Conduit Re: the last of the true startups

Trevor Carvey, co-founder and chief executive officer of Conduit Re, arguably the market’s biggest, most recent major reinsurance debutante on a market that many might have expected more startups to enter, is in buoyant mood. Not only is Conduit Re now reaping the rewards of launching at a time when others failed to get off the ground—it is now operating in a true hard market where demand is rising.

“The increase in demand for reinsurance limit is still moving,” Carvey told Baden-Baden Today. The mid-year renewals brought “a very large increase in reach for limit” driven by inflation and asset prices and “the picture we have from clients is that demand will rise”.

He is in reflective mood, however. Previous hard markets—and none has been harder in a generation—have proved the long-standing market logic that, like mushrooms after a rain, new players are launched, usually in Bermuda.

What does Carvey know, as the last debutante, about why none has followed? His first response points to “the challenge of launching a rated carrier” and launching it on public markets. The barriers to entry have become higher.

Equally, a plethora of other types of investment vehicles with lowers bars now compete for investor attention.

“Dealing online in virtual meetings focused the mind.”

Carvey, together with partner Neil Eckert, did have their fair share of barriers to hurdle. Fundraising in 2019 and into 2020 was still in the low-interest rate world and investors were attracted by the potential lucrative returns in reinsurance. But Carvey and Eckert didn’t follow a generational hard market—they anticipated it, following an “interesting general dynamic” in the casualty legacy market. They thought it might herald something bigger.

They presented what Carvey considers a very standard message: a diversified treaty book based on leaders with a strong track record. But then they captured a wider audience when the COVID-19 pandemic pushed investor meetings online.

“Dealing online in virtual meetings focused the mind and was quite efficient in seeing a lot of people and getting our message across,” he recalled. They launched in November 2020 for the January 2021 renewals.

Other investment options

Today, investor attention may be a tougher hurdle, Carvey admits. The current hard market came paired with a spike in interest rates that gave investors a proliferation of other investment options with lower bars to entry, both inside and outside the re/insurance space.

Within reinsurance, options were available via insurance-linked securities-focused investment funds and cat bonds. “With all the alternative opportunities for investors, the bar has moved higher for would-be startup talent,” he said.

The reinsurance market has also changed. The business has certainly become more complex and less amenable to any industry hotshot who can plug a model into an Excel sheet and start placing bets, Carvey noted.

A heightened bar for analytics represents another possible barrier to entry, he said. “Buying a model and going top-down has a place,” he said, but a bigger commitment is now needed, working with data from the ground up.

“As more data has become available at lower and more granular levels, the onus is on the reinsurers to access, analyse and build an understanding of what happens from grass roots up,” Carvey said. “Underwriting teams have to be intellectually curious as to why datapoints are moving.

“It doesn’t cut down on the space for startups, but points towards a type of skillset and commitment that new entrants would need.”

“There’s room for savvy newbies to pick and choose.”

That said, experience and expertise are also needed. “Track record and credibility are a challenge in any launch, and count for a lot when investors are looking at an equity position,” he said.

The flipside is that market conditions remain favourable to a startup, and the demand for reinsurance is still gaining traction, Carvey said.

“This looks durable, with no-one from the big incumbent players seeming eager to spoil the market. Supply has been disciplined and demand is rising; there’s room for savvy newbies to pick and choose,” he added.

They can do it without losing diversification. New capacity may be moving into new markets “in certain areas,” but not universally enough to change the dynamics.

“To a large extent we underwrote around capacity inflows at mid-year 2024,” he said.

“Rates have started to come off in certain classes, but relatively speaking it is a pretty good place to be.”

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