Speaking at a conference hosted by investment bank Berenberg, Conduit Re’s chairman, Neil Eckert, suggested that despite expecting new capital to be drawn in following the repricing of risk, the inflow may not be large enough to put significant pressure on pricing.
According to Berenberg’s analysts, Conduit is “upbeat” on the market opportunities in reinsurance, as the firm highlighted that the hard market conditions now are better than anticipated when it first entered in December 2020.
Conduit is of the view that the hard market conditions are sustainable in the short to medium term given the current inflationary pressures and the disconnect between the lack of supply of capital and the increased demand for reinsurance. The firm also noted that previous hard cycles, such as in 2005, lasted for many years.
Despite anticipating that new capital will be attracted to the space following the repricing of risk, Conduit is of the view that the amount of capital that comes in may not be sufficient enough to put significant pressure on pricing amid the structurally higher demand due to inflation.
Berenberg’s analysts estimate that Conduit’s growth is currently running slightly ahead of its original business plan at c$870m of revenue, which is closer to year four of the original plan ($893m) than year three ($756m).
Given the better-than-previously-anticipated pricing and diversification, Conduit reiterated that it has ample capital to deploy and grow the business to year five and beyond.
The firm views inflation as a risk to prior year casualty reserves across the industry, though it does not have any exposure given that it started writing business in 2021, leaving it well placed to benefit from the hard market.
Conduit remains confident that as the unearned premium from prior years earns through, it will continue to improve the combined ratio, and remains on track to reach a mid-80s combined ratio on a steady state.
The firm expects that a mid-80s combined ratio would allow it to achieve a 15% ROE in line with its long-term target.
Conduit also anticipates higher investment returns due to rising yields which are accretive to ROE, but the target of 15% remains unchanged.