Good morning and good afternoon, everyone, and welcome to Conduit Re's Q1 2023 trading update. With the disclaimer now relegated to the appendix, I give the floor to Neil Eckert, Executive Chairman of Conduit Re.
Hi, everyone. Just a few words from me before giving the floor to Trevor, Greg, and Elaine. Capacity constraint in the market has been more acute as the year has progressed. The current pricing environment creates opportunities for improved margins for 2023. It'll take a while to fill the imbalance between supply and demand for reinsurance, and that supply and demand is something we expect to continue. Inflation remains a key driver of rate, as we have frequently discussed on previous calls. I'm very pleased with the team's performance and the operating model that Trevor has put together. He will present to you shortly. We are continuing to deliver strong growth ahead of IPO expectations.
Thanks, Neil. Our first quarter was a very pleasing one, with ultimate gross premiums written of $443.2 million, being up just over 50% on the first quarter of 2022. On a written basis, gross premiums were $278 million, being up 59% year-over-year, growth came in all of our three divisions of property, casualty, and specialty. Turning to property and specialty first, these were up 90.2% and 72.3% respectively, compared with the same period a year ago. We've said several times over the last few quarters that in our view, these two classes were likely to evolve as presenting particularly attractive opportunities. We indeed saw that through this quarter.
New business written in property and specialty continues to add to the significant 2022 renewals as they come through in this, our third year of operation. On casualty, gross premiums written were up 8.7% in the quarter. On those deals bound, we saw very good renewing terms presented, including some new business additionally added to the book. The low premium growth on the casualty class in the quarter was largely due to a couple of major contracts being extended by our clients into April, which had the effect of basically transferring the renewing premium out of this first quarter and into the second. We have some numbers in the deck coming up where Greg has more detail around our busy April activity across all three divisions, and the impact of this casualty transfer can be seen there.
On rate change, that continues to be very healthy at a risk adjusted year-on-year positive of +19%. Through Q2, this is basically in line with what we saw at the Jan 1st renewal season. No surprise that property continues to lead the way there, and Greg will give some more color on this later across the three divisions. On loss activity in the quarter, the industry saw significant impact in the cat space with a series of events in Turkey, Syria, floods and cyclones in New Zealand. In the U.S., there are a number of lower-level tornado hail and straight-line wind events. These regions are in the main where we definitely have a lower footprint.
Whilst the session today is purely a trading update around premiums and market conditions generally, we can report that none of these events, specifically or in total, had an outsize impact on our performance during the quarter. A final word around the general market conditions. On the casualty side, we spend much time evaluating the rate advocacy versus inflation conundrum, and we can report that our casualty deals being bound still reflect that clients are behaving generally responsibly in pricing the business to stay ahead of these underlying inflation returns. We spend a lot of time on this topic, and we would also comment that areas such as D&O have certainly been on our watch for some time now and get our specific attention as one would expect.
On the property side, to some extent on specialty, the supply demand imbalance continues to drive sentiment there. As we sit here in May, we are seeing the mid-year renewals coming in from the U.S. with healthy high double-digit rate increase. This is something we expect to take advantage of as we move forward. As I've said already, we have planned for an increased weighting towards the property and specialty sectors, and signs are that the market is definitely in a healthy state and there for us to grow and optimize the book again through 2023. This slide here is one which we have shared previously. It's on the total cumulative premium evolution of Conduit since the inception of the company and on a gross premiums written basis.
The growth path continues, as you can see, and as we expected in our original plan. We have written cumulatively $1.27 billion since January 2021. It's a reminder that at the outset of the business, we saw the value predominantly in skewing capacity towards the ground up quota share space, where the premium versus exposure balance was best for us in our view. This business mix continues to be a driver of the increasing written pattern of premiums coming through from the prior years. These are of course adding to our growing 2023-year bond business. The 2023 premiums will continue to come onto the books as we work our way through this year. On that, I will pass over to Greg for more detail around the underwriting numbers.
Thanks, Trevor. We continue to grow our portfolio into the positive pricing environment across property, specialty, and casualty. Over the last three quarters, we've shared that we observed the greatest number of positive flags or, you know, signs in the property and specialty spaces.
In the casualty space, we continue to see a good flow of business, noting that we're generally less positive on the market when set alongside that of property and specialty. Casualty has come so far over the last few recent years. We've undoubtedly been well placed to ride out this wave of repricing. We continue to add contracts to our casualty interests, maintaining our consistent high degree of selectivity, enabling us to grow where we're able to observe risk metrics continuing to outpace underlying loss trends. The property risk adjusted rate change has strengthened. I'm pleased to say that we're able to grow our position. For us, property is certainly not all about Florida all the time.
Florida is one piece of the natural catastrophe puzzle and certainly has our attention, though we are a business that is not over-reliant on the behavior of a handful of buyers once a year. The primary market continues to deliver rates ahead of loss trend and inflation, and we remain focused on developing this delivery of balanced insurance risk to our growing reinsurance business. The specialty market continues to warrant our attention, and as planned, the Q1 market conditions supported further growth of our portfolio. Our focus is very much on the risk or the non-cat piece of the chain, and this exhibited one of the biggest resets in a decade or more. Some of this primary reset is clearly down to poor historical performance, for instance, post the Ukraine-Russia conflict. Other specialty lines are benefiting from the broader property related capacity squeeze.
This is causing a rating uplift in the fire or, as Trevor references, the non-cat rates. The narrowing of coverage in the traditional up and down excess of loss contracts created some pockets of pricing competition. On the whole, growth was within target risks and achieved. April is a significant renewal month, and this is not just due to the Japanese placements. April delivers to us a very well balanced slice of portfolio business across the three divisions. The placement of Japanese property excess of loss towers were completed generally with significant risk adjusted rate increases, circa 20%. It's worth noting here that these are not drivers of premium volume, of course, unless very large positions are taken. For us, we moderately grew our position as planned. Away from Japan, primary market continues to strengthen with further growth of the non-admitted markets.
This primary business provides target risk for us with a strong balance of cat and non-cat risk. The casualty market has some moving parts, with some large U.S. contracts renewing on the first of April having been extended. Target contracts were negotiated largely around stable combined ratios. This was exhibited by a greater number of bespoke private deals transacted with key clients. Specialty market presented some larger transactions built specifically around premium relief for the insurance carriers. These deals are of great interest to us and due to the balanced nature of their composition, providing manageable ratios of premium to risk limits. It's worth noting the political violence and terrorism market continues to see numerous reinsurance contracts renew at this time of year. The primary market continues to de-risk, with underlying exposures shrinking.
The premium pot is not growing significantly, the market is starting to look less balanced, due in part to the large risk lines that are put out by insurance carriers. As Trevor mentioned, it is probably without surprise that we share the news that the property market led the way with specialty still a meaningful contributor to our overall net position rate change for Q1 of +19%. The casualty portfolio delivered +1%, which is sufficient to look after itself, care is needed in evaluating and underwriting our way through the class. Our rate change metrics are in respect to Q1 only and exclude any April attachments, therefore, basically mirroring the numbers that we reported through January 1. There is much current activity in and around the property in that cat space.
Digging in a little shows variance based on the type of buyer and their geography. The capital intensive programs, best exampled here by U.S. nationwides and pan-Europeans, were well-placed with significant rate increases, showing the market's requirement to fund their cost of capital. Attachment points were generally raised. This is an excess of loss placement comment here, with some additional limit board. It is worth noting, though, that some of the 1st January, 1st of January programs have been topped up post-January. The regional programs were less consistent with their placement metrics, exampled here with local European business showing less evidence of inflationary exposure changes offset within the renewal structures. Across all property contracts, terms and conditions continued to tighten with the reduction of flexibility around non-primary coverages, exampled by SRCC. With this, hand over to Elaine.
Thanks, Greg. It's worth making a few comments on IFRS 17 before I get into the numbers. 2023 finally brings the implementation of IFRS 17. We do expect to provide more details on the restatement of 2022 financials, KPIs, et cetera, around our interim reporting. As this is just a trading update for the first quarter, there's limited information in our release on IFRS 17 impacts. Suffice to say for now that as others have commented, we do expect a very small opening balance sheet benefit at 01/01/2022, with a more material impact from discounting on the 2022 restated financial statements, given the extreme movements in rates during 2022. That will be a benefit to our income statement and capital position.
As many others have also commented, nothing about applying a new accounting standard changes the underlying economics of the business or how we view our portfolio or how we approach our reserving. There will be presentation and disclosure changes, of course, but it's a relatively new business without legacy systems or reserves. The transition is perhaps more straightforward than for some other larger, more complex companies. For us, it's largely a mapping exercise and timing impacts, with the main financial impacts being from discounting our reserves and the deferral of acquisition-related operating expenses, which really amount to timing differences. Discounting also means we will see better matching between our assets and liabilities, so balancing the one-sided volatility that we've seen of late from the impact of interest rate movements on our investment portfolio.
As I mentioned at year-end, we expect to continue to report on our gross premiums written in some form. We do intend to move on from the discussion and reporting around ultimates. However, for this initial stage of transition, we've continued to present ultimates along with gross premiums written. Both of those numbers now exclude reinstatement premiums to ensure consistency with IFRS 17 view of revenue. We wrote $278 million of gross premiums written in the first quarter of the year, compared with $174.7 million in the first quarter of 2022, a 59.1% increase. This quarter's gross premiums written includes $66.2 million of prior underwriting year premiums. Subject to any remaining final adjustments, 2021 underwriting year is essentially finished writing and earning now.
The 2022 underwriting year is now around 90%-95% written and about 65% earned, with most of the rest of the earnings on that year expected to come through in 2023. We have approximately $622 million of total remaining ultimate premiums written to earn out. As Trevor said, while it's been an active quarter for industry losses, we don't have anything to report as material impact, either individually or collectively, on our numbers for the quarter. It was also an active quarter on the investment side, with plenty of volatility around and the banking sector turmoil as well.
With the overall reduction in yields, we had positive performance in the quarter of 1.8% compared to a negative return of 2.9% for the 1st quarter of 2022 due to the significant increase in rates and rate expectations in that quarter. We remain relatively short duration. Our focus is on maintaining a high quality, highly liquid portfolio. Duration is currently 2.4 years versus 3.1 years on our net reserves. We've increased our duration very slightly as the rate hiking cycle slows and to better match the duration of our liabilities, or at least to keep that within a reasonable range. Average credit quality is AA. You can see our asset allocation in the chart on this slide. Not much change from prior quarters there.
We stated it in our release, but just to reiterate it here, we did not have any holdings of SVB, Signature, Credit Suisse, AT1, or First Republic Bank. With that, I'll hand back to Neil for closing remarks.
Thanks, Elaine. The strong market continues as evidenced by the 1/4 renewals. We expect this momentum to continue into June, July, and beyond. Our business model with the strong balance sheet legacy-free is perfectly suited for the current environment. Our position is being increasingly recognized in the marketplace. Now is the time to push on the accelerator and keep delivering strong growth as we drive towards our ambition to achieve a mid-80s combined ratio. We've had a good Q1. There'll be no major loss events so far in Q2. We look forward to presenting our interim results in late July.
Thanks, everyone. We can then move to the Q&A session. Let's keep it to two questions per person. Thank you.
Thank you. Ladies and gentlemen, participants can submit questions in a written format via the webcast page by clicking the Ask a Question button. If you are dialed into the conference call and you would like to ask a question, please press star and then one now. If you would like to remove yourself from the question queue, please press star and then two. Again, if you would like to ask a question, please press star and then one now. The first question we have is from Tryfonas Spyrou from Berenberg. Please go ahead.
Hi. Hi. Good morning. I have two questions, please. The first one is, I was wondering if you can talk a little bit about what you expect for the upcoming renewal in terms of the dynamics there. I guess related to that, what is your appetite on deploying capital in Florida? I appreciate the comments made there by Greg, as you don't wanna be reliant on a handful of buyers here. It looks like we're still getting meaningful year-on-year rate increases. We also have a change in legislation, which is expected to improve loss cost trends. Do you think the market here is taking a turn for the better now and could present with meaningful opportunities for deploying capital? That's the first one.
The second one is, we saw one of your neighbors raising meaningful sort of capital round last night. How should we think about that in the context of capacity constraints across markets? Are there any signs that capacity is sort of somewhat normalizing? We're hearing more and more about some other big players turning positive on this space as well. Any comments here on the trajectory of the rate hardening would be appreciated. Thank you.
Morning, Trevor. Yeah, I mean, Florida is certainly improving. We observed that. As we said, you know, for us writing property and in particular property XOL, you know, it's not about Florida all the time.
Like any writer of XOL, it's about not putting all the XOL limit in the same place. It's of interest. We observe improving underlying conditions. We'd expect to see that improving loss ratios, that will take time. It's on our radar, as it has been since we started the business.
Okay. Thanks, Greg. Yeah, hi, Drew. Just on the second point around capacity and, you know, the impact of capital, if you like, what that produces. For us, you know, looking forward through to, as Greg says, the upcoming year and sort of, you know, I guess to a degree, Florida and the wind season. The capacity that we've got for that is basically booked and in place. We set out our appetite for cat in terms of gross and net PMLs. That's what we're managing to. The capital in place to provide that capacity is completely adequate. We run a number of, if you like, growth scenarios around the portfolio forward-looking, and we stress that to a degree. Certainly over the next two to three years, you know, we grow that out.
There isn't a scenario we have on our books here where we're forecasting that there's an increased need for capital to be raised. For us, it's about managing that cat PML in the context of Florida. If you look at the way that the capital models work very roughly, and this is, you know, a generalization. I think about 50% of the input is driven by premium. The other remaining factors are things like reserving risk, and cat risk. Because we have a diversified play, and obviously we're a legacy-free entity starting up in 21 without material back years, plus diversification credits that we get for a broad portfolio. I think when you run that through the model, it ends up producing a fairly favorable result for the way that our portfolio is currently set up, but also for future growth.
We're in a very comfortable position.
Thank you. The next question we have is from Abid Hussain from Panmure Gordon. Please go ahead.
Hello. Hi there. Good morning, everyone. Good afternoon. Just a couple of questions, if I can, please. The first one is on the combined ratio. I noticed that you signposted to hitting the mid-80s combined ratio sooner than the previous guidance, which was, I think, the medium term. Is there any color on your thinking there in terms of when that might be? Obviously, we're seeing very favorable pricing conditions and that's feeding through on that side. The second question is on growth and in particular, the balance of growth, I guess. You need to grow in a diversified manner. My question really is there a limit to any particular line that you can add, especially given that you're growing so much in the property segment?
Is there a limit there or the flip side, I guess, is there so much headroom in terms of the capacity that you have that this is not really a relevant question over, I guess, over the next 24 months or so? Any color on those two would be very helpful. Thank you.
Hi, Abid. Just on the combined ratio guidance, I think we've talked before about the fact that we're seeing our underlying books developing well, and we've also talked around how we reserve for those and the timeframe around, you know, particularly things like the casualty side of the book, developing in there. We will be publishing full statements at the half year, so we'll be able to talk a bit more about what our combined ratio looks like at that point. We're pretty comfortable with the way that it's developing. Just bear in mind that we are gonna be publishing under IFRS 17 at the half year as well. We'll try and bridge that new KPI for you guys as well.
Excuse me. If, yeah, picking up on the property growth, it. And you mentioned quite accurately there about balance. It's not only balance of where the risk is being originated from and the type of client, but obviously the type of reinsurance product as well. You know, if we were, for example, just selling XOL limit, you know, growth in that class would mean you're just stacking limits on top of each other, and very clearly you'd be building accumulations and capital constraints very rapidly. Our approach of building a property portfolio that isn't just cat, allows us to, you know, align ourselves and gain access to those primary markets. A lot of non-cat business we classify as risk business, which is less capital intensive, it's more predictable, it's less volatile.
You know, that in part with some additional cat, just allows us to continue steadily building that position up.
Thank you.
Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. The next question we have is from Darryl Goh from RBC. Please go ahead.
Hi. Hi. Afternoon, everyone. I hope you're all well. A few questions, please, if I may. The first two is on capital. Can I quickly clarify that you said there are scenarios where there's an increased need for capital to be raised? Did you say that? Did I mishear? If so, what might those scenarios look like? The second one, just in capital. Solvency, your solvency ratio at year-end was about 326%. Does that already account for the 2022 final dividend and the complete business plans for the whole of 2023? The next question, also in capital, thanks for the details or thanks for the detail around the risk mix. Can you say at a high level, what is the split of risk between underwriting and asset?
What is the level of diversification benefit that you have within that? Next question on large losses. You're saying that there were no events that had outsized the material impact in the quarter. I know that you don't yet give a CAT budget as such, but I'm just trying to gauge, you know, how you, how you would qualify what's material within the quarter. Is that, say, within a dollar amount threshold or within your quarter's experience, however you measure it? Thank you.
Hi, Gerald. Just on the first question on the capital side of things, you did mishear that, I'm afraid. We were saying that we run a whole lot of stress and scenarios around our business model, and we don't have a situation where we envisage a need to increase capital. And we look at, you know, a fairly broad spectrum of scenarios around there. The message that we were giving there is that we have plenty of capital to execute on the business plan that we have, and take advantage of any other opportunities that may present themselves as well. On the solvency ratio, it is a look forward at a point in time, so bear that in mind.
You know, it has come down from early days obviously, 'cause we're not fully deployed yet, so, bear that in mind as well. The stronger measure that we probably spend more time on internally is the invest measure and I'd probably direct you to that one more over time. You know, they obviously see our business plans and where we intend to go and have published reports that say that we have a strong capital position. I'd go and have a read of those reports if you get a chance. I didn't catch your third question, so we can come back to that one perhaps. In terms of events and what we disclose, we don't really have a hard and fast rule on that.
We don't have a hard dollar number that we talk to. It does depend on what else is going on, what kind of event, what line of business, how it impacts that. The one thing I'd point you to is the events we have disclosed before. You know, things like Hurricane Ian, Ukraine, Hurricane Ida. You can kind of frame the type of event and the type of size of event that we would be disclosing. Nothing that kind of gets to those levels for this quarter. If you wouldn't mind repeating your third question.
Yeah, absolutely. Absolutely. Just in terms of the capital requirement under your BSCR model, can you say what is the split between underwriting and asset risk? Is it kind of like 80/20? What is the level of diversification benefit that you have within that?
We don't disclose that level of detail. I mean, clearly given the business model that we've got, our bigger drivers, at this, certainly this early stage are gonna be around premium and PMLs, and particularly in the early stages of growth, this is more about premium.
Thank you, ma'am. Ladies and gentlemen, at this stage, there are no further questions on the conference line. I will now hand back over to management for closing remarks. Please go ahead.
Yeah, thanks, everyone. Q1 has been good. April momentum continues. We're seeing that into the June, July renewals. I don't think that I've got too much to add to what's already been said. Thank you, everybody. Thank you to the management team. We look forward to speaking to you at the end of July when our interim has come out.