Conduit Re ready to rebalance towards XOL if the price trends up

Upstart property, casualty and specialty reinsurer  Conduit will eye opportunities to shift back towards excess of loss deals should the risk-reward balance offer a reasonable chance for the group to get back to its initial target levels, top officials have said.

“We are still growing into our overall skin through this year and into 2023,” an official told an investor call following publication of Q4 earnings of the current mix of structures. “But we are ready to move some of the quota share into matching XOL class if the rates are there.”

“The portfolio is alive and if the opportunity is there we would potentially consider switching over,” he said.

At end-2021, Conduit sported a quota share to XOL split of 64-36, well off from the company’s year-two plan of 48-52.

A “strategic focus on quota share business to access best pricing and terms and conditions resulted in optimal diversification, lower volatility within the portfolio and an embedded pipeline into 2022,” management said in its earnings presentation to explain revenue and earnings trends.

“The benefit of quota share is less volatility,” chief financial officer Elaine Whelan (pictured) said. The cost: increased acquisition costs and an impact on revenue recognition, she said.

A year’s worth of gross written premium on quota share works its way into ultimate premium over a longer two-year period, she noted. Only 50% of GWP becomes the ultimate premium in the contract year, a sum that rises to 90% after 18 months.

“Once we are in a pattern of a renewing book, when we have some earnings pushed out, we have others coming in … it does get steadier after a couple of years,” Whelan said.

Officials likewise reiterated their optimism on rate hardening as expressed in a mid-January conference on January renewals.

“I think that the market will get interesting through this year,” an official said. “People are worried about volatility and this shows a continuance of what will underpin the hard market conditions and allow us to get rate rises above claims inflation,” he said.

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