According to Conduit Re CEO Trevor Carvey, when it came to securing the reinsurers first slice of retrocession from the catastrophe bond market this year, the pricing for the firm’s debut $100 million Stabilitas Re Ltd. (Series 2023-1) was “in our sweet spot.”
As a reminder, Conduit Re eventually secured its first cat bond with pricing that was finalised some 9% below the initial mid-point of guidance.
Discussing the transaction during the Conduit Re quarterly earnings call yesterday, CEO Trevor Carvey’s comments suggest that the timing was just right for the reinsurance firm.
“The strategic approach for us around that is, we’re pretty comfortable with the retro tower that we buy, that’s been in place through 21, 22 and 23, obviously renewed each year. But it’s always good to have alternatives out there and additional sources of retrocession protection to sit alongside it,” he explained.
Going on to discuss pricing of the cat bond he said, “We’d looked at the cat bond market, probably six or seven months ago, and the level of pricing then in that market just wasn’t really that attractive. You know, it was kind of comparable with what we were buying in the standard retrocession tower market.
“We watched it, kept an eye on it and then the issuance that we did in June did actually get a benefit, in terms of the the pricing levels that were there in the market at that time.
“So, I think I used the word, that the pricing in June was more in our sweet spot.”
So the ethos for Conduit Re was to enter the cat bond market at a time when it could secure the coverage at a similar rate to its traditional retrocessional reinsurance arrangements.
But the company is aware there are benefits to having accessed the cat bond market this year.
“Strategically, it gives us that buy-forward element to the program. You know, it’s multi year, and it complements what we buy,” Carvey said.
Adding, “It’s really designed to respond to a severe event, in the same way that our retrocession tower picks up large events, particularly cat, that run through from a severity standpoint. That’s really what the cat bond does, but it has an element of a complimentary nature to the program.
“So, it’s complementary to it and, to a large extent, it enables us to have a block of capacity in that cat bond market rolling forward.”