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Trevor Carvey, CEO, Conduit Re
27 February 2023News

Conduit should consider raising debt capital: analysts

The time is now right for Conduit to consider taking on debt capital, according to equity analysts at Jefferies, who suggest that with the re/insurer’s platform reaching maturity, it should consider either raising subordinated debt or issuing a cat bond.

“Market conditions and Conduit's development are dovetailing; as reinsurance prices have hit all-time highs at the same time as Conduit's platform is maturing. Although the hard market took longer to accelerate than we expected, arguably the delay gave Conduit more time to prepare. Looking ahead, we believe that the time is now right for Conduit to consider taking on debt capital,” they said in a research note.

Two years on from its listing, they say that Conduit's business is finally approaching maturity, with the platform built, premium earning though and operating leverage improving. “In our view, the next step is to diversify Conduit's capital by raising subordinated debt and using it to accelerate growth when reinsurance market conditions are at their best. To clarify, Conduit has adequate capital to support its existing growth ambitions, but we believe these ambitions could perhaps be upscaled, and funded with debt,” they wrote.

They suggest that, if Conduit did opt for a debt raise, we believe that $300 million would justify the costs of raising capital, while keeping the leverage ratio at c.25%. In terms of cost, we would expect a coupon of 7%.

The other option would be to launch a catastrophe bond to broaden the availability of retrocession capacity, they note, though since the business has already grown its retrocession panel in the January 2023 renewals, it seems unlikely that this will happen before 2024 at the earliest. “We also expect Conduit raise subordinated debt capital before considering a catastrophe bond, but would not be surprised if both had been launched before the end of 2025.”




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More on this story

News
25 January 2023   January renewals see premiums up 60%.
article
20 January 2022   $263 premium bound only a year after IPO.
News
17 May 2023   Its gross written premiums increased by 59% in Q1.