After a positive outcome at the January 1 reinsurance renewals and a very solid performance in the first quarter of 2024, we spoke with Conduit Re CEO, Trevor Carvey, about the evolution of the Bermuda-based reinsurer, market dynamics, and the importance of managing the cycle.
Conduit Re took advantage of attractive underwriting opportunities in property and specialty at 1.1, growing its portfolio by 38% with an overall risk-adjusted rate change, net of inflation, of 3%.
Subsequently, the company reported an impressive set of results for the first quarter of the year, with reinsurance revenue rising by more than 35% as gross premiums written increased by over 28% to almost $357 million.
“When we put the plan together, we knew that there was going to be good growth over the course of five years in reinsurance generally, but the market across property, casualty, and specialty has been much stronger.
“For us, it’s been a question of building that core book as we went through 2021 and 2022, and we’re really happy with the clients we’re renewing with,” said Carvey.
The 37% growth in property and 31% growth in specialty achieved by the firm during Q1’24 was very deliberate and reflects Conduit’s belief that these areas were the strongest in the market.
“Casualty is doing its part, but as we’ve pointed out in the past, the key for us is that casualty year-over-year doesn’t show a deterioration in underwriting combined ratio. We shrunk our lines on some of our renewals, although just a small handful, but we’re always seeing new business. So, that’s where you’ve got that plus 6% in casualty,” continued Carvey.
“Overall, it’s been a really good quarter and we’ve still got what I call a large deal pipe, as there’s a lot of business flowing through that we’re still selecting from,” he added.
The casualty market was a hot topic throughout 2023 and there’s ongoing uncertainty around some prior years, leading numerous players to adjust their reserves in a challenging inflationary environment, compounded by social inflation and loss trends.
“I’ve always been really conscious through my career that the industry, given its traditional techniques, has a history of pricing casualty by looking somewhat through the rearview mirror, by developing triangles. Out of those various techniques, it comes up with a forward looking view. But it’s essentially a proxy for a forward looking view because it’s based on history.
“We use that as part of our pricing analysis, but the key for us with casualty is to be able to look through the windscreen; we want to look through the forward view. And we do that by talking to clients and looking at the business they’ve written in the last quarter or the last six months, how that compares to what they were doing a year ago or the year before that. That that gives you a really live view of how the market is operating now,” explained Carvey.
“And for us, we still see the core clients that we’ve got based on that analysis as doing a really good job of holding the line. So, that’s how we fundamentally think about casualty,” he continued.
For Conduit to shift its general approach to the casualty space, Carvey suggested that there would need to be institutional change on the macroeconomic level, with loss trend and claim inflation starting to drop.
Since the company’s inception, non-catastrophe business has been a big part of what Conduit has done in building its book. The reinsurer has always stressed that it would not be a skewed catastrophe writer, and currently, around a third of the premium the firm writes is cat related.
“In the property non-cat risk space, we identified going back to probably the middle of 2021, where we saw the change in that non-admitted E&S risk space, that it was really starting to move from a pricing standpoint. We made a call then to deploy more capacity into that ground-up risk space, which does have cat exposure but of course, it’s diluted by the large components of risk premium.
“So, what we’ve done is build a distribution chain into us that started in the middle of 2021, where the clients in the non-admitted space can demonstrate that they’re getting really good ground-up value that has a lower cat component, and that’s probably the best way to think about it,” said Carvey.
This approach is a big part of what Conduit does, explained Carvey, and with the carrier now in its fourth year of doing that, it’s a key part of building the overall diversified portfolio and balance within it.
“We’re still very excited about that,” said Carvey. “The specialty team as well do a lot of work around non-cat related classes in specialty. And, as we sit here, through the mid-year renewals and now we’re going into Q3, there’s still a strong flow of business in that space. It’s actually probably one of the most exciting areas of what we do.”
Evidenced by the strong level of growth at the January reinsurance renewals, Conduit has always been keen to expand its portfolio in a rising market but also isn’t shy of reducing the size of its book when the market starts to turn.
Managing the cycle, explained Carvey, goes to the very heart of it.
“The key to it is knowing where you are in the cycle, which seems an obvious thing to say. But unless you really are tracking rate change and terms and conditions change quarter-to-quarter on big blocks of business, it’s sometimes tough for reinsurance businesses to understand exactly where they are on the point of the curve. Are you approaching the peak of a cycle? Are you coming out of the bottom of the trough?
“So, we spend a lot of time facing clients about their data, to understand exactly where they are and therefore where we are as a reinsurer behind them at the point in the cycle.
“It’s certainly the key to success over time and optimising returns over longer periods of time, to know when you need to put your foot on the accelerator, and when you need to put your foot quite heavily on the brake, or turn the wheel,” said Carvey.
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