Conduit Re ‘off to a flying start’, says chairman as early results show big losses

Conduit Re has unveiled its initial public offering with net proceeds of $1.06 million (£790 million), with Neil Eckert, executive chairman, saying the firm has “got off to a flying start”.

The reinsurer, which only started underwriting on January 1, 2021, also confirmed a loss after tax of $4.6 million and a negative return on equity 0.4 percent in its preliminary results for the period ended 31 December 2020

Unaudited results for October 7 to December 31, 2020 for the property and casualty (P&C) and specialty reinsurer showed net investment income of $51,000, which added to $151,000 of net foreign exchange gains gave a total net revenue of $202,000.

Eckert said: "Conduit Re has got off to a flying start. We have launched the business in attractive and improving market conditions. We have already established a top class management and underwriting team. We are embracing the benefits that technology brings for the new generation of reinsurance underwriters and we have established strong relationships with our key trading partners around the market. It is an exciting time to be building a new reinsurance business and we couldn't have asked for a better beginning to the establishment of Conduit as a new breed of reinsurer.

“In addition, we are working hard on our ESG strategy and we are delighted to announce that Sir Nicholas Soames has agreed to chair the newly established Conduit Foundation, which will engage in both social and environmental projects."

Trevor Carvey, chief executive and chief underwriting officer, said: "Following on from our strong start in the 1 January 2021 renewals, we continue to build out our underwriting portfolio according to plan. We have seen wide acceptance by brokers and clients alike as an attractive and value-adding business partner and we are well positioned to deliver on our stated strategy of building a balanced and diversified portfolio.

We are the beneficiaries of attractive and improving market conditions in the classes of business we are targeting, which allows us to remain highly selective in the way we deploy our capital, a hallmark of the Conduit Re underwriting philosophy. The underlying pressures driving improvements in both rates and terms are coming from the primary markets and permeating at an increasing rate into the reinsurance markets. We believe this will lead to a more sustained improvement taking into account the many factors that led to deteriorations in industry loss ratios in recent years.

Consequently, we have been more focused initially on taking a pro-rata share of primary insurance via the underwriting of quota share reinsurance treaties rather than on excess of loss in our early trading. However, we still expect to deliver a balanced portfolio across all classes and territories and we look forward to the upcoming April and mid-year renewals with optimism."

Elaine Whelan, chief financial officer, said: "The group raised a total of £790 million ($1.06 million), net of offering expenses, in the IPO in December but did not begin underwriting until the 1 January 2021 renewals. Our consolidated financial statements for the period from incorporation to 31 December 2020 therefore include mostly the expenses from our IPO and operating expenses from our first month of setting up the business. We have a loss after tax of $4.6 million resulting in a small negative return on equity of 0.4 percent. Costs directly related to the equity issuance were charged against equity. The loss after tax was driven primarily by payroll, legal and regulatory expenses.

While it will take some time for us to fully build out our underwriting book, and therefore fully deploy our capital, we are focused on risk selection and will maintain a balanced approach. Conduit is an underwriting business, first and foremost, and that is rightly where our principal focus is. Capital preservation and liquidity will, therefore, remain the primary objective of our investment strategy in order to support our underwriting goals."

On January 14, 2021, the reinsurer reported it had written $160 million of gross premiums at January renewals, and completed its senior underwriting team with the hiring of a new CFO. The London-listed company has also secured formal trading agreements with 12 of the world's leading reinsurance broking firms.

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