Conduit Re claims easy path to 60% gain at 1.1 despite rough market for others

Conduit Re secured its 60% year on year top line growth from 1.1 treaties without bending its underwriting plan: the split of the book remains in line, the shift from quota share to XoL advanced moderately and high retention ensured a largely stable portfolio, management has argued.

“It’s been a rough ride for the industry and the market, but a great place for us to be in,” CEO Trevor Carney said of a renewal season he claims brought “structural shift” to the market.

Comments follow word early in the day that Conduit Re likely managed to increase its 1.1 treaty premiums by 60% year on year on a 19% average increase in risk adjusted rate net of inflation.

The $421.4 million in estimated ultimate premium written is “certainly ahead of our original five-year plan of where we were expecting to be by the time we got to year three.”

Growth 1.1 followed the plan:  capture opportunity in property and select specialty lines after having built early in casualty.

Property is up 81% on a 39% increase in risk adjusted rate to increase its weight in the portfolio by 6 percentage points to 47%. Non-cat to cat property remains at roughly a 2:1 ratio, although management spoke of numerous changes in terms and conditions altering cat exposures across treaties.

Officials declined to offer a pricing split for cat-exposed and non-cat property, saying that the tightening of terms had blurred some of the calculus. “For both cat and non-cat, the driver there is rate,” CEO Carney said. After that, there are “many levers” – chiefly limits - Conduit can pull to adjust exposure, with heavy kick-on effects for price.

In specialty, Conduit rode a 14% risk-adjusted rate change to a 65% increase in estimated premium, enough to keep the segment flat at a 26% share of the Conduit Re portfolio.

The flood of good looking XoL submissions ensured a single digit percentage shift towards XoL in the book at the expense of quota share, Carney indicated. But quota share terms also looked strong and Conduit was “really happy with the QS we saw.”

And the move by cedants into XoL looks “healthy” to Conduit Re, bringing a better alignment of interests between sides as primaries put more skin in the game, officials argued.

In property, Conduit Re claimed to have seen “some” shift towards named perils in contract wordings where buyers could secure easier terms if they could better identify core risks. That largely meant carriers focusing on wind and earthquake perils in the US and a more general shedding of select peripheral covers outside the definition of pure natural catastrophe.

Casualty lines moved more modestly, with Conduit claiming a 1% increase in risk-adjusted rate. Management cited "continued selective growth" among "attractive underwriting opportunities." The premiums estimate is up 31% year on year to fall to 27% of total, down 6 percentage points from a year ago.

Comfort with the new book comes on familiarity. Conduit Re claimed a high retention rate neighbourhood 85 to 90%, ensuring overall stability and focus to evaluate new offers flowing in.

“We weren’t in a position of having to unwind previous positions or exposures,” Carney said. Conduit faced chiefly familiar business plus spill-over offers from a tightening market.

“It really struck us as renewal season was developing but we were able to deploy capital because we were still growing into our skin,” Carney said.

New capacity could enter the market in 2023, “but not enough to make a dent in the supply-demand imbalance,” Carney believes. The capacity that comes will likely head to property cat and retro: property cat because of the scale of the hardening as because the single-year tail eliminates all road-blocks; retro because “the tail wags the dog” and a bit of extra capacity at renewals did arrive “very late in the day.”

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