Analysts at S&P expect Bermuda-based insurer and reinsurer Convex Group to build up scale over the next 24 months and feel that the “greenfield” insurer is unlikely to be profitable until it has expanded its premium base.
Launched by Stephen Catlin and Paul Brand earlier in 2019, Convex Group is an international specialty insurer and reinsurer with $1.8 billion of initial committed capital.
The re/insurer previously secured its all-important A- ratings from A.M. Best for its subsidiaries, and has now received ‘A-‘ ratings for its operating entities and a stable outlook from S&P.
S&P states that despite the firm being new it is not viewed as a start-up but as a “greenfield” insurer that the ratings agency says benefits from the shared management experience at Catlin along with its reputation.
“As a greenfield insurer, we expect Convex to have a smaller premium base compared with peers, and to build up scale over the next two to three years,” explains S&P. In light of this, the ratings agency feels that it is unlikely that Convex will be profitable until it has built a bigger premium base, and estimates that its combined ratio will exceed 100% in 2020, declining to 95% in 2021.
In S&P’s view, Convex Group’s operating subsidiaries have extremely strong capital adequacy, but nevertheless, it’s still a relatively small specialty re/insurer with limited diversification. At the same time, S&P notes that Convex is likely exposed to catastrophe risk through the business it writes, which commenced in May, and to execution risk through its ambitious business plan.
In light of the above, S&P has assigned its ‘A-‘ financial strength ratings to the group’s core operating subsidiaries, Convex Re Ltd. and Convex Insurance UK Ltd. The outlook on both ratings is stable.
Convex’s large capital base provides the re/insurer with a large excess of capital above S&P’s ‘AAA’ benchmark, and it’s expected that the firm will maintain this level of capital adequacy over the next two to three years.
“The stable outlook signifies that we expect Convex to expand broadly in line with its business plans over the next two years, while maintaining an excess of capital above our ‘AAA’ benchmark. We also anticipate that Convex will start generating underwriting profits by the end of 2021,” explains S&P.
Reinsurance News spoke with Catlin and Brand of Convex earlier in the year about the firm’s experience so far and what the future might hold for the specialty re/insurer. The pair explained that 2019 was the year of building the toolkit, and also discussed the rise of technology and the fact it doesn’t have any legacy issues.
