Conduit Re named as RBC’s top reinsurance stock pick
Amid a continuing hard market with another favourable year of underwriting conditions for the commercial P&C space expected, RBC Capital Markets has picked out Bermuda-based Conduit Re as its top stock pick for the reinsurance sector.
The global investment bank suggested that the reinsurance sector is looking at another year of favourable underwriting conditions driven by heavy natural catastrophe losses, inflationary pressures, and supply-demand imbalance, leading to a step change in pricing.
In this context, it stated that, for Conduit, a harder reinsurance market than assumed in its initial plan should drive an accelerated build-out of the business in its third year of operations, while also delivering a mid-teens ROE without risk of dilution from legacy issues.
The bank also highlighted the reinsurer’s stated appetite for cat business. In a Q3 investment call, the company stated: "For us, when we put the plan together, we were pretty clear in the way that we saw, if you like, our PML net appetite is growing in conjunction with the overall growth in the premium volume. So, it keeps – we keep it in proportion as we move through our five years, our original plan...maybe it's an advancement of what we were looking at doing in year four and moving that forward into the current year. It will depend on how the market presents itself... Cat XL is obviously being very distressed at the moment, but we do have various ways of bringing that portfolio of cat onboard...We do that through various product types and in many cases we have been able to bring that in without immediately just putting it onto what you would refer to as a vertical PML."