Conduit Re, the reinsurance company that is looking to raise $1.1 billion with a London Stock Exchange listing and launch in Bermuda, has retrocession, industry-loss warranties (ILW’s) and also collateralised business within its sights.
Being a new reinsurance company to the market, at a time when there has been significant private equity capital inflow to the traditional side of the market, newly launched Bermuda based reinsurance start-up faces a competitive time to launch.
But the opportunity is great, given the hardening of the global reinsurance marketplace and so the founder’s of the company, Neil Eckert of Brit and IFEX fame and Trevor Carvey formerly of Markel, recognise the potential to capitalise both on the state of the reinsurance market and investor appetite at this time.
Conduit Reinsurance, the Bermuda based Class IV reinsurer, and Conduit Holdings, which will be the London listed holding company, aims to operate a relatively traditional reinsurance business model, targeting multiple classes of business.
But within the broad underwriting target lines for Conduit Re, are also instruments such as those the ILS fund market is more focused on.
Conduit Re expects to write a global book of excess-of-loss and quota share treaty reinsurance, across property, casualty and specialty lines.
The company appears set to avoid aggregate reinsurance coverage, we understand, with property XoL focused on catastrophe exposures and per-risk covering man-made events more favoured.
Avoiding worldwide coverage is another factor for Conduit Re, as the reinsurer aims to build up its own globally diversified book of covers, diversified on a line of business basis as well.
However, the company expects that its portfolio will include an element of retrocession and also industry loss warranty (ILW) business, which is unsurprising given the start-up nature, as well as the pricing environment at this time.
Start-up reinsurers, as well as ILS fund managers, are often targeted by brokers seeking new markets to provide retro and ILW capacity.
These markets represent an often much easier way to begin building a broader book, than adding individual excess-of-loss contracts.
Also, in a competitive market environment, there is often more chance of securing deals in the retro and ILW market, especially at a time like this when capacity has been drained from some of these areas of the marketplace.
Of course, as with any reinsurance start-up, Conduit Re does face the challenge of trying to not be viewed as having to offer cheaper capacity to get on deals, a problem even the most highly respected start-up founders face.
Even some of the highest profile start-up reinsurers of the last decade have had to start constructing their portfolios focused on retrocession and ILW’s.
Conduit Re is also not averse to writing reinsurance business on a collateralised basis, should the business meet certain target returns.
The reinsurer doesn’t specify whether this would be on third-party capital, or its own capital. But by not excluding the possibility, Conduit Re leaves the door open for third-party capital partnerships further down the line.
Conduit Re will only write collateralised reinsurance or retro business where it presents an “exceptional underwriting opportunity” and meets its targets for return on capital.
Again, as a start-up, you sometimes can’t be so picky about the business you underwrite and brokers will tend to bring a range of deals, such as ILW’s, some of which may be better off collateralised.
Conduit Re expects to buy a retrocessional reinsurance program itself, as a way to protect against aggregations of catastrophe losses from multiple worldwide events, as well as against more severe single loss event impacts.