Never let a crisis go to waste

Of all the new reinsurers to have launched on the back of hard market conditions, only one raised capital via an accelerated initial public offering: Conduit Re. Its founders discussed the company’s remarkable progress so far.

Conduit Re, the new Bermuda-based P&C and speciality reinsurance underwriting business that completed its initial public offering (IPO) in December, has hit the ground running. In January renewals, it wrote $160 million of gross written premiums from an almost standing start. But its founders are bullish that this is very much just the start for the company.

When Conduit Holdings listed in December, it became only the fifth Lloyd’s carrier to join the London Stock Exchange, including Hiscox, Beazley and Lancashire. That possibly explains some of its success in attracting shareholders, who valued it at £826 million ($1.1 billion) at launch.

But that wasn’t the only thing in its favour. According to Conduit Re’s founders, timing is everything. With rates hardening steadily, market conditions are redolent of the post 9/11 period. Its founders believe that history could be about to repeat itself.

Executive chairman Neil Eckert and Trevor Carvey, the chief executive officer and chief underwriting officer, joined Intelligent Insurer’s Re/insurance Lounge, the online, on-demand platform for weekly interviews and panel discussions with leading players in the market. Together, they discussed how the new venture came about and their plans over the coming months.

As Eckert explained, launching an IPO from nothing wasn’t new for him. He was previously behind accelerated listings for Climate Exchange and Brit Insurance, which he founded and led as CEO until 2005. It was, though, a different experience amid a pandemic—and in some ways better.

“We had over 100 institutional investor meetings. Doing that on Zoom is so much more efficient than sitting in the back of a taxi going around London or New York,” Eckert said.

“We were a known quantity in the sense of the individuals, so straight away they knew what they were going to get.”
Trevor Carvey, Conduit Re

Free from a legacy

Zoom can’t wholly explain the rapid growth, however. After announcing the IPO in November 2020 and completing it in December, the new insurer wrote $160 million worth in the January renewals.

That’s down to several factors, the founders say. One, Carvey explained, is that he and Eckert are both industry veterans, coming to the new company with decades of experience and relationships built in that time—Carvey joined Harbor Point Re in the UK in 2007 and later Markel and Hamilton Underwriting. Much of the groundwork was laid before the IPO, and those signing already knew the underwriters involved.

“We were a known quantity in the sense of the individuals, so straight away they knew what they were going to get in establishing a business relationship with us,” said Carvey.

Although headed by familiar faces the organisation is new, which had advantages. First, it combined a strong credit rating (AM Best rates its financial strength A- in its preliminary credit assessment) with no history, so insureds didn’t have to worry about uncertainties over liabilities relating to the pandemic.

“With the rating we’ve got and no legacy, our strong suspicion is that helped a lot in getting us to pass the security test with all the clients and brokers,” said Carvey

Second, Conduit Re has been able to start fresh without the complexity of integrating or working around existing technology. That’s enabled it to build from scratch using modern cloud-based, modular systems. This has proved a “wonderful luxury”, said Eckert.

“I’ve tried to do this in other businesses. When implementing a brand new system in an existing business with a legacy system that is operating, the data transfer and the challenges are so much greater.”

“Historically under not dissimilar circumstances, we saw a sustained period of profitability.”
Neil Eckert, Conduit Re

Back to the future

The other key factor to which Conduit’s founders attribute its success should give broader encouragement—and it explains what prompted the launch to begin with.

Eckert related that he and Carvey began discussing setting up a new reinsurer in 2019. At the time, the premise was that rates were hardening following under-pricing and poor casualty reserving in the previous five years that had significantly hurt the market.

That combined with a run of bad years for cat risks—2017 was the worst year in history for cat losses, and 2018 to 2020 were also difficult. Uncertainty over COVID-19 just added to the pressure.

“That cocktail pointed to significant hardening,” said Eckert—which has come to pass.

“More importantly, I think it will keep going,” he added.

In this respect, the period could resemble the aftermath of another tragedy, which nevertheless ushered in a golden period for insurers: the 9/11 2001 terrorist attacks on the World Trade Center. It was a shock to the world, but losses from the attack pale beside some recent cat losses in economic terms. Yet, the previous “misdemeanours” meant rates were lifted across the board, and it prompted a sustained period of hardening.

“All the boats were lifting together,” Eckert recalled, and we could now be in for the same again, he said.

“A lot of people made a great deal of money between about 2002 and 2009. That was a good period to be in business and with the similar cocktail,” he said.

“I’m not making predictions on how long the market is going to stay hard, but historically under not dissimilar circumstances, we saw a sustained period of profitability.”

To view the full Re/insurance Lounge session click here

Image courtesy of Shutterstock / Nadya So

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