Convex outlook upgraded to positive

Convex, the Bermuda-based re/insurer established by Stephen Catlin five years ago, is expected to return a combined ratio of 90% or less over the next two years, according to S&P Global Ratings. 

The ratings agency made the prediction – along with projected profits of between $400 million and $500 million in 2024 and 2025 – while increasing its outlook on the re/insurer to positive from stable. The group’s A- financial strength rating was also affirmed. 

S&P said Convex had had successfully built its operations since launching in 2019, writing more than $4 billion of gross premiums written in 2023.

“The group recorded its second year of underwriting profit in 2023 along with a positive net income and we expect that the group will report combined ratio (loss and expense) of about 90% for next two years, assuming an average level of catastrophe losses,” the agency said. 

“We expect the group will remain well capitalized with an excess of capital above our 99.99% benchmark over the next two years.

“The positive outlook reflects our expectation that Convex will continue to expand broadly in line with its business plans and achieve a combined ratio of about 90% over the next two years, assuming an average level of catastrophe losses, while maintaining capital adequacy in line with our extreme stress benchmark (99.99% confidence level).”

S&P said it expected Convex to pass the $5 billion GPW mark at the end of 2024, adding: “The success in building its premium base reflects the strong reputation Convex had when it first came to market and the improving trading conditions seen in the insurance and reinsurance markets.”

It said: “Underwriting performance to date is slightly better than expected, while the group operates within its risk appetite, benefits from strong pricing, and fosters its key client relationships. We expect Convex's portfolio to be balanced between property, casualty, and specialty business.

“Convex's capital remains robust with significant redundancy at the 99.99% level as measured by our risk-based capital model, aided by good results and investing in growth rather than paying dividends. 

“Its solvency ratio measured by Bermuda solvency capital requirements for the year-end 2023 was also strong at 328%, but as the business continues to grow, we expect this ratio to come down and settle at 270%-280% over the next few years. Financial leverage remains modest at 16%, and we do not expect it to go up significantly with strong fixed-charge coverage of at least 5x.”

S&P said Convex is currently majority owned by Canadian private equity company Onex, which it viewed as a financial sponsor and expected it to be supportive of the group’s growth strategy.

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