Conduit Re: now is a great time to be a Bermudian startup

When the history of the re/insurance market is written, 2020 will be looked back on, not only as the year of COVID-19, but also as the birth year for an impressive cohort of new Bermudian re/insurance companies. One name that may stand out is Conduit Re.

The pure-play treaty reinsurer slipped into the class of 2020 by launching in December when holding company Conduit Holdings completed an initial public offering (IPO) on the London Stock Exchange, raising $1.1 billion.

That in itself was an impressive achievement, says Neil Eckert, Conduit Re’s executive chairman. “Most new players in this market have come to market via private equity,” he points out. “We are the only large scale IPO to have happened on either side of the Atlantic in recent years.”

Eckert sees the wave of new formations that washed over Bermuda in 2020 as part of a larger picture. “We are going through a period of immense consolidation, although most of the mergers and acquisitions (M&A) deals took place at the bottom of the soft market,” he says.

“A lot of the major players in both Bermuda and London have disappeared.”

The startups are partly a response to those disappearances, with new companies emerging to fill a vacuum created by the increasing concentration in the market. They are also evidence of the hardening market: “the first real hard market for 15 to 20 years”, Eckert notes. “You can only truly start a business in a hard market, when the risk is much less.”

Even with the conditions ripe for startups, there will always be a limit on the number of new re/insurers coming through at any one time, he notes.

“There’s a limited number of credible management teams out there,” he says.

Conduit Re has no problem on that front, as its IPO success attests. Eckert has four decades of re/insurance industry experience, having founded Brit Insurance in 1995. He has been involved in other businesses too, co-founding Climate Exchange and leading the company until its sale to Intercontinental Exchange in 2010.

Conduit Re’s group chief executive and chief underwriting officer is Trevor Carvey, a former founding underwriter and leader at Arch Re Bermuda in 2002, who more recently assisted in building out Hamilton’s treaty strategy in the UK.

Carvey helped build out Harbor Point Re’s reinsurance operations and served as chief underwriting officer for Europe at Alterra Re, helping to integrate its global reinsurance unit into Markel.

Supporting them is an experienced and capable team that has given investors the confidence that carried the IPO’s success.

“It comes down to knowledge of the market and expertise,” says Carvey. “We have spent months building our team and we have created a group with great experience of the reinsurance and insurance markets.

“The amount of insurance expertise we have in our reinsurance team is unique.”

Nimble and focused

Conduit Re is a business that is extremely comfortable with its role as a new, smaller player in an industry dominated by re/insurers that have grown larger than ever following that period of consolidation.

Scale has always brought its advantages but it also has disadvantages, and Conduit is keen to take advantage of its nimbleness as a smaller player.

Carvey says: “Having a large amount of legacy business certainly doesn’t prevent you from going after new opportunities. What it does do is divert focus from them. That is good for us, because all our focus is on those new opportunities.”

Conduit Re’s real differentiator, however, is its determination to concentrate on one area of the market: reinsurance treaty.

“Reinsurance treaty is in our DNA,” says Carvey. “We know how to underwrite in this market to optimise returns.”

Eckert explains: “A lot of businesses start and diversify into a few new lines; then maybe it’s time to launch a Lloyd’s syndicate, and then after that it’s a new office. That is not us.

“We want to be a Bermuda specialist treaty reinsurer. When you grow you sometimes lose the close-knit quality you had when you started, that link between the employees and the business. Sometimes it’s best to stick to your knitting.”

Good feedback

The sheer number of startups in Bermuda in 2020 might be assumed to create a squeeze on the labour market on what is a relatively small island, but Eckert insists Conduit had no problem securing the people it wanted when it was assembling its team, making the finishing touches in January. 

“Bermuda has a very strong talent pool,” he says. “The majority of our people are on the Island, the underwriters and the head of human resources. We don’t have a sales and marketing office in London, it is in Bermuda.”

Eckert himself is in London, along with Tristan McDonald, who is responsible for group strategy and the London chief executive, with both working on the investor relations side. Everyone else is in Bermuda.

Carvey believes prospective employees were drawn to the idea of working for a new venture. He says: “Candidates we interviewed repeatedly said, especially on the casualty side, that they were very attracted to the positivity you get around the place at a startup, and the prospect of building up their own business rather than dealing with the back year problems created by other people.

“Of course there are people who like being part of a larger, more cosseted environment, and that is absolutely fine, but those are not the right people for us.”

Carvey says he has already received positive feedback from brokers and cedants about the quality of the team Conduit has put together. “It isn’t unusual to get positive feedback from cedants via the brokers, but it is quite unusual to have cedants calling you directly to praise the team you have put together,” he says.

Eckert brushes off concerns that the number of startups in Bermuda could create overcapacity and undermine the very hard market that paved the way for their formation.

“There is around $100 to $200 billion of under-reserving out there, and on top of that probably $60 to $100 billion of COVID-19 exposure,” he notes.

“So around $25 billion of capital raised really doesn’t touch the sides, although there may be some little pockets where there is sufficient capital to impact rates. There is real loss fatigue out there and quota share agreements are an attractive way of managing that.”

There is a real buzz around the business and an eagerness to get on with it.

“This hard market is different from hard markets we have seen before in treaty, because the real action is in the primary business,” says Eckert. “Writing treaty business is how you access it, and we saw a deluge in January.”