Good morning and good afternoon, everyone. Welcome to Conduit's full year 2023 preliminary results call. With the disclaimer now relegated to the end of the presentation, I give the floor to Neil Eckert, our Executive Chairman.
Thanks, Antonio. Our results are reflective of both market conditions and the progress that we have made as a company. Without further ado, I'll pass to Trevor Carvey, our CEO, Greg Roberts, our CUO, and Elaine Whelan, our CFO. They will run through our results presentation, and then we will move on to Q&A.
Thanks, Neil. Good morning. We have commented previously on our third year of underwriting being an important one for us. It's the year we expected to achieve scale and maturity in our earnings base, and the numbers on this page show that out. Elaine will go through the finer details later, but suffice to say, we are quite delighted to be reporting comprehensive income of $190.8 million for the year and an ROE of 22%. With gross premiums written rising to $931 million and a discounted combined ratio of 72.1%, the business has performed really well in delivering on its numbers in 2023. 2023, of course, didn't see any major hurricanes making landfall in the U.S., but even so, it has been another year of greater than $100 billion of globally insured cat losses.
While this has been incurred right across the insurance and reinsurance industry, our share of these secondary perils losses has remained very manageable. That, when combined with reaching a level of maturity in our earned premium along with strong investment performance, particularly in the fourth quarter, has driven our results for the year. We had a considerable amount of growth this year, well ahead of our initial IPO plan expectations. While we don't expect to always reproduce that level of growth year-over-year, we are still in growth mode generally and do expect to see a further uplift in 2024 and subject to market conditions again in 2025. We have more than enough capital to support those goals and aspirations, so we look forward to the coming years with enthusiasm.
Our estimated BSCR ratio at 381% is a reduction from the prior year, as you would expect, as we deploy the capital raised. That ratio is still high, though, certainly relative to peers and relative to where we expect it to settle as we achieve what I will loosely refer to as our steady state. While there are a number of complexities around any compensation on capital, as we look out over the coming years, we have more than enough capital to take advantage of current market conditions. Across each of our three divisions, we saw good fundamentals through the year, with renewals and new business alike contributing, with gross premiums written increasing to $931 million, up from the $622 million in 2022. As regards rate and rate change, Greg can talk more specifically to that in a while.
But overall, at a 16% weighted risk-adjusted change, the year continued to deliver healthy pricing margins, and the trading environment was extremely robust. In property, our growth was driven by the strong underlying market pricing, especially in the D&F and the non-admitted arenas. This is where solid rate adequacy and margin continues to be present. These areas are very much the place to be in property, in our view, and has afforded us the ability to scale there significantly. An opportunity which we identified over two years ago when these markets started to show signs of an emerging step change. Also, I would add that on our property growth, given our risk profiles and deals written, we were able to achieve this growth while still keeping the PML to very manageable levels for peak zone net cat perils.
On specialty, our book showed strong fundamentals through the year, and while we continued to remain cautious in deploying more into the political violence and terror space, where policy wordings and coverage terms sometimes still fall short in our view, the specialty account as a whole delivered a good blend of risk adequacy, margin, and low peak zone cat usage, which is a key measure for us. Casualty as a division showed our lowest rate of growth at just 17% year-over-year, and that reflected our broader view on the dynamics present. With the rate being achieved, absolutely must be enough to stay ahead of the underlying claims trends. In some cases, we didn't see this and consequently deployed less into the space.
We do have a large submission flow in casualty, though, and that has enabled us to still be pretty selective in where and how we choose to play. This trend line shows the operating expense ratio. We have spoken before of the scalable efficiencies that we have as a pure play reinsurer here in Bermuda. We have referenced before this expected progression in our other operating expense ratio, and the falling trend continued in 2023. With the ratio falling to 5.1% from the 6% in the previous year. On the topic of scaling and general efficiencies created in the business as we grow, a slide here laying out the gross premiums written per full-time employee over the three years to date. For the 2023 year, this stands at $15.8 million per employee, up from $11.5 million a year ago.
This slide does, of course, show the differentiation for a pure reinsurer with a clean structure. And with that, the attendant costs of the infrastructure needed to distribute and administer large volumes of insurance policies. The benefits of our operating structure do go beyond pure costs, though. As it is also about efficient decision making and spotting key market trends and directional changes. And having management and the whole team in one location is something that Conduit has really benefited from over our first three years. Thanks for your time, and on that note, hand over to Greg.
Thanks, Trevor. Focusing first on property, the portfolio gross premium written has grown 62.5% to $468.3 million. This has been a great achievement from the underwriting team, and this growth has been achieved with a similar texture of risk and footprint to last year. Over the full year, our risk-adjusted rate change net with inflation is at 30%, a significant increase from the 7% we reported in 2022. Much has been shared in the industry about the rate increases in the commoditized transfer of natural catastrophe exposure, but it's the repricing of primary risk where we have focused our attention. The partnerships that Conduit has formed with its cedants remain based on the compatibility of underwriting principles across the two entities. As I will reference across all three divisions, data sharing fundamentally builds underwriting confidence. From this underwriting process, the team are able to identify margin and write risk accordingly.
As a reminder, we set about building a footprint in the U.S. non-admitted primary market from the outset. Approaching this as a pure-play reinsurer has enabled us to build quickly and decisively, ensuring we were aligning ourselves with the fundamental repricing of risk. It is a common acknowledgement from our partners that much of the risk was historically in the admitted market, but has moved over the last 36 months to the non-admitted market, where the freedom of rate and policy construction has created a healthy market for Conduit to participate in. Away from the U.S., pricing and terms and conditions warranted an increase in capital allocation from Conduit Re. The market responded in an orderly but expected fashion after the series of losses Storm Bernd , French hailstorms, Storm Eunice, Storm Dudley, and most notably, risk exposure growth.
This risk exposure growth, the average risk values that have grown both the result of insurance to value and more broadly inflation, is an area where our treaty appetite is XOL-based, and hence the growing towers and peril delineation allowed us to write some new premium, largely in respect of euro wind and earthquake. Moving to casualty, growth has been significantly less than property at circa 17%. We still see opportunity in the casualty market, but this really does vary by subclass. Our risk-adjusted rate change net of inflation is 0% versus +1% for the prior year. It's worth noting here that for us, flat risk-adjusted rate change means that premium is keeping pace with the underlying claims inflation trends, but not improving. The development of the casualty portfolio remains an exercise in preparation and evaluation of underwriting behavior.
This requires a high level of monitoring throughout the treaty lifecycle, and frequent data sharing via risk schedules or bordereaux allows our team to understand the underlying market dynamics as observed by our selected partners. A relationship of this type allows the reinsurer to work with the insurer as they manage the cycle and control their risk footprint, absorbing and responding to the fundamentals of risk selection. Turning to specialty, we've grown our premium significantly by circa 91% to $186.4 million. This has been achieved from a combination of increased line sizes from both existing contracts and new treaties, with these new treaties often generated from existing partners. This is a great process, and we're growing with partners to which we have already built confidence in their underwriting practices and are benefiting from the development of our relationships.
The portfolio has delivered a 9% risk-adjusted rate change net of inflation, which is a notable increase from the prior year of 2%, reflecting that underwriting terms and conditions have provided an attractive market for us to grow our footprint. We've been able to grow while maintaining broadly similar accumulations in the technical classes and controlling, as Trevor reminded us, of peak zone natural perils. The transparency of exposure data is absolutely key for us to allocate premium to each of the component exposure types within a contract, typically restricting our appetite for bundled contracts of which we have spoken to before. The reinsurance market, with its various risk appetites, allows insurers to structure contracts to maximize the return they can achieve on their ceded premium. Establishing an alignment of interest to this from a reinsurer's perspective is really key in building predictable margins.
Our target net PMLs are a result of where we can achieve return metrics and are balanced in order to remain appropriate to the overall business. As we have shared in prior presentations, our ratio of cat-related premium to non-cat-related premium remains broadly consistent, with approximately two-thirds of our premium being non-cat-related. As disclosed at half one, 2023, we increased our target net PMLs as shown in the slide, in line with the growing premium base and the return metrics. For 2024, our target net PMLs remain broadly similar, but will be kept under review depending on the market circumstances and dynamics. As stated, our target net cat exposures remain managed and balanced in line with the progressive development of our overall business. With this, I hand over to Elaine for the financial section.
Thanks, Greg. A reminder that with reporting under IFRS 17, our gross premiums written now exclude reinstatement premiums, although that's not a material impact on our numbers. We wrote $931.4 million of gross premiums written for the year, compared to $622.5 million for the prior year. Subject to any ongoing adjustments to estimates, the 2021 and 2022 underwriting years are essentially fully written now, with just a little bit of the 2022 underwriting year still to earn through into 2024. We have approximately $500 million of remaining ultimate premiums written to earn out, most of which will come through in 2024. Our reinsurance revenue, which broadly speaking is IFRS 4 gross premiums earned less ceding commissions, was $633 million for the year, compared to $392.4 million for the prior year, a 61.3% increase year-over-year, reflecting our continued growth strategy.
All three of our divisions showed growth year-on-year, with the largest dollar increase in property reflecting the market conditions Trevor and Greg have discussed. Ceded reinsurance expenses, which you can see in our RNS and are essentially our seeded premiums earned, excluding reinstatement premiums, were $76.7 million compared with $48.6 million for the prior year. Our outward cover has increased year-on-year as the inwards book has grown, in addition to price increases at the January 1, 2023 renewals. We also sponsored our first cat bond in June, although the cover has a three year term, so less of an impact on the 2023 expense on an earned basis. Although it was another relatively active year for industry losses, we don't have any individually significant loss impacts to disclose.
Our reinsurance service expenses include both loss and loss-related amounts, but also reinsurance operating expenses and an allocation of some other operating expenses. You can see the breakout of those numbers into the loss and expense components in the segment disclosure to our financial statements. Our net undiscounted loss ratio for the year was 68% versus 94.7% for the prior year, with the prior year impacted by reserves for the Ukraine conflict and for Hurricane Ian. Our net discounted loss ratio was 58.2% versus 88.4% for the prior year. You can see a higher impact from discounting on the 2023 ratio as compared to the 2022 ratio, showing the relative impact of the movement in rates year on year. Just a reminder here that we made a policy decision to use opening rates to discount our non-specific incurred losses.
We're seeing the impact of the higher rates at the end of 2022 impacting in 2023. We have added some IFRS 17 related slide to dependencies that will hopefully help some of your modeling assumptions, so do take a look at those. Back to the numbers. Our combined reinsurance operating expense and other operating expense ratios were 13.9% versus 14.6% in the prior year. We did expect that to trend down a little due to the level of earnings maturity we expected to get to in 2023. The higher reinsurance operating expense ratio is due to a higher allocation of other operating expenses, which we also expected as the business scales. Our combined ratio on a discounted basis was 72.1% versus 103% for the prior year, and on an undiscounted basis was 81.9% versus 109.3%.
Our net reinsurance finance expense for the year was $32.8 million versus income of $20.8 million in the prior year. Our interest accretion was $26 million compared to $6.1 million in the prior year. The impact of changes in discount rates was an expense of $6.8 million versus a benefit of $26.9 million in the prior year. You can see these numbers in our RNS and our financial statements. The accretion has increased in line with expectations, and the remeasurement to current discount rates reflects the changes in yields. As a relatively new company with growing reserve balances and without a large prior discount balance built up, the impact of the unwind of discount in 2022 was not that significant, but the impact of revaluing was much more so, given the significant increase in rates in 2022.
Our net investment return was 5.8% for the year versus negative 5% in the prior year. I'll come on to investments in a bit more detail in a moment, but with strong underwriting performance as we reached a level of maturity in our third year of operations, plus strong investment performance, our comprehensive income was $190.8 million, or an ROE of 22%. Some more detail on investments, then. Book yield is now at 3.7% compared to 2.4% at the end of 2022. The portfolio is therefore earning more income than in the prior year. Business is also generating more cash now, and our managed assets increased by almost $300 million year-on-year, so that produces more income as well. While 2023 continued to be a fairly volatile year for investments, the fourth quarter saw a sizable reduction in yields, and that generated a strong positive mark-to-market movement.
As noted on the previous slide, our investment return for the year was 5.8% versus negative 5% for the prior year. We've nudged duration up a little, but remain relatively short, and our focus continues to be on maintaining a high quality, highly liquid portfolio. Duration is currently two point four years versus three point one years on our net reserves. Average credit quality is AA, and you can see the usual pie chart here with our asset allocation. Here you can see that the combination of increasing cash flows, the unwind of prior unrealized losses, plus additional mark-to-market gains in 2023, along with higher yields, are driving an increasing contribution from our investment portfolio. As our investment leverage increases, there's a larger relative contribution to ROE. I'll now hand back to Neil for closing comments.
Thanks, Elaine. So in summary, this has been an excellent set of results, now justifying the bold decisions taken since the IPO. But what these results really demonstrate is the strength of our origination platform, our timing of launch, and the quality of our underwriting. This reporting season has been marked by 2019 and prior reserve strengthening, which highlights the benefit of our balance sheet with no exposure to underwriting years before 2021. This prior year development in the marketplace should focus people's attention on the need to improve casualty rates. The market is truly in a good place in terms of rates and conditions, and we expect this to prevail for some time to come. There was further strong growth in our account at 1:1, and we can support continued growth of our existing capital and retained earnings.
We have put slides in the appendices on capital to support this view. Finally, it just remains for me to thank everyone in the home team and those who have attended this call. With that, I will hand over to Q&A. Antonio?
Thanks, Neil. Before we move on to the Q&A section, a kind reminder to keep it to two questions per person, please.
Thank you. Participants can submit questions in written format via the webcast page by clicking the "Ask a Question" button. If you are dialed into the call and would like to ask a question, please press the star followed by the one on your telephone keypad. We will pause for a moment to assemble the queue. We'll take our first question from Tryfonas Spyrou of Berenberg. Please go ahead.
Hi there. Good morning. Well done for a great year. I have three questions, but I'll limit myself to two. So, on. First one is on capital. Solvency capital. Clearly, very strong level here. Maybe can you share some thoughts on how do you expect this to evolve over the next couple of years, and what is a steady state level? You mentioned earlier, clearly the message in the near term, you're still in growth mode. But if you were to sit here this time next year, roughly the same level of capital and ROE, close to 20%, should we expect part of the capital generated to start coming back to show this? The second question is on casualty. Clearly, you don't have any of the issues on 2016-2019 underwriting years, which is great.
It looks like the market could potentially start questioning younger accident years despite all the repricing and change in the market, given that claims severity from social inflation is structurally high. So I guess, is there anything you could say from your perspective and what you see in your portfolio that could actually alleviate any potential concerns? And to that extent, do you think you see more pressure in pricing going forward, given all the reserving charges we saw earlier this year, which could be by coincidence, maybe, or maybe not, actually came after January renewals? Thank you.
Hi, Jeff. I'd like to take your first question on capital. I think it's fair to say that we expect that ratio to trend down over time, given that we kind of had the standing start when we raised the money at the IPO. There are a number of factors that drive our capital across premiums and reserves and PMLs. A reminder, I guess, that we're not particularly cat-heavy in terms of our PMLs and the impact that they have on our capital. I think we're also through the heavy lift of the building phase of the company now as well. So we do have more loss absorption capacity within the earnings that we've now generated and kind of reached a level of maturity on that.
So what we're trying to show in the appendices to the presentation, if you take a look at those, is the ratio trending down over time and kind of ending up in, let's call it, a rough steady state, where we will operate within a band that's not dissimilar to the rest of our peer group, to be honest, in terms of having enough headroom in there to be able to take advantage of any opportunities without carrying too much capital. And we'll have further discussion on that as we evolve over time, I'm sure.
Morning, Jeff. So to pick up on the casualty question. So I mean, yes, 2016-2019 have, of course, some very difficult metrics for carriers who are rising risk in those years. Clearly, as you say, we're isolated from that on the basis that we weren't taking risk then. But I would say for casualty, it's much deeper than just rate. We obviously talk about rate, net of inflation, and our views of inflation and inflation trends, claim trends, are not always agreed upon in the way we look at risk. And we've said in the past that's usually one of the major reasons why we don't take on risk. The key here is, and I sort of alluded to it in the slides and referenced the use of bordereau and risk schedules. It's the analysis of the risk.
So the discipline and the way in the line setting has changed from those years to these. The good writers of those risks are writing more balanced portfolios of risk. They're thinking about the line sizes they issue. They're thinking about the premium to risk ratios they're achieving, the attachment points, and sound evaluation of the underlying exposure. Those are the characteristics we fundamentally flow through our review of underwriting. And I'm very pleased to say our partners work with us and are able to share that information with us. So that's really, really. Can't stress how fundamental that is.
Thank you. Our next question comes on the line of Darragh Gough of RBC Capital Markets. Please go ahead.
Hey, afternoon, everyone. My first question is on the undiscounted combined ratio against the guidance that you've given a while back of kind of the low 80s. So it sounds like the business has reached maturity already very quickly in year three. Well done. But I want to get a sense of how normal is this 82% in 2023 against the trajectory for 2024 and beyond? I guess you're talking about mid-teens rates. Mid-teens rates in 2023, you've got a shift towards more short tail lines. You've got some expense leverage as well. Why would it not go sub 80? I guess, is it a case that you're trying to build up more reserve buffers? Any more color you can say behind that, please? Thanks. And the second one is just on solvency itself.
I've just noticed the number that you've given, it's on a BSCR basis, which is the higher one compared to the ECR. Why would you not steer on an ECR basis, which I think should be closer to a rating agency kind of basis?
Hi, Darragh. I think they're probably both for me, but I'll let Greg jump in on any portfolio comments if he wants to as well. I think on the combined ratio guidance, I think our IFRS 4 guidance was mid-80s% combined. And we kind of translated that midpoint down into kind of low 80s%. And I don't think there's anything that we have that would change our view on that. We did say that that was emerging. And I will point out that we are only three years in yet, and we are still building up our reserves. And it'll take a while for casualty, etc., to come through on that. I think in terms of considering a sub-80%, I don't really think that that's how we underwrite, how we view our portfolio.
I think when we are diversifying across the three divisions that we've got, again, I'd say that we're just fairly comfortable with the low 80s guidance that we've got. On the BSCR question, our ECR report will be out in May, and you'll be able to see ECR in there. That currently is the regulatory capital driver, but it's a bit of a quirky thing of being a startup, and it's a short-term driver. We view our capital through rating agency AM Best requirements and the BSCR, which is a risk-based approach, which is more in line with our view of capital and more comparable to peers. And that's why we've put out some of those numbers to help you think about capital in the same way that we think about capital. So again, AM Best and BSCR risk-based approach is how we think about it.
Yeah
. Hi, Darragh. Trevor here. Just Greg. Oh, I was just going to add one other subsidiary to the point around the combined ratio where we are. We quite often get asked this, particularly being based in Bermuda. The perception is there's a lot of cat business, a lot of short tail cats, and in years that have run through like 2023 with no land falling, there is this kind of sense in the broader industry that it's an immediate trigger for, as you say, kind of sub-80 combined ratios. Reality is what we report as a company, to some extent, to a large extent, is actually the results of what we've been doing the last 12-18 months as that earns through.
Greg quite often makes the comment that the underwriting that we're performing now in 2023 is exactly the same as we were doing in 2021 and 2022, which are really good years on a pure basis that we think in terms of what we've been able to produce. You're kind of seeing now in 2023 groups of some of that still earning through. That's probably a good way to think about it.
Yep, got it. Just a quick follow-up, Elaine. Just, I'm looking at your ECR report from 2022 itself. So on the BSCR basis, it's 104%, which is what you showed in the slides today.
Darragh, we can't not see you very well. Would you mind speaking louder?
Hey. Yeah, I'll try. So I'm just going back to the point around BSCR and ECR. So I think your ECR ratio at year end 2022 is 326%. And I've just checked this. Well, I think your peers also reported on an ECR basis. Hence, that's also based on my question. I mean, why would you not guide on the more prudent capital requirement?
So again, the requirement that we have at the moment is a short-term one. The BSCR will become our ECR in time. It's by virtue of being a startup and having growth and the premium being the bigger driver under the regulatory model. So it's a short-term thing, which, again, is why we kind of think about things under the BSCR, which will become our ECR and the FCR.
And then last one. Yep, sorry. Just one last close clarification. The 381% a year in 2023, does that already include your deployment at this January?
It's a year-end calculation. I guess there's a view of risk in there. I guess I can also point out that it doesn't include the dividend because it's not actually recorded in our year-end numbers yet.
Got it. Thank you.
Thank you. Our next question comes on the line of Andreas van Embden of Peel Hunt. Please go ahead.
Yes, thank you. Good afternoon. I just want to come back to the slide number eight, which discusses the PML. There isn't much difference between the one-in-100 and the one-in-250. I just wondered whether you could explain whether that's purely caused by the hedging program. You've got, let's say, the retro program where it is due to the cat bonds and where they sort of attach, or whether it's just the way you build your portfolio. The second question is on reinsurance recoveries. They seem to have come down in 2023. I just wondered, is it just due to the fact there's a lack of activity on your book, or is it due to the fact that your reinsurance or retro partners have really lifted their attachment points and these sort of losses stick to your book? Thank you.
Morning, Andreas. So addressing slide eight, I'll probably start by just saying, first of all, we are continuing to do what we've been doing the first two years of our underwriting practices into year three. So the ratios of cat to non-cat remain very constant. So a lot of the premium growth, as Trevor sort of alluded to a couple of minutes ago, is still being generated from business that we secured support of in the earlier year. So that's still flowing through and producing premium growth ahead of exposure growth because it's carrying rate from this primary business. As we grow within proportions, yes, our nat cat exposure would incrementally grow. And going forward, some of the as you sort of questioned the hedging environment there, that naturally grows in proportion as well.
So there were some shifts in risk appetite at 1:1 from the retro specialists, particularly in the higher industry attachment point kind of levels. And then, as we've mentioned, we have the cat bond fully deployed now as well. So it's a matter of it's all of those parts combined. But I'd say the underlying piece to recognize is we're just doing what we were doing before, quite frankly. Yeah. And so if I understand the question correctly on recoveries, that was to 2023? Yeah. Yeah. Yeah. I would say it's the nature of the book we've written. It was an active year. There was a lot of activity. As Trevor said, there wasn't a single large $50 billion+ event hitting a high level of exposure area like there was in the prior year, for example, in the U.S.
Instead, you had $100+ billion of I think the largest event was perhaps around $6 billion being, I think, the Turkish earthquake on a global basis. So there was a huge amount of loss activity. And clearly, we're exposed to that. But the way in which we write the original business, the way we structure treaties, where we structure, where we do and don't take risk has meant that we've got a predictable behaviour of the portfolio from a set of loss activities like that. So very, very pleased how that's performed.
Yeah. And I'd just add to that. In terms of reinsurance recoveries, a less active year, as Greg said, program for us essentially renewed through with the same partners. There were some adjustments in some of the attachment points, but nothing really material to us.
I think, as you alluded to, Andreas, there's lack of an absence or an absence of landfall in the U.S., particularly, or major event producers as reinsurance recoveries. So that's basically the driver of it.
Okay. Thank you very much.
Thank you. Our next question comes on the line of Joseph Sheridan from Autonomous. Please go ahead.
Hi there. Thanks for taking my calls, and congratulations on a great set of results. Firstly, going to slide six, I just wanted to take a look at the four-point decline in the undiscounted combined ratio and casualty. Just sort of thinking about the fact that risk-adjusted rates were flat last year, can you kind of walk me through and just help me to understand why there was sort of a four-point decline? Was there sort of an improvement in underlying assumptions? And is this something that we can kind of expect going forward, this 96% sort of level? And then my second question, going to slide eight again on the PMLs, just wanted to clarify. Looking at sort of the dollar level, you're basically actually seeing a very small marginal decline into 2024 despite having sort of very high growth in property at 1:1.
Can you just sort of confirm then that your retro program sort of increased at this level? Sort of, again, any color on that? Thank you very much.
Morning, Joseph. So I'll pick up number two, first of all, because it's the shortest one. So yeah, I look at those dollar PMLs, and I just think of them as flat. And commenting, well, first of all, just to highlight the fact how we control the inwards business coming in. So the lines of business that produce potentially the most natural catastrophe exposure or volatility, the way we write the original business with the caps and the collars and the way we structure risk is how we control that cat exposure coming in in the first place. And that's really, really key. So the reason why I highlight that is we try to deal with it at the beginning and spend less time dealing with it after the effect.
Now, the way in which we've gone about purchasing retro, etc., is very consistent with how we've done it in the prior two years. So everything is very much as before. Can't stress that enough. And slide six, so the casualty combined ratio undiscounted, part of that is a natural evolution of that book and how we've built that book up. There are still positive benefits from the way in which risk has been written there. We're definitely seeing underlying improvement in risk and how we expect it to perform. There's elements of startup in those first two years of how we onboard risk as well. It's just a natural maturing of that book. It's very much the same. There's very little change there at all. And part of that is we're seeing good partners take good advantage of market conditions in those quota shares traditionally.
Okay. So can I sort of see this as a bit of a release kind of from very conservative booking in years one and two based on what you said about the casualty book there?
Yeah. I'll take that one. We have seen a very small release in casualty this year, but it's really not of any consequence in it. It's more around the kind of specific nature of one deal. So I wouldn't read anything too much into that. I think also, a cautious approach to premium in the early years. We have seen some positive adjustments, which comes through in later years. So that's part of it as well. And then in 2021 and 2022, where we've taken a specific reserve and casualty for something that's really quite small in the overall scheme of things, because it's early years and the earnings haven't matured that much, it ends up having a bit more of an impact in terms of the combined. So I think you're seeing a bit of that as well.
Okay. That's very useful. Thank you for your comments.
Thank you. Our next question comes on the line of Abid Hussain from Panmure Gordon. Please go ahead.
Oh, hi, everyone. Just two questions from me. The first one is on growth. Just wondering, where is the future growth going to come from? Is it a case of you need to hire new teams, or is it simply just increasing line sizes to existing customers? That's the first question. And then the second one is on capital distribution versus growth. I know I'm getting ahead of myself slightly, but at what point do you think the additional capital distributions become a sensible option versus deploying for growth? Thank you.
Hi, Abid. Trevor here. Yeah, just on the growth aspect, can we get asked this question around, I suppose, given the trajectory we've been on over the past first three years? In the main, it's such an enormous universe that we're sitting in. The flow of business is very broad. And our growth to date has come from a combination of, obviously, largely new in the first year, 18 months, and then the renewing booking being able to increase shares on those is an equally big driver now. And that's really kind of how you think about it going forward because we see many, many hundreds of contracts that are presented with, depending on where the market cycle is, some of those fall above our hurdle rate, some of them don't. But those that do, we're able to increase our shares on those, generally speaking, to grow the portfolio.
There are certain parts of the business that we're still keen to develop, which we refer to specialty, reasonable amount. The key for specialty to date has been to very much stick to the classes that you know and you have the confidence in and major in those, which is what we've done. You may see us adding some additional expertise areas like specialty down the line, and that will give us the confidence to play more heavily in those spaces. But in the main, the team is at a very stable state now, and what we're doing is scaling around existing clients and existing contracts to a large extent at the moment. Elaine, do you want to pick up the second one?
Yeah. Hi, Abid. On the distribution question, maybe just getting a little bit carried away with yourself on that one. I think certainly over the next few years, we're.
Apologies. I have a tendency to do that.
At least you're consistent. But I think over the next few years, we're very happy to deploy. And I think a reminder that we have just finished year three, so we're in year four of an original five-year growth plan. So our plan was to grow anyway, and the market conditions have been better than we expected in that initial plan. So I think that kind of helps put it in context as well. So certainly, our focus is on continuing to build what we've already built on what we've already built, if you like, over the next few years.
Well, thank you.
A written question has come through the SparkCloud webcasting platform from a retail investor. The question is, "Any plans for premium market listing?
Sure. I'll take that. I think as a standard listed company, I think we've always said that at some point, we would look to premium listing. I don't think we were very specific on any timing around that. I think the rules in the U.K. are changing, so we're watching that quite closely. And I think we'll react once we know more about how those rules are shaping out. But I think from a governance perspective, we've always aspired to operate as a premium listed company.
Thank you. We have a follow-up question from Joseph Sheridan from Autonomous. Please go ahead.
Hi there. Thanks for taking my follow-up question. It was about the sort of discount factor on the undiscounted, both at a group level and in each segment. Specifically, it's sort of a little bit higher than I might have anticipated. My sort of interpretation of this, based on where rates were, that the amount of claims paid was lower. We saw some of this effect in the first half as well. Is this sort of pattern of claims payment something that we can expect going forward, or was this year sort of a little bit of an anomaly? Thank you.
Yeah. I think there are quite a lot of factors that can cause some noise in the discount factors, payment patterns, prior releases coming through, and things like that. So I think you can expect to see some variance from what we've reported and also perhaps in some of your assumptions over time. But I think that that kind of comes out over time. If you look at half-year to full-year, then it's not super nuanced. So I think that what might look like a big variation at the moment is not actually really that big a variation in the overall scheme of things.
Okay. Okay. Thank you very much.
Thank you. We have another follow-up question from Darragh Gough of RBC Capital Markets. Please go ahead.
Hey. Thanks for taking my follow-up. Just a couple more, please. The first one is just going back to your PML exposure. Can you say what it looks like at the lower return period? So you kind of have 10% of TNAV on a 100 and 250 year basis. Is it similar at a lower return period? The reason I'm asking, because it sounds from your commentary as though the kind of benign level of CAD losses was quite meaningful in 2023. So I just wondered if actually, the exposure at a lower return period is higher than the 10% level. And then my second question is just on the ROE. So you've got a mid-teens cross-cycle ambition. Do you manage that on a headline basis, or do you kind of exclude some of the interest rate effects stripping out some of the IFRS 17 noise?
Because if I do the calculation, it looks as though 23 basis, excluding the interest rate effects, you almost bang on at 15%. And maybe a small one, just a clarification, in that ROE calculation, is there a reason why you only use the opening equity in the denominator and not kind of the industry standard of using the average of opening and closing equity? Thank you.
Darragh, would you mind repeating the ROE question, please? I'm not sure I caught all of that.
Yep, yep. So I'm saying you've got a mid-teens cross-cycle target, right? And I'm just wondering if you manage that ROE on a headline basis, or do you kind of exclude some of the interest rate effects to strip out some of the IFRS 17 noise? Because it looks as though there's quite a big uplift from the interest rate effects in 2023, and stripping that out, you're almost banging line 15%. And then the other bit that I wanted to clarify is just on the ROE calculation itself as to is there a reason why you only use the opening equity in your denominator and not kind of the standard average of opening and closing equity?
I'll take the last one first then. Opening equity as the driver of the calculation, that was in our IPO perspectus, and we've set that up as our method of calculation from the beginning. So we're just following that as a standard. In terms of ROE, it's kind of all-encompassing in terms of what we've had in the year. And I think stripping out individual components without kind of adjusting for them, I guess, from inception, if you like, I think is not the best way to look at that, perhaps.
Hi, Darragh. It's Trevor. On the PML question, I think you're referring to kind of the shape of the curve, sub-100. No, we don't publish that. But I can say that the shape of that curve is no surprise to us. It follows the expected pattern that we expect when we put the book together. Probably the best sort of guide for you is if you look back at previous events that have been around in the course of our involvement over the last three years. We publish the numbers and disclosures around our involvement in those, the smaller events, the ones that are being referred to quite often in the press and the media. And you get a sense from there of the kind of involvement we have in those. We don't publish it, but there are no surprises in the shape of that curve, sub-100.
Yep. But can you say is it higher or lower than the 10% of TNAF? I'm not looking for a specific number. Just a rough sense, really.
Basically, as you get down the curve, it gets lower as the percentage. I mean, that's just the fundamental sort of premise of it. So yes, I can confirm that. That's what you're looking for. Yep.
Thank you. Our final follow-up for the day comes from the line of Tryfonas Spyrou of Berenberg. Please go ahead.
Hi. Sorry. I got three quick questions. The one is a follow-up from first question on casualty. I guess more of a market question, maybe for you guys. Can you maybe share your thoughts on why do you think there hasn't been more upwards pressure on pricing in casualty? And do you think there could be more to come throughout the year, given what we had seen as of recently? The second one is on the risk adjustment. I think for Elaine, it looks like the actual number has effectively doubled year-over-year to $50 million. I was just wondering, is this just mainly a function of growth, or is this sort of you added buffer there for uncertainty? And if so, any thoughts on where this extra prudence is? We appreciate it. I think the percentile moved higher versus your range, given what you published earlier today.
And then lastly, maybe one general question on the slide. You have the premium per employee, which is really structurally higher than all of your peers. I guess my question is your ceiling to how this number can go. I appreciate you alluded to you taking more share of existing treaties. But I guess at what point do you need to add more people or systems? Yeah, just interesting to hear your thoughts on how high the ceiling on that number because it looks really really strong. Thank you.
Hi, Tryfonas . I'll take the risk adjustment one first then. I think if you look at it as a percentage of incurred, it's maybe not such a big an increase as you're looking at. But general comment around that and the percentile, risk adjustment is going to be impacted by whether we've had any specific losses, so CAD and large losses during the year. That can be a driver in terms of how we look at it as well. And I think in general terms, properties performed fairly well in 2023, and casualty and specialty as a result are a higher proportion of our reserve. So we would kind of naturally expect to have a higher risk adjustment as a result of that. I think on the percentile, I think we've got 82%, 82nd percentile out this year versus 81st last year.
I don't really see that as a material difference. I think certainly, if you talk to any of our actuaries, I think if you see that as a big difference, they would have a different view on that.
Okay. Thanks.
Tryfonas , from the other two questions, one on casualty, I think you're referring to the fact that there was perception that's been slow to respond or pricing has been slower to respond. It's actually interesting if you look at that soft market block coming up to 2019. And then when we came into looking at contracts for the 2021 year, you could see the rate change. It was already happening in 2020. 2020 was actually quite significant in a lot of the classes. The rate has been building quite significantly in some of the classes through 2021, 2022. I think you're seeing it more now as a result of all the features being reported on because the back years, per se, are being increased in the industry in terms of reserves.
So I would say the casualty has been fixing itself in various areas, but that definitely, I would acknowledge, is not consistent across the entire industry and across all classes. On the last one around per employee premium, it's not a number we explicitly manage to. It's, I suppose, a marker for people outside the company to look in and look at the kind of efficiencies within the business. But it's not something we explicitly work towards or to. In terms of resources and steady state, as I said earlier, the business is in a really good position at the moment to build with business with the teams that are there. So you'll see us add some people still to the various functions, but in the main, it's in a really good position to be able to build on it with the business flow that we expect to see.
But it's not an explicit measure that we work to.
Great. Thank you. Thank you very much.
Good. So hi, it's Neil Eckert here. I think that probably concludes the questions for now. So thank you, everybody, for attending. Obviously, we're very, very pleased with the outcome for this year. And I would just encourage investors, analysts to reach out. We're happy to take meetings and have discussion away from this call. So thank you, everybody. And we'll no doubt speak to a lot of people in the next few weeks.