Building resilience
in a changing world
Strategic report
2
Strategic overview
3
Key performance indicators
4
Executive Chairman’s statement
6
CEO’s report
11
Business review – underwriting
14CFO’s report
16Business review – finance
19
Enterprise risk management report
25
ESG report
29
Section 172 statement and stakeholder engagement
Governance
32Board of directors
36
Executive Chairman’s introduction to
corporate governance
38
Corporate governance and compliance with the UK
corporate governance code 2018
42
Nomination committee report
45
Audit committee report
49
Directors’ remuneration report
51
Future remuneration policy
57
Notes to the policy table
61
Annual report on remuneration
69
Directors’ report
74
Directors’ responsibilities statement
Financial statements
76Independent auditor’s report
82
Consolidated statement of comprehensive income
83
Consolidated balance sheet
84
Consolidated statement of changes in
shareholders’ equity
85
Statement of consolidated cash flows
86
Notes to the consolidated financial statements
121
Additional performance measures (the “APMs”)
123
Glossary
129
Advisors and contact information
Conduit Re is a pure play global reinsurance business.
We have proven experience across our business
and we are empowered 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 is at the core of
how we operate.
Strategic report
Strategic overview
Building a resilient
underwriting
franchise...
Pure play treaty reinsurer
We focus purely on providing treaty
reinsurance support to our clients and
avoid conflicts of interest.
Simple and transparent
operating model
We work collaboratively as a single team
from a single balance sheet in a single
location to support our brokers and
customers.
Balanced and diversified approach
We maintain a highly disciplined approach
to portfolio management, ensuring balance
and diversification at all times across the
underwriting cycle.
Expertise and experience
We only underwrite risks that
we can measure, analyse and
price appropriately.
Best in breed technology and analytics
We continuously invest in technology and
data management tools to ensure we are
able to provide the highest levels of service to
our brokers and customers over the lifecycle
of our policies.
...to deliver value
for the long-term.
Social
responsibility
We aim to lead
by example in
supporting the
transition to
a
sustainable
economy and will
always focus on the
long-term benefit of
all of our
stakeholders.
Strong balance sheet
We will always maintain a strong level of
capital adequacy to support our rating, our
solvency and our liquidity for the benefit of
our customers.
2Conduit Holdings Limited Annual Report 2021
Strategic report
Key performance indicators
million
investment return
Combined ratio
Total net
Gross premiums
written
Return on equity
Total
Net tangible asset value per share
shareholder return
Gross premiums written $378.8 million
Gross premiums written are broadly in line with our IPO
prospectus showing the excellent progress made in our first
year of underwriting, although we have been deliberately
weighted to more quota share business during our early
stages to ensure access to rates and a diversified portfolio.
Return on equity (4.0)%
Return on equity (ROE) enables the Group to compare itself
against other peer companies in the industry,
it is also a key measure internally and is integral to our
performance-related pay determinations. ROE is
calculated as the profit for the period divided by the
opening total shareholders' equity. ROE for the year was
negatively impacted by the industry loss events in 2021
and higher initial costs associated with the Group’s build
out of teams and systems.
Total net investment return (0.3)%
The Group 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
on a daily basis and expressed as
a percentage. The Group’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,
the Group looks to generate an appropriate total net
investment return. The IPO funds raised were fully placed
with our selected investment managers during 2021 and
invested in fixed income securities, in line with our
conservative investment strategy.
Combined ratio 119.4%
The combined ratio for 2021 represents the start-up nature
of the business, the higher weighting towards quota share
business during our first year which resulted in a lag in the
underlying earnings, along with the higher-than-average loss
activity experienced by the industry during the year.
Total shareholder return (12.2)%
Total Shareholder Return (TSR) allows the Group to compare
itself against other public peer companies. TSR is calculated
as the percentage change in common share price over a
period, after adjustment for common share dividends.
Following the IPO in December 2020 which was completed at
500p per share, the Conduit share price at the beginning of
the year was 508p and it closed the year at 433p. In June, the
Group declared an interim dividend of $29.7 million resulting
in a dividend per share of $0.18 (£0.13) in line with our IPO
plans. Consequently, Conduit’s TSR for 2021 was -12.2%.
Net tangible asset value $5.93 per share
The 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 asset value per
share. Total tangible net assets for the group at year end
were $980.1 million and the number of common shares
outstanding was 165,207,174.
Conduit Holdings Limited Annual Report3
Strategic report
Executive Chairman’s statement
Our first year has been all about laying
resilient foundations for the future, building
the team, the operational capability,
constructing the underwriting portfolio and
forming a strong and healthy culture.
Neil Eckert
Executive Chairman
4Conduit Holdings Limited Annual Report 2021
Strategic report
Executive Chairman’s statement
Introduction
In our December 2020 Prospectus, issued for what turned
out to be the largest successful start-up IPO fundraise in the
history of the LSE, we set out our vision for building a leading
global reinsurance underwriting franchise over the next five
years. I could not be more proud of what we achieved then
and in the year since.
At that time, I said that one of the advantages of being a
start-up business is that we provide an excellent opportunity
for highly talented people in our industry to prove themselves
on an entrepreneurial stage.
I am delighted by the talent, energy and enthusiasm
demonstrated by the remarkable people who joined our
journey. Being part of a start-up is a career changing
opportunity, but talent can only flourish in the right
environment and developing a great culture has been a
critical part of our mission. We set out from day one to
establish a clear Conduit culture; transparent,
collaborative, responsible, enabled and forward-thinking. I
believe our team is evidence that we have been successful
in achieving this aim.
Culture is also about embracing diversity and all that this
brings to a great team. I am proud to report that just under
half our employees, and a third of our Board is female. A
majority of our team is either Bermudian or permanent
residents of Bermuda.
We have brought together all the disciplines and
professions needed to run the business from a single
location and the individuals have quickly come
together to form a hard working, high performing
team.
I would like to take this opportunity to record my thanks to
the Board for their hard work and the valuable advice they
have provided to Trevor and me.
We comment in detail on our ESG strategy in that section of
this report and I emphasise our commitment to this activity. It
is an integral part of our business, an absolute imperative in
the way we approach underwriting, our people, our charitable
and social goals and governance. Governance is an
important part of this and the establishment of the ESG
Committee, our first Board evaluation, and the work carried
out by Malcolm Furbert, our independent director with
responsibility for workforce engagement, underline our
commitment to that strong governance foundation.
I will leave Trevor to comment more on market conditions
and our operational build-out, but I want to highlight that
Conduit Re was conceived and launched into the best
insurance underwriting conditions to
have existed for over a decade, possibly even two. The last
two or three market corrections I have personally
experienced in my career were triggered by large catastrophe
events: Hurricane Andrew in 1992, the World Trade Centre
Attacks in 2001 and the combined losses from Hurricanes
Katrina, Rita and Wilma in 2005. However, the hard market of
2021/22 is a very different beast. It has been a market in
which the drivers of much needed improvements in pricing
and terms and conditions were in the primary direct markets,
and there are now signs of real capacity constraint in some
areas of the market, as well as continuing pricing momentum.
Because of the propitious timing of our launch, and the
exceptional hard work of the team in building out our ability to
deliver on our plans, Conduit Re is perfectly placed to take
advantage of these conditions.
Our overall result for our first full year of operations was a
comprehensive loss of $42 million or $0.25 per share. Whilst
it is disappointing to be reporting a loss, it is in line with what
can be expected in a year that was particularly costly for the
industry. Our initial strategy, with bias toward quota share
business, also resulted in a delayed recognition of earnings
compared to the IPO plan. This bias towards writing more
quota share business was a direct response
to market conditions and has allowed us to build a high-
quality diversified and balanced portfolio which stood us in
good stead with relatively low catastrophe losses during
2021, a “cat heavy” year. Our business remains exceptionally
well capitalised and on track to fulfil the growth strategy set
out at the time of the IPO. We are pleased to declare a final
dividend of $0.18 per share, bringing our full year dividend to
$0.36 per share, also in line with our stated dividend policy.
In conclusion, I am excited about the future for Conduit.
Our first year has been all about laying resilient
foundations, building the team, the operational capability,
constructing the underwriting portfolio and forming a strong
and healthy culture.
I am proud of what has been achieved so far, but also acutely
aware of the opportunity given to us by our shareholders and
the responsibility that entails. We will continue building on our
excellent first year’s work in 2022 and I look forward to
reporting to you again at the end of this year.
Neil Eckert
Executive Chairman
Conduit Holdings Limited Annual Report5
Strategic report
CEO’s report
Our mission is to build a market leading
reinsurance business for the long term and
we have made great strides during our first
year to create the core foundations
necessary to achieve this.
Trevor Carvey
Chief Executive Officer and
Chief Underwriting Officer
6Conduit Holdings Limited Annual Report 2021
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CEO’s report
A strong start despite a tough year for the industry
It is hard to believe that a year has gone by since our
launch in December 2020. What an extraordinary year
2021 has been for our industry and the world in general.
Amid the ongoing challenges of the COVID-19 pandemic,
the industry also experienced what has been reported as
the fourth costliest catastrophe year in history, with market
estimates of up to $130 billion of catastrophe losses.
Conduit Re started out against a backdrop of arguably the
largest ‘unmodelled’ insurance loss ever experienced (the
COVID-19 pandemic) and four consecutive years of above
average industry catastrophe loss activity. The past year has
further highlighted the impact of both of these factors, with the
pandemic continuing and with the variety, scale and
frequency of catastrophe loss events in 2021: the February
winter storms in the US; the European f oods in July; quickly
followed by Hurricane Ida (unusually impacting both the Gulf
region and the North-eastern states); and then the mid-west
tornadoes in December.
Amid this activity in our first year of trading, we have firmly
established our core underwriting philosophy: to underwrite
a balanced and diversified portfolio of technically priced risks
in classes we know and understand. This philosophy has
proved to be resilient in a difficult year, as is evidenced by
our relatively low net catastrophe losses amounting to $53.8
million, significantly lower than many of our direct peers.
This result is testimony to our consistent and robust
approach to balancing our exposures at whatever point in
the insurance cycle we bring them into our portfolio.
Building resilient foundations
I said in my first report last year that “the hard work now
begins” for Conduit Re. 2021 has certainly been a year of
incredibly hard work and of building the excellent team,
our platform, our relationships and our portfolio.
I believe we have successfully put in place resilient
foundations to establish Conduit Re as a market leading
reinsurance underwriting franchise for the long term and we
have made great strides during our first year to create the
core foundations necessary to achieve this, as well as
dealing with and reacting to the challenging events of the
year. One measure of our success in entering the market in
our first year is the reaction that we have had from our
brokers and
clients, and I am absolutely delighted by the positive
reception that we have received.
Conduit Re is a differentiated model in the reinsurance
market, born of the experience the team has gained over
several decades of managing risk in the global insurance
industry.
For me, the core tenets of our business model are:
■
A pure play treaty reinsurer in a single location in
Bermuda;
■
A transparent business model with no conflicts of
interest;
■
A collaborative approach where our underwriters,
actuaries, cat-modellers and risk managers all work
together;
■
A balanced and diversified approach to portfolio
management; and
■
A modular and agile technology platform with best-
in-class services designed to provide our people
with valuable real time data.
Our real differentiator, and one that being a start-up allows us
to establish and maintain from day one, is our decision-
making framework; a flat, open and collaborative structure
that allows us to make timely and informed decisions that we
all buy into and can execute in a joined-up way. This flexibility
is a huge asset in our business.
As Neil refers to in his statement, people are the essence of
any reinsurance business and we have been incredibly
fortunate to attract the perfect mix of talent and experience
into every aspect of Conduit Re. The team has worked
tirelessly throughout the year to deliver on the mission and
this is one of the few opportunities I get to thank them
publicly. Being part of a start-up is a special opportunity and a
shared experience and I would like to think that our brokers
and clients would already be able to describe the ‘Conduit Re
experience’ as transparent, thoughtful and forward-thinking.
Our technology objective is to enable our people to do the
best possible job at every point in the life cycle of our
reinsurance policies. We have already put in place the
fundamental components of our modular inter-connected
technology stack comprising, in our view, the combined
efficiency and processing power from a variety of some of
the best available ‘Software as a Service’ solutions. This is a
meaningful departure
Conduit Holdings Limited Annual Report7
Strategic report
CEO’s report
from the industry’s traditional reliance on legacy style ‘one
size fits all’ approach to technology and we expect to reap
the benefits of this over time as our systems evolve.
Our platform build-out process has benefited from the full
commitment of the whole Conduit Re team, who worked with
our suppliers to deliver an optimised and inter-connected
system. We are delighted with the speed of progress and in
particular our enterprise-level technical pricing solution is live
across all divisions and we continue with the integration of the
software solutions to optimise our finance, accounting and
management reporting. Crucially, from day one, we had our
real-time catastrophe exposure management systems in
place and this has proven to be the bedrock of our ability to
actively manage and control our cat capacity deployment
through the year.
The new normal?
Increasingly, industry investors and stakeholders are asking if
the loss experience of the 2017 to 2021 period is the ‘new
normal’ as the impact of climate change appears to be
leading to ever more frequent and severe weather-related
loss events. As a reinsurer, we are in the business of
protecting our clients against uncertainty and without
question climate change, inflation and other factors are
driving up future levels of uncertainty. The Conduit Re mantra
is that we are happy to underwrite our clients’ risks as long
as we understand them, can measure them and we are being
paid what we believe to be adequate premiums and margin
for taking these risks on.
I believe that the market has finally started to appreciate the
challenge faced in continuing to provide broad towers of
worldwide or nationwide all perils cover where these
contracts are consistently responding to the unexpected and
unmodelled losses resulting from the shortcomings of the
predictive catastrophe modelling tools on which the industry
is currently so heavily reliant. With this in mind, as a
reinsurer, we need to always consider very carefully the
limits being deployed and the underlying contract structures
in order to protect our balance sheet from exposure to these
so-called ‘outlier’ events, the frequency and severity of which
we believe have been consistently under-estimated by the
industry models.
I was very pleased, of course, to have seen pricing continuing
to improve throughout the year, particularly in many of the
underlying primary markets that we have actively supported
through our quota share strategy. But, just as importantly, the
terms and conditions in these contracts have given us a direct
look through to the underlying business in order to better
control and manage the exposures that we are taking on
board.
Our industry continues to face other challenges that we must
be aware of and be ready to factor into our decision making.
Continued inflationary pressure – both economic and social –
is impacting both the cost of future claims and the adequacy
in the market of existing long-tail reserves; the potential for
increasing frequency and severity of natural catastrophes
driven by climate change, which is driving capacity out of the
catastrophe markets; and the ongoing low interest rate
environment, which is forcing the market to re-assess
technical pricing, particularly in the casualty markets. All of
these factors are likely to drive continued improvement in
insurance and reinsurance terms and conditions throughout
2022.
8Conduit Holdings Limited Annual Report 2021
Strategic report
CEO’s report
Division (UWP)
Property
Casualty
Specialty
Quota Share/XL (UWP)
10.6%
15.9%
73.5%
Quota Share
Quota share of XL
XL
Entire 2021 Portfolio
Non Cat
Cat
Conduit’s 2021 underwriting
Conduit Re underwrote total ultimate premiums of $458.5
million during 2021, our first year of trading. This is broadly
in line with our expectations. This translated into first year
gross premiums written of $378.8 million and net premiums
earned of $194.2 million.
Our year one premium base was, as set out in our
plans, balanced and diversified:
The breakdown by division compares to our original plan of
37% property, 33% casualty and 30% specialty, reflecting our
marginal preference for property business, particularly in the
US, over specialty business.
Our split of catastrophe and non-catastrophe exposed
premium demonstrates our commitment to deliver
a
multi-class and resilient premium base in order to better
withstand the shocks that our industry experiences from
time to time. This balance does not come easily and is a
result of our collaborative single team mindset and a great
deal of elbow grease.
A key metric that sheds light on our underwriting approach
is our ‘hit rate’ (i.e., the percentage of contracts written as a
proportion of the submissions received) which was around
23% in 2021. This demonstrates the discipline that we have
applied in our first year of trading. Discipline is key to
delivering on our strategy of building a high quality,
diversified and balanced portfolio and as pricing momentum
continues through 2022, we are in the position of being able
to continue with this highly selective approach and remain
in line with our growth and plan expectations.
This 2021 premium base will form the substantive
backbone of our account for 2022 and beyond and gives
us a tremendous platform from which we can build for the
longer term.
2021 financial results
Our full year result of a $42.0 million loss does not tell the
entire story of our 2021 activities. As we have noted in our
trading updates to the market throughout 2021, this is really a
function of being a start-up with a zero initial premium base
which results in us reporting a relatively low net premium
earned of $194.2 million as it takes a while for us to fully earn
through the
Conduit Holdings Limited Annual Report9
Strategic report
CEO’s report
business that we have written. We are also reporting a full
year of operating expenses and claims which therefore
have a disproportionate impact on the reported profitability.
It will take us several years to fully deploy our capital and
for our net premium earned to catch up with our estimated
ultimate premiums written.
Consequently, our reported combined ratio of 119.4% is not
a very helpful measure of our underlying underwriting
profitability. We are satisfied that our attritional loss ratios
reflect the improvements in market pricing, and our
catastrophe losses have been within expectations in an
above average year for catastrophe losses. I expect the
lower attritional loss ratio to be reflected in our future
results.
One aspect of our financial results which has been below
original expectations has been our acquisition costs, which
have run higher than our original plan. This is partly
because of the weighting towards quota share business
which carries higher acquisition costs than excess of loss
business. We have also seen higher ceding commissions,
which is a result of our preference to build our initial portfolio
with higher quality and less volatile business. I am not
unhappy to forego an element of margin to significantly
reduce volatility.
Our operating costs in 2021 came in very close to our IPO
budget at $30.6 million. Our year end headcount of 41 is
slightly lower than our original plan but we have also
invested more in our operating platform.
On the investment side, 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 solvency
capital. Consequently, we have deployed our investments
conservatively in line with our plan. We do not see any
upside in risking our capacity to deploy capital in highly
attractive underwriting market conditions by chasing a few
additional points of yield on our investments. Elaine Whelan
provides more detail on our investments in her CFO report.
Outlook
We are entering a fascinating part of the insurance cycle in
the strongest possible position; we remain very well
capitalised, we have our core team and infrastructure in
place; pricing momentum remains strong in our target
markets and we have ‘road-tested’ the business model in an
extremely challenging first year of trading. We are ideally
placed to benefit from some of the most attractive
underwriting conditions
I have experienced in my career and to deliver on the five-
year business plan that we set out to our investors a year
ago.
Trevor Carvey
Chief Executive Officer
10Conduit Holdings Limited Annual Report 2021
Strategic report
Business review – underwriting
When I think about the team we have in place today and the
buzz around the office, it is easy to forget that we only started
writing business in January 2021. As a class of 2020 start-up,
we launched into an extremely dynamic market that has seen
many reinsurers refocus their underwriting strategies. From
day one, we have built the Conduit Re team with a flat
structure, a single balance sheet in a single underwriting
location, and the expertise and experience to support
responsive decision-making. I am pleased with the way the
build-out of our underwriting team and supporting technology
has provided us with strong, flexible and resilient foundations
to maximise the opportunities ahead.
the forces of higher social and claims inflation are now being
addressed significantly in pricing models. Consequently, we
expect underlying pricing to continue to improve. When
these factors are overlaid with a generally tighter
retrocessional market, greater recognition of unmodelled
and secondary peril
loss frequency emerging from climate change, and the
upcoming Standard & Poor’s capital adequacy methodology
changes (which are likely to lead to greater capital
requirements for affected companies), we expect a
continuation of the hard market of recent years. We believe
the market dynamics are favourable and Conduit Re, well
capitalised and with the right foundations in place, is poised
to benefit.
As a management team, we have been delighted by the
support we have received from the broking community
and the confidence demonstrated by cedants who have
quickly approved Conduit Re via their security approval
committees. Across our three divisions of property,
casualty and specialty we have written business through
more than
20 intermediaries and we have benefited from that broad
distribution flow. We are selective in the business we write,
guided by our core belief that underwriting discipline is vital.
This is evidenced by the fact that in 2021, while we saw over
1,000 submissions, we chose to underwrite approximately
23% of them.
In my CEO’s report, I have already touched on our approach
to quota share form business, which we have preferred over
excess of loss business in 2021, in order to access the best
pricing and terms as well as portfolio diversification.
Underwriting quota share business is a highly complex
process and generally requires a far greater degree of
knowledge, experience and hard work than excess of loss
business, which tends to be more model driven. We have
deliberately built the Conduit Re underwriting team to include
the requisite skills that allow us to compare and contrast the
enormous variety of opportunities in the market across all
classes and transaction structures.
We have built our bespoke underwriting platform and
moved to our strategic pricing solution for all lines of
business. Crucially, from day one we had ‘real time’
catastrophe exposure management in place and our
property exposure management platform now contains
information on over 1.6 billion locations around the globe.
Looking to the year ahead, there are several factors driving
and reshaping the market. On the property and specialty
side, there is the impact of the very large catastrophe events
that happened in 2020 and 2021, and the impact these have
had on ILS capital being either trapped or redeemed. For
casualty business,
Property
36%
64% 
Property - Cat
Property - Non Cat
The property reinsurance market was tested once again in
2021 by around $343 billion of economic loss. This has
resulted in as much as $130 billion of insured losses. 2021
will be remembered for approximately $17 billion of insured
losses from winter weather, estimated insured losses of $13
billion from European f oods in July and estimated insured
losses of $36 billion from Hurricane Ida. It is worth noting
that Ida is currently recognised as the fourth costliest
hurricane on record for insurers.
However, at Conduit Re, our catastrophe losses, both gross
and net, were relatively contained due to the nature of the
portfolio we underwrote. Our early adoption of modelling and
real time catastrophe exposure management tools
demonstrates our commitment to our risk controls. We
believe they provide a major advantage in the way we
analyse and benchmark property catastrophe exposures
across the spectrum from a wide band of clients and
brokers. We believe that our ability to evaluate and consider
capacity across property, casualty and specialty classes
within cedants’ portfolios has been a significant advantage
over others in the market.
Conduit Holdings Limited Annual Report11
Strategic report
Business review – underwriting
We have been clear about our appetite to deploy significant
capacity into the natural catastrophe market, which we have
done by employing tightly controlled limits mostly through
proportional structures (quota share contracts). This is a
good example of the hallmark of the Conduit Re business
model: a flexible tactical approach to underwriting based on
the underlying market conditions. Consequently, we have
skewed our portfolio significantly towards proportional
business rather than more ‘outlier-exposed’ excess of loss
business.
As historical exposure trend assumptions and industry case
reserves remain vulnerable to the potentially debilitating
forces of social inflation and litigation funding, insurance
rates have remained resilient. While market conditions are
favourable, we remain cognisant of rising ceding rates and
expect this to be an area of increasing focus. Having
implemented our strategic pricing platform, I am confident
that we have sound and representative modelling that allows
us to differentiate between the many submissions we
receive.
We believe that the proprietary natural peril modelling
assumptions in use across our industry do not adequately
address the impact of ‘missing’ perils and events, both in
terms of their frequency and their severity. This led to us
issuing more contracts on a proportional basis relative to
excess of loss with lower event limits, thereby insulating the
overall portfolio from outsized tail exposures.
We remained on the side-lines of the cyber reinsurance
market, observing the emergence of increasing claims
frequency and ransomware events but, conversely, a
significantly improving rating environment. Our view is that
the reinsurance treaty structures we were presented with
remained too skewed to the ceding company’s advantage
with little or no prospect of a reinsurer being able to limit
exposure to an uncontrolled systemic loss. We do
Casualty
16%
54%
30%
Casualty - GTPL
Casualty - PL/FI
Casualty - Misc lines
see some signs that this contractual imbalance may
change and we will keep this fast moving class under
review.
As we look ahead to 2022, we continue to see reinsurers
adjust their risk appetites and pricing thresholds for certain
lines of business and geographies. Drivers of this include
macro issues such as climate change, core inflation, social
inflation, continued underlying positive rate change across
most lines of business, and the evolving frequency and
severity of catastrophe losses. The casualty market has seen
some growth in ILS supported capacity but we believe that
challenges remain around the contractual structures here and
capacity will be limited. As such, Conduit Re’s proposition of a
legacy-free strong balance sheet is one that we believe
positions us well
We witnessed upward insurance rate momentum throughout
the year across the various underlying classes of business,
with the most pronounced change seen in professional and
financial lines. The continued persistence of prior year loss
development in the market suggests historical pricing loss
ratios and industry case reserves remain vulnerable. As
judicial systems begin to reopen globally, and the backlog
of lawsuits starts to clear, the true (re)insured cost of the
Covid-19 pandemic will materialise and we expect
reinsurance terms and conditions to continue to improve.
to support new and existing cedants.
Conduit Re has been well accepted into the casualty
reinsurance market by cedants and brokers. We are
readily accepted on longer-tail risks - an execution
risk for any start-up – where we have been widely
accepted by counterparty security panels that
recognise our legacy-free balance sheet.
12Conduit Holdings Limited Annual Report 2021
Strategic report
Business review – underwriting
Specialty
44%
56%
Specialty -
Wet/At Sea
Specialty -
Dry/Onland
It is a fool’s game to try and predict the duration of hardening
cycle phases, but the current upswing has arguably gone on
longer than historic market cycles and, unlike previously, has
largely been driven by market willpower rather than capital
flight. While each class is on its own trajectory, overall, those
carriers which aim to practise good cycle management and
exposure-based pricing will undoubtedly reap the benefits
yet again.
As we look ahead to 2022, we expect to see the market
reduce from the peak level of rate change but with the
fundamentals of terms and conditions continuing to move in
reinsurers’ favour. We therefore remain confident of
selective and profitable growth in the context of maintaining
balance and diversity
Conduit Re has enjoyed good support from brokers and
clients in the specialty classes enabling us
to select a desirable portfolio of diversifying contracts. The
broad split of ultimate premium written for 2021 illustrates
both the composite nature of our specialty premium and also
the inherent balance of underlying classes.
Having the technical expertise and experience in-house to
assess and price accurately the divergent nature of
specialty coverage is a core competence. This may seem
obvious but increasingly we see several classes bundled
together and presented as a package. We remain
committed to transacting business in classes that we
fundamentally understand and for which we can price and
model the underlying exposures.
We continue to avoid the classes of mortgage, trade credit,
residual value and standalone motor, and have limited
exposure to the classes of contingency, political risk,
workers compensation and accident and health. That said,
we keep our strategy under review in light of market
conditions and opportunities in which we have the requisite
expertise. Renewables are increasingly emerging as an
opportunity as
the response to climate change impacts real-world
economic activity and we continue to evaluate this
sector.
across the specialty classes.
Conduit Holdings Limited Annual Report13
Strategic report
CFO’s report
Our performance in this year’s loss
events was a pleasing affirmation of
our strategy.
Elaine Whelan
Chief Financial Officer
14Conduit Holdings Limited Annual Report 2021
Strategic report
CFO’s report
It has been quite the year for Conduit Re.
We commenced underwriting on 1 January and have since
been busy putting our systems and processes in place. As
an industry, we saw yet another year of higher-than-average
natural catastrophe frequency, with current natural
catastrophe loss estimates for the year as much as $130
billion.
The major loss events for the year were Hurricane Ida
and the European floods. Conduit Re incurred $27.1
million of net losses, after reinsurance and reinstatement
premiums, on those events. However, because of our
strategy to have a balanced book across property,
casualty and specialty, our losses were manageable and
well within expectations.
At 2.8% of our capital, we are certainly at the lower end of
impact from those events compared to other (re)insurance
companies. In addition, we managed to avoid some of the
other losses our peers picked up and had limited exposure
to some of the smaller catastrophe loss events of the year.
Our performance in this year’s loss events was a pleasing
affirmation of our strategy. Also pleasing was our acceptance
as a pure-play reinsurance company and broadly in line with
the goal we set ourselves in our IPO plan in terms of the
business we put on the books. The IPO plan of ultimate
premiums written
of $471.5 million compares to our actual estimated ultimate
premiums written of $458.5 million. As we have discussed
throughout 2021, the deviation we experienced from the IPO
plan was in business mix: we wrote more property and less
specialty than expected and more quota share and less
excess of loss than expected. These changes were driven
entirely by market conditions. The higher proportion of quota
share business allowed us to build a better diversified book
very quickly and also with reduced volatility versus the IPO
plan; in fact, our net PMLs are below plan. The offset to that
benefit is a higher cost of doing business, so a higher
acquisition cost ratio – and a deferral of earnings – relative to
excess of loss business.
Our loss on equity for the year of 4.0% is largely a reflection
of our developing earnings base rather than the size of the
loss we recorded from the events mentioned above. One
consequence of these industry loss events is a continuation
of current market conditions, with price resolve across the
industry holding relatively firm. We anticipate rate increases
to continue through 2022.
We also selected three investment managers this year to
manage the funds we raised at our IPO. With ESG at the
heart of our organisation, we recognise the importance of
considering ESG across our investment portfolio. All our
managers are UN PRI signatories and ESG considerations
are incorporated into our individual portfolio investment
guidelines and our overall investment strategy. Our
managers were selected, in part, because their investment
decision making processes include ESG considerations.
We believe that, all other things being equal, it is less risky to
own securities with strong ESG ratings. We invest entirely in
fixed maturity securities, and we do not have any exposure
to riskier asset classes, such as equity securities and high
yield bonds. The ESG focus within our investments is largely
captured by corporate fixed maturity securities.
Currently our portfolio MSCI ESG rating is marginally better
than the benchmark. Our goal in 2022 is to improve on that
and gather more data and reporting on ESG within our
portfolio so we can make more informed decisions around
our investments. Our ESG reporting from our managers is
evolving along with our portfolio. We have chosen not to
apply blanket negative exclusions across our portfolio as we
believe that could have adverse unforeseen consequences.
For now, any portfolio laggards or investments in
controversial industries are subject to greater scrutiny by the
Investment Committee.
Given the duration of our liabilities, and therefore our
investment portfolio, it is difficult for us to make specific
investments in green bonds, sustainability bonds or social
bonds, but our managers will invest in them where they can.
We are also in the process of considering impact investment
funds and may look to make a small investment in such a
fund in 2022. Our investment strategy remains very much in
line with our IPO plan and our focus is first and foremost on
the preservation of capital and liquidity to support our
underwriting operation.
Elaine Whelan
Chief Financial Officer
Conduit Holdings Limited Annual Report15
Strategic report
Business review – finance
Premiums
After a successful IPO on 7 December 2020, Conduit Re
began its first year of underwriting on 1 January 2021.
Consequently, financial comparatives are only provided
where available and applicable.
Generally, as noted in the CEO and CUO reports, across
all our core classes of business, pricing and terms and
conditions have been improving. Also, in order to build the
foundations of a high-quality portfolio, given market
conditions, a tactical decision was made to write a higher
proportion of quota share business relative to excess of
loss business than projected in the IPO plan. We consider
quota share business to have provided the best balance
between price and risk as we build out
our underwriting portfolio and will continue to have an
increased weighting towards quota share contracts versus
excess of loss business in the near term. As there is a
greater lag in the accounting recognition of gross premiums
written and earned for quota share reinsurance in
comparison to excess of loss reinsurance this will result in
slower recognition of gross premiums written and earned in
2021, a proportion of which will be recognised in the 2022
financial year. While quota share contracts typically have
higher acquisition costs associated with them, there tends to
be less volatility in the underlying loss ratio.
For the full year ended 31 December 2021 our
estimated ultimate premiums written were $458.5
million, after adjustments, broadly in line with our
expectations. The breakdown is as follows:
Ultimate premiums
written ($m)PropertyCasualtySpecialtyTotal
The indicative renewal price index* for Property in 2021
was 12.2%.
Casualty
Estimated ultimate premiums written were
$182.4 million with gross premiums written in the 2021
financial year of $129.0 million. Quota share policies
accounted for $120.7 million (93.6%) with excess of
loss at $8.3 million (6.4%).
The indicative renewal price index* for Casualty in 2021
was 16.0%.
Specialty
Estimated ultimate premiums written were $71.1 million with
gross premiums written in the 2021 financial year of $66.4
million. Quota share policies accounted for $53.1 million
(80.0%), while excess of loss and quota share excess of loss
accounted for $8.9 million (13.4%) and $4.4 million (6.6%)
respectively.
We have been building a high-quality book of risks in the
marine and energy markets but have deliberately limited our
participation in certain key target markets where pricing has
not reacted sufficiently for us to enter in a meaningful way.
The indicative renewal price index* for Specialty in 2021
was 12.0%.
Ceded
Ceded reinsurance premiums written were $32.6 million for
2021. The majority of the cost represents our cover
purchased on an excess of loss basis, with the remaining
cost relating to reinstatement premiums stemming from the
catastrophe loss events which occurred during the year.
Quota share
104.8
174.1
57.9
336.8
Quota share of
68.6
–
4.3
72.9
XL
XL
31.6
8.3
8.9
48.8
Total
205.0
182.4
71.1
458.5
Property
Estimated ultimate premiums written were $205.0 million
with gross premiums written in the 2021 financial year of
$183.4 million. Quota share policies accounted for $85.4
million (46.6%), while excess of loss and quota share
excess of loss accounted for $31.6 million (17.2%) and
$66.4 million (36.2%) respectively.
Losses
2021 was characterised by another year of higher-than-
average natural catastrophe losses for the industry. The
Group’s net loss ratio for 2021 was 73.2%.
The largest impact on our net loss ratio from 2021
events was from Hurricane Ida and the European
f oods. Our ultimate loss estimate, net of reinsurance
and reinstatement premiums, for Hurricane Ida and
the European f oods is $27.1 million (representing 2.8%
of our net tangible assets), of which $15.0 million is in
respect of Hurricane Ida and $12.1 million is in respect
of the European f oods. Absent these events our loss
ratio would have been 58.8%.
*
This index is an internal methodology used to track trends in premium rates, reflecting management’s assessment of relative changes in price, terms,
conditions and limits. The calculation involves a degree of judgement in relation to comparability of contracts and the assessments noted.
Consideration is given to renewals of a comparable nature, so the index does not reflect every contract in the portfolio. The profitability of the portfolio
is dependent on many factors besides the trend in premium rates.
16Conduit Holdings Limited Annual Report 2021
Strategic report
Business review – finance
While reserves have been recorded for these events,
significant uncertainty exists in relation to the ultimate
losses. Our reserve estimates have been derived from a
combination of market data and assumptions, modelled loss
projections and reports from brokers and cedants. We will
continue to keep these estimates under review as more
detailed information becomes available.
As this is the first year of underwriting, there are no prior
year developments to report on. The ratio of IBNR to
total net loss reserves was 78.8% as at 31 December
2021.
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 101. 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.
The Group’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 Group recorded a loss of 0.3% on the investment
portfolio for 2021 due primarily to rising treasury yields in the
fourth quarter following the announcement
by the Federal Reserve that they intend to bring
forward the timing of their projected rate hikes in 2022.
However, we are well placed with our short duration
positioning with the prospect of rising interest rates.
Net investment income, excluding realised gains and
unrealised losses was $5.5 million for the year ended 31
December 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 $3.1
million.
The managed portfolio consists of 95.3% fixed maturity
securities and 4.7% cash and cash equivalents, with a
portfolio duration of 2.4 years and a credit quality of AA-.
The book yield of the portfolio for 2021 was 0.9% while
market yield was 1.2%.
Cash and investments – credit ratings
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
Conduit Holdings Limited Annual Report17
Strategic report
Business review – finance
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 15 and in the ESG report on pages 25-28.
Other operating expenses and
equity-based compensation
Other operating expenses were $30.6 million for the year
ended 31 December 2021, while our equity-based
compensation expense was $0.3 million.
The development of the Group’s technology platforms and
recruitment of the wider teams is progressing well and
remains in line with our plan and expectations.
Capital and dividends
The Group remains well capitalised to achieve the
business plan presented in the IPO Prospectus. Total
capital and tangible capital available to the Group was
$0.98 billion at 31 December 2021 (31 December 2020:
$1.0 billion). Further information on capital management is
set out in the risk disclosures on page 106 and in the
financing arrangements on page 116.
In December 2021, the Group commenced on-market
purchases of the Company’s shares under a share
purchase programme announced on 29 December 2021,
where shares may be repurchased pursuant to authority
obtained at the Company’s most recent annual general
meeting. Shares repurchased during the year amounted to
$0.2 million and will be held in treasury 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 71 and in note 18 to the
consolidated financial statements on page 117.
The Company declared and paid an interim dividend during
2021 of $0.18 per share and there is no change to our
stated dividend policy which is to provide an ongoing and
progressive dividend of approximately 5% to 6% of equity
capital, allocated between an interim and final distribution.
The Company’s dividend policy and information on the final
dividend declared in respect of 2021 can be found on page
36.
There is no debt and there are no off-balance sheet forms
of capital.
18Conduit Holdings Limited Annual Report 2021
Strategic report
Enterprise risk management report
Our risk profile reflects our freedom from legacy
constraints and organisational complexity, 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.
Andrew Smith
Chief Risk Officer
Conduit Holdings Limited Annual Report19
Strategic report
Enterprise risk management report
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.
During 2021, our risk function was established with various
policies and frameworks approved by the Board and
management level activity to identify, measure, manage and
mitigate risk. The policies include our Risk Policy, Stress and
Scenario Testing Policy and Commercial Insurer’s Solvency
Self-Assessment Policy. The management level activity
includes risk and control assessment workshops and the
identification of key risk indicators.
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 statement
and the response to any risk events or near-misses.
Just as our underwriting philosophy actively seeks to
maximise the benefit of technology to appraise, price and
measure underwriting risk, technology is also at the heart of
how we measure, manage and monitor our own business
risks.
During 2021, we developed a tool to manage our
universe of risks and controls and in 2022, we will further
develop our dashboard reporting to include internal and
external risk indicators and drivers.
Emerging risk has also been a consideration during 2021,
with an emerging risk register maintained and substantive
discussions held on this topic as part of the strategy
sessions of the Board.
The Conduit risk team collaborates closely with the other
‘second line’ functions (actuarial and compliance) and
with findings from ‘third line’ functions (internal audit,
external audit and the independent loss reserve
specialist) to support the CHL and CRL boards in their
oversight of risks and controls.
Our risk profile reflects our freedom from legacy constraints
and organisational complexity, 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.
Risk profile
Conduit Re is a highly focused pure play global reinsurer in a
single location with one balance sheet. Conduit Re is well
capitalised and thus more constrained by operational capacity
than financial capacity. We remain respectful of the need to
grow our operational capacity in a deliberate and purposeful
way to support our underwriting strategy with our headcount
increasing from 12 to 41 during 2021.
Underwriting risk is the risk that we seek and our primary
risk. During 2021, we built out our underwriting team
comprising heads of line of business, underwriters and
underwriting assistants supported by pricing actuaries
and catastrophe modelling specialists. The
implementation of our strategic pricing tools and natural
catastrophe aggregation tools was completed during
2021.
Conduit Re maintains a balanced portfolio of reinsurance
classes and geographical exposures and strict limits on our
exposures to natural catastrophes and man-made loss
events.
We buy high quality outwards reinsurance to manage peak
exposures and use reinsurers who are individually approved
by our Counterparty Security Committee and who are either
fully collateralised or have a financial strength rating that is at
least as good as our own.
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
environmental, social and governance values.
The overall risk policy and enterprise risk framework were
approved at board meetings held in February 2021, together
with refined risk appetite and tolerance statements, building
on those established prior to the IPO. Only minor updates
have been made since
that time, primarily to accommodate the planned
progression from the 2021 to 2022 business plan.
Our summary risk appetite and exposures are set out on
the overleaf.
20Conduit Holdings Limited Annual Report 2021
Strategic report
Enterprise risk management report
Risk category
Overall –
capital adequacy
Underwriting –
premium
Underwriting
– exposure
and aggregations
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
prescribed by the BMA.
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.
Medium
We underwrite catastrophe exposed
reinsurance through our property and
specialty classes, and business
exposed to other aggregations notably
across casualty lines. We seek to
understand and manage our exposures
generally to a lower level than our
Bermuda peer group.
TrendCommentary
AM Best have affirmed our A– rating and
we have substantial capital to
deploy.
We have achieved good traction in the
market during our first year of
operation and have underwritten
a balanced portfolio as set out elsewhere
in this report.
As our portfolio has grown, we have
managed our catastrophe exposure
through selective underwriting and
retrocessional cover. Overall, our
portfolio was slightly less exposed
to catastrophe losses than we initially
planned for a catastrophe exposed
year such as 2021, due to
retrocessional protections and a
portfolio bias toward quota share
business subject to event limits.
Underwriting –
reserve
Investment,
market
and liquidity
Medium
We underwrite a mix of classes
including those where reserves take
time to develop. We seek to
minimise reserve risk through
rigorous data analytics using market
data and benefit from an external
loss reserve specialist review.
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 current reserves have been
impacted by elevated catastrophe
losses during our first year of
operation however the losses were within
expectation for an above average
catastrophe year.
During 2021, investment managers
strategy deployed in line with our investment and
ESG criteria.wereselectedandourinvestment
Conduit Holdings Limited Annual Report21
Strategic report
Enterprise risk management report
Risk categoryRelative appetite / preference
CreditLow
TrendCommentary
Operational
and systems
Strategic
We use reinsurance to provide
protection and therefore select
reinsurers who provide limited
credit risk.
Low
We seek to minimise our operational
risk within the context of operating as
a reinsurer. We seek to attract and
retain high quality staff and gain
competitive advantage by use of high
quality and integrated systems.
Low
All retrocessionaires continue to be
A–, A or fully collateralised, with a
Counterparty Security Committee in
place to review and approve
counterparties.
The initial period of elevated risk has
reduced as the team has been built
and our internal capability has grown.
We have built and implemented
our internal systems including
pricing tools, underwriting and
accounting systems. Further system
development is underway as we
migrate to strategic solutions for
areas such as claims in 2022 and
start to develop our internal capital
model and enhanced management
reporting.
We seek to manage risk by keeping a
clear and focused strategy as a single
balance sheet reinsurer
based in one location.
ReputationalLow
We have established ourselves with
a broad selection of brokers and
achieved good traction across the
industry being approved by cedant
security committees in our first year
of operation.
Legal, regulatory
and litigation
A focus on maintaining and
enhancing brand and franchise
value with support from the ESG
Committee, established by the
holding company board.
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.
Public coverage favourable to date.
The initial period of elevated risk
while governance structures were
being confirmed and the team built out
has now passed. Future risks remain
surrounding global tax reform, though
Conduit Re’s single underwriting
location reduces the potential risks.
22Conduit Holdings Limited Annual Report 202
Strategic report
Enterprise risk management report
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 Chief Risk Officer 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 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 Chief Executive Officer
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.
These may be used, where appropriate, to support
independent validation, alongside the risk function’s own
reports and those of other independent third parties.
Given the comfortable capital position, the capital
management aspects of the risk framework have focused
primarily on rating agency and regulatory requirements,
with significant buffers being held. As the business
progresses, the development of an internal capital model
will become a greater area of focus.
Andrew Smith
Chief Risk Officer
24Conduit Holdings Limited Annual Report 2021
Strategic report
ESG report
Introduction
After Conduit’s first year of existence, I am pleased with
our progress on ESG.
In our IPO prospectus, we set out our aims to put ESG at the
heart of our business. Our work through our inaugural year
provides a strong base to keep it at the core of all that we
do. On the environment, climate and climate reporting
however, there is much more to do and in 2022 we plan to
align and supplement our team with specialist skills to
support our associated initiatives. Similarly, on the social
side I expect to see further community engagement and
support of those causes that our team is passionate about.
Our first year key achievements include:
■
Ensuring good governance – with a strong representation
by independent directors on the boards of both CHL and
CRL and the establishment of the ESG Committee which
has an independent chair and employee representation.
■
Laying strong foundations for our social engagement –
with the establishment of the Conduit Foundation; local
engagement from our workforce; a diverse board,
senior management and wider team.
■
Progress on environmental matters – from day one, we
made strategic decisions that minimise our carbon
footprint and during the year have deployed the asset
portfolio in a climate-aware way, established our
Climate Working Group and engaged locally on
environmental matters both through the ABIR Climate
Risk Committee and by serving as a partner to
Bermuda’s first Youth Climate Summit.
I am passionate about ESG matters and share this
passion with our senior team, each of whom has ESG
principles embedded in their day-to-day responsibilities
and performance objectives.
Trevor Carvey, CEO and CUO – oversees our entire
operation and guides the executive team emphasising the
importance of ESG. As CUO, he also leads our engagement
with clients and brokers.
Elaine Whelan, CFO – leads our external reporting and
transparency initiatives; oversees our ESG-conscious
investment portfolio; and engages with our external portfolio
managers.
Stuart Quinlan, Deputy CEO and COO – oversees our
operational activities and does so with a focus on
managing our and our service providers’ environmental
impact. Stuart also provides senior executive input to
the Conduit Foundation and
represents Conduit in the community, supported by
Heather Mello, Head of HR.
Andrew Smith, CRO – ensures that environmental and
climate risks are embedded into our risk management
framework and that appropriate reporting frameworks are in
place for our regulators, rating agencies and investors.
Andrew also chairs our Climate Working Group and
represents Conduit on external forums such as the ABIR
Climate Risk Committee.
Andrew Couper, Chief Actuary – ensures that environmental
and climate matters are suitably considered in our pricing,
reserving and assessment of capital needs.
Greg Lunn, General Counsel – supports our independent
ESG Committee and the Board ensuring that management
is held to account in delivering our ESG objectives. Greg
also serves on the Protector Committee of the Conduit
Foundation.
There is an enormous amount talked about and written on
the subject of climate within ESG. My own perspective is that
we must “walk the walk” and we have been meaningfully
engaged with stakeholders on the topic. We are an active
member of the Sustainable Markets Initiative, participate in
Climatewise, and have progressed our TCFD compliance
roadmap. We have also ensured that we are carbon neutral
by both minimising our footprint (Scope 1 and Scope 2) and
offsetting with high quality offset projects that benefit both the
environment and communities.
To us, the E and the S (social) of ESG are of equal
importance. Our people, our culture and our values are what
make our company. If implemented properly, they create a
meritocracy, give us competitive advantage, and helps us
contribute effectively to our community through our direct
engagement and through grants made by the Conduit
Foundation.
Similarly, we are clear that strong governance (‘G’) is
fundamental to supporting our environmental and social
aims and we will continue to focus on this area through
2022.
I fundamentally believe that our passion for ESG makes our
business stronger, more resilient and more likely to make
good decisions. It is not a box ticking exercise, but possibly
the greatest challenge and, at the same time, opportunity
that we face.
Neil Eckert
Executive Chairman
Conduit Holdings Limited Annual Report25
Strategic report
ESG report
Environment
“Consider one stark statistic: during Conduit’s first year, California alone has lost over six million acres of forest.
While the insured losses are posing a real challenge to the reinsurance industry, this forestry loss also released over
1.75 billion tonnes of CO2 into the atmosphere. This exceeds the heavy industrial output of the entire EU. There were
also significant forest fires in Southern Europe, Siberia and the Amazon to name but a few. While I believe there is
growing appreciation of the issue, I am not sure that the gravity of the situation is yet fully understood. There is much
discussion on the problem and less so on big picture solutions, but what the above scenario may point to is an
increased emphasis on the preservation and restoration of the natural environment. The key tool for this is nature-
based carbon offsets at a scale not yet envisaged. It is for this reason that Conduit will ‘over purchase’ the CO2
necessary to offset its footprint as well as work hard to minimise that footprint.”
Neil Eckert
Executive Chairman
Climate, a matter of obvious concern within our
industry, has been front of mind through our first full
year of operations and integral to key decisions. Our
single location operating model, our choice of office
space, our deployment of our investment portfolio, and
our early charitable and community engagement all
factored in climate considerations.
Conduit Re does not write individual direct insurance risks
of carbon intensive customers or projects.
We strive to accumulate appropriate underwriting information
to enable us to assess either weather or environmental
liability risk. We are involved in market initiatives working to
provide methodologies to assess carbon intensity in
underwriting and encourage consistent measures that
support transparency, consistency and thus comparability.
Our hope is that the insurance market, alongside other
financial service sectors, will be able to apply a single
consistent basis for TCFD Scope 3 carbon disclosures.
Our investment guidelines consider ESG factors in the
selection of investments, with the goal of investing in
securities issued by institutions and/or companies that have
a proven track record in assessing and improving their ESG.
We target an MSCI portfolio rating equal to or better than that
of the benchmark.
Operationally, we seek to make environmentally sound
decisions. We are committed to ensuring that we have a very
low operational carbon footprint and what
we cannot cut we offset by purchasing high grade
nature-based offsets.
In early 2021, we selected our head office premises in a
location that required limited reconfiguration and already
benefited from energy efficient technologies such as use of
LED lighting and rainwater harvesting. Our drinking water is
filtered on site and our coffee machines limit the use of
single use plastics.
Along with reducing our business’ environmental
impact, we believe that we have a role to play in
engaging with environmental initiatives and influencing
positive change in our local and business community.
We are delighted to have participated as an Inspire
Partner for Bermuda’s first Youth Climate Summit,
which gave our staff the opportunity to engage with
climate-focused young leaders of tomorrow and
climate-focused non-governmental organisations.
We also support the initiatives of the ABIR as a member
and through active participation in various committees
including the ABIR Climate Risk Committee. Consistent
with our values, this group is focused on stakeholder
collaboration and the role of (re)insurers in climate-related
initiatives.
Internationally, we have also sought to support
awareness of environmental initiatives and have
done so through several avenues throughout
2021 such as our engagement with ClimateWise, the
Sustainable Markets Initiative’s (“SMI”) Insurance Taskforce,
sponsorship of The Insurer’s ESG magazine and through our
Executive Chairman’s participation on various relevant
industry panels.
26Conduit Holdings Limited Annual Report 2021
Strategic report
ESG report
Social
Conduit’s commitment to the social element of ESG was
explicitly stated in the IPO prospectus and has only
deepened during the first year of business.
Starting with our work in the community, we have already
forged links through our foundation with several local
voluntary organisations in areas as diverse as a food
programme for the disadvantaged to the Youth Climate
Summit. We engaged our team, particularly those with
strong local connections,
to nominate causes with which they are personally
involved. We were impressed and humbled by their
responses. We have committed to develop our
relationships with our chosen causes.
At the year-end, Conduit had 41 employees – up from 12 at
the start of the year. We are grateful to Malcolm Furbert for
accepting workforce engagement as part of his independent
non-executive director role. Malcolm has met with a cross-
section of staff to learn first-hand about their understanding
of Conduit’s culture and values.
Conduit takes care of its employees. Our top tier health
insurance includes a full suite of mental and physical well-
being services. All employees benefit from a gym allowance
and every employee is equipped to work effectively from
home as and when necessary. Conduit encourages flexible
work arrangements which support our employees with
school-aged children or other family responsibilities to
manage their commitments.
We actively seek diversity and can report that our
senior management (which we define in this context as
members of our Executive Committee and their direct
reports) is just under 50% female. Conduit is a
significant local employer with only
11 employees out of 41 requiring residential work permits
and all Executive Committee members being Bermuda
resident.
Governance
Strong governance is essential to supporting our
environmental and social aims. The Board is well balanced
with six independent non-executive directors and three
executive directors, with diversity as to gender and race.
Four of the independent directors also serve on the CRL
board, with all
CRL directors being resident in Bermuda. Our ESG
Committee is independently chaired with Board and
employee representation.
More information about the Group’s approach to
governance can be found in the directors’ report
on page 69, the corporate governance report on
page 38 and in the TCFD roadmap section below.
TCFD roadmap
Conduit believes in strong and transparent governance and is
supportive of the goals of the TCFD, established by The
Financial Stability Board, to improve and increase reporting of
climate-related financial information.
We have begun to assemble our roadmap to compliance
under the TCFD’s four pillars. Leadership shown by the
Board, the ESG Committee and the executive management
towards climate change issues is central to our approach.
Governance (organisation’s governance around
climate related risks and opportunities)
The Board is responsible for the oversight of climate-related
risks and opportunities impacting the business and has
established an ESG Committee, independently chaired by
Sir Nicholas Soames, who is neither a director nor officer of
any Conduit entities, and also comprising a diverse group of
directors, senior management and other staff including our
Executive Chairman, Chief Operations Officer and Head of
Human Resources.
From a day-to-day management perspective, we have
established a climate working group, chaired by the Chief
Risk Officer with representation from across the company to
coordinate internally our responses to climate-related risks
and opportunities.
Our risk appetite and tolerance statements govern the
parameters within which management may operate. ESG
considerations are embedded in the calibration of a number
of these and are reported quarterly to the Board. Additional
governance is applied via the Underwriting Oversight
Committee and the Investment Committee that consider a
wider variety of factors. Our first year in operation has seen a
variety of catastrophe events that are not well modelled by
the industry and these are addressed in detail in the CUO’s
report, and they are real in financial terms, but also in terms
of market sentiment creating customer demand and risk
awareness. If these trends continue, price alone will not
address the problem and the industry will likely react as
products get restructured with more clarity and certainty on
specific perils being covered.
Conduit Holdings Limited Annual Report27
Strategic report
ESG report
Strategy (actual and potential impacts of climate related
risks and opportunities on business, strategy, financial
planning)
Climate-related matters, emerging risks and our response
to them were discussed at the main Board strategy
session in September.
Climate is also relevant to the stress and scenario tests
we carry out as part of our annual cycle of strategy
review, business planning and solvency self-
assessment.
Underwriting is the assumption of risk from clients in return
for payment of a premium and is our core activity as a
reinsurer. The setting of premiums is based on an analysis
of the underlying risk supported by the use of advanced
modelling tools. These tools contemplate many factors
including those associated with climate change.
We invest our capital base with the primary objective of
capital preservation. ESG considerations are factored in all
our investment strategies through our investment guidelines
and master agreements. We believe that ESG factors will be
important in reducing investment risk over time. Given the
duration of our liabilities, and therefore our investment
portfolio, it is difficult for us to make specific investments in
green bonds, sustainability bonds or social bonds, but our
managers will invest in them where they can. We are also in
the process of considering impact investment funds and may
look to make a small investment in such a fund in 2022. As
part of the Sustainable Markets Initiative one area of focus is
on making it more attractive to make green impact
investments. It would be intuitive that businesses exposed to
climate-related risks make investments such as these.
Risk Management (identify, assess and manage
climate related risks)
Conduit deploys its capital to provide protections to
cedants from a range of natural and man-made risks to
generate a financial return for its shareholders.
By its nature, the underwriting industry is inherently exposed
to climate-related risk through the potential for increased
frequency and severity of climate-related claims. We
understand and manage our exposure using complex models
focusing on both sides of our balance sheet and conduct
stress and scenario testing, including some that explicitly
consider climate change.
Metrics and targets (used to assess and manage
climate related risks and opportunities)
Currently there are multiple initiatives and organisations
seeking to provide a consistent basis for the disclosure of
climate related risks. In line with many market participants,
we are working with several of them and continue to research
and contribute
to industry debate on the topic. We see the most
significant challenge for our industry is assessing the
carbon intensity associated with the risks we
underwrite.
As mentioned, we participate in Climatewise and the SMI
and are supportive of initiatives that will encourage and
support all stakeholders to agree and implement guidance
that provides a clear and consistent basis for TCFD Scope
3 carbon reporting. We are hopeful that a consistent set of
reporting standards can be applied for both public and
regulatory reporting.
We monitor certain climate-related risks internally and these
are integral to the calibration of our risk appetite and
tolerance statements. We want to be carbon neutral in our
own operations. For this, Conduit refers to the Greenhouse
Gas Guidance Protocol
for accounting our emissions; we seek to minimise our
gross carbon footprint and then purchase nature-based
offsets to ensure we have a better than net-zero position.
28Conduit Holdings Limited Annual Report 2021
Strategic report
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 Bermudian 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
Conduit has expended considerable effort to engage with
its key stakeholders in its first full year of operations, to
understand perspectives and the potential long-term
consequences of decisions and matters of strategic
importance to the Group.
The Board discussed broker and client relationships,
shareholder matters, employee engagement, government
and regulators, rating agency interaction, environmental
matters, and the Group’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 Conduit Re has
received.
Shareholders
■
The Executive Chairman, the CEO, 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.
■
The Board strives to be proactive, transparent and
interactive with shareholders, who are always welcome to
ask questions. For further information, see Investor
Relations and Regulatory News Service on the Conduit
Re website (conduitreinsurance.com).
Employees
■
Given the start-up nature of the business, progress in
recruitment was vital to success. The Board was kept
apprised of Conduit Re’s recruitment activities throughout
2021, during which time headcount grew from 11 to 41
people.
■
The Board appointed Malcolm Furbert as its Non-
Executive Director responsible for engagement with
Conduit’s workforce. Malcolm met with employees at all
levels of the Group, to gather their views on the culture
of the Group and the Board received reports of his
activities, which resulted in decisions to implement the
Group’s first employee engagement survey in 2022 and
to broaden the scope and content of employee town hall
meetings.
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. The Group’s
main operating subsidiary, CRL, is regulated by the BMA.
The Board received regular reports covering
governmental, legal, regulatory, and supervisory matters,
was kept apprised of communications with and from
relevant bodies, in particular in quarterly meetings with the
BMA, and this information was factored into strategy and
business planning.
Conduit Holdings Limited Annual Report29
Strategic report
Section 172 statement and stakeholder engagement
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 A.M. Best.
Our community and the environment
■
As set out in the ESG report on
pages 25-28, 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 2021 was to
approve an updated strategy and business plan, covering a
three-to-five-year horizon that validates and builds on the
strategy that was set out in the IPO prospectus.
The Board participated in a two-day strategy session before
making its decision to approve the updated strategy and
business plan. Before arriving at its decision, the Board
considered a broad range of macro and micro factors that
would influence the strategy, including the economic and
insurance industry outlook (including broker and other market
commentary and opinion), shareholder expectations, rating
agency, risk and regulatory considerations, the global tax
environment, climate change, the Group’s resources
(including staff and information technology).
Strategic report
signed on behalf of the Board
Trevor CarveyElaine Whelan
Chief Executive OfficerChief Financial Officer
29 March 202229 March 2022
30Conduit Holdings Limited Annual Report 2021
Remuneration
Governance
Conduit Holdings Limited Annual Report31
Governance
BoardGovernanceof directors
010203
040506
070809
1
Neil Eckert Executive Chairman
2
Trevor Carvey Chief Executive O cer and Chief Underwriting O cer
3
Elaine Whelan Executive Director and Chief Financial O cer
4
Sir Brian Williamson CBE Senior Independent Non-Executive Director
5
Elizabeth Murphy Independent Non-Executive Director
6
Ken Randall Independent Non-Executive Director
7
Malcolm Furbert Independent Non-Executive Director
8
Dr. Richard L. Sandor Independent Non-Executive Director
9
Michelle Seymour Smith Independent Non-Executive Director
32Conduit Holdings Limited Annual Report 2021
Governance
Board of directors
Directors
Neil Eckert – Executive Chairman
Appointed to the Board: 7 October 2020
Skills and experience: Neil Eckert is an entrepreneur with
four decades of re/insurance industry experience.
Beginning as a reinsurance broker, he rose through the
ranks to board member at Benfield Lovick & Rees & Co.
He then founded Brit Insurance Limited in 1995, remaining
as CEO until 2005 and member of the Board until 2008.
Neil was also the co-founder and CEO of Climate Exchange
PLC until its sale to ICE in 2010. Neil then founded
Aggregated Micropower Holdings plc, which was sold in
January 2020.
Neil is passionate about all things environmental and is key
to Conduit’s ESG strategy.
External directorships: Incubex Ltd, Ebix Inc., Boutique
Modern Limited, Chalvington Management Limited,
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.
Committee memberships: ESG Committee.
Trevor Carvey – Executive Director, Chief Executive Off
icer and Chief Underwriting Offi icer
Appointed to the Board: 18 November 2020
Skills and experience: Trevor Carvey is a highly regarded
reinsurance manager and underwriter with 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 to assist in building out a
new treaty reinsurance strategy in the UK and
subsequently served as active underwriter for the three
years from 2016 to 2018.
Trevor leads all aspects of Conduit Re’s business, in
particular the build out of its underwriting activities.
External directorships: Triple R Industries Limited,
Beneficial House (Birmingham) Regeneration LLP,
Stanley Dock (All Suite) Regeneration LLP.
Committee memberships: n/a
Elaine Whelan – Executive Director and Chief
Financial Offi icer
Appointed to the Board: 14 January 2021
Skills and experience: Elaine Whelan 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, Elaine joined PwC 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 and serves as an executive
director on the boards of CHL and CRL.
External directorships: n/a
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
Conduit Holdings Limited Annual Report33
Governance
Board of directors
Directors
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 is a former director of London International Vintners
Exchange, Fleming Emerging Markets Investment Trust
PLC, Templeton Emerging Market Investment Trust PLC,
Waverton Investment Trust PLC and he chaired Electra
Private Equity PLC. Sir Brian was also the first chairman of
Resolution Life Group.
Sir Brian has served on regulatory bodies in both the US
and 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.
Committee memberships: Remuneration Committee
(chair) and Nomination Committee.
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.
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 £80 million 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: Tradesman Program Managers,
LLC, Roosevelt Road Ltd, Roosevelt Road Re Ltd,
Leamington Insurance Advisors Ltd., Renaissance Capital
Partners Limited, Financial Guaranty Insurance Company Ltd.
Committee memberships: Audit Committee,
Nomination Committee (Chair) and Remuneration
Committee.
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
34Conduit Holdings Limited Annual Report 2021
Governance
Board of directors
Directors
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
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 the 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 formerly 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 non-for-profit
organisations.
External directorships: American Financial Exchange,
LLC, Environmental Financial Products, LLC.
Committee memberships: Remuneration Committee and
Nomination Committee.
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 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: n/a
Committee memberships: Audit Committee
Company Secretary
Greg Lunn – General Counsel and Company Secretary
Appointed: 3 November 2020
Skills and experience: Greg Lunn is an experienced lawyer
who has held a number of senior in-house legal positions in
the global insurance industry over the last 25 years.
His most recent role in the industry was group General
Counsel for Lancashire Holdings Limited. Prior to this role, he
spent 10 years performing various legal and compliance
roles at the ACE Group, including Legal Counsel for ACE in
Europe and Compliance Counsel at ACE Holdings Limited.
Greg is responsible for all legal and corporate secretarial
aspects of the Group’s business including the governance
structure, regulation and compliance.
Conduit Holdings Limited Annual Report35
Governance
Executive Chairman’s introduction to corporate governance
Introduction
2021 was very much a year of building foundations, and I am
pleased that, despite COVID-19, we have built a solid
governance structure that supports our pure play treaty
reinsurance business operating from a single location in
Bermuda.
Despite the restrictions and inconveniences caused by the
COVID-19 pandemic, we managed to hold regular Board and
committee meetings and information sessions throughout the
year. While the pandemic has prevented the entire Board
from meeting in person, and directors often participated over
Zoom or Teams, we have nevertheless managed to forge a
positive dynamic within the Board, characterised by good
quality relationships between individual Board members and
management. 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 September, the Board met for a full two days to review
the Group’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
■
Building franchise and brand value
The result was the production of an updated strategy
approved by the Board, covering a three-to-five-year horizon
that validates and builds on the strategy we set out in the
IPO prospectus.
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 A.M. 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. The Company is targeting a dividend
of approximately 5 to 6 per cent of capital, allocated
between an interim and final distribution. On 27 July 2021,
the Board declared an interim dividend of $0.18
(approximately £0.13) per
common share, resulting in an aggregate payment of $29.7
million. On 23 February 2022, the Board declared an
interim dividend of $0.18 (approximately £0.13) per
common share, resulting in an aggregate payment of $29.7
million. The dividend will be paid in pounds sterling on 22
April 2022 to shareholders of record on 25 March 2022 (the
“Record Date”) using the pound sterling/US dollar spot
exchange rate at 12 noon BST on the Record Date.
Depending on the Group’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. 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 the Group including results of
operations and cash flows, the Group’s f nancial 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 global reinsurance underwriting franchise over the
next five years. In our first year 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 impact of ongoing uncertainties related to
COVID-19;
■
The future impact of climate change; and
■
Economic and social inflation.
We believe, as a start-up business with a legacy-free
balance sheet, we are in a strong position to incorporate
the potential impact of these risks into our underwriting.
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.
36Conduit Holdings Limited Annual Report 2021
Governance
Executive Chairman’s introduction to corporate governance
Stakeholder Engagement
Malcolm Furbert, charged with employee engagement, has
approached the task with enthusiasm.
Management has held regular, routine, quarterly
meetings with the Bermuda Monetary Authority.
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 participated
in several meetings with shareholders.
More information on our stakeholder engagement is
contained in the Section 172 report on page 29.
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 are:
■
To build a top quartile global reinsurance franchise
focused on underwriting expertise;
■
To return a mid-teens RoE over the cycle;
■
To continue to develop Conduit Re’s values and
culture;
■
To position Conduit Re as an industry leader in
ESG.
Our core values shape everything we do and play a key role
in helping us to achieve our objective of building a
reinsurance franchise that will stand the test of time. We
expect all directors and employees of the Group to consider
and apply these core values when making decisions, carrying
out duties and representing the Group. 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, and we don’t get bogged
down by administration and form filling;
■
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.
Induction
All 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 London Stock Exchange.
Michelle Seymour Smith was taken through a
comprehensive induction process upon her
appointment to the Board in September 2021.
Feedback from the strategy days held in September is that
the sessions were highly informative and educational,
assisting the Board in gaining further valuable insights into
the business of the Group which will help strengthen the
Board’s oversight of the business.
The Year Ahead
In 2022, our governance will be focused on supporting the
execution of the strategy we have set out to follow.
Neil Eckert
Executive Chairman
29 March 2022
Conduit Holdings Limited Annual Report37
Governance
Corporate governance and compliance with the UK
corporate governance code
UK corporate governance 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 2021, 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
Chief Executive Officer 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 Chief Executive
whilst 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 Chief Executive
Officer, 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. In the
context of the Company being a start-up, it was
determined that an absolute calibration to the 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 future Remuneration Policy. Malus and
clawback provisions apply to the MIP programme with
further details set out in more detail on page 57.
Governance framework
The Group maintains a relatively simple corporate
structure and corporate governance framework. The
Board maintains overall responsibility for the Group 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 the
Group’s approach to ESG, chaired by Sir Nicholas
Soames, a senior and independent industry figure who is
not otherwise involved with the Group 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 45-48.
In relation to the day-to-day operations in the Group’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 comprised 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 the Group, subject to any conflict
management limitations. Conduit is committed to being an
open and transparent Group from a governance perspective.
38Conduit Holdings Limited Annual Report 2021
Governance
Corporate governance and compliance with the UK
corporate governance code
The Board
Conduit has put in place a Board with a strong blend of
experience in insurance and other financial services,
accounting, governance and other areas. The Board has
and will continue to oversee the Company’s trading and
operation as a public company. Under the leadership of the
Senior Independent Director, with input from the nomination
committee, the Board considered in the first half of 2021 the
long-term board skills and diversity required to take the
business forward and, following due process, Michelle
Seymour Smith was appointed to the CHL and CRL Boards
and each company’s audit committee. The Board is mindful
that Conduit is a new entity seeking to build a superlative
business and the Senior Independent Director led a Board
review to make sure that Conduit has the required Board
resources available to help meet its objectives.
The names and biographies of each of the current
Directors of the Company are shown on pages 33-
35.
Board meetings and attendance
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 which 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 judgment 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.
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
business of the committees. All Directors receive an agenda and timely board 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 2021, relative to the number of meetings held during their time in office, was as follows:
Nomination
Remuneration
Board
Committee
Committee
Audit Committee
Neil Eckert
6/6
n/a
n/a
n/a
Trevor Carvey
6/6
n/a
n/a
n/a
Elaine Whelan1
5/5
n/a
n/a
n/a
Sir Brian Williamson
4/6
2/3
2/3
n/a
Elizabeth Murphy
5/6
3/3
n/a
6/6
Ken Randall
5/6
3/3
3/3
5/6
Malcolm Furbert
5/6
3/3
3/3
n/a
Dr. Richard Sandor
5/6
3/3
3/3
n/a
Michelle Seymour Smith2
1/1
n/a
n/a
1/1
1.
Joined the Board on 14 January 2021.
2.
Joined the Board and the Audit Committee on 15 September 2021.
These attendance statistics were achieved despite the severe travel restrictions caused by the COVID-19 pandemic. Furthermore, as part of the
Company’s risk management framework, the Group 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
Conduit Holdings Limited Annual Report39
Governance
Corporate governance and compliance with the UK
corporate governance code
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 see all minutes and
records of such subsidiary board and committee meetings.
The Board 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 the Group. 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
Ensuring the effective running of the
Board and supporting the CEO in an
advisory role in the execution of the
CEO's responsibilities (including
with respect to ESG matters),
making sure that the views of the
Board and shareholders are taken
into account, and acting as the
primary ambassador for the Group
in respect of Investor Relations and
ESG matters.
Ensuring that the Board as a whole
plays a full and constructive part in
the development and determination
of the Group's strategy
and overall commercial objectives,
having regard to the Group's
responsibilities to its shareholders, its
suppliers, clients, customers,
employees and other stakeholders.
Shaping 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.
CEO
Leads the executive management
team in the day-to-day
management of the Group to
pursue the Group’s commercial
objectives and execute and
deliver Group strategy, as
approved by the Board.
Ensures, with the executive
management team, that Board
decisions are implemented
effectively and that significant
decisions made by the executive
management team are
communicated to the Board in line
with granted authority.
Provides clear leadership, inspires
and supports the Group's
employees in all areas of the
Group's business, including the
development of ideas, products and
operations. Ensures that there is
effective communication by the
Group with its workforce including
with respect to governance matters.
Senior Independent Director
Ensures that there is a culture of
openness and debate,
in particular by facilitating the
effective contribution of Non-
Executive Directors and ensuring
constructive relations between
Executive and Non-Executive
Directors.
Is available to shareholders if they
have concerns that contact through
the normal channels of the
Executive Chairman or other
Executive Directors has failed to
resolve or for which such contact is
inappropriate.
Assists in the maintenance of
the stability of the Board and
Company, particularly during
periods of stress.
40Conduit Holdings Limited Annual Report 2021
Governance
Corporate governance and compliance with the UK
corporate governance code
Executive Chairman
Promoting the highest standards of
integrity, probity and corporate
governance throughout the Group and
particularly at Board level.
CEO
Manages the Group’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.
Senior Independent Director
Acts as a sounding board for the
Executive Chairman, providing
support in the delivery of the
Executive Chairman’s objectives.
Board activities
In addition to monitoring closely the development from
scratch of the Group’s core underwriting business, Board
activities in 2021 were focused on the foundation of the
Group, including the operation of governance structures, the
acquisition of premises, the establishment of systems and
processes, the recruitment of staff, implementation of ESG
and
the investment of the Group’s capital. 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 two-day session to review strategy
considering the actual experience of running the business in
its first year of operation. Meetings were held in Bermuda to
approve all key actions, documentation and agreements
including but not limited to the appointment of two new
directors (Elaine Whelan as CFO and Michelle Seymour
Smith as a Non-Executive Director).
Board effectiveness
Each year the performance of the Board, its committees and
the individual Directors will be evaluated. An internal Board
performance evaluation, using a questionnaire and interview
approach, was conducted for the financial year ended 31
December 2021, 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 Board itself had discussed and
approved this self-appraisal approach, concluding that it was
too soon following the Group’s establishment in late 2020 for
the evaluation to be facilitated by an external evaluator. The
evaluation raised no concerns regarding the Board’s
composition or diversity or how effectively members worked
together to achieve objectives, although several directors
noted that COVID-19 restrictions prevented all Directors from
attending meetings in person, which inhibited the Board’s
ability to form the deeper relationships that result from face-
to-face interactions.
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. It was acknowledged that
longer term succession planning was less of a priority in
2021 than having an emergency succession plan in place.
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.
Workforce engagement mechanism
In February 2021, the Board appointed Malcolm Furbert as
the Company’s Non-Executive Director responsible for
workforce engagement. Malcolm subsequently conducted
several one-to-one meetings with a cross section of
employees and reported his observations to the Board.
Further workforce engagement activities are planned for
2022, including hosting specific engagement events and
conducting an employee satisfaction survey. Malcolm will
provide a regular update to the Board on his engagement
activities. A report on the activities undertaken during 2022,
and an analysis of how effective the mechanism is, will be
provided in the 2022 Annual Report.
Conduit Holdings Limited Annual Report41
Governance
Nomination committee report
Introduction
It is a remarkable achievement, to take an idea for a new $1
billion reinsurance company and turn it into reality from
scratch, with an entirely new team at every level, during a
pandemic. I wish to compliment the management for doing a
phenomenal job in achieving all that they have in the Group’s
first full year in operation.
In 2021 the Nomination Committee was focused on
addressing immediate priorities within its remit arising out of
Conduit’s rapid establishment.
While Covid-19 restrictions prevented us all from meeting
face-to-face, the Committee worked cohesively when it
did meet. I am looking forward to developing further the
working relationships within the Committee and with the
rest of the Board and management as we move beyond
the pandemic. Notwithstanding Conduit’s excellent start,
the Nomination Committee will not rest on its laurels.
There is much to do as we continue to build the franchise.
Nomination Committee membership
The Committee members are Ken Randall (Chair),
Elizabeth Murphy, Sir Brian Williamson, Malcolm
Furbert 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 33 to 35.
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 the Group’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
2021 are set out below.
2021 meetings
The Nomination Committee is required to meet at least twice
annually, or more frequently if required, to discharge its
duties. In 2021, there were three committee meetings. In
addition to the Members, other individuals such as the
Executive Chair and the Head of Human Resources attended
all or part of the meetings.
Name
Appointed
Maximum possible
meetings
Meetings attended
Ken Randall
18 November 2020
3
3
Elizabeth Murphy
18 November 2020
3
3
Sir Brian Williamson
18 November 2020
3
2
Malcolm Furbert
18 November 2020
3
3
Richard Sandor
30 November 2020
3
3
42Conduit Holdings Limited Annual Report 2021
Governance
Nomination committee report
Performance evaluation
The Committee reviewed the results of the board
performance evaluation for the period ending 31
December 2021 as described on
page 41. The evaluation was conducted internally via one-
on-one interviews led by Sir Brian Williamson, the Senior
Independent Director. The Board itself had discussed and
approved this self-appraisal approach, concluding that it
was too soon following the Group’s establishment in late
2020 for the evaluation to be facilitated by an external
evaluator.
The evaluation raised no concerns regarding the Board’s
composition or diversity or how effectively members worked
together to achieve objectives, although several directors
noted that COVID restrictions prevented all Directors from
attending meetings in person, which inhibited the Board’s
ability to form the deeper relationships that result from face-
to-face interactions.
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.
It was acknowledged that longer term succession planning
was less of a priority in 2021 than having an emergency
succession plan in place.
Board and committee composition and
succession planning
Following the departure of Mark Heintzman in January 2021
and a recommendation from the Nomination Committee, the
Board appointed Elaine Whelan as Executive Director and
CFO on 14 January 2021. Elaine is well-known in the
Bermuda market, having spent several years as CFO of
Lancashire Holdings Limited (whose employment she had
left in February 2020) and was approached directly for the
role with the Company.
At the time of the IPO there was awareness of the need to
recruit an additional, ideally Bermuda-based, independent
Non-Executive director who could add diversity to the Board
and who had recent and relevant financial experience, to sit
on the Company’s Audit Committee. A search was started
early in
2021. The Bermuda market has a small, well-known talent
pool and neither open advertising nor using an external
search consultancy was deemed necessary
after the Company itself identified a diverse group of 23
experienced candidates. However, in September 2021, the
Company hired Eliot Partnership (Bermuda) Ltd. (Eliot), an
executive search f rm with deep expertise in the Bermuda
reinsurance market, to assess the quality and validity of the
search. Eliot confirmed that the list of candidates identified
by the Company was comprehensive bearing in mind the
characteristics of the Bermuda market and the size of the
available talent pool. Eliot affirmed further that Michelle
Seymour Smith was, in their opinion, an individual that they
would have identified and recommended to the Company
for the role. Michelle Seymour Smith was subsequently
appointed to the Board as a Non-Executive Director on 15
September 2021 and will stand for election by the
shareholders at the 2022 AGM. Michelle is a member of the
CHL Audit Committee. She also sits on the CRL Board and
is a member of the CRL Audit and Risk, Capital and
Compliance Committees.
After the appointment of Michelle to the Board, bearing in
mind the results of the Board evaluation, the Committee
reviewed the composition of the Board and it considered that
the balance of skills, knowledge, independence, experience
and diversity is appropriate for Conduit’s business to meet its
strategic objectives.
That said, the Committee did initially consider longer-
term succession planning at a high level in
2021 and will revisit succession planning in 2022 with a view
to satisfying the Group’s medium to longer-term succession
needs as the Board and business develops. The list of
potential Board candidates based in Bermuda, identified
during the 2020-21 recruiting efforts, will be updated
periodically as part of this succession planning process.
In the meantime, Conduit has a robust emergency
succession plan in place for the Board and senior
management, which has been reviewed by the
Committee.
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
advisors, technical briefings and office visits.
Conduit Holdings Limited Annual Report43
Governance
Nomination committee report
A strategy and planning session was held over two days in
September 2021, which 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
advisors and emerging risks, including environmental
liabilities and global tax reform.
The Board also attended a specific training session on IFRS
17.
Diversity and inclusion (“D&I”)
Diversity and inclusion have been a priority since the
Company’s inception and at its initial meeting in February
2021 the Committee reviewed and recommended a Group
D&I policy for adoption by the Board. The Board diversity
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, 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 or
nationality.
The new appointments to the Board in 2021 brought more
diversity and balance with the appointment of two female
directors. Future succession planning will take note of
diversity and inclusion.
Priorities for 2022
In 2022 the Committee will:
■
Review succession planning with a view to
satisfying Conduit’s medium to longer-term
succession needs.
■
Review training and ongoing education needs for
Directors and senior management.
Board
Men
Women
Executive Committee Direct Reports
41%
59%
Men
Women
All Employees
46%
54%
Men
Women
Ken Randall, Chair
Nomination Committee
29 March 2022
44Conduit Holdings Limited Annual Report 2021
Governance
Audit committee report
Introduction
I am pleased to present the Audit Committee’s report for the
year ended 31 December 2021 which outlines how the
Audit Committee discharged its responsibilities during the
Group’s first full year of operations and the key topics it
considered.
The main area of focus in 2021 was on the establishment of
systems, controls and procedures over financial reporting.
The Committee considered the effectiveness of the control
environment, management’s evaluation of significant
estimates and judgements in financial reporting and
established relationships with the internal and external
auditors.
Audit Committee membership
The Audit Committee membership is comprised of
independent Non-Executive Directors. For the full year
2021, the members were Elizabeth Murphy and Ken
Randall. Michelle Seymour Smith joined the Audit
Committee in September 2021.
The Audit Committee membership is the same for CRL,
which strengthens governance and oversight of the
Group’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 the Group operates. Detailed information on the
Audit Committee members’ experience and qualifications is
set out in the directors’ biographies on pages 32 to 35.
2021 meetings
The Audit Committee held six 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 executive session with
the CFO present and the Chair of the Audit Committee
held regular meetings with the CFO and the external
auditors outside of the formal committee meetings.
Name
Appointed
Maximum possible
meetings
Meetings attended
Elizabeth Murphy
18 November 2020
6
6
Ken Randall*
18 November 2020
6
5
Michelle Seymour Smith
15 September 2021
1
1
*
Due to COVID travel restrictions Malcolm Furbert attended as Ken Randall’s alternate for the one meeting that Ken Randall was unable to attend.
Malcolm was authorised to attend in that capacity pursuant to the committee’s Terms of Reference.
There were no points of concern arising out of the Board’s
performance evaluation regarding the Audit Committee’s
performance during 2021.
Role and responsibilities
The Audit Committee is required to carry out duties in the
areas listed below for CHL and the Group as a whole, as
appropriate:
■
Monitoring and reviewing f nancial 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 the Group’s website.
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.
The Audit Committee also received regular and ad hoc
reports on:
Conduit Holdings Limited Annual Report45
Governance
Audit committee report
■
Accounting treatment and policies in respect of
business and investment activities (see pages 86
to 90)
■
Recruitment and development within the
finance team
■
Development and implementation of
finance systems
■
Loss reserves (see page 114)
■
Accounting and financial reporting developments,
including IFRS 17 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 a training session
delivered by EY to the Board on IFRS 17.
Keeping under review internal controls and risk
management systems
The Board has ultimate responsibility for ensuring the
maintenance by the Group 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 2021 as the Company added staff and systems to
build controls and processes, the Audit Committee
monitored the implementation and evaluation of controls
over time. This monitoring included policy review, oversight
of the Group’s implementation of whistleblowing
arrangements, and other systems and controls for the
prevention of fraud, bribery
and money laundering. The Committee also received updates
from Internal Audit and management with respect to the
implementation of processes and controls set out in the
financial position and prospects procedures documentation
prepared during the IPO, adapted, or modified in response to
the Company’s actual needs.
A number of controls established during the year were
designed to cover key areas across various
departments. These areas all directly impact the quality
and accuracy of the Company’s financial information
and were therefore established as key controls and
regularly monitored.
The Audit Committee received quarterly written and oral
reports from the Chief Risk Officer, covering:
■
Risks events and commentary on the Company’s risk
profile
■
Risk appetite and tolerance statement compliance
■
Update on the establishment of the risk function
including its plans and team
Further detail of the emerging and principal risks affecting
the Group, including those matters that have informed the
Board’s assessment of the Group’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 92 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
There were no whistleblowing or suspicious
transactions reports made during the year.
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.
In February 2021 the Audit Committee approved the internal
audit charter and plan. Subsequent amendments to the plan
have also been approved. The internal audit plan was based
on an initial 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.
46Conduit Holdings Limited Annual Report 2021
Governance
Audit committee report
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 2021 AGM, KPMG was re-appointed as external
auditors of the Company until the conclusion of the 2022
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 2021
(both in private session and with management present) and
reviewed and approved the external audit work plan for the
year ending 31 December
2021. 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, the Group 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 the Group. 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 f nancial statements for
the six months ended 30 June 2021 there were
no instances of the external auditors performing non-audit
work, or requests to perform non-audit work, in 2021. The
non-audit services policy is available on the Company’s
website. Implementation of the policy is reviewed annually by
the Audit Committee.
Auditor re-appointment
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 re-appointment in 2022. 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 re-appoint 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 87, 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, delays in cedants
reporting losses to the Group, 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 the Group’s loss reserves and challenges the
methodology and judgements applied.
Conduit Holdings Limited Annual Report47
Governance
Audit committee report
The Committee also receives reports from the external
auditor and the independent loss reserve specialist semi-
annually. The Committee was able to compare the results of
all three parties and understand the differences which
naturally arise between them. 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 the Group
■
The difference in management’s estimates versus the
external auditor and the independent loss reserve
specialist, noting that the differences are within a
reasonable range
As the year ending 31 December 2021 is the first year of
underwriting operations, the Audit Committee did not have
any need to focus on prior year development.
The Audit Committee was satisfied that all their 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 the Group is invested in are not
complex with lower estimation uncertainty in determining
value. The assets are highly liquid and are of high credit
quality. As disclosed in note 12, all of the Group’s assets
are Level (I) or Level (II) securities. There are no
equities, hedge funds or derivative instruments.
The Group’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. The Group 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 premium 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.
Going concern assessment and
longer-term viability statements
The Audit Committee reviewed and advised the Board on the
Group’s going concern and longer-term viability statements
included in the Annual Report 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 the
Group’s key external reporting. More information on the
going concern and viability statements can be found on page
72.
Annual Report
The Audit Committee reviewed and approved the
Group’s preliminary unaudited results issued on
24 February 2022 and drafts of the Annual Report together
with the external auditor’s report. The Audit Committee
advised the Board that, in its view,
the 2021 Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the Group’s position
and performance, business model and strategy.
Implementation plans for IFRS 17
In 2021, the Audit Committee considered a high-level
overview of the anticipated accounting by the Group under
IFRS 17. This will be followed by more active monitoring in
2022 as the deadline for implementing IFRS 17
approaches.
Priorities for 2021
The Audit Committee’s priorities for 2022 include:
■
Continued monitoring of the development of systems,
processes and the control environment
■
Monitoring the IFRS 17 implementation project
■
Monitoring developments in climate and ESG
reporting
■
Monitoring audit practice reforms
Elizabeth Murphy, Chair
Audit Committee
29 March 2022
48Conduit Holdings Limited Annual Report 2021
Governance
Directors’ remuneration report
Introduction
I am pleased to present the Directors’ Remuneration report
for 2021, the Group’s first full year of operations.
This report consists of three parts:
1.
This introduction, which explains our approach to
remuneration, and summarises the key decisions made
by the Committee during the year.
2.
Future Directors’ Remuneration Policy – this sets out
our proposed Remuneration Policy which will be put to
a binding shareholder vote at the forthcoming AGM.
3.
Annual Report on Remuneration – this sets out in detail
how we’ve applied our remuneration policy in 2021, the
remuneration received by directors for the year and how
we’ll apply the policy in 2022.
This report will be put to an advisory shareholder vote
at the AGM.
Performance for the year under review
In the 2020 annual report & accounts we said that there would
be significant effort involved in setting up the Group for the
future and building the Group’s book of business, and that
RoE would be minimal. The remuneration approach we
implemented for 2021, the Group’s foundation year,
recognises the very special circumstances of the Company’s
creation and listing, and the effort put in to establish a
regulated and rated reinsurance Group. Remuneration at this
stage of the Group’s evolution has been aligned to, and
supportive of, the build plan and strategy post-IPO.
Annual bonuses for 2021 were based 25% on financial
(RoE) targets, 50% on foundational targets relating to the
creation of the foundation of the organisation and 25% on
the personal contributions 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 over the foundation year. Management
has recruited an excellent team, now more than 40
strong, and established a technologically modern
operating platform. At the same time, it has built a strong
book of diversified, quality business. The quality of the
business and the benefit of diversity is reflected in the
relatively low exposure to the significant catastrophe
losses experienced by the market in 2021.
The remuneration awards in respect of 2021 reflect
these achievements, but also acknowledge that RoE at
year-end is negative, partly because of the catastrophe
losses but also because of the initial
strategy of writing more quota share business and the
resulting slower recognition of earnings.
The Committee considered whether it was appropriate to pay
bonuses in light of the financial element not having been
achieved. It noted that the 2021 approach is a one-off, with
the foundational element intentionally weighted to reflect the
importance of this foundation year to underpin financial
performance for 2022 and beyond. Therefore, in light of 0
percent pay-out of the financial element, the Committee
determine
that no additional negative discretion needed to be
applied to the Foundational and Personal element pay-
out. Details of the bonuses can be found on pages 61 to
64.
Up to half of any bonus is deferred into shares, with
malus and clawback provisions in place.
Our Executive Directors participate in our legacy
Management Incentive Plan (“MIP”) which was detailed
in the IPO Prospectus and there were no long-term
incentive awards capable of vesting in the year.
Remuneration for 2022 and beyond
While our shareholders can see the impact that the first
full year of trading has had on the Directors’
remuneration, 2022 will be a transition year as the Group
moves forward from start-up into its post-foundation
phase and the forward-looking remuneration will reflect
this. As a non-UK incorporated company, the Group does
not need to comply with the requirements of the relevant
provisions of the UK Companies Act. However,
as part of its commitment to high standards of corporate
governance, the Committee will put the future Remuneration
Policy to a binding shareholder vote at the forthcoming AGM.
If approved, it is intended the policy will remain in place for
three years. The Remuneration Policy seeks to ensure our
Executive Directors are fairly and appropriately rewarded
whilst ensuring alignment with our shareholders. The policy
has been developed considering market best practice and
the provisions of the UK Code and is in-line with
commitments made in the Prospectus in almost all respects.
For 2022, base salaries of the Executive Directors will be
increased by 3% aligned with the wider workforce. Pension
and benefits will remain unchanged, with pension
contributions aligned to the wider workforce. Annual bonuses
will be based 75% on financial targets and 25% on personal
objectives. Further details can be found on page 64.
Conduit Holdings Limited Annual Report49
Governance
Directors’ remuneration report
As mentioned above, 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
proposed Policy. At present, the Company does not have an
on-going plan under which long-term incentives can be
granted to employees and the Company intends to review this
over the course of 2022.
The Remuneration Committee takes into consideration the
views expressed by shareholders and other stakeholders in
making its decisions. In 2021, I and the Executive Chairman
met with several significant shareholders and discussed the
Group’s remuneration.
2021 Meetings
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.
The Remuneration Committee held three meetings during the year.
Name
Appointed
Maximum possible
meeting
Meetings attended
Sir Brian Williamson, Chair
17 November 2020
3
2
Ken Randall
17 November 2020
3
3
Malcolm Furbert
17 November 2020
3
3
Richard Sandor
24 November 2020
3
3
Role and responsibilities
Key activities in the year
The responsibilities of the Remuneration
Committee include:
and setting remuneration for the Executive Chair
which links to annual bonuses
of the Board, executive directors and senior
management including the company secretary (the
executive group
Executive Group).
Conclusion
workforce remuneration and related policies.
The Committee is dedicated to an open dialogue with
relevance of the remuneration policy.
our investors, and I therefore welcome views on any
part of our remuneration arrangements.
Executive Group.
The Remuneration Committee’s terms of
reference, which also set out the Committee’s
reporting obligations and authority to carry
Sir Brian Williamson, Chair
out its responsibilities, are available on the
Remuneration Committee
Company’s website.
29 March 2022
50Conduit Holdings Limited Annual Report 2021
Governance
Future remuneration policy
This section sets out the Directors’ Remuneration Policy
(“Policy”) which will be put to a binding vote at the
forthcoming AGM. If passed, this Policy will come into effect
with effect from 1 January 2022. It is intended that this Policy
will apply for a three-year period unless amended before
then. As a non-UK incorporated company, the Group 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 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.
The Group’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; and
■
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,
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; and
■
Alignment to culture – the Policy encourages performance
that is aligned to the culture of the Group and in
accordance with accepted behaviours and values.
Conduit Holdings Limited Annual Report51
Governance
Future remuneration policy
Executive Director remuneration
Base salary
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Base salary is a key element to recruiting, retaining and incentivising executives of
the right calibre to successfully execute the Group’s business strategy.
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.
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 the Group.
Higher increases may be permitted where appropriate, for example,
development in role or a change in position or responsibilities
There are no formal metrics, although individual and Group performance is taken
into consideration as part of the annual review.
52Conduit Holdings Limited Annual Report 2021
Governance
Future remuneration policy
Executive Director remuneration
Benefits (including
pension benefits)
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Benefits support recruitment, retention and facilitate a healthy workforce. Pension
benefits
The Group’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, totaling 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.
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.
None
Conduit Holdings Limited Annual Report53
Governance
Future remuneration policy
Executive Director remuneration
Annual bonus
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
To reward the achievement of financial results and key objectives over the financial
year which are linked to the Group’s strategic priorities.
To facilitate and encourage share ownership to align senior employees with CHL
shareholders through the use of deferral into shares.
Annual bonus awards for the Executive Directors are based on the financial
performance of the Group 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.
The maximum bonus achievable for the Executive Directors is 300% of base salary.
The majority of the performance measures will be based on financial performance (for
example, RoE). The financial component will normally comprise of at least two-thirds
of the overall opportunity. For the current policy the Committee have 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 predetermined 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.
54Conduit Holdings Limited Annual Report 2021
Governance
Future remuneration policy
Executive Director remuneration
Shareholding requirement
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
To ensure Executive Directors are aligned with shareholder interests.
Each of the Executive Directors is required to build and maintain a
shareholding in the Company of 300% of salary whilst 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 the Group 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.
None
None
Conduit Holdings Limited Annual Report55
Governance
Future remuneration policy
Non-Executive Director remuneration
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
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
the Group’s strategy.
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.
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).
None
56Conduit Holdings Limited Annual Report 2021
Governance
Notes to the policy table
Performance conditions
The Committee aims to ensure that performance targets for
the annual bonus awards to Executive Directors are closely
aligned to the Group’s short-term and long-term objectives.
Each year, the Committee reviews and selects the most
appropriate performance measures, considering the key
priorities of the Group 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 the Group’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 the Group’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 the Group
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 relevant 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 payout 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; and
■
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 which 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 the Group prior to the approval and
implementation of the Policy outlined above may be
honoured, even if they are not consistent with the Policy
prevailing at the time the commitment is fulfilled. This
includes the MIP which was in place
Conduit Holdings Limited Annual Report57
Governance
Notes to the policy table
prior to this Policy. Details of this plan can be found on
page 37 of the 2020 annual report. This may also include
commitments to future Executive Directors where the
terms were agreed prior to (and
Illustration of the policy
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.
The charts below set out the potential values of the remuneration package of the Executive Directors for FY22 under
various performance scenarios.
Remuneration ($ 000’s)
4 000
3 500
3 000
2 500
67%
2 000
50%
67%
1 500
73%
51%
1 000
58%
Fixed pay
500
100%
42%
27%
100%
50%
33%
100%
49%
33%
Bonus
0
Minimum
Target
Maximum
Minimum
Target
Maximum
Minimum
Target
Maximum
Executive Chairman
CEO & CUO
CFO
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 FY 2022
■
Benefits have been included based on the
actual FY 2021 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 Chief
Financial Officer.
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 agreement 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.
In some cases, an Executive Director may be determined a
“good leaver”. Good leavers may receive
58Conduit Holdings Limited Annual Report 2021
Governance
Notes to the policy table
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 pro-rating on a time
apportioned basis. The Committee may at its discretion
determine that Awards shall not be subject to time pro-
rating or be subject to pro-rating 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 term
Elizabeth Murphy
13 November 2020
13 November 2023
Ken Randall
13 November 2020
13 November 2023
Malcolm Furbert
13 November 2020
13 November 2023
Sir Brian Williamson
13 November 2020
13 November 2023
Richard Sandor
24 November 2020
24 November 2023
Michelle Seymour Smith
15 September 2021
15 September 2024
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.
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
pro-rated 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 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.
The Group does not currently operate a Long-term
Incentive Plan under which future grants can be
Conduit Holdings Limited Annual Report59
Governance
Notes to the policy table
made to Executive Directors. Although not subject to the
requirements of the Listing Rules as a standard listed
company to seek shareholder approval for
a
Long-term Incentive Plan 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 the Group, 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 the Group
In accordance with the Committee’s terms of reference, when
setting remuneration for Executive Directors and the
Executive Chair, the Committee reviews the pay and
conditions across the Group. The Group 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 the Group’s business strategy. The
operation of the bonus scheme for the Executive Directors is
consistent with the Group’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.
Whilst employees are not directly consulted on matters of
remuneration policy, the Committee will ensure there is
an appropriate forum to raise any remuneration matters
which should be taken into account as part of its annual
cycle.
60Conduit Holdings Limited Annual Report 2021
Governance
Annual report on remuneration
This section summarises the Directors’ remuneration for the period ending on 31 December 2021 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 49 to 50, will be put to an advisory
vote at the 2022 AGM. The following sections in respect of Directors’ remuneration have been audited by KPMG Audit
Limited:
■
Single figure of remuneration
■
Non-Executive Director fees
■
2022 annual bonus payments in respect of 2021 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
2021.
Pension or
payment in
Annual
Total fixed
Total variable
Total
Executive Director
Year
Salary
Benefits3
lieu4
Bonus5
LTIP6
Other7
remuneration
remuneration
remuneration
Neil Eckert
2021
$530
$1
$ 14
$919
–
–
$545
$919
$1,464
2020
$44
–
–
–
–
$357
$44
$357
$401
Trevor Carvey
2021
$800
$318
$88
$1,443
–
–
$1,206
$1,443
$2,649
2020
$67
–
–
–
–
$539
$ 67
$539
$606
Elaine Whelan1
2021
$553
$213
$56
$1,069
–
–
$822
$1,069
$1,891
2020
–
–
–
–
–
–
–
–
–
Mark Heintzman2
2021
$51
$55
$16
–
–
–
$122
–
$122
2020
$35
–
–
–
–
$72
$35
$72
$107
Notes to single figure table
1.
Joined the Board on 14 January 2021. For 2021, disclosures are pro-rated for time in employment.
2.
Left the Board on 13 January 2021. For 2021, disclosures are pro-rated for time in employment. In accordance with the leaver terms outlined on
page 65, he only received contractual payments.
3.
Benefits for Bermuda-based Executive Directors comprised Bermuda payroll taxes (employee obligations paid by the Company), Bermuda social
insurance (employee obligations paid by the Company), medical, dental and vision coverage, life insurance, housing and other allowances paid or to
be paid by CHL in line with standard market practice. Given that the Company was only incorporated on 6 October 2020 and was listed for less than a
month in 2020 following the IPO completed on 7 December 2020, with no operations or employees prior to the IPO, there was insufficient time in 2020
to put all of these benefits in place, limited benefits payments were made in 2020 and so no prior year information is presented.
4.
The Executive Directors’ pension provision for 2021 was 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 include any back-
dated pension contributions owed for services in 2020 when the Group schemes had not yet been setup.
5.
Executive Director bonus awards are stated as the full value of the bonus award; 50% of bonuses awarded are payable as a deferred share award of
an equivalent value.
6.
Other than the legacy Management Incentive Plan (“MIP”), Executive Directors do not participate in any long-term incentive plan. Details of the
MIP can be found on page 65 of this report. No awards vested under the MIP during the year.
7.
For 2020, other comprises one-off compensation for work done to set up CHL prior to the IPO.
Annual bonus
Following the approach that was set out in the 2020 annual report and accounts, for the Group’s foundation year (2021), annual
bonus awards for the Executive Directors were based on the financial performance of the Group, the creation of the foundation
of the organisation and the personal contributions of each Executive Director, with the financial component making up 25% of
the overall opportunity, the foundational element making up 50%, and 25% based on personal contribution and/or meeting
strategic objectives. The financial measure for 2021 was RoE. The Remuneration Committee determined the actual bonus
awards for each Executive Director, based on the following criteria.
Conduit Holdings Limited Annual Report61
Governance
Annual report on remuneration
Financial objectives (25%)
Financial element
Threshold
Target
Maximum
Actual
pay-out
RoE
0.5%
2%
4%
-4%
0%
Foundational element objectives (50%)
Foundational objectives for Executive Directors including the Executive Chairman (and all senior employees)
were set and assessed based on the following areas of activity:
ObjectivesAssessment
Underwriting focused
employees (including
Trevor Carvey)
Non-underwriting focused
employees, (including Elaine
Whelan)
Systems development and IT
infrastructure build
Developing the control framework,
including processes and appropriate
controls
Communication, including contributing to the
development of the culture of the organisation
and teamwork Developing client, broker and
investor relationships and generally marketing
the business
Contribution to the company’s business plan,
including building the premium base in line
with underwriting guidelines and profitability
metrics
Systems development and IT
infrastructure build
Developing the control framework,
including processes and appropriate
controls
Communication, including contributing to the
development of the culture of the organisation
and teamwork Contribution to the company’s
business plan, including management of
expenses
2021 has seen tremendous progress in
systems development and IT build-out. While
it is envisioned that these buildouts, and
improvements, will continue in 2022 the
significant progress to date is to be
acknowledged.
Noteable progress has been made with
regards to establishing a control
framework and processes to support
these controls.
Conduit’s corporate culture and
communications framework, internal and
external, is continuing to evolve as we
continue to grow with strong foundations
having been established with the existing
team.
The business has successfully leveraged
existing client, broker and investor
relationships and has successfully
marketed the business for continued
growth.
62Conduit Holdings Limited Annual Report 2021
Governance
Annual report on remuneration
Executive Directors’ performance objectives (25%)
Each of the Executive Directors were evaluated against their performance objectives for the foundation year of the Group.
Neil Eckert
Detailed objectivesAssessment
■
Effective leadership and
management of the
Board of Directors
■
Development of the
investor relations and
general business
strategy
■
Advocate for the
Group’s ESG strategy
Trevor Carvey
Effectively perform the duties of the
Chairman’s role, this is primarily achieved
through overseeing the business and investor
relations strategy plus managing the Board of
Directors. Perform a leading role in promoting
ESG principles across the business. Support
the CEO to ensure the efficient operation of
the Group.
Despite not being on the ground in
Bermuda, Neil has provided valuable
oversight and input to the development and
buildout of Conduit in the first year of
business. As co-founder, Neil has been a
key contributor to establishing the
Company’s initial approach and has given
key guidance to the Group, with significant
contributions to steering our ESG efforts.
■
Effective leadership
and management of
the senior executive
team and Group
■
Development of the
general business
strategy
■
Incorporate ESG
principles into the
business
Elaine Whelan
Effectively perform the duties of the CEO role,
these primarily are managing the business in
line with the strategy and business plan as
laid out in the Prospectus and developing the
book of business, participation in relevant
Committee meetings including making
recommendations to improve deal flow and
risk adjusted returns. Oversee the Group’s
reinsurance portfolio whilst working in
conjunction with the CUO. Perform a leading
role in promoting ESG principles across the
business. Contribute to investor relationships.
Lead the Executive to ensure the efficient
operation of the Group.
Trevor left for Bermuda literally as the IPO
closed, ensuring that we had an active and
successful opening for 1st January 2021
business. He was key to and led the
recruitment of all the key executives of the
business functions to the extent that just 12
months into the life of the company, Conduit
feels like a mature operational business with a
strong and growing portfolio of business.
■
Effective leadership and
management of the
finance and investments
and treasury functions
for the Group
■
Contribute to the
general finance and
investment strategy
■
Incorporate ESG
principles into the
investment portfolio
Effectively perform the duties of the CFO role,
these primarily are managing production of
financial reports which are required as a public
company, participation in relevant Committee
meetings including making recommendations
to improve capital efficiency and risk adjusted
returns. Demonstrate leadership and
management of the finance team. Manage the
Group’s investment portfolio whilst 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 by offering suggestions and
solutions that result in the efficient operation of
the Group.
Elaine played a key role in leading the finance
team and all related aspects of systems build
and integration to support significant
deliverables. Oversight and management of
the development and implementation for key
controls within regulatory and financial
frameworks while ensuring that the Group’s
ESG principles were also reflected throughout
the finance function and investment portfolio.
Conduit Holdings Limited Annual Report63
Governance
Annual report on remuneration
As a result of the above outcomes, the Committee determined bonuses for the Executive Directors as follows
Financial (% of Foundational (% of
Personal (% of
Actual (% of
weighted element)
weighted element)
weighted element)
maximum)
Neil Eckert
0
162.5
137.5
58
Trevor Carvey
0
175.0
125.0
59
Elaine Whelan
0
175.0
137.5
61
Bonuses are subject to a maximum of 300% of base salary. 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) which vests (unless the individual is dismissed for gross
misconduct) 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 a more appropriate structure with the deferral serving as a better retention
mechanism over the longer term than the 50% deferral with a two-year cliff vest that was noted in the IPO prospectus. Deferral
over three years is also more in line with the expected duration of the Group’s reserves.
Maximum
Of which ($,000)
Actual % of opportunity % of
Cash bonus paid,
deferred into
maximum
salary
Actual % of salary
Outcome ($,000)
$,000 (50%)
shares (50%)
Neil Eckert
58
300
173
919
460
460
Trevor Carvey
59
300
178
1,443
721
721
Elaine Whelan
61
300
183
1,069
535
535
Long-term incentive plan
The Executive Directors participate in a legacy MIP scheme, which was detailed in the IPO Prospectus and the 2020 annual
report and accounts. The MIP is currently the Group’s only long-term share-based incentive plan. Details of the plan can be
found on page 65 to 66.
No awards vested in the year under review.
Payments for loss of office
Mark Heintzman, an Executive Director, left the employment of the Group on 13 January 2021. He was paid
$122,000 which was his contractual entitlement upon the termination of his employment, comprising base salary, benefits and
pension only, no bonus award was made.
Payments to past Directors
Other than the contractual entitlement paid to Mark Heintzman at the time he left the employment of the Group, 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 pages 56.
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.
In addition, in February 2021 Malcolm Furbert, Ken Randall and Elizabeth Murphy were appointed
as Non-Executive Directors of CRL, for which appointment they will each receive a flat fee of $25,000 per annum.
Michelle Seymour Smith was appointed as Non-Executive Director of CHL and CRL on 15 September 2021, for these
appointments she has received a prorated fee since her appointment.
64Conduit Holdings Limited Annual Report 2021
Governance
Annual report on remuneration
For the year ended 31 December 2021 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
2021
2020
Sir Brian Williamson
Elizabeth Murphy
Ken Randall
Malcolm Furbert
Dr. Richard Sandor
Michelle Seymour Smith1
Total
$130
$140
$155
$130
$105
$31
$691
$19
$19
$19
$19
$19
$ –
$95
1
Prorated from 24 September 2021, the date of appointment.
The aggregate remuneration paid for the year to 31 December 2021 by way of fee for all the Non-Executive Directors was
$690,986 made up of $609,250 in respect of CHL and $81,736 in respect of CRL.
For their work done in the fourth quarter of 2020, in connection with the start-up of CHL and its IPO, each Non-
Executive Director received a payment of $18,750 being equivalent to one quarter of the annual basic fee.
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.
Shareholding
Beneficially owned
guideline % of base
Share awards held –
Director
as at 31 Dec 2021
salary
Guideline met1
deferred bonus
Neil Eckert
597,112
300%
Yes
–
Trevor Carvey
180,000
300%
No
–
Elaine Whelan
65,950
300%
No
–
Mark Heintzman2
–
N/A
N/A
N/A
Sir Brian Williamson
15,000
N/A
N/A
N/A
Elizabeth Murphy
15,000
N/A
N/A
N/A
Ken Randall
55,000
N/A
N/A
N/A
Malcolm Furbert
8,000
N/A
N/A
N/A
Dr Richard Sandor
15,000
N/A
N/A
N/A
Michelle Seymour Smith
–
N/A
N/A
N/A
1
As at 31 December 2021, 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.
2
Left the Board on 13 January 2021
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 the Group from
Admission. The table below sets out the respective MIP Share allocations for each of the Executive Directors at 31
December 2021:
Name
USD MIP Shares
GBP MIP Shares
Percentage of MIP
Neil Eckert
45,000
45,000
45.0%
Trevor Carvey
30,000
30,000
30.0%
Elaine Whelan*
5,000
5,000
5.0%
Total
80,000
80,000
80.0%
* Elaine Whelan’s MIP award is in the form of a nil-cost option.
Conduit Holdings Limited Annual Report65
Governance
Annual report on remuneration
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 U.S. 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 relevant
time, the MIP Shares will be automatically exchanged for common shares of CHL for an aggregate value equivalent to up to
15 per cent of the excess of the Market Value of CHL over and above the Invested Equity (the “Growth”) (7.5 per cent of the
Growth based on calculations in sterling for the GBP MIP Shares and 7.5 per cent of the Growth based on calculations in
U.S. dollars for the USD MIP Shares).
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 per cent. 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
per cent 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 per cent 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 Insurance 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 - 31/12/21)
140
120
100
80
60
40
20
CHL
0
FTSE 250
Dec-20 Jan-21 Feb-21 Mar-21
Apr-21 May-21 Jun-21
Jul-21
Aug-21 Sep-21
Oct-21 Nov-21
Dec-21
66Conduit Holdings Limited Annual Report 2021
Governance
Annual report on remuneration
CEO single figure of remuneration
The table below shows the pay information of our chief executive officer (in $’000).
2020
2021
CEO total remuneration
$606
$2,649
Actual bonus as a % of maximum
N/A
59%
Actual share award vesting as % of the maximum
N/A
N/A
Percentage change in Directors’ and employee remuneration
Given the Group was only incorporated on 6 October 2020 and was listed for less than a month in
2020 following the IPO, a year-on-year comparison in remuneration is of limited use. A full comparison of
2022 versus 2021 will be shown in next year’s report.
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 6 October 2020 and the period of listing for 2020 was only
three weeks, no comparison year is shown. A full comparison of 2022 versus 2021 will be shown in next year’s report.
FY2021
$m
Distributions to shareholders
$29.7
Total employee pay
$19.0
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 advisors
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 consulted specialist remuneration advisors at Alvarez & Marsal Taxand UK,
LLP, a firm with no other connection to the Company or individual directors
Statement of shareholding voting
This is the first Policy and Directors’ Remuneration Report submitted to shareholders. Disclosure of the voting results at the
forthcoming AGM will be presented in the Annual Report on Remuneration for 2022.
Remuneration for 2022
We disclose here the remuneration approach we have implemented for Executive Director and senior
management remuneration in 2022.
Salary increases across the Group:
An inflation-based salary increase of 3.0% was applied across the Group and including the Executive Directors, whose
salaries with effect from 1 January 2022 are as follows:
Executive Director
2022 salary
2021 salary1
Neil Eckert
$545,900
$530,000
Trevor Carvey
$834,300
$810,000
Elaine Whelan
$602,550
$585,000
1
For the purpose of this disclosure, annual salary for Trevor Carvey and Elaine Whelan have been stated including a benefit award for Club Allowance
as part of their remuneration package and the 2021 comparable has also been included.
Conduit Holdings Limited Annual Report67
Governance
Annual report on remuneration
Housing allowances for the Bermuda based Executive Directors are as follows:
Monthly housing allowance
Executive Director(annualised)
Trevor Carvey
$17,500
($210,000)
Elaine Whelan
$10,000
($120,000)
Current bonus target and maximum opportunities for the senior executives are as follows:
Executive Director
Bonus target
Maximum bonus
Neil Eckert
150%
300%
Trevor Carvey
150%
300%
Elaine Whelan
150%
300%
For the 2022 bonus scheme for Executive Directors and the Group’s other senior managers, 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 used as the basis 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 the second year of the Group’s operations. Details of the targets will be disclosed retrospectively in next
year’s report.
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 2021 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.
Long-term incentives
Executive Directors participate in the legacy MIP, with no new long-term incentive awards to be granted in 2022.
68Conduit Holdings Limited Annual Report 2021
Governance
Directors’ report
The Directors of Conduit Holdings Limited present their
report for the year ended 31 December 2021. 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
the Group (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 of par
value US$0.01 per share 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 f nancial internal controls and risk
management
Conduit’s principal risks are set out in the ERM report on
pages 21 to 22, f nancial internal controls and risk
management are set out on pages 45 to 48.
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 39. Biographies are set out on 33 to 35.
Dividends
On 27 July 2021, the Board declared an interim dividend of
$0.18 (approximately £0.13) per common share, resulting
in an aggregate payment of $29.7 million.
On 23 February 2022, the Board declared a final dividend of
$0.18 (approximately £0.13) per common share, resulting in
an aggregate payment of $29.7 million. The dividend will be
paid in pounds sterling on 22 April 2022 to shareholders of
record on 25 March 2022 (the “Record Date”) using the
pound sterling/US dollar spot exchange rate at 12 noon BST
on the Record Date.
Insurance and indemnification
The Group 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 120.
Stakeholder engagement and ESG
A review of the Company’s engagement with stakeholders is
set out in the Section 172 statement on pages 29 and 30 .
Diversity and inclusion
A discussion of D&I is set out in the Nomination
Committee report on page 44.
Compliance with the Code
A review of the Company’s compliance with the Code is set
out on pages 36 to 41.
ESG
The ESG report on pages 25 to 28 provides an overview of
the Company’s approach to ESG, including charity and
climate.
Conduit Holdings Limited Annual Report69
Governance
Directors’ report
Carbon Emissions
As we said during the IPO process, Conduit set out to be carbon neutral from day one. As at the date of publication of this
Annual Report, we have purchased sufficient carbon credits to offset our current estimate of carbon emissions for the first five
years of operation.
Emission type
Activity
Basis of measurement
Quantity
tCO2e
Bermuda
London
Bermuda
London
Total
Scope 1
Direct
None
Scope 2
Indirect energy
Electricity
kWh
53 564
13 589
– location based
34.1
4.9
– market-based
34.1
0.6
Scope 3
Indirect other
Business travel
Kilometers
595 105
113 470
72.3
13.9
Hotels
Nights
92
58
11.0
6.9
Staff commuting
Kilometers
72 959
23 752
12.7
3.7
Gross emissions (location based)
130.1
29.4
159.4
Gross emissions (market based)
130.1
25.1
155.2
Gross emissions per average number of
4.6
7.3
5.0
employees (location based)
Gross emissions per average number of employees
4.6
6.3
4.8
(market based)
– tCO2 for air travel was calculated using the ICOA Emission Calculator https://www.icao.int/environmental-protection/Carbonoffset/ Pages/default.aspx
– tCO2 for rail travel was calculated using information provided by the UK Office for Rail and Road (2020-2021 146.5 g CO2e per passenger km)
https://dataportal.orr.gov.uk/media/1993/rail-emissions-2020-21.pdf
– tCo2 for road travel was calculated using the MyClimate emission calculator https://co2.myclimate.org/en/car_calculators/new. Many staff in Bermuda
use scooters and this was estimated based on a petrol consumption of 3 l/100km
– tCO2 for hotel stays is based on the CARMATOP – Carbon Management for Tour Operators 2013 report, Table: Average emission factors for
worldwide accommodations ( 119.6 kg CO2e per available room)
– tCO2 for the location-based method for our London office uses the Grid Electricity Emissions Factors published by the UK government ( 0.23314
kgCO2/kWh) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ file/1049346/2021-ghg-conversion-factors-
methodology.pdf
– tCo2 for the market-based method for our London office uses emission information provided by our electricity provider (42 CO2 g/ kWh)
https://www.edfenergy.com/fuel-mix - April 2020 to March 2021
– tCO2 for the market-based and location-based methods for our Bermuda location are the same, as there is only one source of electricity available on the
island. The Emission Factors in gCO2/kWh is 636 as per the EIB Methodologies for the Assessment of Project GHG Emissions and Emission Variations
Political donations
No political donations were made by Conduit in the year
ended 31 December 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.
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
70Conduit Holdings Limited Annual Report 2021
Governance
Directors’ report
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% per cent 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
The Company announced on 29 December 2021 that it
intends to conduct on-market purchases under
a share purchase programme to repurchase up to US$10
million of common shares of US$0.01 each in the capital of
the Company, pursuant to the authority obtained at the
Company’s most recent annual general meeting, held on 13
May 2021. The purpose of the purchase is to meet future
obligations under
Directors’ interests
the Company’s variable incentive schemes. Purchases will
be funded from the Company’s existing cash resources and
all common shares repurchased will be held in treasury.
Repurchases may be made up to and including the
conclusion of the 2022 AGM or at 6.00 pm UK time on 31
August 2022, whichever
is sooner. Any repurchases made following Conduit
Holdings’ 2022 annual general meeting will be conditional
on further shareholders' approval being obtained.
Subsequently, the Company repurchased 32,823 of its
own common shares during 2021. Consequently, as at
31 December 2021, the Company held 32,823 of its
common shares in treasury and had
165,239,997 common shares in issue (including treasury
shares). Therefore, the total voting rights in the Company
was 165,207,174.
Further details of the share repurchase programme are
set out in note 18 to the consolidated financial statements
on page 117.
Directors’ beneficial interests in the Company’s common shares as of 31 December 2021, 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 held as
Common shares held as
Directors
of 31 December 2021
of 31 December 2020
Neil Eckert, Executive Chairman
597,112*
580,001*
Trevor Carvey, Chief Executive Officer
180,000
180,000
Elaine Whelan, Chief Financial Officer
65,950
-
Sir Brian Williamson, Senior Independent Non-Executive Director
15,000
15,000
Malcolm Furbert, Non-Executive Director
8,000
8,000
Ken Randall, Non-Executive Director
55,000
-
Richard Sandor, Non-Executive Director
15,000
-
Elizabeth Murphy, Non-Executive Director
15,000
15,000
Michelle Seymour Smith, Non-Executive Director**
–
–
*
Includes 35,873 shares owned by his spouse, Nicola Eckert
**
Appointed to the Board with effect from 15 September 2021
Shareholding guidelines require Executive Directors to build and maintain a shareholding in the Company of 300% of salary
whilst in post. Where not met at admission, future bonuses of which 50% 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 page 55. As
at 31 December 2021, 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 six years to do so.
Conduit Holdings Limited Annual Report71
Governance
Directors’ report
Major shareholdings
As at 15 February 2022, the Company has been notified of the following interests of 5% or more of voting rights in its ordinary
shares.
Number of shares at 15
Shareholder
February 2022 (m)
% of shares in issue
Aviva plc and affiliates
24,207,190
14.68
CI Investments Inc.
13,286,143
8.06
JO Hambro Capital Management Limited (London)
9,408,116
5.71
Odey Asset Management LLP
8,298,860
5.02
Going concern and viability statement
A review of the financial performance of the Group is set out
on pages 17 to 18. The financial position of the Group
including its cash flows and its borrowing facilities are
included in the financial statements starting on page 82. The
Group is well capitalised and has a well-balanced book of
business.
The Board will consider the Group’s strategic plan for the
business annually on a rolling basis using a three-to-five-year
time horizon. This period aligns to the Group’s liabilities and
business model, allowing the Group to adapt capital and
solvency quickly in response to market cycles, events and
opportunities. This is consistent with the outlook period set
out in the Group’s IPO prospectus.
Building on the strategy and plan presented in the IPO
prospectus, the Board conducted its first annual review of
strategy and updated the Group’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 the Group and
examining how the Group’s capital and operational capacity
can best be aligned to support the Group’s objectives over
the next three years. Further information on the Group’s
principal risks can be found on pages 21 to
22.
The risk disclosures section of the consolidated financial
statements on pages 92 to 107 sets out the principal risks to
which the Group is exposed, including reinsurance risk,
market risk, liquidity risk, credit risk, operational risk, and
strategic risk, together with the Group’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, the Group uses stress and
scenario analysis and testing to assess the robustness of the
Group’s solvency and liquidity positions. To make the
assessment, the Group 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 the Group remained adequately
capitalised.
The Audit Committee also considered a formal ‘going
concern’ analysis from management at its July 2021 and
February 2022 meetings (for further details see page 48 in
the Audit Committee report).
After reviewing the group’s strategy, budgets and medium-
term plans, and subject to the principal risks faced by the
business, the Board has a reasonable expectation that the
group 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 Annual General Meeting of the
Company.
72Conduit Holdings Limited Annual Report 2021
Governance
Directors’ report
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 Annual General Meeting in
2021, 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 2022.
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 2022 Annual General Meeting will be held
at 10:00 a.m. Atlantic time on 11 May 2022 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
29 March 2022
Conduit Holdings Limited Annual Report73
Governance
Directors’ responsibilities statement
The Board is responsible for preparing the Annual Report and
the Group’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 the Group 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, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the
Company’s and the Group’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, U.S. 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 the
Group, 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 2 to 30, 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 United
Kingdom’s Financial Conduct Authority.
The audited consolidated financial statements were
approved for issue on 29 March 2022 and the Directors
responsible for authorising the responsibility statement on
behalf of the Board are:
Trevor CarveyElaine Whelan
Executive DirectorExecutive Director
and CEOand CFO
29 March 202229 March 2022
74Conduit Holdings Limited Annual Report 2021
Financial
Statements
Conduit Holdings Limited Annual Report75
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
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 2021, the consolidated statements of
comprehensive income, 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 2021, 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. 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.
76Conduit Holdings Limited Annual Report 2021
Financial Statements
Independent Auditor’s Report
The riskOur response
Loss and loss adjustment expense reserves (gross and net)
(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; 2020: $Nil)
As the entity commenced underwriting activities in 2021, this is a new risk and key audit matter. Refer to the Audit committee
report on page 45 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
Our procedures included:
by management is the estimation of loss and loss
Control design and implementation:
adjustment expense reserves (gross and net). The Group
establishes its reserves for losses and loss adjustment
expense reserves by taking outstanding losses, adding
Group’s key controls regarding review and approval
of the
loss
and
loss adjustment expense
reserve.
an estimate for incurred but not reported losses (IBNR)
We performed the tests below rather than seeking
and, if deemed necessary, additional case reserves (ACR)
to rely on any of the Group’s controls because the
which represent the Group’s estimate for losses related
nature of the balance is such that We would expect to
to specific contracts that the Group believes may not be
obtain audit evidence primarily through the detailed
adequately estimated by the cedant as of that date.
procedures described.B6
Subjective valuation
Assessing valuer’s credentials:
The valuation of the ACR and IBNR liabilities is a complex
evaluated
the
competence,
capabilities
process which incorporates a significant amount of
and objectivity of the Group’s internal and
judgement with high estimation uncertainty such as
independent experts;
initial expected loss ratios and estimates of ultimate
premium.
performed enquiries of these experts to understand
Amounts recoverable from reinsurers are estimated
their processes and models.
Our valuation expertise:
using the same methodology and judgements as for the
underlying liabilities.
Estimated IBNR reserves may also consist of a provision
and challenging the reasonableness of the methods
and
assumptions
utilised by the
Group’s
experts
for losses which have occurred but have not yet been
(on
a
gross
and
net
of outwards
reinsurance
reported by cedants. IBNR reserves are estimated initially
basis) – including the assessment of selected loss
using expected loss and loss adjustment expense ratios
ratios,
adjustments
to
arrive
at
management’s
which are selected based on information derived by the
best estimate and reserves held for specific
large
Company’s underwriters and actuaries during the initial
loss
and
catastrophe
(CAT)
events.
We
also
pricing of the business. The judgements and estimates
compared the Group’s reserving methodology with
used in establishing loss reserve calculations may be
industry practice.
revised as additional experience or other data becomes
Assessing observable inputs:
available. In addition, an allowance is made for specific
risks. The determination of this allowance is a subjective
analyses to accounting records.
judgement based on the perceived uncertainty and
Assessing transparency:
potential for volatility in the underlying claims.
The effect of these matters is that, as part of our risk
on
loss and
loss
adjustment
expense
reserves
assessment, we determined that the valuation of gross
in accordance
with
the
requirements
of
relevant
and net loss and loss adjustment expense reserves
accounting standards.
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.
Conduit Holdings Limited Annual Report77
Financial Statements
Independent Auditor’s Report
The riskOur response
Accuracy of premium estimates on proportional business
(2021: $378.8 million 2020: $Nil) included within Gross premiums written.
As the entity commenced underwriting activities in 2021, this is a new risk and key audit matter. Refer to the Audit committee
report on page 45 and the following in the notes to the consolidated financial statements: note 2 ‘Significant accounting policies’
Subjective valuation
Our procedures included:
Proportional business constitutes a significant portion
Control design and implementation:
of business written during the year; pricing for which
is based on estimates of ultimate premiums provided
the Group’s key controls regarding review of the
by ceding companies supplemented by management
premium estimates recorded. We performed the
estimates. Management exercises judgement in
tests below rather than seeking to rely on any of the
determining the ultimate estimates in order to establish
Group’s controls because the nature of the balance is
the appropriate premium value. These judgements
such that we would expect to obtain audit evidence
are based on experience with the ceding company,
primarily through the detailed procedures described.
familiarity with each market, timing of the reported
Assessing assumptions and methodology:
information and its understanding of the characteristics
of each class of business.
ultimate premium to third party supporting
As part of our risk assessment, we determined that the
documentation and challenged assumptions applied
accuracy of inward premium estimates on proportional
by the Company including judgements made by
business has a higher degree of estimation uncertainty,
management’s underwriters.
with a potential range of reasonable outcomes greater
Assessing transparency:
than our materiality for the consolidated financial
statements as a whole.
disclosures on premium estimates in accordance with
the requirements of relevant accounting standards.
Equity based compensation, noted as a key audit matter in our previous audit report, is no longer considered significant to the
consolidated financial statements as a whole. Accordingly, we no longer consider this a key audit matter.
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.
78Conduit Holdings Limited Annual Report 2021
Financial Statements
Independent Auditor’s Report
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.
Conduit Holdings Limited Annual Report79
Financial Statements
Independent Auditor’s Report
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.
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 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 38 to 41 relating to the Group’s
compliance with the provisions of the United Kingdom Corporate Governance Code that would be specified by the Listing Rules
of the United Kingdom’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 72
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 72 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 72 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 72.
80Conduit Holdings Limited Annual Report 2021
Financial Statements
Independent Auditor’s Report
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
29 March 2022
Conduit Holdings Limited Annual Report81
Financial Statements
Consolidated statement of comprehensive loss
For the year ended 31 December 2021
2021
2020
Notes
$m
$m
Gross premiums written
4
Ceded reinsurance premiums
4
(32.6 )
Net premiums written
Change in unearned premiums
4
(152.8 )
Change in unearned premiums on premiums ceded
4
Net premiums earned
Net investment income
5
Net realised losses on investments
5
(1.0 )
Net unrealised losses on investments
5, 12
(7.6 )
Net foreign exchange (losses) gains
(0.5 )
Total net revenue
Insurance losses and loss adjustment expenses
4, 14
Insurance losses and loss adjustment expenses recoverable
4, 14
(48.9 )
Net insurance losses
Insurance acquisition expenses
4, 6
Equity-based incentives
7
Other operating expenses
4, 7, 8, 22
Total expenses
Results of operating activities
(41.5 )
(4.6 )
Financing costs
9, 15
(0.5 )
Total comprehensive loss for the period
(42.0 )
(4.6 )
Loss per share
Basic and diluted
21
$(0.25 )
$(0.03 )
82Conduit Holdings Limited Annual Report 2021
Financial Statements
Consolidated balance sheet
As at 31 December 2021
Assets
Cash and cash equivalents
Accrued interest receivable
Investments
Inwards premiums receivable
Reinsurance assets
– Unearned premiums on premiums ceded
– Reinsurance recoverable
– Other reinsurance receivables
Other assets
Right-of-use assets
Deferred acquisition expenses
Intangible assets
Total assets
Liabilities
Reinsurance contracts
– Losses and loss adjustment expenses
– Unearned premiums
Amounts payable to reinsurers
Other payables
Lease liabilities
Total liabilities
Shareholders' equity
Share capital
Own shares
Other reserves
Dividends
Retained loss
Total shareholders' equity
Total liabilities and shareholders' equity
Notes
11, 17
12, 13, 17
14
15
16
14
15
18
18
19
18
2021
$m
(0.2 )
(29.7 )
(46.6 )
2020
$m
(4.6 )
The consolidated financial statements were approved by the Board of Directors on 29 March 2022 and signed on its behalf by:
Trevor CarveyElaine Whelan
Chief Executive OfficerChief Financial Officer
Conduit Holdings Limited Annual Report83
Financial Statements
Consolidated statement of changes in shareholders’ equity
For the year ended 31 December 2021
Total
Share
Own
Other
Retained
shareholders’
capital
shares
reserves
loss
equity
Notes
$m
$m
$m
$m
$m
Total comprehensive loss for the
period
(4.6 )
(4.6 )
Issue of share capital
18
Issuance costs
19
(45.5 )
(45.5 )
Equity-based incentives
7, 19
Balance as at 31 December 2020
(4.6 )
Total comprehensive loss for the
year
(42.0 )
(42.0 )
Purchase of own shares
18
(0.2 )
(0.2 )
Dividends on common shares
18
(29.7 )
(29.7 )
Equity-based incentives
7, 19
Balance as at 31 December 2021
(0.2 )
(76.3 )
84Conduit Holdings Limited Annual Report 2021
Financial Statements
Statement of consolidated cash flows
For the year ended 31 December 2021
Notes
Cash flows from (used in) operating activities
Comprehensive loss
Depreciation
15
Interest expense on lease liabilities
9, 15
Net investment income
5
Net realised losses on investments
5
Net unrealised losses on investments
5
Net foreign exchange losses (gains)
Equity-based incentives
7
Change in operational assets and liabilities
– Reinsurance assets and liabilities
– Other assets and liabilities
Net cash flows from (used in) operating activities
Cash flows used in investing activities
Purchase of investments
Proceeds on sale and maturity of investments
Interest received
Purchase of intangible assets
16
Purchase of property, plant and equipment
Net cash flows used in investing activities
Cash flows (used in) from financing activities
Proceeds from issue of share capital
18, 19
Lease liabilities paid
15
Dividends paid
18
Purchase of own shares
18
Net cash flows (used in) from financing activities
Net (decrease) increase in cash and cash equivalents Cash
and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash and cash equivalents Cash
and cash equivalents at end of year
2021
$m
(42.0 )
(6.2 )
(1,570.4 )
(0.9 )
(0.5 )
(1,005.4 )
(0.1 )
(29.7 )
(0.2 )
(30.0 )
(986.7 )
2020
$m
(4.6 )
(0.1 )
(0.2 )
(3.1 )
(0.2 )
(0.1 )
Conduit Holdings Limited Annual Report85
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
1. General information
common shares of par value US$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
the year ended 31 December 2021 include the Company's subsidiaries (together referred to as the “Group”). The principal
A full listing of the Group'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 International Financial
Reporting Standards (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, the Group’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 the Group’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.
Underwriting and investment related operations for the Group commenced during the year ended 31 December 2021. The
consolidated financial statements for the period from 6 October 2020 to 31 December 2020 contain formation costs and other
costs in connection with the set-up of the business, and these consolidated financial statements should be read in this context.
Going concern
The consolidated financial statements of the Group have been prepared on a going concern basis. In assessing the Group’s
going concern position as at 31 December 2021, the directors have considered a number of factors, including the current
statement of financial position, the Group’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. The Group only
commenced underwriting activities during the twelve months ended 31 December 2021 and, with COVID-19 exclusions
included in policy wordings, the Group does not believe it has any exposure to reinsurance losses from COVID-19. The
assessment therefore concluded that the Group has sufficient capital and liquidity for the next 12 months. The Group’s capital
ratios and its capital resources are comfortably in excess of regulatory solvency requirements, and internal stress testing
indicates the Group can withstand severe economic and competitive stresses.
As a result of the assessment, the directors have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future and therefore believe that the Group is well placed to
manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the
consolidated financial statements.
86Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
2. Summary of significant accounting policies
Changes in accounting standards
While a number of amended IFRS standards have become effective during the year ended 31 December 2021, none of these
standards have had a material impact on the Group.
Future accounting changes
Of the upcoming accounting standard changes, we anticipate that IFRS 17 and IFRS 9 will have the most material impact on
the financial statements’ presentation and disclosures. A brief overview of each of these standards is provided below:
IFRS 17, Insurance Contracts, issued in May 2017, specifies the financial reporting for insurance contracts. The new standard
is effective for accounting periods beginning on or after 1 January 2023 and will significantly change the accounting for
insurance contracts. The standard includes a number of significant changes regarding the measurement and disclosure of
insurance contracts both in terms of liability measurement and profit recognition. The Group is assessing the impact that IFRS
17 will have on its results of operations and disclosure requirements, and monitoring market practices while it develops the
Group’s accounting policies under IFRS 17. The Group currently anticipates that it will be eligible to apply the simplified model,
the premium allocation approach, to its portfolios and groups of contracts. From our ongoing assessments we do not expect a
material impact on profitability. Presentation and disclosure will change significantly.
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, provide a temporary exemption from applying IFRS 9.
The Group qualifies for, and has elected to apply, the temporary exemption available to companies whose predominant activity
is to issue insurance contracts. The activities of the Group are predominantly connected with insurance. The carrying value of
the Group’s liabilities connected with insurance activities comprised over 90% of the total liabilities. The Group therefore
satisfies the criteria set out in IFRS 4 for the temporary exemption from IFRS 9. The exemption lasts until the implementation
date of IFRS 17 and addresses the accounting consequences of applying IFRS 9 to insurers prior to the adoption of IFRS 17.
IFRS 9 introduces new classification and measurement requirements for financial instruments. The Group currently anticipates
that all investments held by the Group will be classified as at FVTPL, because they are managed on a fair value basis. As a
result, the adoption of IFRS 9 is not expected to result in any changes to the measurement of the Group’s investments, which
will continue to be at FVTPL. The Group is assessing the impact that IFRS 9 will have on its results of operations and disclosure
requirements. From our ongoing assessments we do not expect a material impact on profitability or presentation and disclosure.
Use of judgements and estimates
The preparation of financial statements in conformity with IFRS requires the Group 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 premium 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 Report87
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
2. Summary of significant accounting policies
Consolidation principles
These consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at and for the
year ended 31 December 2021. Subsidiaries are those entities that are controlled by the Group and are fully consolidated from
the date on which the Group obtains control and continue to be consolidated until the date when such control ceases. Control is
achieved when the Group 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 the Group’s accounting policies. Where they differ, adjustments are made on
consolidation to bring accounting policies in line.
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
The Group 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
88Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
2. Summary of significant accounting policies
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.
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 collectible 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. The Group may purchase ceded
reinsurance on both an excess of loss and proportional basis, and may in future supplement this with the purchase 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 profit or loss 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. The Group does not 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
Conduit Holdings Limited Annual Report89
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
2. Summary of significant accounting policies
and loss adjustment expense ratios which are selected based on information derived by the Group’s 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 the Group develops
its own loss experience, management will use various actuarial methods as well as a combination 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
the Group, 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, the Group 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
the Group’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
The Group’s fixed maturity securities portfolio is classified as FVTPL and carried at estimated fair value in the consolidated
balance sheet. The classification of the Group’s 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. Investment transactions are recorded on the trade date with balances pending
settlement reflected in the consolidated balance sheet in other assets or other payables. The estimated fair value of the Group’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 at FVTPL are recognised in the
consolidated statement of comprehensive loss within net unrealised gains and losses on investments.
Investments are derecognised when the Group 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 on fixed maturity securities is recognised in net investment income calculated using the effective interest rate
method. 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.
90Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
2. Summary of significant accounting policies
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 over the useful life. Computer software
is a technological asset and subject to obsolescence, therefore management expects to utilise the asset over its useful life of 12
years. The useful life is reviewed annually to determine if any changes are required to the amortisation period.
Leases
The Group 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 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, the
Group'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. The
Group 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 the Group 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.
The Group presents right-of-use assets and lease liabilities as a separate financial statement line item in the consolidated
balance sheet.
Employee benefits
Equity-based incentives
The Group 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.
At each balance sheet date, the Group 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 the Group, if any, is transferred to other reserves in shareholders’ equity.
Pensions
The Group’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 the Group.
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.
Conduit Holdings Limited Annual Report91
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
2. Summary of significant accounting policies
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 statement of financial position 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
The Group commenced underwriting operations during the year ended 31 December 2021. There were no active underwriting
operations for the period ended 31 December 2020, therefore the Group did not have any underwriting or investment risk in
2020. Comparable information has only been provided where applicable.
The Group 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 the Group is reinsurance risk.
The Board is responsible for determining the nature and extent of the principal risks the Group 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.
As part of the immediate execution risk that existed at the start of the reporting period, various non-underwriting activities were
subject to initial outsourced support. With the staff contingent growing from 12 to 41 during the year, much of the initial
outsourcing has reduced with any remaining outsourcing, which is limited, being for narrowly defined services that the Group
expects to remain in the medium to long term.
The risk function is responsible for supporting the Board, and the CRL board, with the day-to-day oversight of the risks that the
Group 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 the Group. 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.
92Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
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 across 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 the ultimate impact for the
reinsurance industry will be. The Group only commenced underwriting operations during the twelve months ended 31
December 2021 and, for any reinsurance business underwritten during that period, the Group had COVID-19 related exclusions
in its reinsurance contracts and policy wordings. As a result, the Group 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 the Group are
discussed throughout these consolidated financial statements.
Climate change
The Group is exposed to risks associated with climate change and 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 the Group’s strategic and risk management policies.
a.
Reinsurance risk
The Group 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 Group's 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, the
Group 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:
■
The Group 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;
■
Our 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 Group’s 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;
Conduit Holdings Limited Annual Report93
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
■
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 the Group’s capital
base.
Catastrophe management
Certain of the Group’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. The Group’s business has exposure to large
catastrophe losses in North America, Europe and Japan as a result of windstorms. The level of windstorm activity, and landfall
thereof, during the North American, European and Japanese wind seasons may materially impact the Group’s loss experience.
The North American and Japanese wind seasons are typically June to November and the European wind season November to
March. The Group also has exposure to other natural catastrophes, such as earthquakes, tsunamis, droughts, floods, hail and
tornadoes, which can occur throughout the year. In addition, the Group 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.
The Group 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.
The Group has set tolerances around various scenarios. Of these, at the commonly reported 100 year and 250 year return
periods, the Group’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 Group’s estimated net exposures to these peak zone
perils on a first occurrence basis as at 31 December 2021. Net positions are calculated by applying relevant reinstatement
premiums and outwards reinsurance to the respective modelled gross exposures.
% of tangible
Net
capital
Return period
Peril
$m
%
100 year
Florida windstorm
9.6
1.0
250 year
California earthquake
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.
94Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
Operating segments
The Group's underwriting business is comprised of three principal divisions: property, casualty and specialty. These divisions
are also considered to be the Group'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
$m
$m
$m
$m
%
United States
105.4
118.7
3.9
228.0
60.2
Worldwide (excluding US)
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
Property reinsurance
The Group 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
The Group 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. The Group 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.
The Group will purchase ceded reinsurance to protect against any ‘clash’ between losses arising in its casualty portfolio.
The Group’s 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. The Group has limited appetite for, and generally avoids, workers compensation, standalone auto and cyber treaties.
Conduit Holdings Limited Annual Report95
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
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 health care professionals against claims of negligent acts or injury of patients under
their care. Medical malpractice reinsurance does not cover intentional or criminal acts.
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
The Group’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
Group’s main specialty classes of business include aviation, energy, marine, renewables, political violence and terrorism offered
on both a specific and a whole account basis.
The Group purchases ceded reinsurance protection to reduce the Group’s 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 Group’s 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.
96Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
Energy
The Group’s 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.
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 the Group's aggregate underwriting portfolio. The Group may
purchase ceded reinsurance on both an excess of loss and proportional basis, and may in future supplement this with the
purchase 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, the Group may
deem it more economic to hold capital than purchase ceded reinsurance. Ceded reinsurance does not relieve the Group of its
obligations to policyholders. The Group 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. The Group will
retain certain losses, as the cover purchased is unlikely to transfer the totality of the Group’s exposure. Any loss amount which
exceeds the ceded reinsurance coverage purchased would be retained by the Group. 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 the Group’s ceded reinsurance security policy, the Group’s 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
the Group’s ceded reinsurers to ensure that they possess suitable security.
Conduit Holdings Limited Annual Report97
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
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. The Group 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 the Group's estimate for
losses related to specific contracts that the Group 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 the Group’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.
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.
The Group’s internal actuaries review the reserving assumptions and methodologies on a quarterly basis and develop an
actuarial best estimate of the Group’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 the Group’s external actuaries. The results of the internal and
independent reserve reviews are presented to the Group’s 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.
98Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
b.
Market risk
The Group is at risk of loss due to movements in market factors. The main market risks the Group was exposed to include:
■
Reinsurance risk;
■
Investment risk;
■
Currency risk.
i.
Reinsurance risk
The Group 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 the
Group’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.
The Group 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;
■
Ensures through rigorous underwriting criteria that surplus capital does not drive the Groups’ 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 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 not directly sensitive to the level of market interest rates, as they are undiscounted and
contractually non-interest bearing.
ii.
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 the Group’s investment portfolio. The Group seeks to invest
in issuers with stronger ESG practices on balance, as it believes that this will also help reduce risk in the portfolio.
Conduit Holdings Limited Annual Report99
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
During the year, investment guidelines and adjustments to the guidelines were reviewed by the FIOC with input from the CFO.
They were then approved by the Executive Committee and reported to the Board. After the initial establishment of the
investment guidelines, the FIOC transitioned to the Investment Committee of CRL, who are now responsible for all investment
related decisions going forward. The investment guidelines set the parameters within which the Group’s external managers
must operate. Important parameters of these guidelines include permissible asset classes, duration ranges, credit quality,
permitted currency, maturity, industry sectors, geographical, sovereign and issuer exposures. Guideline compliance is
monitored on a monthly basis. The Group’s portfolio of fixed maturity securities is currently managed by three external
managers. Their performance is monitored on an ongoing basis. The Group 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. The Group
also prioritises liquid asset classes with higher credit quality and shorter duration so that the Group can meet reinsurance and
other near-term obligations. The Group 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.
The Group 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.
The Group 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. The Group also monitors the portfolio impact of more severe scenarios consisting of
extreme shocks.
The Group 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 the Group's
tolerances and preferences.
It is planned that, having deployed the investment strategy during the period, a strategic asset allocation will be undertaken on a
bi-annual basis to assess the Group’s overall investment strategy and to consider alternative asset allocations to achieve the
best risk-adjusted return within the Group's risk appetite. Any resulting recommendations would be approved by the appropriate
management committee(s) and reported to the Board. The FIOC met quarterly to ensure that the Group’s strategic and tactical
investment actions were consistent with investment risk preferences, appetite, risk and return objectives and tolerances. The
FIOC also helped develop the risk tolerances to be incorporated into the ERM framework.
100 Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
The investment mix by mandate and sector of the Group's portfolio of fixed maturity securities is as follows:
As at 31 December 2021
Short-term investments
US treasuries
US agency debt
US municipals
Non-US government and agencies
Asset-backed
US government agency mortgage-backed Non-
agency mortgage-backed
Agency commercial mortgage-backed Non-
agency commercial mortgage-backed Corporate
Total
Estimated fair
Estimated fair
Estimated fair
value short-tail
value long-tail
value total
$m
$m
$m
8.9
–
8.9
52.4
119.4
171.8
–
2.0
2.0
11.0
2.2
13.2
2.2
–
2.2
97.3
72.4
169.7
53.2
41.4
94.6
13.6
5.6
19.2
3.2
–
3.2
24.3
34.1
58.4
302.6
162.6
465.2
568.7
439.7
1,008.4
There are no comparisons for the period ended 31 December 2020 as all IPO funds were held as cash and cash equivalents.
Corporate and non-US government and agencies bonds by country are as follows:
Non-US
government and
Financials
Other industries
agencies
Total
As at 31 December 2021
$m
$m
$m
$m
United States
153.5
214.8
–
368.3
United Kingdom
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:
As at 31 December 2021
$m
%
Financials
236.5
50.9
Industrials
209.5
45.0
Utilities
19.2
4.1
Total
465.2
100.0
The Group’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 Group’s 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 the Group’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 the
Group’s portfolio of fixed maturity securities to interest rate movements is detailed below, assuming linear movements in interest
rates.
Conduit Holdings Limited Annual Report101
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
As at 31 December 2021
$m
%
Immediate shift in yield (basis points)
100
(27.7)
(2.7)
75
(20.8)
(2.1)
50
(13.9)
(1.4)
25
(6.9)
(0.7)
0
–
–
-25
5.7
0.6
-50
11.5
1.1
-75
17.2
1.7
-100
22.9
2.3
The Group 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 2.4 years as at 31 December 2021.
In addition to duration management, the Group 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 FIOC periodically.
The Group’s annual VaR calculation is as follows:
% of shareholders'
As at 31 December 2021
$m
equity
99th percentile confidence level
30.2
3.1
iii.
Currency risk
The Group 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. The Group is exposed to currency risk to the extent its assets are denominated in different currencies to its liabilities.
The Group 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.
The Group 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 Groups' main foreign currency exposure relates to its
reinsurance obligations, cash holdings, premiums receivable and dividend payable, if applicable.
102 Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
The following table summarises the carrying value of total assets and total liabilities categorised by the Group’s main
currencies:
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
986.2
3.6
(7.8)
(0.8)
981.2
The impact on profit from a proportional foreign exchange movement of a 10.0% appreciation and a 10.0% depreciation against
the US dollar at year end spot rates would be an increase or decrease of $0.2 million. There was no material currency risk for
the year ended 31 December 2020 as all cash and cash equivalents from the IPO offering were held in US dollars.
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. The Group’s main exposure to liquidity risk is with respect to its reinsurance and investment activities. The Group is
exposed if proceeds from the sale of financial assets are not sufficient to fund obligations arising from reinsurance contacts
and/or other liabilities. The Group 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 the Group’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.
The Group'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.
The maturity dates of the Group's portfolio of fixed maturity securities are as follows:
As at 31 December 2021
Fixed maturity securities at FVTPL
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
Asset-backed and mortgage-backed
Total
Short-tail
Long-tail
Total
$m
$m
$m
43.8
1.5
45.3
145.7
70.6
216.3
144.5
39.1
183.6
21.3
9.5
30.8
11.0
57.2
68.2
10.8
108.3
119.1
191.6
153.5
345.1
568.7
439.7
1,008.4
Conduit Holdings Limited Annual Report 103
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
The estimated maturity profile of the reinsurance contracts and financial liabilities of the Group is as follows:
Years until liability becomes due
Carrying
Less than
value
one
One to three
Three to 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 2021, cash and cash equivalents were $67.5 million (31 December 2020 - $1,054.0 million). The Group
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, the Group 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. The Group monitors market changes and outlook and reallocates assets
as it deems necessary.
As at 31 December 2021, the Group 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. The Group is exposed to credit risk on its
fixed maturity investment portfolio, its premiums receivable from cedants, and on any amounts recoverable from reinsurers.
While the Group 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 the Group’s portfolio of fixed maturity securities is mitigated through the Group’s 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. The Group also limits exposure to individual issuers, with declining limits for less highly rated issuers. The Group
therefore does expect any significant credit concentration risk on its investment portfolio, except for fixed maturity securities
issued by the US government.
The Group is potentially exposed to counterparty credit risk in relation to the premiums receivable from reinsurance brokers and
cedants and on any amounts recoverable from the Group’s ceded reinsurers. Given the dislocation in the market, the COVID-19
pandemic may adversely impact the Group's ability to collect amounts due to the Group. Credit risk on inwards premiums
receivable from cedants is managed by conducting business with reputable broking organisations, with whom the Group has
established relationships, and by rigorous cash collection procedures. The Group also has a broker approval process in place.
Credit risk from the Group’s ceded reinsurance recoverable is primarily managed by the review and approval of reinsurer
security, with ongoing
104 Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
monitoring in place.
The table below presents an analyses of the Group’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.
Cash and cash
equivalents and
fixed maturity
Inwards premiums
Reinsurance
securities
receivables
recoverable
As at 31 December 2021
$m
$m
$m
AAA
542.4
–
–
AA+, AA, AA-
75.6
–
–
A+, A, A-
306.2
–
30.5
BBB+, BBB, BBB-
151.7
–
–
Other
–
155.0
18.4
Total
1,075.9
155.0
48.9
Reinsurance recoverable classified as other is fully collateralised.
As at 31 December 2021 the average credit quality of the Groups' cash and cash equivalents and portfolio of fixed maturity
securities was AA-. The COVID-19 pandemic has increased the risk of defaults across many industries and the Group
continually monitors credit risk, especially during this time of volatility. While current interest rates are at an all-time low, they are
expected to rise over the next few years. Given the Group’s 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:
As at 31 December 2021
Not yet due
Less than 90 days past due
Over 90 days
Total
$m
123.0
22.2
9.8
155.0
For the year ended 31 December 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.
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 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.
Conduit Holdings Limited Annual Report 105
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
f.
Strategic risk
The Group 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
The Group’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 of the Group is as follows:
As at 31 December
As at 31 December
2021
2020
$m
$m
Shareholders’ equity
Intangible assets
Total tangible capital
981.2
(1.1)
980.1
1,052.8
(0.2)
1,052.6
Risks associated with the effectiveness of the Group’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.
The Group 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;
■
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 the Group may also be utilised. All
capital actions require approval by the Board.
106 Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
3. Risk disclosures
The primary source of capital used by the Group 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. 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;
■
Training schemes.
4. Segmental reporting
The Group commenced underwriting operations during the year ended 31 December 2021. There were no active underwriting
operations for the period ended 31 December 2020, therefore the Group did not have any reportable operating segments during
that period and no comparative segmental reporting information has been provided.
Management and the Board review the Group’s business and evaluates its performance primarily by three segments: Property,
Casualty and Specialty. These are considered to be the Group’s 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.
US and international casualty risk principally including directors and officers, financial
Casualty
institutions, general, medical malpractice, professional and transactional.
Diverse portfolio of business, principally including aviation, energy, marine, political
Specialty
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 the Group'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 107
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
4. Segmental reporting
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 (excluding US)
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 premium
(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 losses and loss adjustment expenses
(70.9)
(41.1)
(30.1)
(142.1)
Net 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 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 Casualty segment, Other geographic region, are premiums written with external parties in Bermuda for $0.4
million (31 December 2020 – nil).
5. Investment return
Net investment
Net unrealised
Total investment
income
Net realised 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 $0.7 million of investment management and custody fees for the year ended 31 December
2021 (31 December 2020 - nil).
With the formation of the Group towards the end of the 2020 financial year, the Group maintained cash on hand at 31
December 2020, generating net investment income of $0.1 million.
108 Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
6. Insurance acquisition expenses
Year ended 31
Period ended 31
December 2021
December 2020
$m
$m
Insurance acquisition expenses
103.7
–
Change in deferred acquisition expenses
(44.6)
–
Total
59.1
–
Aggregate remuneration and other incentives of the Group’s employees is as follows:
Year ended 31
Period ended 31
December 2021
December 2020
$m
$m
Wages and salaries
7.5
2.4
Pension benefit
0.8
–
Bonus and other benefits
10.4
–
Total cash compensation
18.7
2.4
Equity-based incentives
0.3
0.3
Total employee benefits and other incentives
19.0
2.7
The bonus and other benefits amount includes sign-on bonuses paid to certain employees joining the Group.
Equity-based incentives
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 the Group. 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.
Conduit Holdings Limited Annual Report 109
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
7.Employee benefits and other incentives
The following table lists the assumptions used in the stochastic model for the MIP awards:
Year ended
Period ended
Assumptions
31 December 2021
31 December 2020
Dividend yield
0%
0%
range from
range from
Expected volatility (1)
17.2% – 19.0%
17.6% – 18.1%
range from
range from
Risk-free interest rate (2)
0.3% – 0.6%
0.3% – 0.6%
range from
range from
Expected life of instruments
4 to 7 years
4 to 7 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 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 the Group, are not taken into account when
estimating the fair value;
■
At the end of each reporting period the Group 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.
During the year ended 31 December 2021 a charge of $0.3 million has been recognised in the consolidated statement of
comprehensive loss in relation to the share-based incentives (period ended 31 December 2020 - $0.3 million).
110Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
Year ended 31
Period ended 31
December 2021
December 2020
$m
$m
Results of operating activities are stated after charging the following amounts:
Audit fees
0.8
0.1
Other auditor services
0.1
–
Total
0.9
0.1
During the year ended 31 December 2021, KPMG Audit Limited provided non-audit services in relation to the Group's 2021
interim review. Fees for non-audit services in the year ended 31 December 2021 totalled $0.1 million.
9. Financing costs
Year ended 31
Period ended 31
December 2021
December 2020
$m
$m
LOC and trust fees
0.4
–
Interest expense on lease liabilities
0.1
–
Total
0.5
–
Refer to note 17 for details of the Group’s financing arrangements.
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 2021 an immaterial
tax profit arose compared with an immaterial tax loss for the period ended 31 December 2020.
11. Cash and cash equivalents
Cash at bank and in hand
Cash equivalents
Total
Year ended 31
Period ended 31
December 2021
December 2020
$m
$m
24.4
54.0
43.1
1,000.0
67.5
1,054.0
Cash equivalents include money market funds and other short-term highly liquid investments with a maturity of three months or
less at the date 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 the Group’s financing arrangements.
Conduit Holdings Limited Annual Report111
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
12. Investments
The Group funded its investment portfolio during the year ended 31 December 2021 using cash and cash equivalents on hand
raised from its IPO on 7 December 2020. As a result, certain investment related disclosures and comparative information have
not been provided for the period ended and as at 31 December 2020.Refer to note 17 for investments provided as collateral
under the Group’s financing arrangements.
Cost or amortised
Estimated fair
cost
Unrealised gains
Unrealised losses
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 agencies
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 2021 other assets and other payables included nil and $10.6 million for investments sold and purchased,
respectively (31 December 2020 - nil and nil, respectively).
The Group determines the estimated fair value of each individual security utilising the highest-level inputs available. Prices for
the Group’s 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.
The Group 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 2021. The fair value of securities in the Group’s 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.
112Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
12. Investments
The Group determines whether transfers have occurred between levels of the fair value hierarchy by re-assessing the
categorisation at the end of each reporting period. The Group funded its investment portfolio using cash and cash equivalents
on hand during the year ended 31 December 2021. As a result, 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 the Group's investment portfolio is as follows:
As at 31 December 2021
Fixed maturity securities, at FVTPL
Short-term investments
US treasuries
US agency debt
US municipals
Non-US government and agencies
Asset-backed
US government agency mortgage-backed Non-
agency mortgage-backed
Agency commercial mortgage-backed Non-
agency commercial mortgage-backed Corporate
Total
Level I
Level II
Total
$m
$m
$m
3.1
5.8
8.9
171.8
–
171.8
–
2.0
2.0
–
13.2
13.
2
–
2.2
2.2
–
169.7
169.7
–
94.6
94.6
–
19.2
19.
2
–
3.2
3.2
–
58.4
58.4
117.1
348.1
465.
2
292.0
716.4
1,008.4
13. Interests in structured entities
Unconsolidated structured entities in which the Group has an interest
As part of the Group’s investment activities, it invests in unconsolidated structured entities. The Group does not sponsor any of
the unconsolidated structured entities. The business relations of the Group 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. The Group did not have any interests in unconsolidated structured entities as at 31 December 2020.
A summary of the Group's interests in unconsolidated structured entities is as follows:
As at 31 December 2021
Fixed maturity securities, at FVTPL
Asset-backed
US government agency mortgage-backed
Non-agency mortgage-backed
Agency commercial mortgage-backed
Non-agency commercial mortgage-backed
Total
$m
169.7
94.6
19.2
3.2
58.4
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.
Conduit Holdings Limited Annual Report113
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
13. Interests in structured entities
The risk that the Group 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 the
Group holds. Generally, default rates would have to increase substantially before the Group would suffer a loss. This
assessment is made prior to investing and regularly through the holding period for the security.
14. Losses and loss adjustment expenses
The Group commenced underwriting operations during the year ended 31 December 2021. There were no active underwriting
operations for the period ended 31 December 2020. Consequently, the Group has not provided comparative information for net
losses and loss adjustment expenses or associated claims development disclosures. Further information related to net losses
and loss adjustment expenses is provided in the "Risk disclosures" section.
Losses and loss adjustment expenses
As at 31 December 2020
Incurred losses:
Current year
Exchange adjustments
Incurred losses and loss adjustment expenses
Paid losses:
Current year
Paid losses and loss adjustment expenses
As at 31 December 2021
Reserve for losses and loss adjustment expenses
Gross losses and
Net losses and
loss adjustment
Reinsurance
loss adjustment
expenses
recoveries
expenses
$m
$m
$m
–
–
–
191.0
(48.9)
142.1
(0.3)
–
(0.3)
190.7
(48.9)
141.8
19.1
–
19.1
19.1
–
19.1
171.6
(48.9)
122.7
2021
2021
$m
%
Outstanding losses
26.0
15.2
Losses incurred but not reported
145.6
84.8
Total
171.6
100.0
The Group did not book any additional case reserves for the year ended 31 December 2021. Net losses and loss adjustment
expenses as at 31 December 2021 had an estimated duration of 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 the Group’s loss reserves. The Group believes that the loss reserves established are adequate, however a 20%
increase in estimated losses would have a $34.3 million adverse impact on profit.
As this was the first year in which the Group engaged in active underwriting operations, a reserving methodology was put in
place which will be refined as the Group matures.
114Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
14. Losses and loss adjustment expenses
2021 delivered an active loss environment with higher-than-average catastrophe losses impacting the industry as a whole. The
Group saw losses arise across all of its operating segments, the most significant being from Hurricane Ida and the European
floods. The Group recorded $15.0 million and $12.1 million respectively for these events, net of outwards reinsurance and
reinstatement premiums.
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 the Group, together with the potential for unforeseen adverse developments, could lead to a
material change in estimated losses and loss adjustment expenses.
15. Right-of-use lease assets
Right-of-use lease assets primarily relate to leased properties for the Group's offices in Bermuda and office equipment. The
Company has not received any rent concessions as a result of COVID-19.
Right-of-use assets
Balance and net book value as at 1 January 2021
Additions
Depreciation
Balance and net book value as at 31 December 2021
Lease liabilities
Less than one year
Between one and five years
Total undiscounted lease liabilities
$m
–
3.0
(0.1)
2.9
$m
0.6
2.6
3.2
The discounted lease liability at 31 December 2021 was $2.9 million. The Group does not face significant liquidity risk with
respect to its lease liabilities.
Amounts recognised in the consolidated financial statements
Year ended 31 December 2021
Consolidated statement of comprehensive loss
Interest expense on lease liabilities
Depreciation of right-to-use assets
Total
Consolidated statement of cash flows
Lease payments
There is no comparative information to disclose for the period ended 31 December 2020.
$m
0.1
0.1
0.2
0.1
Conduit Holdings Limited Annual Report115
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
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. There was no amortisation or impairment recognised for the year ended 31 December 2021 or the
period ended 31 December 2020 on the basis that the asset was not yet ready for use.
Cost
Net book value as at 31 December 2020
Additions
Net book value as at 31 December 2021
$m
0.2
0.9
1.1
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 the
Group'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 has the option to request an increase in the aggregate
amount of the commitment under the facility up to $150.0 million. As at 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 $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 2021, $3.9 million
was outstanding under the uncommitted letter of credit facility and is secured by cash and cash equivalents and investments of
$6.6 million.
Trust accounts
Several trust account arrangements were established during 2021 in favour of policyholders and ceding companies to provide
collateral or comply with the security requirements of certain contracts. As at 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 2021, $58.8 million of collateral requests and collateral amendments in respect of the 2021
year were received in 2022. These collateral requests will be completed in the normal course of business and will be funded
during 2022 using cash and cash equivalents and/or investments.
116Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
18. Share capital
Authorised share capitalNumber$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 2021 and 2020
10,000,200,000
100.0
Common shares
A1 shares
A2 shares
Total
Total
Allotted, called-up and fully paid
number
number
number
number
$m
Issued
165,239,997
100,000
100,000
165,439,997
1.7
As at 31 December 2021 and
2020
165,239,997
100,000
100,000
165,439,997
1.7
The number of common shares in issue with voting rights (allocated capital less shares held in treasury) as at 31 December
2021 was 165,207,174 (31 December 2020 - 165,239,997).
CML issued the A1 and A2 shares during the period ended 31 December 2020, with 15,000 shares subscribed and issued to
CHL. For the year ended 31 December 2021 a total of 3,000 shares were repurchased by CML and in turn issued to CHL at par
value. CHL holds 18,000 A1 and A2 shares at 31 December 2021. The A1 and A2 shares have no voting rights attached.
Subject to vesting conditions, discussed in note 7, the A1 and A2 shares will be automatically exchanged for ordinary shares of
CHL.
Own shares
As at 31 December 2020
Repurchased
As at 31 December 2021
TotalTotal
number$m
––
(32,823)(0.2)
(32,823)(0.2)
During 2021 the Group commenced share repurchases under the existing buy-back programme, where shares may be
repurchased up to and including the conclusion of the 2022 AGM scheduled for 12 May 2022. Shares repurchased during the
year amounted to $0.2 million and will be held in treasury to meet future obligations under CHL’s variable incentive schemes.
Dividends
On 27 July 2021 the Group’s Board declared an interim dividend of $0.18 (approximately £0.13) per common share, resulting in
an aggregate payment of $29.7 million. The dividend was paid in pounds sterling on 10 September 2021 to shareholders of
record on 20 August 2021 using the pound sterling / US dollar spot exchange rate at 12 noon BST on 20 August 2021.
See note 23 for information with respect to dividends declared subsequent to 31 December 2021.
Conduit Holdings Limited Annual Report117
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
19. Other reserves
Other reserves consist of the following:
Total other
Other reserves
Share premium
reserves
$m
$m
$m
Issue of shares
–
1,100.9
1,100.9
Issuance costs
–
(45.5)
(45.5)
Equity-based incentives
0.3
–
0.3
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
Other reserves include the Group’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 the Group are treated as a deduction from share premium.
20. Contingencies and commitments
Legal proceedings and regulations
The Group 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:
Year ended 31
Period ended 31
December 2021
December 2020
$m
$m
Loss for the period
(42.0)
(4.6)
number
number
Basic and diluted weighted average number of shares
165,239,907
165,239,997
per share $
per share $
Basic and diluted loss per share
(0.25)
(0.03)
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.
118Conduit Holdings Limited Annual Report 2021
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
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
Bermuda
Support services
CSL
Bermuda
Support services
(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, the Group owns 100% of the share capital and voting rights in the subsidiaries listed.
Key management compensation
Remuneration for key management, the Group’s Executive and Non-Executive Directors, was as follows:
Year ended 31
Period ended 31
December 2021
December 2020
$m
$m
Cash compensation
6.3
1.1
Equity-based incentives
0.3
–
Directors fees and expenses
0.6
0.2
Total
7.2
1.3
Non-Executive Directors do not receive any benefits in addition to their agreed fees and expenses and do not participate in any
of the Group’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 Report119
Financial Statements
Notes to the consolidated financial statements
For the year ended 31 December 2021
23. Subsequent events
Dividends
On 22 February 2022, the Group’s Board of Directors declared a final dividend for 2021 of $0.18 (approximately £0.13) per
common share, which will result in an aggregate payment of $29.7 million. The dividend will be paid in pounds sterling on 22
April 2022 to shareholders of record on 25 March 2022 (the “Record Date”) using the pound sterling / US dollar spot exchange
rate at 12 noon on the Record Date.
Share repurchases
During February 2022 the Group continued with share repurchases under its existing buy-back programme with purchases
amounting to $1.6m.
Ukraine
On 24 February a military conflict arose in Ukraine. The Group does not underwrite direct insurance business and does not
currently reinsure trade credit or political risk and has minimal cyber exposure. The Group does not have any direct exposure to
Russian or Ukrainian assets in its investment portfolio. Investments in Russia, and Belarus, are specifically excluded from our
investment portfolio. The Group continues to actively monitor the developing situation.
120 Conduit Holdings Limited Annual Report 2021
Financial Statements
Additional performance measures (the “APMs”)
The Group presents certain APMs to evaluate, monitor and manage the business and to aid readers’ understanding of the
Group financial statements and methodologies used. These are common measures used across the (re) insurance industry and
allow the reader of the Group'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. The Group’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 the Group’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 the Group for its audited consolidated financial statements or in accordance with IFRS.
Below are explanations, and associated calculations, of the APMs presented by the Group:
APM
Net loss ratio
Net acquisition expense ratio
Other operating expense ratio
Combined ratio (KPI)
Accident year loss ratio
Underwriting year loss ratio
Underwriting profit (loss)
Explanation
Calculation
Ratio of net losses and loss adjustment
Net
losses
and
loss
expenses expressed as a percentage of net
adjustment
expenses/Net
premiums earned in a period.
premiums earned
Ratio of net acquisition expenses charged
Net acquisition expenses/Net
by insurance brokers and other insurance
premiums earned
intermediaries to the Group expressed as
a percentage of net premiums earned in
a period.
Ratio of other operating expenses expressed
Other
operating
as a percentage of net premiums earned in
expenses/Net
premiums
a period.
earned
The sum of the net loss ratio, net acquisition
Net loss ratio + Net
expense ratio and other operating expense
acquisition
expense
ratio +
ratio. A combined ratio below 100% generally
Other
operating
expense
indicates profitable underwriting, whereas a
ratio
combined ratio over 100% generally indicates
unprofitable underwriting, each prior to the
consideration of total net investment return.
Ratio of the net accident year ultimate liability
Accident year
net
losses
revalued at the current balance sheet date
and
loss
adjustment
expressed as a percentage of net premiums
expenses/Net
premiums
earned in a period.
earned
Ratio of net losses and loss adjustment
Underwriting
year
net
expenses of an underwriting year (or
losses
and
loss
adjustment
calendar year) expressed as a percentage of
expenses/Net
premiums
net premiums earned in a period.
earned
Profit or loss directly related to the
Net
premiums
earned
underwriting activities of the Group.
– net losses and loss
adjustment
expenses
– net
acquisition costs
Conduit Holdings Limited Annual Report121
Financial Statements
Additional performance measures (the “APMs”)
APM
Total net investment return (KPI)
Return on equity (KPI)
Total shareholder return (KPI)
Dividend yield
Explanation
Calculation
The Group's principal investment objective
Net
investment
income +
is to preserve capital and provide adequate
Net unrealised gains (losses)
liquidity to support the payment of losses
on
investments
+
Net
and other liabilities. In light of this, the Group
realised
gains
(losses)
on
looks to generate an appropriate total net
investments/Non-operating
investment return. The Group bases its
cash and cash equivalents +
total net investment return on the sum of
Fixed maturity securities, at
non-operating cash and cash equivalents
beginning of period
and fixed maturity securities. Total net
investment return is calculated daily and
expressed as a percentage.
ROE enables the Group to compare itself
Profit (loss) after tax for the
againstotherpeercompaniesintheimmediate
period/Total
shareholders'
industry. It is also a key measure internally
equity, at beginning of period
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.
TSR allows the Group to compare itself
Closing common share price -
against other public peer companies.
Opening common share price
TSR is calculated as the percentage change
+ Common share dividends
in common share price over a period, after
during the period/Opening
adjustment for common share dividends.
common share price
Calculated by dividing the annual dividends
Annual
dividends
per
per common share by the common share
common
share/Closing
price on the last day of the given year and
common share price
expressed as a percentage.
122Conduit Holdings Limited Annual Report 2021
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
represents the public policy interests of Bermuda’s
international insurers and reinsurers that protect consumers
around the world.
Additional case reserves (ACRs) ACRs represent the Group's
estimate for losses related to specific contracts which the
Group believes may not be adequately estimated by the client
as of a reporting date, 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.
A.M. Best A.M. Best is a full-service credit rating organisation
dedicated to serving the financial services industries, focusing
on the insurance sector.
A.M. Best rating A forward-looking, independent, and
objective opinion issued by A.M. Best regarding an insurer’s,
issuer’s, or financial obligation’s relative creditworthiness.
Best Capital Adequacy Rating 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, between (1) a policyholder and a
primary insurer, on behalf of the policyholder, (2) a primary
insurer and a reinsurer, on behalf of the primary insurer, or (3)
a reinsurer and a retrocessionaire, on behalf of the reinsurer.
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.
California earthquake A Californian earthquake catastrophe
event.
Capacity The percentage of surplus that an insurer or
reinsurer is willing or able to place at risk or the dollar amount
of exposure it is willing to assume. Capacity may apply to a
single risk, a programme, a line of business or an entire book
of insurance or reinsurance business. Capacity may be
constrained by legal restrictions, corporate restrictions, or
indirect financial restrictions such as capital adequacy
requirements.
Carrier An insurer or reinsurer.
Casualty or liability insurance The type of insurance that is
primarily concerned with losses caused by injuries to persons
and legal liability imposed upon the insured for such injury or
for damage to property of others. This includes, but is not
limited to, workers’ compensation, automobile liability, and
general liability.
Casualty – GTPL General Third Party Liability.
Casualty – PL/FI Professional Liability / Financial Institutions.
Casualty – Misc lines Miscellaneous Professional Liability
includes professional services that don’t fall into the other
professional insurance classifications. It provides liability and
defense costs for claims that allege errors or omissions,
negligence, misstatements or misleading statements in
performing, or failing to perform, professional services for
others for a fee.
Cedant or customer or client A ceding insurer or a reinsurer. A
ceding insurer is an insurer that writes and issues an original,
primary policy to an insured and contractually transfers
(cedes) a portion of the risk to a reinsurer. A ceding reinsurer
is a reinsurer that
Conduit Holdings Limited Annual Report123
Appendix
Glossary
transfers(cedes) a portion of the underlying reinsurance to a
retrocessionnaire.
CD Communicable disease insurance.
Cede When a party reinsures its liability to another party, it
“cedes” business to the reinsurer and is referred to as the
“customer,” “ceding party” or “cedant.”
CEO Chief Executive Officer. CFO
Chief Financial Officer CHL
Conduit Holdings Limited.
Claim A 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 ratio, in percent, of the sum of net
insurance losses, net acquisition expenses and other
operating expenses to net premiums earned
Company Conduit Holdings Limited.
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 costs Costs incurred for the acquisition
or the renewal of insurance policies (e.g., brokerage and
premium taxes) which are deferred and amortised over the
term of the insurance contracts to which they relate.
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.
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
share by the share price on the last day of the given year.
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.
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.
Errors and Omissions (E&O) A form of professional indemnity
insurance. Errors and omissions insurance protects business
professionals whose clients could claim damages as a result
of the business professional’s faulty performance.
124Conduit Holdings Limited Annual Report 2021
Appendix
Glossary
European Economic Area or EEA The member states of the
European Union plus Norway, Iceland and Liechtenstein.
EU The European Union.
Excess of loss (XOL, XL) or non-proportional Reinsurance
cover provided to an insured in excess of a specified
deductible level. This business is usually written on a layer-
by-layer basis. Reinsurance that indemnifies the reinsured
against all or a specified portion of losses on an underlying
insurance policy in excess of a specified currency value or
percentage loss ratio amount.
Exclusion A provision in a policy that excludes the insurer’s
liability in certain circumstances or for specified types of loss.
A term in an insurance or reinsurance contract that excludes
the insurer or reinsurer from liability for specified types of loss.
An exclusion may apply throughout a policy, or it may be
limited to specific sections of it. In certain circumstances an
exclusion may be limited or removed altogether following the
payment of an additional premium.
Facultative A reinsurance risk that is placed by means of a
separately negotiated contract as opposed to one that is
ceded under a reinsurance treaty. In pro rata reinsurance, the
reinsurance of part or all of the insurance provided by a single
policy, with separate negotiation for each policy cession of
insurance – for sharing liability, premium and loss. In excess
of loss reinsurance, the reinsurance of each policy, with
separate negotiation for each – for indemnity of loss in excess
of the reinsured’s loss retention. The word “facultative”
connotes that both the primary insurer and the reinsurer
usually have the faculty or option of accepting or rejecting the
individual submission (as distinguished from the obligation to
cede and accept, to which the parties agree in most treaty
reinsurance).
FIOC The management Finance Investment and Oversight
Committee.
Financial strength rating The opinion of rating agencies
regarding the financial ability of an insurance or reinsurance
company to meet its financial obligations under its policies.
Florida windstorm A Florida hurricane catastrophe event.
FVTPL Fair value through profit or loss.
GPW or gross premiums written Amounts payable by the
insured, excluding any taxes or duties levied on the premium,
including any brokerage and commission deducted by
intermediaries.
GTPL – General Third Party Liability.
Gross claims Claims under contracts of insurance
underwritten by a carrier plus internal and external claims
settlement expenses less salvage or other recoveries, but
before the deduction of reinsurance recoveries.
Hard market A period of rising premiums and decreased
capacity.
IFRS International Financial Reporting Standard(s).
ILS Insurance Linked Securities Investment assets linked to
insurance-related, non financial risks.
Incurred losses Claims under contracts of insurance
underwritten a carrier plus internal and external claims
settlement expenses less salvage or other recoveries, but
before the deduction of reinsurance recoveries.
Incurred but not reported (IBNR) Anticipated or likely losses
that may result from insured events which have taken place,
but for which no losses have yet been reported. IBNR also
includes a reserve for possible adverse development of
previously reported losses.
International Accounting Standard(s) (IAS) Standards created
by the IASB for the preparation and presentation of financial
statements.
International Accounting Standards Board (IASB) An
international panel of accounting experts responsible for
developing IAS and IFRS.
Incurred loss ratio Paid claims and known outstanding claims
as a percentage of the premiums underwritten by the
company. These can be on a gross or net basis, i.e., before or
after reinsurance recoveries and costs.
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 business A type of liability that carries a long
settlement period. Long-tail liabilities are likely to result in high
incurred but not reported (IBNR) claims, because it may take
a long period of time for the claims to be settled.
Losses Demand by an insured for indemnity under an
insurance
Conduit Holdings Limited Annual Report125
Appendix
Glossary
Loss adjustment expenses The expenses of settling claims,
including legal and other fees and the portion of general
expenses allocated to claim settlement costs. Also known as
claim adjustment expenses.
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.
Margin (reinsurance) As a pricing factor (along with expenses
and losses), the profit the reinsurer expects to earn.
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.
MSM Minimum solvency margin. The minimum excess
unimpaired surplus as a percent of outstanding loss reserve
as set by regulators.
MIP Management incentive plan.
Net acquisition expense ratio Ratio, in percent, of net
acquisition expenses charged by insurance brokers and other
insurance intermediaries to the Group to net premiums
earned.
Net loss ratio Ratio, in percent, of net losses and loss
adjustment expenses to net premiums earned.
Net premiums earned Net premiums earned is equal to net
premium written less the change in unearned premiums and
change in unearned premiums on premiums ceded.
Net premiums written Net premiums written is equal to gross
premiums written less ceded reinsurance premiums written.
Nat Cat Natural catastrophe.
OEP Occurrence exceedance probability is the probability
that the largest loss in a year exceeds a certain amount (of
loss).
Other operating expense ratio Ratio, in percent, of other
operating expenses to net premiums earned.
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 Is 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 ten per cent. 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.
PL/FI Professional Liability / Financial Institutions.
Premium earned The proportion of premium written that
relates to a used period of cover.
Prior years or back years Earlier years of underwriting prior to
the current year.
Probable maximum loss (PML) The anticipated modelled
maximum loss that could result from a single given event, as
opposed to MFL (Maximum Foreseeable Loss), which would
be a similar valuation, but on a worst case basis.
Profit commission A commission that is payable according to
a pre-determined formula as an incentive and reward for
profitable underwriting.
Programme business A package of small to medium property
and liability business favoured by some non-marine
underwriters.
126Conduit Holdings Limited Annual Report 2021
Appendix
Glossary
Property reinsurance Reinsurance exposures that are
exposed to losses from damage or theft to buildings and their
contents – money and securities, records, inventory, furniture,
machinery, supplies and even intangible assets such as
trademarks.
Pro-rata reinsurance or proportional reinsurance All forms of
reinsurance in which the reinsurer shares a proportional part
of the original premiums and losses of the reinsured.
Frequently referred to as quota share reinsurance.
Quota share reinsurance A form of proportional reinsurance
in which the reinsurer assumes an agreed percentage of each
underlying insurance contract being reinsured.
Reserves; claim reserves; loss reserves; loss adjustment
expense reserves 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. Reserves are established
for claims, losses and for loss adjustment expenses, and
consist of reserves established with respect to individual
reported claims and incurred, but not reported losses.
Retrocession; retrocessional coverage A transaction in which
a reinsurer transfers risks it has reinsured to another
reinsurer, commonly referred to as the retrocessionaire.
Retrocessional reinsurance does not legally discharge the
ceding reinsurer from its liability with respect to its obligations
to the reinsured.
ROE Return on equity. Profit for the period divided by the
adjusted opening total equity.
RPI Renewal price index.
Risk transfer The transfer of all or a part of a risk to another
party.
Risk adjusted return A concept that refines an investment’s
return by measuring how much risk is involved in producing
that return, which is generally expressed as a number or
rating.
Short-tail business This is business which normally settles
during the three-year term of a Lloyd’s year of account. Motor,
property, aviation hull and short-term life are all examples of
short-tail business.
Rate on line The ratio of premium paid to total limit in a
reinsurance contract.
Soft market A period of increased competition, depressed
premiums and excess capacity, which is followed by a hard
market – a period of rising premiums and decreased capacity.
Specialty This is a generic term used by companies to
indicate classes of business that fall outside the norm of
property and casualty. However, it is open to interpretation
with different companies using the term to describe different
classes of business. For some it relates to marine, energy
and aviation business whereas some describe casualty as
speciality business.
Surplus The amount by which an insurer’s assets exceed its
liabilities. It is the equivalent of “owners’ equity” in standard
accounting terms. The ratio of an insurer's premiums written
to its surplus is one of the key measures of its solvency.
The UK Code The UK Corporate Governance Code,
monitored by the UK Financial Reporting Council.
Total shareholder return The percentage of the
increase/(decrease) in share price over a period, stated in
percentages, after adjustment for dividends.
Treaty reinsurance This is usually reinsurance business,
which is written on a proportional or quota share basis. A form
of reinsurance in which the ceding company makes an
agreement to cede certain classes of business to a reinsurer.
The reinsurer, in turn, agrees to accept all business qualifying
under the agreement, known as the “treaty.” Under a
reinsurance treaty, the ceding company is assured that all of
its risks falling within the terms of the treaty will be reinsured
in accordance with treaty terms.
UK United Kingdom of Great Britain and Northern Ireland.
Ultimate premiums written Estimated premium reported by
ceding companies, supplemented by management’s
judgement on the estimate provided.
Ultimate loss ratio The ratio of ultimate total paid claims to
total premiums received for all policies written in a given
period.
Unearned premium The portion of premium income that is
attributable to periods after the balance sheet date that is
deferred and amortised to future accounting periods.
Underwriting cycle Market-wide fluctuations in the prevailing
level of insurance and reinsurance premiums.
UNL Ultimate net loss.
US, USA United States of America.
US GAAP Accounting principles generally accepted in the
United States.
VaR Value at Risk.
Conduit Holdings Limited Annual Report127
Appendix
Glossary
Vesting The MIP Shares will vest on: (1) a takeover of CHL;
or (2) a sale or liquidation of CML; or (3) the relevant vesting
period has elapsed for that Tranche of the MIP Shares.
W&I Warranty and Indemnity insurance: coverage usually for
losses arising from a breach of a warranty and claims under a
tax indemnity (and, in certain cases, other equivalent
provisions) in connection with a corporate merger or
acquisition transaction.
128Conduit Holdings Limited Annual Report 2021
Advisors and contact information
Conduit Holdings Limited
Advisors
Bermuda Company Registration Number
Financial advisers
55936
Kinmont Limited
Office address
5 Clifford Street
Ideation House
London, W1S 2LG
94 Pitts Bay Road
United Kingdom
Pembroke HM08
Brokers
Bermuda
Jefferies International Limited
T: +1 441 276 1000
100 Bishopsgate
Registered address
London, EC2N 4JL
Clarendon House
United Kingdom
2 Church Street
Panmure Gordon & Co
Hamilton HM11
One New Change
Bermuda
London EC4M 9AF
Shareholder contacts:
United Kingdom
Company Secretary
Auditors
Greg Lunn
KPMG Audit Limited
E: legal@conduitre.bm
Crown House, 4 Par-la-Ville Road
Investor relations
Hamilton, HM 08
Bermuda
E: info@conduitre.bm
Registrar
Bankers
HSBC Bank Bermuda Limited
Computershare Investor Services (Bermuda) Limited
37 Front Street
The Pavilions, Bridgwater Road
Hamilton HM 11
Bristol BS99 6ZY
Bermuda
United Kingdom
T: +44 370 702 0000
Conduit Holdings Limited Annual Report129
Conduit Re
Ideation House
94 Pitts Bay Road
Pembroke HM08
Bermuda
+1 441 276 1000
conduitreinsurance.com
