Conduit Capital predicts that its main operating cog, Constantia Insurance Group, will achieve breakeven underwriting results in 2019 and that it is poised for strong growth.
Interim results to end-December released on Friday showed that Constantia notched up a R93m net underwriting loss. Conduit CEO Sean Riskowitz warned shareholders that underwriting was volatile by nature, "especially in the context of the rapid business evolution under way at Constantia".
In the six months, Constantia’s gross written premium increased 40% to R726m with net written premium, adjusted for solvency reinsurance, surging 33.3% to R596m.
Net premiums excluding solvency reinsurance crept down 3% to R159m.
Large gains were recorded in its motor and property insurance books, both more than doubling to R137m and R70m on a gross premium basis.
Constantia’s large health insurance book increased gross premiums to R414m from R384m but net premiums plunged to R19m from R87m.
Riskowitz noted the health segment — comprising medical gap cover, primary health, medical evacuation and medical malpractice — was nearing R1bn in annual premiums.
The health segment’s underwriting loss was reduced from R30m to R6m. He said that once sufficient reserves had been built up in the medical malpractice book, the health-related portfolio would contribute to underwriting profits. "By all indications, this portfolio is well positioned to achieve an excellent turnaround…."
Despite the large financial services segment, Conduit positions itself as a holding company aiming at developing a diversified insurance group complemented by a value-oriented investment programme.
Riskowitz said Conduit’s long-term objective was compound underlying business value per share at rates greater than the market.
Conduit’s equity portfolio produced a pretax return of 21% in the interim period.
Riskowitz said the group would own a concentrated portfolio of "compounding-type businesses" permanently.
Conduit invested in high-conviction ideas where the risk of loss was limited and the upside potential uncapped due to the durability of the underlying company’s competitive advantage, he said. "We invest in outstanding businesses that have the capacity to compound their value at a high rate for a long time. Conduit is not a trading operation with quick ins and outs and a short-term focus…."
Conduit disclosed its top five investments as Taste Holdings, a fast-food specialist with local rights to global brands such as Starbucks; Trustco, a Namibian investment company; Finbond, a specialist financial services provider; Calgro M3, a low-cost housing developer; and Combined Motor Holdings, a car dealership network.
Riskowitz argued that the equity portfolio valuation was significantly less than a conservative estimate of the underlying business value. "Consequently, we believe the portfolio is well positioned for a high rate of future return," he said.