Whole account
Coverage is generally provided on a worldwide basis and covers a broad spectrum of the cedants risks under a single
policy. The classes of business covered under a whole account reinsurance policy can include traditional property and
casualty classes of business including commercial and personal automobile, general liability, workers’ compensation,
employers’ liability, excess casualty and umbrella, as well as selected professional liability coverage.
Ceded reinsurance
Ceded reinsurance is purchased in the normal course of business to increase capital capacity, limit the impact of
individual risk losses and loss events impacting multiple cedants (such as natural-catastrophes), or both. Ceded
reinsurance may also be purchased from time to time to optimise the risk-adjusted return of Conduit's aggregate
underwriting portfolio. Conduit may purchase ceded reinsurance on both an excess of loss and proportional basis, and
may in future supplement this with the use of catastrophe bonds or other capital market products. The mix of ceded
reinsurance coverage is dependent on specific loss mitigation requirements, market conditions and available capacity. In
certain market conditions, Conduit may deem
it more economic to hold capital than purchase ceded reinsurance. Ceded reinsurance does not relieve Conduit of its
obligations to policyholders. Conduit is exposed to reinsurance risk where ceded reinsurance contracts put in place to
reduce gross reinsurance risk do not perform as anticipated, result in coverage disputes or prove inadequate in terms
of the limits purchased. Failure of a ceded reinsurer to pay a valid claim is considered a credit risk which is detailed in
the credit risk section below. Ceded reinsurance coverage is not intended to be available to meet all potential loss
circumstances. Conduit will retain certain losses, as the cover purchased is unlikely to transfer the totality of Conduit’s
exposure. Any loss amount which exceeds the ceded reinsurance coverage purchased would be retained by Conduit.
Some ceded reinsurance policies have limited reinstatements, therefore the number of claims which may be recovered
on second, and subsequent loss circumstances is limited.
Under Conduit’s ceded reinsurance security policy, ceded reinsurers are assessed and approved based on their
financial strength ratings, amongst other factors. These decisions are regularly reviewed as an integral part of the
business planning and performance monitoring process. The management Counterparty Security Committee examines
and approves all Conduit’s ceded reinsurers to ensure that they possess suitable security.
Net losses and loss adjustment expenses
A significant and critical judgement and estimate made by management is the estimation of net losses and loss
adjustment expenses. Management estimates net losses and loss adjustment expenses, and the associated reserves
to cover its estimated liability for both reported and unreported claims on events that have occurred up to the latest
valuation date. Management uses methodologies that calculate a point estimate for the ultimate losses, representing
management’s best estimate of ultimate net losses and loss adjustment expenses. Conduit establishes its reserve for
losses and loss adjustment expenses by taking outstanding losses, adding an estimate for IBNR and, if deemed
necessary, ACRs which represent Conduit's estimate for losses related to specific contracts that the management
believes may not be adequately estimated by the client as of that date.
Loss reserves are not permitted until the occurrence of an event which may give rise to a claim. As a result, only loss
reserves applicable to losses that have occurred up to the reporting date are established, with no allowance for the
provision of a contingency reserve to account for expected future losses or for the emergence of new types of latent
claims. Claims arising from future events can be expected to require the establishment of substantial reserves from
time to time. All of Conduit’s reserves are currently reported on an undiscounted basis.
The reserving process is dependent on management's judgement and is subject to meaningful uncertainty due to both
qualitative and quantitative factors, including, but not limited to: the nature of the business written, whether it is short-tail
or long-tail, whether it is excess of loss or proportional, the magnitude and timing of loss events, the geographic areas
impacted by loss events, time lags in the reporting process from the original claimant, limited claims data, policy
coverage interpretations, case law, regulatory directives, demand surge and inflation, potential uncertainties related to
reinsurance and ceding company reserving practices, and other factors inherent in the estimation process for net losses
and loss adjustment expenses.