables and narrative disclosures are in millions of US
dollars.
Basis of preparation
These consolidated financial statements are prepared on a going concern basis in accordance with IFRS as issued by
the IASB, prepared on a historical cost basis, except for items measured at fair value as disclosed in the relevant
accounting policies. In accordance with the requirements of IAS 1, the financial statements’ assets and liabilities have
been presented in order of liquidity, which provides information that is more reliable and relevant for a financial
institution.
Where IFRS is silent, as it is in respect of certain aspects relating to the measurement of reinsurance contracts, the
IFRS framework allows reference to another comprehensive body of accounting principles. In such instances, Conduit’s
management determines appropriate measurement bases, to provide the most useful information to users of these
consolidated financial statements, using their judgement and considering US GAAP. In the course of preparing these
consolidated financial statements, no judgements have been made in the process of applying Conduit’s accounting
policies, other than those involving estimations as noted in the ‘Use of judgements and estimates’ section, that have
had a significant effect on amounts recognised in these consolidated financial statements.
Going concern
The consolidated financial statements of Conduit have been prepared on a going concern basis. In assessing Conduit's
going concern position as at 31 December 2022, the Directors have considered a number of factors, including the
current balance sheet position, Conduit’s strategic and financial plan, taking account of possible changes in trading
performance and funding retention, stress testing and scenario analysis, and the COVID-19 pandemic. Conduit only
commenced underwriting activities during the twelve months ended 31 December 2021 and, with COVID-19 exclusions
included in policy wordings, does not believe it has any exposure to reinsurance losses from COVID-19. The assessment
therefore concluded that Conduit has sufficient capital and liquidity for the next 12 months. Conduit’s capital ratios and its
capital resources are comfortably in excess of regulatory solvency requirements, and internal stress testing indicates
Conduit can withstand severe economic and competitive stresses.
As a result of the assessment, the Directors have a reasonable expectation that Conduit and Conduit Re have
adequate resources to continue in operational existence for the foreseeable future and therefore believe that
Conduit is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going
concern basis in preparing the consolidated financial statements.
Changes in accounting standards
While a number of amended IFRS standards have become effective during the year ended 31 December 2022,
none of these standards have had a material impact on Conduit.
Conduit Holdings Limited Annual Report and Accounts 2022
95
Financial statements
Notes to the consolidated financial statements
continued
Future accounting changes
Of the upcoming accounting standard changes, we anticipate that IFRS 17 will have the most material impact on the
financial statements’ results, and presentation and disclosures. Conduit will apply IFRS 17 for the first time on 1
January 2023. We have substantially completed the build-out of the necessary systems and processes to implement
IFRS 17, and testing is in progress. As relevant to Conduit, a brief overview of each of these standards and the
applicable accounting policies and the impact, where we can reliably quantify it, is provided below:
IFRS 17, Insurance Contracts
IFRS 17, Insurance Contracts, issued in May 2017, specifies the financial reporting for insurance contracts. The new
standard replaces IFRS 4, Insurance Contracts, and is effective for accounting periods beginning on or after 1
January 2023 and will significantly change the accounting for, valuation of, and presentation of insurance contracts.
Classification
Contracts that transfer significant reinsurance risk at the inception of the contract are accounted for as
reinsurance contracts. Contracts that do not transfer significant reinsurance risk are accounted for as investment
contracts. The adoption of IFRS 17 will not change the classification of Conduit's reinsurance contracts.
Before accounting for a reinsurance contract based on the guidance in IFRS 17, Conduit analyses whether the
contract contains components that must be separated. IFRS 17 distinguishes three categories of components that
must be accounted for separately:
•
Cash flows relating to embedded derivatives that are required to be separated.
•
Cash flows relating to distinct investment components.
•
Promises to transfer distinct goods or distinct non-insurance services.
Conduit applies IFRS 17 to all remaining components of the contract. Where contracts contain multiple reinsurance
components that meet the requirements for separation, these are separated and accounted for as standalone
contracts.
Some of Conduit's reinsurance contracts issued contain profit commission arrangements. Under these arrangements,
there is a minimum guaranteed amount that the policyholder will always receive – either in the form of profit commission
or as claims or another contractual payment, irrespective of the insured event happening. These are typically considered
non-distinct investment components. The impact of the non-distinct investment components are excluded from the
consolidated statement of comprehensive loss.
Level of aggregation
Conduit manages reinsurance contracts issued by class of business within an operating segment. Classes of
business are then aggregated into portfolios of contracts that are subject to similar risks. Each portfolio is further
disaggregated into groups of contracts that are issued within a calendar year (annual cohorts) and are (i) contracts
that are onerous at initial recognition; (ii) contracts that at initial recognition have no significant possibility of becoming
onerous subsequently; or (iii) a group of remaining contracts. These groups represent the level of aggregation at
which reinsurance contracts are initially recognised and measured. Such groups are not subsequently reconsidered.
Conduit assumes there are no contracts in the portfolio that are onerous at initial recognition, unless there are facts
and circumstances which may indicate otherwise. Management considers the following in order to determine whether
there are facts and circumstances that mean a group of contracts are onerous:
•
Pricing information.
•
Results of similar contracts it has recognised.
•
External factors, e.g., a change in market experience or regulations.
Measurement model
Under IFRS 17, Conduit's reinsurance contracts issued and reinsurance contracts held are substantially all eligible
to be measured by applying the Premium Allocation Approach ("PAA"). The PAA simplifies the measurement of
reinsurance contracts in comparison with the General Model under IFRS 17.
Conduit Holdings Limited Annual Report and Accounts 2022
96
Financial statements
Notes to the consolidated financial statements
continued
The measurement principles of the PAA differ from the ‘earned premium approach’ used under IFRS 4 in the following
key areas:
•
The liability for remaining coverage reflects premiums received less deferred acquisition expenses less amounts
recognised in revenue for reinsurance services provided.
•
If contracts are assessed as being onerous, a loss component is recognised.
•
The recognition of reinsurance acquisition cash flows includes an allocation of acquisition-related operating
expenses incurred in the period. All acquisition related cash flows are deferred and amortised over the coverage
period of the group of contracts.
•
Measurement of the liability for incurred claims (previously losses and loss adjustment expenses) is
determined on a discounted probability-weighted expected value basis and includes an explicit risk adjustment
for non-financial risk.
Significant judgements and estimates
Conduit will estimate the liability for incurred claims as the fulfilment cash flows related to incurred claims. The fulfilment
cash flows incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or
effort about the amount, timing and uncertainty of those future cash flows. They reflect current estimates from the
perspective of the entity and include an explicit adjustment for non-financial risk (the risk adjustment). The liability for
incurred claims is discounted using market-based yield curves.
Conduit will generally determine yield curves by leveraging the bottom-up method of applying a liquidity premium to a
risk-free yield curve to reflect the differences between the liquidity characteristics of the risk-free rate and the liquidity
characteristics of the insurance liabilities.
Conduit intends to determine the risk adjustment by leveraging indications developed by Conduit's actuaries,
historical reinsurance loss experience and estimates of pricing adequacy trends, as well as a combination of
management's judgement and experience. The risk adjustment is then translated to a confidence interval, which
will be disclosed in the financial statements as a significant judgement and estimate.
Presentation and disclosure
Presentation and disclosure will change significantly. The balance sheet will continue to contain related assets and
liabilities for reinsurance business, albeit in a different, more condensed form. The most significant change will be in the
presentation of the consolidated statement of comprehensive loss where premiums and claims related line items will be
replaced by reinsurance revenue and reinsurance service expenses. Certain commissions on reinsurance contracts
issued which were previously presented as acquisition expenses will now be presented as a deduction to revenue under
IFRS 17. Commissions and reinstatement premiums on reinsurance contracts that are dependent on claims will be
treated as claims cash flows and presented as part of reinsurance service expenses. All insurance contract assets and
liabilities will be monetary items with any revaluation adjustments being recognised in the consolidated statement of
comprehensive loss.
Under IFRS 17, changes in the carrying amounts of groups of contracts arising from the effects of the time value of
money are presented as reinsurance finance income or expenses. Conduit has elected not to disaggregate reinsurance
finance income or expenses and will present the total amount in the consolidated statement of comprehensive loss.
Transition
Conduit will adopt the full retrospective approach for all changes in accounting policies due to the
implementation of IFRS 17.
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments: Classification and Measurement, is effective for annual periods beginning on or after 1
January 2018. The amendments to IFRS 4, Insurance Contracts, issued in 2016, provided a temporary exemption from
applying IFRS 9 for companies whose predominant activity is to issue insurance contracts. The carrying value of
Conduit’s liabilities connected with insurance activities comprised over 90% of the total liabilities. The activities of Conduit
are therefore predominantly connected with insurance which satisfies the criteria set out in IFRS 4 for the temporary
exemption from IFRS 9. The exemption lasts until the
Conduit Holdings Limited Annual Report and Accounts 2022
97
Financial statements
Notes to the consolidated financial statements
continued
implementation date of IFRS 17 and addresses the accounting consequences of applying IFRS 9 to insurers prior to
the adoption of IFRS 17.
Classification and measurement
IFRS 9 introduces new classification and measurement requirements for financial instruments. IFRS 9 requires all
financial assets to be assessed based on a combination of Conduit's business model for the management of the assets
and the instruments' cash flow characteristics. Conduit currently anticipates that all investments will be classified as at
FVTPL, because they are managed on a fair value basis. Conduit's fixed maturity securities portfolio is currently
classified as FVTPL. As a result, the adoption of IFRS 9 is not expected to result in any changes to the measurement of
Conduit’s investments, which will continue to be at FVTPL. Conduit will apply any changes resulting from IFRS 9
retrospectively.
Presentation and disclosure
To reflect the differences between IAS 39 and IFRS 9, IFRS 7 Financial Instruments: Disclosures was also
amended. Conduit will apply the amended disclosure requirements at the same time as applying IFRS 9.
Estimated impact of the adoption of IFRS 17 and IFRS 9
Conduit has assessed the estimated impact that the initial application of IFRS 17 and IFRS 9 will have on its
consolidated financial statements. Based on the assessments undertaken to date, we estimate that the cumulative
IFRS 17 impact will be an increase to shareholders’ equity as at 1 January 2022 of between $6.0 million and $9.0
million, which represents between 0.6% and 0.9% of Conduit’s reported shareholders’ equity as at 31 December 2021.
No financial impact is expected from the initial application of IFRS 9.
The increase to shareholders’ equity from IFRS 17 is predominantly driven by the discounting of loss reserves which
were previously undiscounted, the deferral of certain acquisition related operating expenses and the revaluation of
insurance balances that are now considered monetary items under IFRS 17. The impacts of discounting and the
deferral of acquisition related operating expenses are timing differences as both will be unwound over the settlement of
claims liabilities and insurance contract coverage periods respectively.
Conduit is still performing assessments of the impact of IFRS 17 for the financial year ended 31 December 2022,
however we expect the impact of discounting, given the rising rate environment, to be significant.
The assessment above is preliminary as the transition work has not yet been fully finalised or subject to external audit.
Therefore, the reported impact of the adoption of IFRS 17 in the 2023 consolidated financial statements may deviate
from that noted above, although any such deviation is unlikely to be material.
Use of judgements and estimates
The preparation of financial statements in conformity with IFRS requires Conduit to make judgements and estimates
that affect the reported and disclosed amounts at the balance sheet date, revenues and expenses during the reporting
period and the associated financial statement disclosures. All estimates are based on management’s knowledge of
current facts and circumstances, assumptions based on that knowledge and their prediction of future events. Actual
results may differ significantly from the estimates made.
The most significant estimates made by management are in relation to losses and loss adjustment expenses, both gross
and net of ceded reinsurance, as discussed within the "Risk disclosures" section and in note 14.
Less significant estimates are made in determining the estimated fair value of certain financial instruments, as
discussed in note 12.
In addition, some management judgement is exercised in determining the ultimate premiums expected from which to
establish the recognition of gross premiums written.
While not significant, estimates are also used in the estimated fair value of the MIP as discussed in note 7 and the
valuation of intangible assets as discussed in note 16.
Conduit Holdings Limited Annual Report and Accounts 2022
98
Financial statements
Notes to the consolidated financial statements
continued
Consolidation principles
These consolidated financial statements comprise the financial statements of Conduit and its subsidiaries as at and for
the year ended 31 December 2022. Subsidiaries are those entities that are controlled by Conduit and are fully
consolidated from the date on which Conduit obtains control and continue to be consolidated until the date when such
control ceases. Control is achieved when Conduit is exposed, or has rights, to variable returns from its involvement with
the subsidiary and has the ability to affect those returns through its power over the subsidiary.
Intragroup balances and transactions are eliminated in preparing the consolidated financial statements.
Subsidiaries’ accounting policies are generally consistent with Conduit’s accounting policies.
Foreign currency
The functional currency, which is the currency of the primary economic environment in which the entity operates, for all
Group entities is US dollars. Items included in the financial statements of each of the Group’s entities are measured
using the functional currency. These consolidated financial statements are presented in US dollars.
Foreign currency transactions are recorded in the functional currency for each entity using the exchange rates
prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are
revalued at period end exchange rates. The resulting foreign exchange differences on revaluation are recorded in the
consolidated statement of comprehensive loss within net foreign exchange gains (losses). Non-monetary assets and
liabilities denominated in a foreign currency are carried at historic rates. Non-monetary assets and liabilities carried at
estimated fair value and denominated in a foreign currency are translated at the exchange rate at the date the fair
value was determined.
Reinsurance contracts
Classification
Contracts that transfer significant reinsurance risk at the inception of the contract are accounted for as
reinsurance contracts. Contracts that do not transfer significant reinsurance risk are accounted for as investment
contracts. Reinsurance risk is transferred when a reinsurer agrees to compensate a policyholder if a specified
uncertain future event adversely affects the policyholder.
Premiums
Conduit writes both excess of loss and proportional (also known as quota share or pro-rata)
reinsurance contracts.
Excess of loss contracts
For the majority of excess of loss contracts, premiums written are recorded based on the minimum and deposit or flat
premium, as defined in the contract. Subsequent adjustments to the minimum and deposit premium are recognised in
the period in which they are determined. For excess of loss contracts where no deposit is specified in the contract,
premiums written are recognised based on estimates of ultimate premiums provided by the ceding company. Initial
estimates of premiums written are recognised in the period in which the contract incepts, or the period in which the
contract is bound, if later. Subsequent adjustments, based on reports of actual premium by ceding companies, or
revisions in estimates, are recorded in the period in which they are determined. For multi-year policies that are payable
in annual instalments generally only the initial annual instalment is included as premiums written at policy inception
due to the ability of the reinsured to commute or cancel the policy. The remaining annual instalments are included as
premiums written at each successive anniversary date within the multi-year term.
Premiums written are generally earned evenly over the term of the underlying risk period of the reinsurance contract,
except where the period of risk differs significantly from the contract period. In these circumstances, premiums are
recognised over the period of risk in proportion to the amount of reinsurance protection provided. The portion of the
premium related to the unexpired portion of the risk period is reflected in unearned premiums. Where contract terms
require the reinstatement of coverage after a ceding company’s loss, the estimated mandatory reinstatement premiums
are recorded as premiums written and earned when a specific loss event occurs. Reinstatement premiums are not
recorded for losses included within the provision for IBNR that do not relate to a specific loss event.
Conduit Holdings Limited Annual Report and Accounts 2022
99
Financial statements
Notes to the consolidated financial statements
continued
Proportional contracts
Premiums written for proportional contracts are recognised based on estimates of ultimate premiums provided by the
ceding company, supplemented by management's estimates of premiums based on its experience with the ceding
company, familiarity with each market, the timing of the reported information and its understanding of the
characteristics of each class of business. Initial estimates of premiums written are recognised in the period in which
the contract incepts, or the period in which the contract is bound, if later. Contracts written on a ‘risks attaching’ basis
cover claims which attach to the underlying reinsurance policy written during the term of the respective policy.
Premiums earned on such policies generally extend beyond the original term of the contract. Subsequent adjustments,
based on reports of actual premium by the ceding company, or revisions in estimates, are recorded in the period in
which they are determined.
Premiums receivable
Reinsurance premiums receivable from cedants are recorded net of commissions, brokerage, premium taxes and other
levies on premiums, unless the contract specifies otherwise. A significant portion of amounts included as premiums
receivable are not currently due based on the terms of the underlying contracts. These balances are regularly reviewed
for impairment, with any impairment loss recognised as an expense in the period in which it is determined. Based on
currently available information, management believes that the premium estimates included in premiums receivable will be
collectable and therefore no provision for doubtful accounts has been recorded.
Acquisition expenses
Acquisition expenses represent commissions, brokerage, profit commissions and other variable costs that relate directly
to the successful securing of new contracts and renewing existing contracts. Generally, acquisition expenses are
deferred over the period in which the related premiums are earned to the extent they are recoverable out of expected
future revenue margins. All other acquisition expenses are recognised as an expense when incurred.
Ceded reinsurance premiums
Ceded reinsurance is purchased in the normal course of business to increase capital capacity, limit the impact of
individual risk losses and loss events impacting multiple cedants (such as natural-catastrophes), or both. Conduit may
purchase ceded reinsurance on both an excess of loss and proportional basis, and may in future supplement this with the
use of catastrophe bonds or other capital market products. Ceded reinsurance premiums, being the cost of reinsurance
contracts entered into, are accounted for in the period in which the contract incepts or is bound if that date is later. Ceded
reinsurance premiums are generally earned in the same manner as the inwards contracts, depending on the terms of the
contract. The provision for the reinsurers’ share of unearned premiums represents the part of ceded reinsurance
premiums which are estimated to be earned in future periods. Deferred ceded acquisition expenses are recognised as a
liability using the same principles.
Net losses and loss adjustment expenses
Net losses and loss adjustment expenses in the consolidated statement of comprehensive loss include changes in
the provision for outstanding losses and ACRs, changes in the provision for IBNR, plus related expenses and losses
paid in the period. Amounts are net of any changes in the provision for reinsurance recoverable and related expenses
for the period. Net losses and loss adjustment expenses are recognised in total comprehensive income as they are
incurred.
Losses and loss adjustment expenses in the consolidated balance sheet represent the estimated ultimate cost of settling
all reinsurance claims arising from events which have occurred up to the end of the reporting period, including a provision
for IBNR. Conduit does not currently discount its liabilities for unpaid losses. Outstanding losses are initially set on the
basis of reported losses received from cedants. ACRs are determined where management’s best estimate of the
reported loss is greater than that reported. Estimated IBNR reserves may also consist of a provision for additional
development in excess of losses reported by cedants, as well as a provision for losses which have occurred but have not
yet been reported by cedants. IBNR reserves are estimated initially using expected loss and loss adjustment expense
ratios which are selected based on information derived by underwriters and actuaries during the initial pricing of the
business. These estimates are reviewed regularly and, as experience develops and new information is received, the
reserves are adjusted as necessary. As actual loss information is reported, and Conduit develops its own loss
experience, management will use various actuarial methods as well as a combination
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Financial statements
Notes to the consolidated financial statements
continued
of management’s judgement and experience, historical reinsurance industry loss experience and estimates of pricing
adequacy trends to estimate IBNR reserves. Any adjustments to initial expectations are reflected in the consolidated
statement of comprehensive loss in the period in which they are determined.
The estimation of the ultimate loss and loss adjustment expense liability is a complex process which incorporates a
significant amount of judgement. It is reasonably possible that uncertainties in the reserving process, delays in cedants
reporting losses to Conduit, together with the potential for unforeseen adverse developments, could lead to a material
change in estimated net losses and loss adjustment expenses.
Any amounts recoverable from reinsurers are estimated using the same methodology as for the underlying losses.
Management monitors the creditworthiness of its reinsurers on an ongoing basis and assesses any reinsurance assets
for impairment, with any impairment loss recognised as an expense in the period in which it is determined.
Liability adequacy tests
At each balance sheet date, Conduit performs a liability adequacy test to determine if there is an overall excess of
expected claims over unearned premiums for the period of unexpired risk by using current best estimates of future
cash outflows generated by its reinsurance contracts, plus any investment income thereon. If, as a result of these
tests, the carrying amount of Conduit’s reinsurance liabilities is found to be inadequate, the deficiency is charged to
the consolidated statement of comprehensive loss for the period, initially by writing off deferred acquisition costs and
subsequently by establishing a provision.
Financial instruments
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on call with banks, money market funds, and other
short-term highly liquid investments with a maturity of three months or less at the date of purchase. Carrying amounts
approximate fair value due to the short-term nature and high liquidity of the instruments.
Investments
Conduit’s fixed maturity securities portfolio is classified as FVTPL and carried at estimated fair value in the consolidated
balance sheet. The classification of financial assets is determined at the time of initial purchase. A financial asset is
classified at FVTPL if it is managed and evaluated on a fair value basis or if acquired principally for the purpose of selling
in the short term, or if it forms part of a portfolio of financial assets in which there is evidence of short-term profit taking.
Presentation of these securities in the FVTPL category is consistent with how management monitors and evaluates the
performance of these securities.
Regular way purchases and sales of investments are recognised at estimated fair value on the trade date, and are
subsequently carried at estimated fair value. Balances pending settlement are reflected in the consolidated balance
sheet in other assets or other payables. The estimated fair value of Conduit’s fixed maturity securities portfolio is
determined based on bid prices from recognised exchanges, broker-dealers, recognised indices or pricing vendors.
Changes in estimated fair value of investments classified as FVTPL are recognised in the consolidated statement of
comprehensive loss within net unrealised gains and losses on investments.
Investments are derecognised when Conduit has transferred substantially all the risks and rewards of ownership.
On derecognition of an investment held at FVTPL, previously recorded unrealised gains and losses are recycled
from net unrealised gains and losses on investments to net realised gains and losses on investments.
Interest income, amortisation and accretion of premiums and discounts on fixed maturity securities are calculated
using the effective interest rate method and recognised in net investment income. The carrying value of accrued
interest income approximates estimated fair value due to its short-term nature and high liquidity.
Intangible assets
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring into use the
specific software. An intangible asset with a finite useful life is amortised on a straight-line basis
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Financial statements
Notes to the consolidated financial statements
continued
over the useful life. The useful life is reviewed annually to determine if any changes are required to the
amortisation period.
Leases
Conduit recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, which comprises the initial measurement of the corresponding lease liability adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of
any costs to be incurred at the expiration of the lease agreement.
Right-of-use assets are subsequently measured at cost less accumulated depreciation and any impairment losses.
Straight-line depreciation is calculated from the commencement date of the lease to the earlier of either the end date
of the lease term or the useful life of the underlying asset.
The lease liability is initially measured at the present value of the future lease payments at the lease commencement
date. Lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, Conduit's incremental borrowing rate. Lease payments included in the measurement of the lease liability
include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
The lease liability is subsequently measured by increasing the lease carrying amount to reflect the interest due on the
lease liability using the effective interest rate method and reducing the carrying amount to reflect the lease payments
made. Conduit re-measures the lease liability and the related right-of-use asset whenever there is a change in future
lease payments arising from a change in index or rate, if Conduit changes its assessment of whether it will exercise a
purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
Right-of-use assets and lease liabilities are presented as separate financial statement line items in the
consolidated balance sheet.
Employee benefits
Equity-based incentives
Conduit currently operates a MIP under which shares are subscribed for or nil cost options are granted. The fair
value of the instruments granted is estimated on the date of grant. The estimated fair value is recognised as an
expense pro-rata over the vesting period of the instrument, adjusted for the impact of any non-market vesting
conditions. No adjustment to vesting assumptions is made in respect of market vesting conditions.
During 2022 Conduit established a DSBP. A percentage of each employee's bonus is automatically deferred into shares
as nil cost options. These nil cost awards vest annually in separate equal tranches over a three-year period from the
date of grant and do not have associated performance criteria attached to the awards. These awards accrue dividend
equivalents for all dividends declared where the record date falls between the grant date and date of exercise, and are
paid at the time of exercise.
At each balance sheet date, Conduit revises its estimate of the number of instruments that are expected to become
exercisable. It recognises the impact of the revision of original estimates, if any, as equity-based incentive expense in
the consolidated statement of comprehensive loss, and a corresponding adjustment is made to other reserves in
shareholders’ equity over the remaining vesting period.
On exercise, the differences between the expense charged to the consolidated statement of comprehensive loss and
the actual cost to Conduit, if any, is transferred to other reserves in shareholders’ equity.
Pensions
Conduit’s pension plans are based on defined contributions or equivalent cash in lieu, subject to applicable law and
local market standards. On payment of contributions to the plans or cash in lieu there is no further obligation to
Conduit. Contributions or payments of cash in lieu are recognised as employee benefits in the consolidated statement
of comprehensive loss in the period when the services are rendered.
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Financial statements
Notes to the consolidated financial statements
continued
Tax
Income tax on the profit or loss for the period comprises current and deferred tax. Current tax is the expected tax
payable on the taxable income for the year using tax rates enacted or substantively enacted at the year-end reporting
date and any adjustments to tax payable in respect of prior periods.
Deferred tax is provided, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the financial statements. The amount of deferred tax provided is based on
the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates
enacted or substantively enacted at the reporting date. Deferred tax assets are recognised in the consolidated balance
sheet to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.
Own shares
Own shares include shares repurchased under share repurchase authorisations and held in treasury, plus shares
repurchased and held in trust, for the purposes of employee equity-based incentive schemes. Own shares are
deducted from shareholders’ equity. No gain or loss is recognised on the purchase, sale, cancellation or issue of own
shares and any consideration paid or received is recognised directly in equity.
Share capital and issuance costs
Shares are classified as shareholders' equity if there is no obligation to transfer cash or other financial assets.
Transaction costs that are attributable to the issuance of new shares are treated as a deduction from equity.
3.
Risk disclosures
Introduction
Conduit is exposed to risks from several sources, classified into six primary risk categories. The primary risk categories
are: (a) reinsurance risk; (b) market risk; (c) liquidity risk; (d) credit risk; (e) operational risk; and
(f) strategic risk. These are discussed in detail on the following pages. The primary risk to Conduit is
reinsurance risk.
The Board is responsible for determining the nature and extent of the principal risks Conduit is willing to take in
achieving its strategic objectives and should maintain sound risk management and internal control systems. To this
end, the Board has established various committees to support the execution of its responsibilities and has reviewed
the committee structures at CRL. The Board, and committees thereof, define the risk preferences and appetites within
which management is authorised to operate.
The risk function is responsible for supporting the Board, and the CRL Board, with the day-to-day oversight of the risks
that Conduit seeks or is exposed to in pursuit of its strategic objectives, and the satisfaction of certain regulatory risk
management expectations relevant to CRL. The framework under which risks are managed contemplates risk appetite
and tolerance constraints, prescribed by the Board and which are reviewed at least annually, with consideration of the
financial and operational capacity of Conduit. The use of financial capacity in this context relates to calculated or
modelled capital requirements, based on residual unmitigated risk exposures. Current capital requirements are
determined by reference to rating agency and regulatory capital requirements, with an internal capital model to be
developed in due course.
Day-to-day management of risk is the responsibility of management, operating within the defined appetite and
tolerances of the Board, or the CRL board, approved delegations of authority. The risk framework prescribes a
standardised approach to the management of risk, oversight and challenge by the risk function and independent
assurance provided by the internal audit function. The risk framework also addresses the reporting of risks, emerging
risks, risk events and compliance with risk appetite and tolerance statements to executive management and the Board,
and relevant Board committees, of CRL and CHL. To ensure transparency and accountability of the business all
independent Non-Executive Directors, four independent Non-Executive Directors from the Board have been appointed
to the Board of CRL. Furthermore, the Board is invited to attend operating entity board level meetings and see all
minutes and records of such operating entity Board and committee meetings.
COVID-19
The COVID-19 pandemic has caused significant disruption in global financial markets and to worldwide economies. The
COVID-19 pandemic is an ongoing situation making it exceptionally difficult to predict what
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Financial statements
Notes to the consolidated financial statements
continued
the ultimate impact for the reinsurance industry will be. Conduit only commenced underwriting operations during the
twelve months ended 31 December 2021 and, for any reinsurance business underwritten during that period, had
COVID-19 related exclusions in its reinsurance contracts and policy wordings. As a result, Conduit does not believe it
has any exposure to reinsurance losses associated with the COVID-19 pandemic during the period. The impacts of the
COVID-19 pandemic on Conduit are discussed throughout these consolidated financial statements.
Climate change
Conduit is exposed to risks associated with climate change but also potential opportunities arising from that risk. Risks
from climate change can include physical risk and those associated with a changing economy. Physical risks are those
relating to the physical impacts of climate change, which can be from increased frequency and/or severity of climate-
related events, or structural, due to longer-term shifts in climate patterns. Economic risks are those relating to the
transition to a lower carbon economy and include risks such as policy and legal risk, technology risk, market risk and
reputational risk. The potential financial impact from these risks is mitigated by Conduit’s strategic and risk management
policies.
Global tax reform
Conduit continues to monitor and assess the implications arising from the Organisation for Economic Co-operation and
Development’s inclusive framework agreement that aims to implement a global minimum tax rate of 15%, along with the
potential impacts of other global tax reforms that are relevant to Conduit’s business operations.
a. Reinsurance risk
Conduit underwrites both short-tail and long-tail reinsurance contracts on a worldwide basis. These reinsurance
contracts transfer insurance risk, including risks exposed to both natural and man-made catastrophes, and risk and
liability losses. The risk in connection with underwriting reinsurance contracts is, in the event of a covered loss, whether
the premiums will be sufficient to meet the associated loss payments and expenses. The underwriters evaluate and
estimate the level of premiums sufficient to cover expected losses, expenses and profitability through a combination of
sophisticated risk modelling tools, past experience and knowledge of loss events, current industry trends and broader
economic indicators. In order to ensure appropriate reinsurance risk selection and limits on the concentration and
diversification of the aggregate portfolio, Conduit has established risk management and internal control systems to
evaluate and assess the expected losses of each individual contract, class of business, geographic region and the
aggregate portfolio. These controls, include, but are not limited to:
•
Conduit has a five-year strategic plan that defines the over-riding business goals that management and the Board
aim to achieve.
•
A detailed business plan is produced annually and considers current market conditions and the risk-adjusted
profitability of the underwriting portfolio.
•
Conduit's internal capital requirements consider the probability and magnitude of reinsurance losses varying
adversely from the expected losses considered during the underwriting and subsequent reserving processes.
•
Forecasts are produced periodically to assess the progress toward the business plan and the strategic
plan.
•
Each underwriter has a clearly defined limit of underwriting authority.
•
Each contract underwritten is subject to a pre-bind peer review.
•
An underwriting roundtable meeting, typically held daily, where deal flow, pricing and opportunities are
discussed.
•
Pricing models are used in all areas of the underwriting process.
•
Risk appetite and tolerance statements have been established and the CRO reports quarterly on
adherence.
•
A number of modelling tools are used to model catastrophes and expected losses.
•
Outwards reinsurance is purchased to mitigate both frequency and severity of losses, and to protect Conduit’s
capital base.
Catastrophe management
Certain of Conduit’s classes of business provide coverage for natural-catastrophes (e.g., earthquakes, floods, hurricanes
and wildfires) and are subject to seasonal variation and the impacts of climate change. Conduit’s business has exposure
to large catastrophe losses in North America, Europe and Japan as a result of
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Financial statements
Notes to the consolidated financial statements
continued
windstorms. The level of windstorm activity, and landfall thereof, during the North American, European and Japanese
wind seasons may materially impact loss experience. The North American and Japanese wind seasons are typically
June to November and the European wind season November to March. Conduit also has exposure to other natural-
catastrophes, such as earthquakes, tsunamis, droughts, floods, hail and tornadoes, which can occur throughout the
year. In addition, Conduit is exposed to risk losses throughout the year from perils such as fire, explosion, war,
terrorism, political risk and other events, including loss arising from legal liabilities rather than physical damage.
Conduit has defined its appetite and tolerances for risk accumulations and uses models to determine the expected
frequency and severity of aggregating exposures. As with all such models, there is a risk that modelled expectations
may not reflect actual outcomes and the scope of the models are such that not all exposures are captured.
Conduit has set tolerances around various scenarios. Of these, at the commonly reported 100-year and 250-year return
periods, Conduit’s most significant exposures to any single peril and region combination are to Florida windstorm and
California earthquake perils, respectively. The table below shows the estimated net exposures to these peak zone perils
on a first occurrence basis. Net positions are calculated by applying relevant reinstatement premiums and outwards
reinsurance to the respective modelled gross exposures.
As at 31 December 2022
As at 31 December 2021
% of
% of
tangible
tangible
Net
capital
Net
capital
Return period
Peril
$m
%
$m
%
100-year
Florida windstorm
18.5
2.3
9.6
1.0
250-year
California earthquake
74.8
9.2
61.8
6.3
There can be no guarantee that the modelled assumptions and techniques deployed in calculating these figures are
accurate. There could also be an unmodelled loss which exceeds these figures. The models also contain loss
scenarios which could cause a larger loss to capital than the modelled expectation from the above return periods.
Operating segments
The underwriting business is comprised of three principal divisions: property, casualty and specialty. These divisions
are also considered to be Conduit's operating segments. Details of each operating segment and gross premiums
written by geographic region and operating segment are as follows:
Property
Casualty
Specialty
Total
Total
Year ended 31 December 2022
$m
$m
$m
$m
%
US
174.7
171.9
8.7
355.3
55.7
Worldwide
93.5
29.0
81.2
203.7
32.0
Europe
16.3
33.3
10.2
59.8
9.4
Other
15.1
2.5
1.1
18.7
2.9
Gross premiums written
299.6
236.7
101.2
637.5
100.0
Property
Casualty
Specialty
Total
Total
Year ended 31 December 2021
$m
$m
$m
$m
%
US
105.4
118.7
3.9
228.0
60.2
Worldwide
62.3
7.1
62.3
131.7
34.8
Europe
6.0
2.8
-
8.8
2.3
Other
9.7
0.4
0.2
10.3
2.7
Gross premiums written
183.4
129.0
66.4
378.8
100.0
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Financial statements
Notes to the consolidated financial statements
continued
Property reinsurance
Conduit is exposed to large natural-catastrophe losses, such as windstorm and earthquake losses, primarily from
assuming risks associated with property treaties. Exposure to natural-catastrophe events is controlled and measured by
managing to predefined limits within stochastic modelling and deterministic accumulations across classes per geographic
zone and peril. The accuracy of these analyses is limited by the quality of data and the effectiveness of the modelling. It
is possible that a catastrophic event significantly exceeds the expected modelled event loss.
Natural-catastrophe risk is written across both the US and internationally on an excess of loss and capped quota
share basis. Reinsurance structures are offered strategically, most notably in respect of peril, geography and
probability of activation or exhaustion.
Property per risk treaties are offered with the strategy to minimise natural-catastrophe exposure, focusing on fire risk.
This is considered by both natural-catastrophe specific metrics, treaty conditions and excess of loss structure.
Ceded reinsurance may be purchased to mitigate exposures to large natural-catastrophe losses. Ceded reinsurance is
typically purchased on an excess of loss basis, however industry loss warranties, catastrophe bonds, or proportional
treaty arrangements may also be entered into.
Casualty reinsurance
Conduit underwrites a balanced portfolio of casualty classes of business, comprised of both excess of loss and
proportional contracts, on a worldwide basis.
Casualty claims tend to take longer to be reported and ultimately settled than physical damage risks. Conduit typically
maintains net reserves for losses and loss adjustment expenses for casualty classes of business over a longer period of
time than for the property and specialty classes of business where the costs of claims are generally known and settled
within a shorter time frame.
Conduit will purchase ceded reinsurance to protect against any ‘clash’ between losses arising in its casualty
portfolio.
The sub-classes of casualty business include directors and officer’s liability, financial institutions liability, general
liability for multiple sub-classes and, on an excess and umbrella basis, medical malpractice, professional liability
and transactional liability. Conduit has limited appetite for, and generally avoids, workers compensation, standalone
auto and cyber treaties.
Directors and officers liability
Directors and officers liability policies offer protection for company managers and directors and officers against
claims that may arise in the normal course of operations. Coverage includes legal expenses and liability to
shareholders, bondholders, creditors or others owing to actions or omissions by a director or officer of a private or
public corporation, or not-for-profit organisation.
Financial institutions liability
Financial institutions coverage may cover risks such as computer and commercial crime, professional indemnity
and civil liability.
General liability
General liability commonly provides cover for losses arising from the legal liability of an original insured and statutory
liability in the case of employers’ liability which result in bodily injury or disease to third parties or physical damage to
third-party property. The Group offers a wide range of general liability reinsurance products including contractors
general liability, excess general liability, umbrella, energy and environmental.
Medical malpractice
Medical malpractice reinsurance generally covers professional liability and errors and omissions specifically in the
healthcare industry, protecting physicians and other healthcare professionals against claims of negligent acts or injury
of patients under their care. Medical malpractice reinsurance does not cover intentional or criminal acts.
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Financial statements
Notes to the consolidated financial statements
continued
Professional liability
Professional liability generally provides coverage for third-party losses resulting from legal liability or civil liability or
negligence, errors or omissions or wrongful acts arising from the provision of, or failure to provide, professional services
by an original insured. Sub-classes of this business would include lawyers, accountants, architects and engineers, errors
and omissions, plus miscellaneous professional liability.
Transactional liability
Transactional liability reinsurance is used by parties to various business transactions, such as mergers, acquisitions
and divestitures, to transfer certain transaction-related risks to the reinsurance market. There can be a broad range of
risks covered, including warranty, litigation, pension and tax uncertainties and employment matters.
Specialty reinsurance
Conduit's specialty classes of business are written on both an excess of loss and proportional basis and can provide
reinsurance coverage against physical damage (short-tail) or against legal liability (long-tail) losses. Although specialty
classes of business are exposed to natural-catastrophe risk, it is generally to a lesser extent than property classes of
business. They are more likely to be affected by specific large loss events such as accidents, collisions, fires and similar
man-made catastrophe events. Specialty classes of business are highly diverse in nature and require specific market
expertise and experience. The specialty classes of business include aviation, energy, marine, renewables, political
violence and terrorism and are offered on both a specific and a whole account basis.
Conduit purchases ceded reinsurance protection to reduce exposure to both large risk losses and an accumulation
of smaller losses. Ceded reinsurance is typically purchased on an excess of loss basis, but, from time to time,
proportional arrangements may be entered into.
Aviation
The aviation class of business provides cover to the insurers of the world’s major airlines and aircraft manufacturers
and includes cover for the aircraft themselves as well as losses arising from passenger and third-party liability claims
against airlines and/or manufacturers.
Energy
The energy class of business provides reinsurance cover for a global spread of accounts that can include primary
risks such as downstream energy, upstream energy, energy liability, construction energy and Gulf of Mexico offshore
energy programmes. Policies typically cover property for physical damage (including natural-catastrophe) and
machinery breakdown perils plus consequential business interruption exposure, often with loss limits set at a level
commensurate with a modelled estimated maximum loss scenario.
Marine
Marine cargo is an international account and covers the reinsurance of commodities or goods in transit. Typically, transit
cover is provided on an all-risks basis for marine perils for the full value of the goods concerned. Static cover is also
provided for losses to cargo, from both elemental and non-elemental causes. In addition, the cargo account can include
for example, fine art, vault risks, artwork on exhibition and marine war and terrorism business relating to cargo in the
ordinary course of transit.
Marine liability is mostly the reinsurance of the International Group of Protection and Indemnity Clubs. Marine
builders’ risk covers the building of ocean-going vessels in specialised yards worldwide and their testing and
commissioning.
The marine hull class generally consists of worldwide coverage spanning physical damage, hull and machinery
breakdown, loss of hire and mortgagees’ interests for a range of maritime vessels from cargo and passenger ships to
private pleasure craft. Products typically cover both risk and catastrophe exposures.
Political violence and terrorism
Political violence and terrorism coverage is provided for US and worldwide property risks, but typically excluding
nuclear, chemical, biological and cyber coverage in most territories.
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Financial statements
Notes to the consolidated financial statements
continued
Whole account
Coverage is generally provided on a worldwide basis and covers a broad spectrum of the cedants risks under a single
policy. The classes of business covered under a whole account reinsurance policy can include traditional property and
casualty classes of business including commercial and personal automobile, general liability, workers’ compensation,
employers’ liability, excess casualty and umbrella, as well as selected professional liability coverage.
Ceded reinsurance
Ceded reinsurance is purchased in the normal course of business to increase capital capacity, limit the impact of
individual risk losses and loss events impacting multiple cedants (such as natural-catastrophes), or both. Ceded
reinsurance may also be purchased from time to time to optimise the risk-adjusted return of Conduit's aggregate
underwriting portfolio. Conduit may purchase ceded reinsurance on both an excess of loss and proportional basis, and
may in future supplement this with the use of catastrophe bonds or other capital market products. The mix of ceded
reinsurance coverage is dependent on specific loss mitigation requirements, market conditions and available capacity. In
certain market conditions, Conduit may deem
it more economic to hold capital than purchase ceded reinsurance. Ceded reinsurance does not relieve Conduit of its
obligations to policyholders. Conduit is exposed to reinsurance risk where ceded reinsurance contracts put in place to
reduce gross reinsurance risk do not perform as anticipated, result in coverage disputes or prove inadequate in terms
of the limits purchased. Failure of a ceded reinsurer to pay a valid claim is considered a credit risk which is detailed in
the credit risk section below. Ceded reinsurance coverage is not intended to be available to meet all potential loss
circumstances. Conduit will retain certain losses, as the cover purchased is unlikely to transfer the totality of Conduit’s
exposure. Any loss amount which exceeds the ceded reinsurance coverage purchased would be retained by Conduit.
Some ceded reinsurance policies have limited reinstatements, therefore the number of claims which may be recovered
on second, and subsequent loss circumstances is limited.
Under Conduit’s ceded reinsurance security policy, ceded reinsurers are assessed and approved based on their
financial strength ratings, amongst other factors. These decisions are regularly reviewed as an integral part of the
business planning and performance monitoring process. The management Counterparty Security Committee examines
and approves all Conduit’s ceded reinsurers to ensure that they possess suitable security.
Net losses and loss adjustment expenses
A significant and critical judgement and estimate made by management is the estimation of net losses and loss
adjustment expenses. Management estimates net losses and loss adjustment expenses, and the associated reserves
to cover its estimated liability for both reported and unreported claims on events that have occurred up to the latest
valuation date. Management uses methodologies that calculate a point estimate for the ultimate losses, representing
management’s best estimate of ultimate net losses and loss adjustment expenses. Conduit establishes its reserve for
losses and loss adjustment expenses by taking outstanding losses, adding an estimate for IBNR and, if deemed
necessary, ACRs which represent Conduit's estimate for losses related to specific contracts that the management
believes may not be adequately estimated by the client as of that date.
Loss reserves are not permitted until the occurrence of an event which may give rise to a claim. As a result, only loss
reserves applicable to losses that have occurred up to the reporting date are established, with no allowance for the
provision of a contingency reserve to account for expected future losses or for the emergence of new types of latent
claims. Claims arising from future events can be expected to require the establishment of substantial reserves from
time to time. All of Conduit’s reserves are currently reported on an undiscounted basis.
The reserving process is dependent on management's judgement and is subject to meaningful uncertainty due to both
qualitative and quantitative factors, including, but not limited to: the nature of the business written, whether it is short-tail
or long-tail, whether it is excess of loss or proportional, the magnitude and timing of loss events, the geographic areas
impacted by loss events, time lags in the reporting process from the original claimant, limited claims data, policy
coverage interpretations, case law, regulatory directives, demand surge and inflation, potential uncertainties related to
reinsurance and ceding company reserving practices, and other factors inherent in the estimation process for net losses
and loss adjustment expenses.
Conduit Holdings Limited Annual Report and Accounts 2022
108
Financial statements
Notes to the consolidated financial statements
continued
The judgements and estimates used in establishing loss reserve calculations may be revised as additional experience
or other data becomes available. Loss reserves are also reviewed as new or improved methodologies are developed
and as laws or regulations change. Furthermore, as a business operating within a broker market, management must
rely on loss information reported to brokers by other insurers and their loss adjusters, who must estimate their own
losses at the policy level, often based on incomplete and changing information. The information management receives
varies by cedant and may include paid losses, estimated case reserves and an estimated provision for IBNR reserves.
Additionally, reserving practices and the quality of data reporting may vary among ceding companies, which adds
further uncertainty to management’s estimates of the ultimate losses.
Conduit’s internal actuaries review the reserving assumptions and methodologies on a quarterly basis and develop an
actuarial best estimate of Conduit’s net losses and loss adjustment expenses using the processes outlined above. The
management Reserving Committee reviews the estimate for net losses and loss adjustment expenses on a quarterly
basis. The reserves are subject to a semi-annual independent review by Conduit’s external actuaries. The results of the
internal and independent reserve reviews are presented to the Audit Committee.
Short-tail versus long-tail
Claims relating to short-tail risks are generally reported more promptly than those relating to long-tail risks. The
timeliness of reporting can be affected by such factors as the nature of the event causing the loss, the location of the
loss and whether the losses are from policies in force with primary insurers or reinsurers.
Excess of loss versus proportional
For excess of loss contracts, management is aided by the fact that each policy has a defined limit of liability arising from
one event. Once that limit has been reached, there is no further exposure to additional losses from that policy for the
same event. For proportional business, an initial estimated loss and loss expense ratio is generally used. This is based
upon information provided by the ceding company and/or their broker and management’s historical experience of that
treaty, if any, and the estimate is adjusted as actual experience becomes known.
b. Market risk
Conduit is at risk of loss due to movements in market factors. The main market risks Conduit was exposed to include:
•
Reinsurance risk;
•
Investment risk;
•
Currency risk.
Reinsurance risk
Conduit is exposed to reinsurance market risk from several sources, including the following:
•
The advent or continuation of a soft market, which may result in a stabilisation or decline in premium rates
and/or terms and conditions for certain classes, or across all classes.
•
The actions and reactions of key competitors, which may directly result in volatility in premium volumes and rates,
fee levels and other input costs.
•
Market events, including unusual inflation in rates, may result in a limit in the availability of cover, causing political
intervention or national remedies.
•
Failure to maintain broker and cedant relationships, leading to a limited or substandard choice of risks
inconsistent with Conduit’s risk appetite.
•
Changes in regulation including capital, governance or licensing requirements, and laws.
•
Changes in the geopolitical environment.
The most important method to mitigate reinsurance market risk is to maintain strict underwriting standards.
Conduit manages reinsurance market risk in numerous ways, including the following:
•
Reviews and amends underwriting plans and outlook as necessary.
•
Reduces exposure to, or withdraws from, market sectors where conditions have reached
unattractive levels.
•
Purchases appropriate, cost-effective reinsurance cover to mitigate exposures.
•
Closely monitors changes in rates, terms and conditions, and inflation.
Conduit Holdings Limited Annual Report and Accounts 2022
109
Financial statements
Notes to the consolidated financial statements
continued
•
Ensures through rigorous underwriting criteria that surplus capital does not drive short-term risk
appetite.
•
Typically holds a daily underwriting briefing meeting for CRL to discuss deal flow, pricing and
opportunities.
•
Holds a quarterly management Underwriting Oversight Committee meeting that considers matters that include
underwriting performance for CRL.
•
Holds an annual strategy review meeting.
•
Holds a quarterly management Underwriting Committee meeting that considers matters including
underwriting performance for CRL.
•
Holds a quarterly management Risk, Capital and Compliance Committee meeting to review relevant risk and capital
considerations for CRL.
•
Holds regular meetings with regulators and rating agencies.
Reinsurance contract liabilities are currently not directly sensitive to the level of market interest rates, as they are
undiscounted and contractually non-interest bearing.
Investment risk
Movements in investments resulting from changes in interest and inflation rates, credit spreads, and currency exchange
rates, among other factors, may lead to an adverse impact on the value of Conduit’s investment portfolio. Conduit seeks
to invest in issuers with stronger ESG practices on balance, as it believes that this will also help reduce risk in the
portfolio.
The Investment Committee of CRL is responsible for all investment-related decisions and investment guidelines. The
investment guidelines set the parameters within which Conduit’s external managers must operate. Important parameters
of these guidelines include permissible asset classes, duration 1 ranges, credit quality, permitted currency, maturity,
industry sectors, geographical, sovereign and issuer exposures. Guideline compliance is monitored on a monthly basis.
The portfolio of fixed maturity securities is currently managed by three external managers. Their performance is
monitored on an ongoing basis. Conduit projects the level of funds required to meet near-term obligations and cash flow
needs following extreme events in order to ensure adequate liquidity is maintained. Conduit also prioritises liquid asset
classes with higher credit quality and shorter duration so that Conduit can meet reinsurance and other near-term
obligations. Conduit has split the portfolio into a short-tail mandate, to better match the property and specialty classes of
business, and a long-tail mandate, to better match the casualty classes of business and some aspects
of the specialty classes of business. The short-tail mandate will be slightly shorter duration than the long-tail
mandate.
Conduit reviews the composition, duration and asset allocation of its investment portfolio on a regular basis to respond
to changes in interest rates and other market conditions. If certain asset classes are anticipated to produce a higher
return within management’s risk tolerance, an adjustment in asset allocation may be made. Conversely, if the risk profile
is expected to move outside of tolerance levels, adjustments may be made to reduce the risks in the portfolio.
Conduit models various periods of significant stress in order to better understand the investment portfolio’s risks and
exposures. The scenarios represent what could, and most likely will, occur – albeit not in the exact form of the
scenarios, which are based on historic periods of volatility. Conduit also monitors the portfolio impact of more severe
scenarios consisting of extreme shocks.
Conduit focuses on the most significant risks in its investment portfolio which are interest rate risk, credit risk and
liquidity risk, and has built, or is building, stress testing and risk analytics around these risks to ensure they are within
tolerances and preferences.
1.
Duration is the weighted average maturity of a security's cash flows, where the present values of the cash flows serve as the weights. The effect of convexity, or
sensitivity, of the portfolio's response to changes in interest rates is also factored in to the calculation.
Conduit Holdings Limited Annual Report and Accounts 2022
110
Financial statements
Notes to the consolidated financial statements
continued
Strategic asset allocation reviews will be undertaken periodically to assess Conduit’s overall investment strategy and to
consider alternative asset allocations to achieve the best risk-adjusted return within Conduit's risk appetite. Any resulting
recommendations would be approved by the appropriate management committee(s) and reported to the Board. The
Investment Committee met quarterly to ensure that the strategic and tactical investment actions were consistent with
investment risk preferences, appetite, risk and return objectives and tolerances. The investment risk tolerances have
been incorporated into the ERM framework.
The investment mix by mandate and sector of Conduit's portfolio of fixed maturity securities is as follows:
Estimated
Estimated
Estimated
fair value
fair value
fair value
short-tail
long-tail
total
As at 31 December 2022
$m
$m
$m
Short-term investments
33.2
4.7
37.9
US treasuries
103.6
106.6
210.2
US agency debt
-
1.8
1.8
US municipals
10.0
5.2
15.2
Non-US government and agency
2.0
-
2.0
Asset-backed
102.6
61.2
163.8
US government agency mortgage-backed
52.7
47.9
100.6
Non-agency mortgage-backed
9.8
3.0
12.8
Agency commercial mortgage-backed
3.2
-
3.2
Non-agency commercial mortgage-backed
21.9
30.8
52.7
Corporate
263.6
157.9
421.5
Total
602.6
419.1
1,021.7
Estimated
Estimated
Estimated
fair value
fair value
fair value
short-tail
long-tail
total
As at 31 December 2021
$m
$m
$m
Short-term investments
8.9
-
8.9
US treasuries
52.4
119.4
171.8
US agency debt
-
2.0
2.0
US municipals
11.0
2.2
13.2
Non-US government and agency
2.2
-
2.2
Asset-backed
97.3
72.4
169.7
US government agency mortgage-backed
53.2
41.4
94.6
Non-agency mortgage-backed
13.6
5.6
19.2
Agency commercial mortgage-backed
3.2
-
3.2
Non-agency commercial mortgage-backed
24.3
34.1
58.4
Corporate
302.6
162.6
465.2
Total
568.7
439.7
1,008.4
Conduit Holdings Limited Annual Report and Accounts 2022
111
Financial statements
Notes to the consolidated financial statements
continued
Corporate and non-US government and agency bonds by country are as follows:
Non-US
Other
government
Financials
industries
and agency
Total
As at 31 December 2022
$m
$m
$m
$m
US
140.6
187.7
-
328.3
UK
21.7
5.5
-
27.2
Canada
23.2
0.5
-
23.7
Other countries
35.4
6.9
2.0
44.3
Total
220.9
200.6
2.0
423.5
Non-US
Other
government
Financials
industries
and agency
Total
As at 31 December 2021
$m
$m
$m
$m
US
153.5
214.8
-
368.3
UK
22.1
7.4
-
29.5
Canada
23.3
0.6
-
23.9
Other countries
37.6
5.9
2.2
45.7
Total
236.5
228.7
2.2
467.4
The sector allocation of corporate bonds is as follows:
2022
2021
As at 31 December
$m
%
$m
%
Financials
220.9
52.4
236.5
50.9
Industrials
180.3
42.8
209.5
45.0
Utilities
20.3
4.8
19.2
4.1
Total
421.5
100.0
465.2
100.0
Conduit’s investment portfolio is comprised of fixed maturity securities and cash and cash equivalents. Fair values can
be impacted by movements in interest rates, credit ratings, exchange rates, the current economic environment and
outlook. The estimated fair value of the portfolio of fixed maturity securities is generally inversely correlated to
movements in market interest rates. If market interest rates fall, the estimated fair value of Conduit’s portfolio of fixed
maturity securities would tend to rise and vice versa. The sensitivity of the price of fixed maturity securities to movements
in interest rates is indicated by their duration. The greater a security’s duration, the greater its price volatility to
movements in interest rates. The sensitivity of Conduit’s portfolio of fixed maturity securities to interest rate movements
is detailed below, assuming linear movements in interest rates.
Conduit Holdings Limited Annual Report and Accounts 2022
112
Financial statements
Notes to the consolidated financial statements
continued
2022
2021
As at 31 December
$m
%
$m
%
Immediate shift in yield (basis points)
100
(23.0)
(2.2)
(27.7)
(2.7)
75
(17.2)
(1.7)
(20.8)
(2.1)
50
(11.5)
(1.1)
(13.9)
(1.4)
25
(5.7)
(0.6)
(6.9)
(0.7)
0
-
-
-
-
-25
6.6
0.6
5.7
0.6
-50
13.2
1.3
11.5
1.1
-75
19.7
1.9
17.2
1.7
-100
26.3
2.6
22.9
2.3
Conduit mitigates interest rate risk on the investment portfolio by establishing and monitoring duration ranges in its
investment guidelines. The duration of the portfolio is matched to the modelled expected duration of the reinsurance
reserves, within a permitted range. The permitted duration range for the portfolio is between 1.5 and 5 years. The
overall duration for the fixed maturity securities, managed cash and cash equivalents is 2.2 years as at 31
December 2022 (31 December 2021: 2.4 years).
In addition to duration management, Conduit monitors VaR to measure potential losses in the estimated fair values of its
cash and invested assets and to understand and monitor risk. The VaR calculation is performed using
variance/covariance risk modelling. Securities are valued individually using standard market pricing models. These
security valuations serve as the input to many risk analytics. The principal VaR measure that is produced is an annual
VaR at the 99th percentile confidence level. Under normal conditions, the portfolio is not expected to lose more than the
VaR metric listed below, 99% of the time over a one-year time horizon. The appropriateness of this measure is
considered by the Investment Committee periodically.
Conduit’s annual VaR calculation is as follows:
2022
2021
% of
% of
shareholders'
shareholders'
As at 31 December
$m
equity
$m
equity
99th percentile confidence level
62.0
7.6
30.2
3.1
Currency risk
Conduit is susceptible to fluctuations in rates of foreign exchange, principally between the US dollar and pound
sterling and the US dollar and the euro. Even though risks are assumed on a worldwide basis, they are
predominantly denominated in US dollars. Conduit is exposed to currency risk to the extent its assets are
denominated in different currencies to its liabilities. Conduit is also exposed to translation risk on non-monetary
assets such as unearned premiums and deferred acquisition costs. Foreign currency gains and losses are recorded
in the period they occur in the consolidated statement of comprehensive loss.
Conduit hedges monetary non-US dollar liabilities primarily with non-US dollar assets but may also use derivatives,
such as currency forwards, to mitigate foreign currency exposures. The main foreign currency exposure relates to its
reinsurance obligations, cash holdings, premiums receivable and dividend payable, if applicable.
Conduit Holdings Limited Annual Report and Accounts 2022
113
Financial statements
Notes to the consolidated financial statements
continued
The following table summarises the carrying value of total assets and total liabilities categorised by
Conduit’s main currencies:
USD
GBP
EUR
Other
Total
As at 31 December 2022
$m
$m
$m
$m
$m
Total assets
1,515.9
26.1
24.2
2.2
1,568.4
Total liabilities
(691.3)
(9.1)
(44.9)
(8.7)
(754.0)
Net assets (liabilities)
824.6
17.0
(20.7)
(6.5)
814.4
USD
GBP
EUR
Other
Total
As at 31 December 2021
$m
$m
$m
$m
$m
Total assets
1,318.0
6.4
9.3
1.1
1,334.8
Total liabilities
(331.8)
(2.8)
(17.1)
(1.9)
(353.6)
Net assets (liabilities)
986.2
3.6
(7.8)
(0.8)
981.2
The impact on profit from a proportional foreign exchange movement of 10.0% against the US dollar at year end
spot rates would be a decrease or increase of $0.3 million (31 December 2021: $0.2 million).
c. Liquidity risk
Liquidity risk is the risk that cash may not be available to pay obligations when they are due without incurring
unreasonable costs. Conduit's main exposure to liquidity risk is with respect to its reinsurance and investment activities.
Conduit is exposed if proceeds from the sale of financial assets are not sufficient to fund obligations arising from
reinsurance contacts and/or other liabilities. Conduit can be exposed to fund daily calls on its available investment
assets, principally to settle reinsurance claims and/or to fund trust accounts following a large catastrophe loss, or other
collateral requirements.
Liquidity risk exposures related to reinsurance activities are as follows:
•
Large catastrophic events, or multiple medium-sized events in quick succession, requiring the payment of high value
claims within a short time frame or to fund trust accounts established to collateralise claims payment liabilities.
•
Failure of cedants to meet their contractual obligations with respect to the timely payment of premiums.
•
Failure of Conduit’s ceded reinsurers to meet their contractual obligations to pay claims within a timely
manner.
Liquidity risk exposures related to investment activities are as follows:
•
Adverse market movements and/or a duration mismatch to obligations, resulting in investments needing to be
disposed of at a significant realised loss.
•
An inability to liquidate investments due to market conditions.
Conduit's investment strategy is to hold high quality, liquid securities sufficient to meet reinsurance liabilities and other
near-term liquidity requirements. Portfolios are specifically designed to ensure funds are readily available in an extreme
event.
Conduit Holdings Limited Annual Report and Accounts 2022
114
Financial statements
Notes to the consolidated financial statements
continued
The maturity dates of Conduit's portfolio of fixed maturity securities are as follows:
Short-tail
Long-tail
Total
As at 31 December 2022
$m
$m
$m
Fixed maturity securities at FVTPL
Less than one year
167.9
46.0
213.9
Between one and two years
149.5
37.0
186.5
Between two and three years
54.2
12.5
66.7
Between three and four years
15.8
48.8
64.6
Between four and five years
4.9
21.0
25.9
Over five years
20.1
110.9
131.0
Asset-backed and mortgage-backed
190.2
142.9
333.1
Total
602.6
419.1
1,021.7
Short-tail
Long-tail
Total
As at 31 December 2021
$m
$m
$m
Fixed maturity securities at FVTPL
Less than one year
43.8
1.5
45.3
Between one and two years
145.7
70.6
216.3
Between two and three years
144.5
39.1
183.6
Between three and four years
21.3
9.5
30.8
Between four and five years
11.0
57.2
68.2
Over five years
10.8
108.3
119.1
Asset-backed and mortgage-backed
191.6
153.5
345.1
Total
568.7
439.7
1,008.4
The estimated maturity profile of the reinsurance contracts and financial liabilities of Conduit is as follows:
Years until liability becomes due – undiscounted
Carrying
Less than
One to
Three to
value
one
three
five
Over five
Total
As at 31 December 2022
$m
$m
$m
$m
$m
$m
Losses and loss adjustment expenses
459.3
161.5
156.6
72.5
68.7
459.3
Other reinsurance payables
15.0
15.0
-
-
-
15.0
Amounts payable to reinsurers
16.2
16.2
-
-
-
16.2
Other payables
8.7
8.7
-
-
-
8.7
Lease liabilities
2.4
0.6
1.3
0.7
-
2.6
Total
501.6
202.0
157.9
73.2
68.7
501.8
Conduit Holdings Limited Annual Report and Accounts 2022
115
Financial statements
Notes to the consolidated financial statements
continued
Years until liability becomes due – undiscounted
Carrying
Less than
One to
Three to
value
one
three
five
Over five
Total
As at 31 December 2021
$m
$m
$m
$m
$m
$m
Losses and loss adjustment expenses
171.6
65.0
62.7
23.1
20.8
171.6
Amounts payable to reinsurers
7.3
7.3
-
-
-
7.3
Other payables
19.0
19.0
-
-
-
19.0
Lease liabilities
2.9
0.6
1.3
1.3
-
3.2
Total
200.8
91.9
64.0
24.4
20.8
201.1
Actual maturities of the above may differ from contractual maturities because certain borrowers have the right to call or
prepay certain obligations with or without call or prepayment penalties. The estimation of the ultimate liability for net
losses and loss adjustment expenses is complex and incorporates a significant amount of judgement. The timing of
payment of net losses and loss adjustment expenses is also uncertain and cannot be predicted as simply as for other
financial liabilities. Actuarial and statistical techniques, past experience and management’s judgement have been used
to determine a likely settlement pattern.
As at 31 December 2022, cash and cash equivalents were $112.9 million (31 December 2021: $67.5 million). Conduit
manages its liquidity risks via its investment strategy to hold high quality, liquid securities, sufficient to meet its
reinsurance liabilities and other near-term liquidity requirements. In addition, Conduit has established asset allocation
and maturity parameters within the investment guidelines such that the majority of the investments are in high quality
assets which could be converted into cash promptly and at minimal expense. Conduit monitors market changes and
outlook and reallocates assets as it deems necessary.
As at 31 December 2022, Conduit considers it has more than adequate liquidity to pay its obligations as they fall due
even if difficult investment market conditions were to prevail for a period of time.
d. Credit risk
Credit risk is the risk that a counterparty may fail to pay, or repay, a debt or obligation. Conduit is exposed to credit risk
on its fixed maturity investment portfolio, its premiums receivable from cedants, and on any amounts recoverable from
reinsurers. While Conduit has not experienced any such collection issues, the COVID-19 pandemic increased the risk of
defaults across many industries. The global recovery from the COVID-19 pandemic continues and the risk that
counterparties fail to meet their financial obligations as they fall due has decreased.
Credit risk on Conduit’s portfolio of fixed maturity securities is mitigated through the investment policy to invest in
instruments of high credit quality issuers and to limit the amounts of credit exposure with respect to particular ratings
categories and any one issuer. Securities rated below an S&P or equivalent rating of BBB+ may comprise no more
than 10.0% of the portfolio. Conduit also limits exposure to individual issuers, with declining limits for less highly rated
issuers. Conduit therefore does not expect any significant credit concentration risk on its investment portfolio, except
for fixed maturity securities issued by the US government and its agencies.
Conduit is potentially exposed to counterparty credit risk in relation to the premiums receivable from reinsurance
brokers and cedants and on any amounts recoverable from Conduit’s ceded reinsurers. Given the dislocation in the
market, the COVID-19 pandemic may adversely impact the ability to collect amounts due to Conduit. Credit risk on
inwards premiums receivable from cedants is managed by conducting business with reputable broking organisations,
with whom Conduit has established relationships, and by rigorous cash collection procedures. Conduit also has a
broker approval process in place. Credit risk from ceded reinsurance recoverables is primarily managed by the review
and approval of reinsurer security, with ongoing monitoring in place.
The table below presents an analyses of Conduit’s major exposures to counterparty credit risk, based on their
rating. Premiums receivable are not rated, however there is limited default risk associated with these amounts.
Conduit Holdings Limited Annual Report and Accounts 2022
116
Financial statements
Notes to the consolidated financial statements
continued
Cash and cash
Reinsurance
equivalents
recoverable
and fixed
Inward
and other
maturity
premiums
reinsurance
securities
receivables
receivables
As at 31 December 2022
$m
$m
$m
AAA
651.4
-
-
AA+, AA, AA-
74.5
-
-
A+, A, A-
279.7
-
59.5
BBB+, BBB, BBB-
129.0
-
-
Other
-
260.5
29.9
Total
1,134.6
260.5
89.4
Cash and cash
Reinsurance
equivalents
recoverable
and fixed
Inward
and other
maturity
premiums
reinsurance
securities
receivables
receivables
As at 31 December 2021
$m
$m
$m
AAA
542.4
-
-
AA+, AA, AA-
75.6
-
-
A+, A, A-
306.2
-
30.8
BBB+, BBB, BBB-
151.7
-
-
Other
-
155.0
18.4
Total
1,075.9
155.0
49.2
The reinsurance recoverable classified as other is fully collateralised.
As at 31 December 2022 the average credit quality of Conduit's cash and cash equivalents and portfolio
of fixed maturity securities was AA (31 December 2021: AA-). The COVID-19 pandemic has increased the risk of
defaults across many industries and Conduit continually monitors credit risk, especially during this time of volatility.
Given the investment portfolio positioning, this is not expected to have a meaningful impact from a credit perspective,
although credit spreads are likely to remain volatile in the near-term. Potential interest rate rises are similarly not
expected to impact inwards premiums receivable.
The following table shows premiums receivable that are not yet due and those that are past due but not
impaired:
2022
2021
As at 31 December
$m
$m
Not yet due
227.3
123.0
Less than 90 days past due
29.8
22.2
Other
3.4
9.8
Total
260.5
155.0
For the year ended 31 December 2022 and 2021 no provisions have been made for impaired or irrecoverable balances
and no amount was charged to the consolidated statement of comprehensive loss in respect of bad debts.
Conduit Holdings Limited Annual Report and Accounts 2022
117
Financial statements
Notes to the consolidated financial statements
continued
e. Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, personnel, systems or external
events. During the reporting period, which primarily involved the ongoing establishment of operations, various
operational risks were identified, and steps were taken to manage or mitigate these risks.
The risk framework addresses the identification, assessment and management of operational risks. This process
involves the use of risk registers to identify inherent risk and residual risk after the application of controls. The
management of individual risks is the responsibility of management, with independent challenge and oversight
provided by the risk function. The results of compliance reviews and independent internal audits provide an additional
level of review and verification. The Audit Committee has selected a reputable provider to serve as outsourced
internal auditors.
f. Strategic risk
Conduit has identified several strategic risks, including:
•
The risks that either the poor execution of the business plan or an inappropriate business plan in itself results in a
strategy that fails to reflect adequately the trading environment, resulting in an inability to optimise performance,
including reputational risk.
•
The risks of the failure to maintain adequate capital, accessing capital at an inflated cost or the inability to access
capital and unanticipated changes in vendor, regulatory and/or rating agency models that could result in an
increase in capital requirements or a change in the type of capital required.
•
The risks of succession planning, staff retention and key personnel risks.
Business plan risk
Conduit's business plan forms the basis of operations and provides strategic direction to management.
Actual versus planned results are monitored regularly.
Capital management risk
The total tangible capital is as follows:
2022
2021
As at 31 December
$m
$m
Shareholders' equity
814.4
981.2
Intangible assets
1.4
1.1
Total tangible capital
813.0
980.1
Risks associated with the effectiveness of Conduit’s capital management are mitigated as follows:
•
Regular monitoring of current and prospective regulatory and rating agency capital requirements.
•
Oversight of capital requirements by the Board.
•
Ability to purchase sufficient, cost-effective reinsurance.
•
Maintaining contact with vendors, regulators and rating agencies in order to stay abreast of upcoming
developments.
•
Participation in industry groups such as the Association of Bermuda Insurers and Reinsurers, Reinsurance
Association of America and the International Underwriting Association.
Conduit reviews the level and composition of capital on an ongoing basis with a view of:
•
Maintaining sufficient capital for underwriting opportunities and to meet obligations to policyholders;
•
Maximising the risk-adjusted return to shareholders within the context of the defined risk appetite;
•
Maintaining an adequate financial strength rating; and
•
Meeting all relevant capital requirements.
Capital is increased or returned as appropriate. The retention of earnings generated leads to an increase in capital.
Capital raising can include debt or equity and returns of capital may be made through dividends, share repurchases, a
redemption of debt or any combination thereof. Other capital management tools and products available to Conduit
may also be utilised. All capital actions require approval by the Board.
Conduit Holdings Limited Annual Report and Accounts 2022
118
Financial statements
Notes to the consolidated financial statements
continued
The primary source of capital used by Conduit is equity shareholders’ funds. As a holding company, CHL relies on
dividends from its operating entity to provide the cash flow required for dividends to shareholders. The ability of the
operating entity to pay dividends and make capital distributions is subject to the legal and regulatory restrictions of the
jurisdiction in which it operates.
CRL is regulated by the BMA and is required to monitor the ECR under the BMA’s regulatory framework, which has
been assessed as equivalent to the EU’s Solvency II regime. CRL’s regulatory capital requirement is calculated using
the BSCR standard formula and minimum margin of solvency requirements. CRL had sufficient capital at all times
throughout the year to meet the BMA’s requirements.
Retention risk
Risks associated with succession planning, staff retention and key man risks are mitigated through a
combination of resource planning processes and controls, including:
•
The identification of key personnel with appropriate succession plans at CHL;
•
The identification of key team profit generators at CRL and function heads with targeted retention
packages;
•
Documented recruitment procedures, position descriptions and employment contracts;
•
Resource monitoring and the provision of appropriate compensation, including equity-based incentives which vests
over a defined time horizon, subject to achieving certain performance criteria; and
•
Training schemes.
4. Segmental reporting
Management and the Board review Conduit’s business and evaluates its performance primarily by three segments:
Property, Casualty and Specialty. These are considered to be the reportable segments for the purposes of
segmental reporting. Further classes of business are underwritten within each reportable segment. The nature of
these individual classes is discussed further in the “Risk disclosures” section.
Reportable segments
Operations and classes of business
Property
US and international property risk on an excess of loss and proportional contract basis.
Casualty
US and international casualty risk principally including directors and officers, financial
institutions, general, medical malpractice, professional and transactional.
Specialty
Diverse portfolio of business, principally including aviation, energy, marine, political violence
and terrorism and whole account.
Reportable segment performance is measured by the net underwriting profit or loss and the combined ratio. The chief
operating decision maker does not manage Conduit's assets by reportable segment, and, accordingly, investment
income and other non-underwriting related items are not allocated to each reportable segment. Refer to the risk
disclosures for more information.
All amounts reported are transactions with external parties and associates. There are no significant inter-segmental
transactions.
Conduit Holdings Limited Annual Report and Accounts 2022
119
Financial statements
Notes to the consolidated financial statements
continued
Property
Casualty
Specialty
Total
As at 31 December 2022
$m
$m
$m
$m
Gross premiums written by geographic region
US
174.7
171.9
8.7
355.3
Worldwide
93.5
29.0
81.2
203.7
Europe
16.3
33.3
10.2
59.8
Other
15.1
2.5
1.1
18.7
Total
299.6
236.7
101.2
637.5
Ceded reinsurance premiums
(46.3)
(1.3)
(9.0)
(56.6)
Net premiums written
253.3
235.4
92.2
580.9
Change in unearned premiums
(43.6)
(40.1)
(15.9)
(99.6)
Change in unearned premiums on premiums ceded
0.9
0.1
-
1.0
Net premiums earned
210.6
195.4
76.3
482.3
Net insurance losses and loss adjustment expenses
(140.0)
(129.0)
(76.9)
(345.9)
Net insurance acquisition expenses
(55.5)
(63.0)
(17.6)
(136.1)
Net underwriting profit (loss)
15.1
3.4
(18.2)
0.3
Other operating expenses
(34.3)
Net unallocated revenue / expenses
(55.7)
Total comprehensive loss
(89.7)
Net loss ratio
66.5%
66.0%
100.8%
71.7%
Net acquisition expense ratio
26.4%
32.2%
23.1%
28.2%
Other operating expense ratio
7.1%
Combined ratio
92.9%
98.2%
123.9%
107.0%
Conduit Holdings Limited Annual Report and Accounts 2022
120
Financial statements
Notes to the consolidated financial statements
continued
Property
Casualty
Specialty
Total
As at 31 December 2021
$m
$m
$m
$m
Gross premiums written by geographic region
US
105.4
118.7
3.9
228.0
Worldwide
62.3
7.1
62.3
131.7
Europe
6.0
2.8
-
8.8
Other
9.7
0.4
0.2
10.3
Total
183.4
129.0
66.4
378.8
Ceded reinsurance premiums
(26.4)
(1.2)
(5.0)
(32.6)
Net premiums written
157.0
127.8
61.4
346.2
Change in unearned premiums
(60.0)
(67.9)
(24.9)
(152.8)
Change in unearned premiums on premiums ceded
-
0.8
-
0.8
Net premiums earned
97.0
60.7
36.5
194.2
Net insurance losses and loss adjustment expenses
(70.9)
(41.1)
(30.1)
(142.1)
Net insurance acquisition expenses
(30.5)
(19.7)
(8.9)
(59.1)
Net underwriting loss
(4.4)
(0.1)
(2.5)
(7.0)
Other operating expenses
(30.6)
Net unallocated revenue / expenses
(4.4)
Total comprehensive loss
(42.0)
Net loss ratio
73.1%
67.7%
82.5%
73.2%
Net acquisition expense ratio
31.4%
32.5%
24.4%
30.4%
Other operating expense ratio
15.8%
Combined ratio
104.5%
100.2%
106.9%
119.4%
Included within the other geographic region, are premiums written with external parties in Bermuda for $0.6 million
(31 December 2021: $0.4 million).
5. Investment return
Net
Net
Net
realised
unrealised
Total
investment
gains /
gains /
investment
income
(losses)
(losses)
return
As at 31 December 2022
$m
$m
$m
$m
Fixed maturity securities
16.5
(2.8)
(67.8)
(54.1)
Cash and cash equivalents
1.3
-
-
1.3
Total
17.8
(2.8)
(67.8)
(52.8)
Net
Net
Net
realised
unrealised
Total
investment
gains /
gains /
investment
income
(losses)
(losses)
return
As at 31 December 2021
$m
$m
$m
$m
Fixed maturity securities
5.3
(1.0)
(7.6)
(3.3)
Cash and cash equivalents
0.2
-
-
0.2
Total
5.5
(1.0)
(7.6)
(3.1)
Included in net investment income is $1.1 million of investment management and custody fees for the year ended 31
December 2022 (31 December 2021: $0.7 million).
Conduit Holdings Limited Annual Report and Accounts 2022
121
Financial statements
Notes to the consolidated financial statements
continued
6. Net insurance acquisition expenses
2022
2021
Year ended 31 December
$m
$m
Insurance acquisition expenses
161.1
103.7
Change in deferred acquisition expenses
(24.8)
(44.6)
Insurance acquisition expenses ceded
(0.2)
-
Total
136.1
59.1
7. Employee benefits and other incentives
Aggregate remuneration and other incentives of Conduit’s employees is as follows:
2022
2021
Year ended 31 December
$m
$m
Wages and salaries
11.4
7.5
Pension benefit
1.1
0.8
Bonus and other benefits
7.7
10.4
Total cash compensation
20.2
18.7
Equity-based incentives
2.1
0.3
Total employee benefits and other incentives
22.3
19.0
Equity-based incentives – MIP
Prior to the IPO, a MIP was created. The purpose of the MIP was to provide an incentive scheme for the founders and
initial employees for their services in building the foundations of Conduit. The incentive is based around shares in CML,
which will be automatically exchanged for ordinary shares of CHL for an aggregate value equivalent to up to 15% of the
excess of the market value of CHL over and above the Invested Equity, subject to the satisfaction of the vesting
conditions. All outstanding and future grants have an exercise period of four to seven years from the grant date. The fair
value is estimated using a stochastic Monte Carlo model.
CML issued 100,000 A1 shares and 100,000 A2 shares during the period ended 31 December 2020 at a
subscription price of £1.72 and $2.26, respectively. Refer to note 18 for additional details.
The following table lists the assumptions used in the stochastic model for the MIP awards:
Year ended 31
Year ended 31
Assumptions
December 2022
December 2021
Dividend yield
0%
0%
Expected volatility1
range from
range from
17.2% – 19.0%
17.2% – 19.0%
Risk-free interest rate2
range from
range from
0.3% – 0.6%
0.3% – 0.6%
Expected life of instruments
range from 4 to 7
range from 4 to 7
years
years
1.
The expected volatility was calculated based on a comparator group of companies.
2.
The risk-free interest rate is based on the yield on a US government bond on the date of grant.
The shares were granted prior to the IPO and therefore discounts for business viability and lack of marketability were
also applied. There are significant risks associated with an IPO and the instruments are also illiquid until the tranche
vesting dates. Management therefore selected their best estimates at the time for these discounts. These assumptions
were highly judgemental and input from advisors was sought. Management also considered alternative assumptions and
concluded there was not a material impact on the estimated valuation selected. The calculation of the equity-based
incentive expense assumes no forfeitures
Conduit Holdings Limited Annual Report and Accounts 2022
122
Financial statements
Notes to the consolidated financial statements
continued
due to employee turnover, with subsequent adjustments to reflect actual experience. The assumptions and estimated
valuation selected resulted in 20% being expensed upfront for certain employees as this portion was not tied to service
conditions and was fully expensed in the period ended 31 December 2020.
Conditions of the MIP include:
•
The incentives are to be equity-settled and have therefore been accounted for in accordance with IFRS 2.
•
The value of the services received in exchange for the share-based incentives is measured by reference to the
estimated fair value of the incentives at their grant date, with the estimated fair value recognised in the
consolidated statement of comprehensive loss, together with a corresponding increase in other reserves within
shareholders’ equity, on a straight-line basis over the vesting period, based on an estimate of the number of shares
that will ultimately vest.
•
Vesting conditions, other than market conditions linked to the share price of CHL, are not taken into account
when estimating the fair value.
•
At the end of each reporting period Conduit revises its estimates of the number of shares that are expected to vest
due to non-market conditions and recognises the impact of the revision to original estimates, if any, in the
consolidated statement of comprehensive loss, with a corresponding adjustment to shareholders’ equity.
Equity-based incentives – DSBP
A percentage of each employee's bonus is automatically deferred into shares as nil cost options. The nil cost options
vest annually in separate equal tranches over a three year period from the date of grant and do not have associated
performance criteria attached to the awards. These awards accrue dividend equivalents for all dividends declared where
the record date falls between the grant date and date of exercise, and are paid at the time of exercise.
Number of
DSBP
awards
Outstanding as at 31 December 2021
-
Granted
764,575
Forfeited
(11,559)
Outstanding as at 31 December 2022
753,016
8. Other operating expenses
2022
2021
Year ended 31 December
$m
$m
Results of operating activities are stated after charging the following amounts:
Audit fees
0.9
0.8
Other auditor services
0.1
0.1
Total
1.0
0.9
During the year ended 31 December 2022, KPMG Audit Limited provided non-audit services in relation to Conduit's
2022 interim review. Fees for non-audit services in the year ended 31 December 2022 totalled $0.1 million (31
December 2021: $0.1 million).
9. Financing costs
2022
2021
Year ended 31 December
$m
$m
LOC and trust fees
0.7
0.4
Interest expense on lease liabilities
0.1
0.1
Total
0.8
0.5
Refer to note 17 for details of Conduit’s financing arrangements.
Conduit Holdings Limited Annual Report and Accounts 2022
123
Financial statements
Notes to the consolidated financial statements
continued
10.
Tax
Bermuda
CHL, CSL, CML and CRL have received an undertaking from the Bermuda government exempting them from all
Bermuda local income, withholding and capital gains taxes until 31 March 2035. At the present time no such taxes are
levied in Bermuda.
United Kingdom
CRSL is subject to normal UK corporation tax on all of its taxable profits. For the year ended 31 December 2022 and
2021 an immaterial tax profit arose.
11. Cash and cash equivalents
2022
2021
As at 31 December
$m
$m
Cash at bank and in hand
21.5
24.4
Cash equivalents
91.4
43.1
Total
112.9
67.5
Cash equivalents include money market funds and other short-term highly liquid investments with three months or
less remaining until maturity at the time of purchase. The carrying amount of these assets approximates their fair
value. Refer to note 17 for cash and cash equivalents provided as collateral under Conduit’s financing
arrangements.
12. Investments
Cost or
amortised
Unrealised
Unrealised
Estimated
cost
gains
losses
fair value
As at 31 December 2022
$m
$m
$m
$m
Fixed maturity securities, at FVTPL
Short-term investments
37.9
-
-
37.9
US treasuries
221.6
0.2
(11.6)
210.2
US agency debt
2.0
-
(0.2)
1.8
US municipals
16.4
-
(1.2)
15.2
Non-US government and agency
2.1
-
(0.1)
2.0
Asset-backed
171.6
-
(7.8)
163.8
US government agency mortgage-backed
116.3
0.1
(15.8)
100.6
Non-agency mortgage-backed
15.1
-
(2.3)
12.8
Agency commercial mortgage-backed
3.7
-
(0.5)
3.2
Non-agency commercial mortgage-backed
59.7
-
(7.0)
52.7
Corporate
450.7
0.1
(29.3)
421.5
Total
1,097.1
0.4
(75.8)
1,021.7
Conduit Holdings Limited Annual Report and Accounts 2022
124
Financial statements
Notes to the consolidated financial statements
continued
Cost or
amortised
Unrealised
Unrealised
Estimated
cost
gains
losses
fair value
As at 31 December 2021
$m
$m
$m
$m
Fixed maturity securities, at FVTPL
Short-term investments
8.9
-
-
8.9
US treasuries
172.9
-
(1.1)
171.8
US agency debt
2.0
-
2.0
US municipals
13.4
-
(0.2)
13.2
Non-US government and agency
2.2
-
-
2.2
Asset-backed
170.3
0.1
(0.7)
169.7
US government agency mortgage-backed
95.5
-
(0.9)
94.6
Non-agency mortgage-backed
19.4
-
(0.2)
19.2
Agency commercial mortgage-backed
3.2
-
-
3.2
Non-agency commercial mortgage-backed
59.0
-
(0.6)
58.4
Corporate
469.2
0.2
(4.2)
465.2
Total
1,016.0
0.3
(7.9)
1,008.4
As at 31 December 2022 other assets and other payables included $1.2 million and $1.2 million for investments
sold and purchased, respectively (31 December 2021: nil and $10.6 million, respectively).
Conduit determines the estimated fair value of each individual security utilising the highest-level inputs available. Prices
for the investment portfolio are provided via a third-party investment accounting firm whose pricing processes and the
controls thereon are subject to an annual audit on both the operation and the effectiveness of those controls. Various
recognised reputable pricing sources are used including pricing vendors. The pricing sources use bid prices where
available, otherwise indicative prices are quoted based on observable market trade data. The prices provided are
compared to the investment managers’ pricing.
Conduit has not made any adjustments to any pricing provided by independent pricing services or its third-party
investment managers for the year ended 31 December 2022 and 2021. The fair value of securities in the investment
portfolio is estimated using the following techniques:
LEVEL (I) – Level (I) investments are securities with quoted prices in active markets. A financial instrument is regarded
as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market
transactions on an arm’s length basis.
LEVEL (II) – Level (II) investments are securities with quoted prices in active markets for similar assets or liabilities or
securities valued using other valuation techniques for which all significant inputs are based on observable market data.
Instruments included in Level (II) are valued via independent external sources using directly observable inputs to models
or other valuation methods. The valuation methods used are typically industry accepted standards and include broker-
dealer quotes and pricing models including present values and future cash flows with inputs such as yield curves, credit
spreads, interest rates, prepayment speeds and default rates.
LEVEL (III) – Level (III) investments are securities for which valuation techniques are not based on
observable market data and require significant management judgement.
Conduit Holdings Limited Annual Report and Accounts 2022
125
Financial statements
Notes to the consolidated financial statements
continued
Conduit determines whether transfers have occurred between levels of the fair value hierarchy by re-assessing the
categorisation at the end of each reporting period. Transfers from Level (I) to (II) securities amounted to $76.2 million
and transfers from Level (II) to (I) securities amounted to $37.8 million during the year ended 31 December 2022 using
end of current period positions and estimated fair values. There were no investments included in Level (III). There were
no transfers between Level (I) and (II), and no investments were included in Level (III) during the year ended 31
December 2021.
The fair value hierarchy of Conduit's investment portfolio is as follows:
Level I
Level II
Total
As at 31 December 2022
$m
$m
$m
Fixed maturity securities, at FVTPL
Short-term investments
37.9
-
37.9
US treasuries
210.2
-
210.2
US agency debt
-
1.8
1.8
US municipals
-
15.2
15.2
Non-US government and agency
-
2.0
2.0
Asset-backed
-
163.8
163.8
US government agency mortgage-backed
-
100.6
100.6
Non-agency mortgage-backed
-
12.8
12.8
Agency commercial mortgage-backed
-
3.2
3.2
Non-agency commercial mortgage-backed
-
52.7
52.7
Corporate
51.3
370.2
421.5
Total
299.4
722.3
1,021.7
Level I
Level II
Total
As at 31 December 2021
$m
$m
$m
Fixed maturity securities, at FVTPL
Short-term investments
3.1
5.8
8.9
US treasuries
171.8
-
171.8
US agency debt
-
2.0
2.0
US municipals
-
13.2
13.2
Non-US government and agency
-
2.2
2.2
Asset-backed
-
169.7
169.7
US government agency mortgage-backed
-
94.6
94.6
Non-agency mortgage-backed
-
19.2
19.2
Agency commercial mortgage-backed
-
3.2
3.2
Non-agency commercial mortgage-backed
-
58.4
58.4
Corporate
117.1
348.1
465.2
Total
292.0
716.4
1,008.4
Refer to note 17 for investments provided as collateral under Conduit’s financing arrangements.
Conduit Holdings Limited Annual Report and Accounts 2022
126
Financial statements
Notes to the consolidated financial statements
continued
13. Interests in structured entities
Unconsolidated structured entities in which Conduit has an interest
As part of Conduit’s investment activities, it invests in unconsolidated structured entities. Conduit does not sponsor any
of the unconsolidated structured entities. The business relations of Conduit with the structured entities set out below do
not give rise to consolidation because the criteria for control pursuant to IFRS 10, as contained in our consolidation
principles, are not met.
A summary of interests in unconsolidated structured entities is as follows:
2022
2021
As at 31 December
$m
$m
Fixed maturity securities, at FVTPL
Asset-backed
163.8
169.7
US government agency mortgage-backed
100.6
94.6
Non-agency mortgage-backed
12.8
19.2
Agency commercial mortgage-backed
3.2
3.2
Non-agency commercial mortgage-backed
52.7
58.4
Total
333.1
345.1
The fixed maturity structured entities are used to meet specific investment needs of borrowers and investors which
cannot be met from standardised financial instruments available in the capital markets, providing liquidity and
diversification. While individual securities may differ in structure, the principles of the instruments are similar and it
is appropriate to aggregate the investments into the categories detailed above.
The risk that Conduit faces in respect of the investments in structured entities is similar to the risk it faces in respect of
other financial investments held on the consolidated balance sheet. Fair value is determined by market supply and
demand, which is driven by investor evaluation of the credit risk of the structure and changes in the term structure of
interest rates which can change the expectation of cash flows associated with the instrument and, therefore, its value
in the market.
The maximum exposure to loss in respect of these structured entities would be the carrying value of the instruments
that Conduit holds. Generally, default rates would have to increase substantially before Conduit would suffer a loss. This
assessment is made prior to investing and regularly through the holding period for the security.
Refer to note 17 for investments provided as collateral under Conduit’s financing arrangements.
Conduit Holdings Limited Annual Report and Accounts 2022
127
Financial statements
Notes to the consolidated financial statements
continued
14. Losses and loss adjustment expenses
Losses and loss adjustment expenses
Gross losses
Net losses
and loss
and loss
adjustment
Reinsurance
adjustment
expenses
recoveries
expenses
$m
$m
$m
As at 31 December 2020
-
-
-
Incurred losses:
Current year
191.0
(48.9)
142.1
Exchange adjustments
(0.3)
-
(0.3)
Incurred losses and loss adjustment expenses
190.7
(48.9)
141.8
Paid losses:
Current year
19.1
-
19.1
Paid losses and loss adjustment expenses
19.1
-
19.1
As at 31 December 2021
171.6
(48.9)
122.7
Incurred losses:
Current year
390.9
(39.1)
351.8
Prior year
(4.8)
(1.1)
(5.9)
Exchange adjustments
(0.9)
-
(0.9)
Incurred losses and loss adjustment expenses
385.2
(40.2)
345.0
Paid losses:
Current year
42.4
-
42.4
Prior year
55.1
(12.5)
42.6
Paid losses and loss adjustment expenses
97.5
(12.5)
85.0
As at 31 December 2022
459.3
(76.6)
382.7
Conduit did not book any additional case reserves for the year ended 31 December 2022 and 2021. Net losses
and loss adjustment expenses as at 31 December 2022 had an estimated duration of 3.1 years (31 December
2021: 2.7 years).
Further information on the calculation of loss reserves and associated risks are provided in the risk disclosures
section. The risks associated with reinsurance contracts are complex and the impact of an unreported event
could lead to a significant increase in Conduit’s loss reserves. Conduit believes that the loss reserves established
are adequate, however a 20% increase in estimated losses would have a $91.9 million adverse impact on profit
(31 December 2021: $34.3 million).
The 2022 losses were driven by another year of higher-than-average catastrophe losses combined with a number of
large losses impacting the industry. Conduit's most significant loss events for the current year stemmed from Hurricane
Ian's landfall in Florida as a category 4 hurricane, and the ongoing war in Ukraine impacting both property and specialty
segments via classes such as aviation, war on land, and marine war. Conduit recorded $45.4 million and $25.0 million
respectively for these events, net of outwards reinsurance.
The prior year benefited from reserve releases in the property segment, as reserves established for prior year
catastrophe events were refined due to updated information and also a lack of reported claims. General IBNR releases in
the specialty segment also contributed to the favourable development of the prior year.
The estimation of the ultimate loss and loss adjustment expense liability is a complex process which incorporates a
significant amount of judgement. It is reasonably possible that uncertainties inherent in the reserving process, delays in
insureds or ceding companies reporting losses to Conduit, together with the potential for unforeseen adverse
developments, could lead to a material change in estimated losses and loss adjustment expenses.
Conduit Holdings Limited Annual Report and Accounts 2022
128
Financial statements
Notes to the consolidated financial statements
continued
The breakdown of net losses and loss adjustment expenses is shown below:
Gross losses
Net losses
and loss
and loss
adjustment
Reinsurance
adjustment
expenses
recoveries
expenses
As at 31 December 2022
$m
$m
$m
Outstanding losses
98.1
(22.8)
75.3
Losses incurred but not reported
361.2
(53.8)
307.4
Total
459.3
(76.6)
382.7
Gross losses
Net losses
and loss
and loss
adjustment
Reinsurance
adjustment
expenses
recoveries
expenses
As at 31 December 2021
$m
$m
$m
Outstanding losses
26.0
-
26.0
Losses incurred but not reported
145.6
(48.9)
96.7
Total
171.6
(48.9)
122.7
15. Right-of-use lease assets
Right-of-use lease assets primarily relate to leased properties for Conduit's offices in Bermuda and office equipment.
Conduit has not received any rent concessions as a result of COVID-19.
Right-of-use assets
$m
Balance and net book value as at 1 January 2021
-
Additions
3.0
Depreciation
(0.1)
Balance and net book value as at 31 December 2021
2.9
Depreciation
(0.7)
Balance and net book value as at 31 December 2022
2.2
Lease liabilities
2022
2021
As at 31 December
$m
$m
Less than one year
0.6
0.6
Between one and five years
2.0
2.6
Total undiscounted lease liabilities
2.6
3.2
The discounted lease liability as at 31 December 2022 was $2.4 million (31 December 2021: $2.9 million).
Conduit does not face significant liquidity risk with respect to its lease liabilities.
Conduit Holdings Limited Annual Report and Accounts 2022
129
Financial statements
Notes to the consolidated financial statements
continued
Amounts recognised in the consolidated financial statements
2022
2021
Year ended 31 December
$m
$m
Consolidated statement of comprehensive loss
Interest expense on lease liabilities
0.1
0.1
Depreciation of right-of-use assets
0.7
0.1
Total
0.8
0.2
Consolidated statement of cash flows
Lease payments
0.6
0.1
16. Intangible assets
Intangible assets are comprised of computer software capitalised on the basis of the costs incurred to acquire and
bring into use the specific software. Computer software is a technological asset and subject to obsolescence, therefore
management expects to utilise the asset over its remaining useful life of 11 years.
Cost
$m
Net book value as at 31 December 2020
0.2
Additions
0.9
Net book value as at 31 December 2021
1.1
Additions
0.3
Net book value as at 31 December 2022
1.4
17.
Financing arrangements Letters
of credit and trust accounts
CRL is a non-admitted reinsurer in the US and Canada. Terms and conditions of certain reinsurance contracts with
US and Canadian cedants require CRL to provide collateral for outstanding insurance contract liabilities, including
unearned premiums and losses and loss adjustment expenses. The collateral can be provided by LOCs or by assets
in trust accounts. Refer to note 9 for details of interest expense associated with these LOCs included in financing
costs. Additional information about Conduit's exposure to interest rate and liquidity risk is included in the "Risk
disclosures" section.
Standby letter of credit facility
During July 2021, CRL, as the borrower, entered into a $125.0 million standby letter of credit facility led by Lloyds Bank
Corporate Markets PLC. CHL will guarantee the obligations of CRL with respect to the standby letter of credit facility.
Terms of the standby letter of credit facility contain standard qualitative representations and require certain standard
financial covenants be adhered to, including: a maximum consolidated debt to capital ratio of CHL of 35.0%; a
minimum consolidated tangible net worth of CHL; and a minimum A.M. Best rating of "B++" for CRL. CRL had the
option to increase the aggregate amount of the commitment under the facility up to $150.0 million. This was exercised
on 22 December 2022, with a new option put in place to increase the facility up to $175.0 million. As at 31 December
2022, $92.0 million
(31 December 2021: $18.9 million) was outstanding under the standby letter of credit facility and is secured
by cash and cash equivalents and investments of $110.7 million (31 December 2021: $27.8 million).
Uncommitted letter of credit facility
During September 2021, CRL entered into a $75.0 million uncommitted letter of credit facility with Citibank Europe
PLC. Terms of the uncommitted letter of credit facility include standard qualitative representations. As at 31 December
2022, $37.0 million (31 December 2021: $3.9 million) was outstanding under the uncommitted letter of credit facility
and is secured by cash and cash equivalents and investments of $49.7 million (31 December 2021: $6.6 million).
Conduit Holdings Limited Annual Report and Accounts 2022
130
Financial statements
Notes to the consolidated financial statements
continued
Trust accounts
Several trust account arrangements have been established in favour of policyholders and ceding companies to provide
collateral or comply with the security requirements of certain contracts. As at 31 December 2022, $127.4 million (31
December 2021: $29.9 million) of cash and cash equivalents and investments were restricted in favour of third parties.
Additional letter of credit and trust funding requirements
For the year ended 31 December 2022, $87.8 million (31 December 2021: $58.8 million) of collateral requests and
collateral amendments in respect of that financial year were received subsequent to the year end date. These collateral
requests will be completed in the normal course of business and will be funded during the subsequent year using cash
and cash equivalents and/or investments.
18. Share capital
Authorised share capital
Number
$m
Authorised common shares of $0.01 each
10,000,000,000
100.0
Authorised A1 shares of £0.01 each
100,000
-
Authorised A2 shares of $0.01 each
100,000
-
As at 31 December 2022 and 2021
10,000,200,000
100.0
Common
shares
A1 shares
A2 shares
Total
Total
Allotted, called-up and fully paid
number
number
number
number
$m
Issued
165,239,997
100,000
100,000
165,439,997
1.7
As at 31 December 2022 and 2021
165,239,997
100,000
100,000
165,439,997
1.7
The number of common shares in issue with voting rights (allocated capital less own shares held) as at 31 December
2022 was 160,141,174 (31 December 2021: 165,207,174).
CHL holds 18,000 A1 and A2 shares at 31 December 2022 and 2021. The A1 and A2 shares have no voting rights
attached. Subject to vesting conditions, discussed in note 7, the A1 and A2 shares will be automatically exchanged for
ordinary shares of CHL.
Own shares
Number held
Number held
Total number
Total
Own shares
in treasury
$m
in trust
$m
of own shares
$m
As at 31
December 2020
-
-
-
-
-
-
Repurchased
(32,823)
(0.2)
-
-
(32,823)
(0.2)
As at 31
December 2021
(32,823)
(0.2)
-
-
(32,823)
(0.2)
Repurchased
(725,000)
(3.4)
-
-
(725,000)
(3.4)
Purchased by EBT
-
-
(4,341,000)
(16.5)
(4,341,000)
(16.5)
As at 31
December 2022
(757,823)
(3.6)
(4,341,000)
(16.5)
(5,098,823)
(20.1)
Shares repurchased by CHL and the EBT will be held as own shares to meet future obligations under CHL’s variable
incentive schemes. See note 22 for information on shares held by the EBT.
Dividends
Record date
Payment date
Per share $
$m
Interim 2021
20
August 2021
10
September 2021
0.18
29.7
Final 2021
25 March 2022
22 April 2022
0.18
29.7
Interim 2022
19
August 2022
9
September 2022
0.18
29.6
See note 23 for information with respect to dividends declared subsequent to 31 December 2022.
Conduit Holdings Limited Annual Report and Accounts 2022
131
Financial statements
Notes to the consolidated financial statements
continued
19. Other reserves
Other reserves consist of the following:
Other
Share
Total other
reserves
premium
reserves
$m
$m
$m
As at 31
December 2020
0.3
1,055.4
1,055.7
Equity-based incentives
0.3
-
0.3
As at 31
December 2021
0.6
1,055.4
1,056.0
Equity-based incentives
2.1
-
2.1
Transfer from share premium to contributed surplus
1,055.4
(1,055.4)
-
As at 31
December 2022
1,058.1
-
1,058.1
Other reserves include Conduit’s equity-based incentive expense.
Share premium includes any premiums received on issue of share capital. The transaction costs that are attributable to
the issuance of new shares incurred in forming Conduit are treated as a deduction from share premium. The share
premium was transferred to contributed surplus during May 2022 after approval by Conduit's shareholders at the AGM.
20.
Contingencies and commitments
Legal proceedings and regulations
Conduit operates in the reinsurance industry and is subject to legal proceedings in the normal course of business.
While it is not practicable to estimate or determine the final results of all pending or threatened legal proceedings,
management does not believe that such proceedings (including litigation) will have a material effect on its results and
financial position.
21.
Loss per share
The following reflects the loss and share data used in the basic and diluted loss per share computations:
2022
2021
Year ended 31 December
$m
$m
Loss for the period
(89.7)
(42.0)
Number
Number
Basic weighted average number of shares
163,441,264
165,239,907
Dilutive effect of equity-based incentives
167,093
-
Diluted weighted average number of shares
163,608,357
165,239,907
Per share $
Per share $
Basic and diluted loss per share
(0.55)
(0.25)
Equity-based incentive awards are only treated as dilutive when their conversion to common shares would decrease
earnings per share or increase loss per share from continuing operations. Incremental shares from ordinary restricted
share options where relevant performance criteria have not been met are not included in the calculation of dilutive
shares.
Conduit Holdings Limited Annual Report and Accounts 2022
132
Financial statements
Notes to the consolidated financial statements
continued
22. Related party disclosures
These consolidated financial statements include CHL and the entities listed below:
Subsidiary undertakings
Domicile
Principal Business
CHL
Bermuda
Holding company, Ultimate parent
CRL
Bermuda
General insurance business
CRSL
England and Wales
Support services
CML1
Bermuda
Support services
CSL
Bermuda
Support services
EBT
Jersey
Employee benefit trust
1.
CML is part-owned by members of management. Management’s share ownership in CML exists solely for the purposes of the Group’s management share
incentive scheme for attracting and retaining talent. Management’s shares in CML have no voting power or control in respect of CHL's ownership of CRL via
CML's ownership of CRL.
Unless otherwise stated, Conduit owns 100% of the share capital and voting rights in the subsidiaries listed.
Employee benefit trust
The EBT was established with the sole purpose of administering Conduit's equity-based incentive schemes. The
trustee operates the trust for the benefit of Conduit's employees, all in accordance with an established trust deed. While
Conduit does not have legal ownership of the EBT, the trust is consolidated in Conduit's accounts due to the ability that
Conduit has to influence the actions of the trust.
Funding for the trust is provided by CHL through a non-interest bearing loan facility. The facility may only be used by
the trustee for the purpose of achieving the objectives of the EBT. During the year ended 31 December 2022,
advances of $16.5 million (31 December 2021: nil) were made to the trust.
CHL common shares purchased by the EBT will be held for the benefit of employees under CHL's variable incentive
schemes. During the year ended 31 December 2022 the trust purchased common shares of 4,341,000 (31 December
2021: nil).
Key management compensation
Remuneration for key management, Conduit’s Executive and Non-Executive Directors, was as follows:
2022
2021
Year ended 31 December
$m
$m
Cash compensation
4.7
6.3
Equity-based incentives
1.4
0.3
Directors fees and expenses
0.8
0.6
Total
6.9
7.2
Non-Executive Directors do not receive any benefits in addition to their agreed fees and expenses and do not
participate in any of Conduit’s incentive, performance, or pension plans.
IncubEx, Inc.
Effective 9 April 2021, CHL executed a stock purchase agreement with IncubEx, a product and business
development firm with a focus on designing and developing new financial products in global environmental,
reinsurance and related commodity markets. CHL purchased 624 shares of IncubEx’s Series A-3 preferred stock,
with a par value of $0.0001 per share, for an aggregate purchase price of $50,000, or $80.08 per share.
The current Executive Chairman of CHL is also a founder and current Chairman of IncubEx. The terms and conditions
of the stock purchase agreement are equivalent to those that would prevail in an arm’s length transaction. The
investment in IncubEx is included in other assets in the consolidated balance sheet and is recorded at cost, which
approximates fair value.
Conduit Holdings Limited Annual Report and Accounts 2022
133
Financial statements
Notes to the consolidated financial statements
continued
23.
Subsequent events
Dividends
On 22 February 2023, Conduit’s Board of Directors declared a final dividend for 2022 of $0.18 (approximately £0.15)
per common share, which will result in an aggregate payment of $28.8 million. The dividend will be paid in pounds
sterling on 21 April 2023 to shareholders of record on 24 March 2023 (the “Record Date”) using the pound sterling /
US dollar spot exchange rate at 12 noon on the Record Date.
Uncommitted letter of credit facility
During January 2023, Conduit Re increased its $75.0 million uncommitted letter of credit facility with Citibank
Europe PLC to $100.0 million.
Conduit Holdings Limited Annual Report and Accounts 2022
134
Additional information
Additional performance measures (the “APMs”)
Conduit presents certain APMs to evaluate, monitor and manage the business and to aid readers’ understanding of
Conduit's financial statements and methodologies used. These are common measures used across the (re) insurance
industry and allow the reader of Conduit's financial reports to compare those with other companies in the (re)insurance
industry. The APMs should be viewed as complementary to, rather than a substitute for, the figures prepared in
accordance with IFRS. Conduit’s Audit Committee has evaluated the use of these APMs and reviewed their overall
presentation to ensure that they were not given undue prominence. This information has not been audited.
Management believes the APMs included in the consolidated financial statements are important for understanding
Conduit’s overall results of operations and may be helpful to investors and other interested parties who may benefit from
having a consistent basis for comparison with other companies within the (re)insurance industry. However, these
measures may not be comparable to similarly labelled measures used by companies inside or outside the (re)insurance
industry. In addition, the information contained herein should not be viewed as superior to, or a substitute for, the
measures determined in accordance with the accounting principles used by Conduit for its audited consolidated financial
statements or in accordance with IFRS.
Below are explanations, and associated calculations, of the APMs presented by Conduit:
APM
Net loss ratio
Explanation
Ratio of net losses and loss adjustment
expenses expressed as a percentage of net
premiums earned in a period.
Calculation
Net losses and loss adjustment
expenses / Net premiums earned
Net acquisition expense ratio
Ratio of net acquisition expenses charged
by insurance brokers and other insurance
intermediaries to Conduit expressed as a
percentage of net premiums earned in a
period.
Net acquisition expenses / Net
premiums earned
Other operating expense ratio
Ratio of other operating expenses
expressed as a percentage of net premiums
earned in a period.
Other operating expenses / Net
premiums earned
Combined ratio (KPI)
The sum of the net loss ratio, net acquisition
expense ratio and other operating expense
ratio. A combined ratio below 100% generally
indicates profitable underwriting, whereas a
combined ratio over 100% generally indicates
unprofitable underwriting, each prior to the
consideration of total net investment return.
Net loss ratio + Net acquisition
expense ratio + Other operating
expense ratio
Accident year loss ratio
Ratio of the net accident year ultimate
liability revalued at the current balance
sheet date expressed as a percentage of
net premiums earned in a period.
Accident year net losses and loss
adjustment expenses / Net premiums
earned
Underwriting year loss ratio
Ratio of net losses and loss adjustment
expenses of an underwriting year (or
calendar year) expressed as a percentage
of net premiums earned in a period.
Underwriting year net losses and
loss adjustment expenses / Net
premiums earned
Underwriting profit (loss)
Profit or loss directly related to the
underwriting activities of Conduit.
Net premiums earned – net losses
and loss adjustment expenses – net
acquisition costs
Conduit Holdings Limited Annual Report and Accounts 2022
135
Additional information
Additional performance measures (the “APMs”)
continued
APM
Explanation
Calculation
Total net investment return (KPI) Conduit's principal investment objective is
to preserve capital and provide adequate
liquidity to support the payment of losses
and other liabilities. In light of this, Conduit
looks to generate an appropriate total net
investment return. Conduit bases its total
net investment return on the sum of non-
operating cash and cash equivalents and
fixed maturity securities. Total net
investment return is calculated daily and
expressed as a percentage.
Net investment income + Net unrealised
gains (losses) on investments + Net
realised gains (losses) on investments /
Non-operating cash and cash
equivalents + Fixed maturity securities,
at beginning of period
Return on equity (KPI)
RoE enables Conduit to compare itself
against other peer companies in the
immediate industry. It is also a key
measure internally and is integral in the
performance-related pay determinations.
RoE is calculated as the profit for the
period divided by the opening total
shareholders' equity.
Profit (loss) after tax for the period/
Total shareholders' equity, at
beginning of period
Total shareholder return (KPI)
Total shareholder return allows Conduit to
compare itself against other public peer
companies. Total shareholder return
is calculated as the percentage change in
Common Share price over a period, after
adjustment for Common Share dividends.
Closing Common Share price - Opening
Common Share price + Common Share
dividends during the period / Opening
Common Share price
Dividend yield
Calculated by dividing the annual dividends
per Common Share by the Common Share
price on the last day of the given year and
expressed as a percentage.
Annual dividends per Common Share /
Closing Common Share price
Conduit Holdings Limited Annual Report and Accounts 2022
136
Appendix
Glossary
The following definitions apply throughout the Annual
Report unless the context otherwise requires. All
references to legislation in this document are to the
legislation of England and Wales unless the contrary is
indicated. Any reference to any provision of any
legislation shall include any amendment, modification, re-
enactment or extension thereof. Words importing the
singular shall include the plural and vice versa, and words
importing the masculine gender shall include the feminine
or neutral gender.
100 year return period A 1% probability of a
catastrophe loss event of a certain size (or greater)
occurring in any given year.
250 year return period A 0.4% probability of a
catastrophe loss event of a certain size (or greater)
occurring in any given year.
ABIR The Association of Bermuda Insurers and
Reinsurers (ABIR) represents the public policy
interests of its members.
Additional case reserves (ACRs) ACRs represent
Conduit's estimate for losses related to specific
contracts which Conduit believes may not be
adequately reported, or adequately covered in the
application of IBNR.
Admission The admission of all of CHL’s Common
Shares (1) to the standard listing segment of the Official
List of the UK Financial Conduct Authority, and (2) to
trading on the London Stock Exchange’s main market for
listed securities which occurred on 7 December 2020.
Aggregate excess of loss (XOL) reinsurance A
form of excess of loss reinsurance in which the
excess and the limit of liability are expressed as
annual aggregate amounts.
AGM Annual General Meeting of CHL shareholders.
AM Best AM Best is a full-service credit rating
organisation dedicated to serving the financial services
industries, focusing on the insurance sector.
AM Best rating A forward-looking, independent and
objective opinion issued by AM Best regarding an
insurer’s, issuer’s, or financial obligation’s relative
creditworthiness.
BCAR The AM Best measure of capital adequacy.
Best Capital Adequacy Rating (BCAR) Depicts the
quantitative relationship between a rating unit’s
balance sheet strength and key financial risks that
could impact such strength.
BMA Bermuda Monetary Authority.
Board of Directors Board unless otherwise stated
refers to the CHL Board of Directors.
Book value per share Calculated by dividing the value of
the total shareholders’ equity by the sum of all common
voting shares outstanding.
Broker An intermediary who negotiates contracts of
insurance or reinsurance, receiving a commission for
placement and other services rendered.
Brokerage The commission that is payable to a
broker for placing an insurance or reinsurance
contract with an insurer or a reinsurer.
BSCR Bermuda Solvency Capital Requirement.
BI Business interruption Insurance coverage that
replaces income lost in the event that business is
halted due to direct physical loss or damage.
Cedant A ceding insurer or a reinsurer that writes and
issues a policy to an (re)insured and contractually
transfers (cedes) a portion of the risk to a reinsurer or
retrocessionaire.
CEO Chief Executive Officer
CFO Chief Financial Officer
CHL Conduit Holdings Limited.
Claim AA request by an insured or reinsured for
indemnification by an insurance or reinsurance
company for loss incurred from an insured peril or
event.
CML Conduit MIP Limited.
Combined ratio The sum of the net loss ratio, net
acquisition expense ratio and other operating expense
ratio. A combined ratio below 100% generally indicates
profitable underwriting, whereas a combined ratio over
100% generally indicates unprofitable underwriting, each
prior to the consideration of total net investment return.
Common shares common shares of CHL of $0.01 par
value per share.
Company Conduit Holdings Limited.
Conduit Holdings Limited Annual Report and Accounts 2022
137
Appendix
Glossary
continued
Consortium underwriting Underwriting on the part
of a group of either companies or insurers, where
risks, premiums and costs are split proportionately
between the participants. If
a consortium member fails, losses do not fall back on
the other capital providers.
Coverholder A coverholder is a company or
partnership authorised by a managing agent to enter
into a contract or contracts of insurance to be
underwritten by the members of a syndicate managed
by it in accordance with the terms of a binding
authority.
Conduit The brand for Conduit Holdings Limited and
all associated group companies.
Conduit Re The brand for all the group’s
reinsurance business.
CRL Conduit Reinsurance Limited.
CRSL Conduit Reinsurance Services Limited
(previously named Conduit Marketing Limited).
CSL Conduit Services Limited.
CRO Chief Risk Officer.
CUO Chief Underwriting Officer.
Cyber Cyber insurance (or cyber risk or cyber liability
insurance) is a form of cover designed to protect
businesses from digital threats, such as data breaches or
malicious cyber hacks.
Deductible or excess or retention The amount of the
loss which is retained net by the insured (i.e., prior to the
inception of a reinsurance programme). Also known as
an “excess” or “retention”. The amount that is deducted
from some or all claims arising under an insurance or
reinsurance contract. The practical effect is the same as
an excess: the insured or reassured must bear a
proportion of the relevant loss. If that loss is less than the
amount of deductible/excess then the insured or
reassured must bear all of the loss (unless there is other
insurance in place to cover the deductible). An increase
in deductible should result in a reduction in premium.
Deferred acquisition expenses Costs incurred for the
acquisition or the renewal of insurance policies which
are deferred and amortised over the term of the
insurance contracts.
Diluted earnings (loss) per share Calculated by
dividing comprehensive profit (loss) for the year
attributable to shareholders by the weighted average
number of common shares outstanding during the year,
excluding treasury shares, plus the weighted average
number of common shares that would be issued on the
conversion of all potentially dilutive equity-based
compensation awards.
DSBP The deferred share bonus plan is an equity-based
incentive plan where a certain percentage of employee
bonuses is deferred into nil-cost options.
Directors’ & Officers’ (D&O) A specialised form of
professional liability coverage for legal expenses and
liability to shareholders, bondholders, creditors or others
owing to actions or omissions by a director or officer of a
corporation or non-profit organisation.
Dividend yield Calculated by dividing the annual
dividends per Common Share by the Common Share
price on the last day of the given year and expressed
as a percentage.
Earnings (loss) per share (EPS) Calculated by
dividing comprehensive profit (loss) for the year
attributable to shareholders by the weighted average
number of common shares outstanding during the
year, excluding treasury shares.
EBT The Conduit Group EBT is a trust established for
the sole purpose of administering Conduit's equity-
based incentive schemes.
ECR Enhanced capital requirement. Under the BSCR
Model, the reinsurer’s minimum required statutory capital
and surplus is referred to as the enhanced capital
requirement (“ECR”). The ECR is the greater of the
calculated BSCR and the minimum solvency margin
(“MSM”).
ERM Enterprise risk management is the process of
assessing the risk of an organisation’s activities in order
to minimise the effects of those risks.
Estimated ultimate premiums written Premium reported
by ceding companies, supplemented by management’s
judgement on the estimate provided.
Excess of loss (XOL, XL) or non-proportional
Reinsurance that indemnifies against all or a specified
portion of loss and loss expenses in excess of a specified
monetary amount or other threshold, known as the
cedant's retention or reinsurers attachment point,
generally subject to a negotiated reinsurance contract
limit.
Conduit Holdings Limited Annual Report and Accounts 2022
138
Appendix
Glossary
continued
Facultative reinsurance The cedant cedes, and the
reinsurer assumes, all or part of the risk under a single
insurance contract.
FVTPL Fair value through profit or loss.
Gross Premiums Earned Equal to gross premiums
written less the change in unearned premiums. It is the
portion of the gross premium applicable to the expired
portion of the policies reinsured.
Gross Premiums Unearned The gross premiums that
are related to the unexpired portion of the risk period
after the balance sheet date that are deferred and
amortised to future accounting.
Gross Premiums Written (GPW) Amounts payable by
the cedant before any deductions, which may include
taxes, brokerage and commission.
IAS International Accounting Standard(s) are
created by the IASB for the preparation and
presentation of financial statements.
IASB International Accounting Standards Board.
IFRS International Financial Reporting Standard(s).
Incurred But Not Reported (IBNR) Reserve for
anticipated or likely losses that may result from insured
events which have taken place, but which have not yet
been reported and/or possible adverse.
IPO Initial public offering.
IRR Internal rate of return.
Invested equity Means the aggregate of initial equity
invested in CHL on Admission and equity invested
pursuant to any future equity raises by the Company, with
the US dollar value of Invested Equity for the USD MIP
Shares being calculated at the spot rate at the time the
relevant proceeds of the equity raise were received by
the Company.
LOC Letter of credit.
Long-tail A type of liability that carries a long
settlement period.
Losses and oss adjustment expenses Liabilities
established by insurers and reinsurers to reflect the
estimated cost of claims payments and the related
expenses that the insurer or reinsurer will ultimately be
required to pay in respect of insurance or reinsurance
contracts it has written.
Losses occurring business Business where the
wording stipulates that claims against liability policies can
be notified to the company at any time following the issue
of the policy.
Loss reserve development The difference between the
amount of reserves for losses and loss adjustment
expenses initially estimated by an insurer or reinsurer
and the amount re-estimated in an evaluation at a later
date.
LSE London Stock Exchange.
Market value Refers to (1) the market capitalisation of
CHL calculated by reference to the six-month average
closing share price prior to the date of the relevant
exchange of MIP Shares for common shares of CHL
(adjusted to take into account any capital events or
distributions during that period); or, (2) in the case of a
takeover of CHL, the value of the consideration for the
takeover, or (3) in the case of a sale of CHL, the net sale
consideration, or (4) in the case of the liquidation of CHL,
the amount available for distribution in the liquidation, in
each case taking into account any prior dividends, returns
of capital or other distributions. The market value for the
USD MIP Shares will be calculated in US dollars based on
the prevailing spot rate on the date of the relevant share
price and in the case of a takeover of CHL, or sale or
liquidation of CML, the latest reasonably practicable spot
rate prior to the date of the exchange of MIP Shares for
common shares of CHL as determined by the
Remuneration Committee of CHL.
Net acquisition expense Net expenses charged by
insurance brokers and other insurance
intermediaries.
Net acquisition expense ratio Ratio of net acquisition
expenses charged by insurance brokers and other
insurance intermediaries to Conduit expressed as a
percentage of net premiums earned in a period.
Net loss ratio Ratio, in percent, of net losses and loss
adjustment expenses to net premiums earned.
OEP Occurrence exceedance probability, the
probability that the largest loss in a year exceeds a
certain amount (of loss).
Other operating expense ratio Ratio of other
operating expenses expressed as a percentage of
net premiums earned in a period.
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Appendix
Glossary
continued
Overriding commission A commission that is paid by a
reinsurer to the reassured to cover the latter’s
overheads in administering the reinsurance.
Performance Condition The compound annual growth
rate achieved by CHL’s shareholders on the date of the
relevant exchange of MIP Shares for common shares of
CHL is equal to or greater than 10%. per annum. The
Performance Condition is measured by reference to (1)
any growth in CHL’s market capitalisation, (2) any
dividends paid to common shareholders, and (3) any
other returns of value to common shareholders. The
Performance Condition is calculated from admission of its
common shares to trading on the London Stock
Exchange on 7 December 2020 on the initial capital
raised then (and from the date of any future equity
investment in the Company on that equity) to the date of
the relevant exchange. It also takes into account the
timing of any prior returns to common shareholders. The
Performance Condition will be calculated separately in
US dollars for the USD MIP Shares and sterling for the
GBP MIP Shares.
Quota share reinsurance A form of proportional
reinsurance in which the reinsurer assumes an
agreed percentage of each insurance contract being
reinsured.
Return on Equity (RoE) RoE is calculated as the
profit for the period divided by the opening total
shareholders' equity.
Renewal price index (RPI) Internal methodology that
management uses to track trends in premium rates of a
portfolio of reinsurance contracts.
Risk transfer The transfer of all or a part of a risk to
another party.
Risk-adjusted return A concept that defines an
investment’s return by measuring how much risk is
involved in producing that return, which is generally
expressed as a number.
TCFD The Task Force on Climate-Related Financial
Disclosures (TCFD) was created by the G20 established
Financial Stability Board in December 2015 to improve
the quality, quantity and consistency of climate-related
disclosures. To achieve this, it developed a reporting
framework which consists of a number of
recommendations structured into four pillars:
governance, strategy,
risk, and metrics and targets.
The UK Code The UK Corporate Governance Code,
monitored by the UK Financial Reporting Council.
Total shareholder return (TSR) The percentage of the
increase/(decrease) in share price over a period, stated in
percentages, after adjustment for dividends.
Treaty reinsurance A form of reinsurance in which the
ceding company makes an agreement to cede certain
business and the reinsurer, in turn, agrees to accept all
business qualifying under the agreement, known as the
“treaty”.
Ultimate loss ratio The ratio of total incurred losses to
total premiums earned.
Unearned premium The portion of premium income that
is deferred and amortised to future accounting periods.
US GAAP Accounting principles generally accepted in
the United States.
VaR Value at Risk.
Conduit Holdings Limited Annual Report and Accounts 2022
140
Appendix
Advisers and contact information
Conduit Holdings Limited
Advisers
Bermuda Company Registration Number 55936
Financial advisers
Office address
Kinmont Limited
5 Clifford Street
Ideation House
London, W1S 2LG
94 Pitts Bay Road
United Kingdom
Pembroke
Brokers
HM08 Bermuda
Peel Hunt
T: +1 441 276 1000
100 Liverpool Street
London EC2M 2AT
Registered address
Berenberg
Clarendon House
2 Church Street Hamilton
60 Threadneedle Street
HM11 Bermuda
London EC2R 8HP
United Kingdom
Shareholder contacts
Company Secretary
Panmure Gordon & Co
Greg Lunn
One New Change
E: legal@conduitre.bm
London EC4M 9AF
United Kingdom
Investor relations
Auditors
E: info@conduitre.bm
KPMG Audit Limited
Registrar
Crown House
Computershare Investor
4 Par-la-Ville Road
Services (Bermuda) Limited
Hamilton, HM 08
The Pavilions
Bermuda
Bridgwater Road
Bankers
Bristol BS99 6ZY
United Kingdom
HSBC Bank Bermuda Limited
37 Front Street
T: +44 370 702 0000
Hamilton HM 11
Bermuda
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141