Cat bonds certainly have a place around Conduit Re’s traditional retro arrangements: CEO Carvey

After a successful foray into the catastrophe bond market in 2023 with the $100 million Stabilitas Re Ltd. (Series 2023-1) transaction, Bermudian reinsurer Conduit Re continues to explore the space, according to CEO Trevor Carvey.

Artemis spoke with Carvey about the cat bond and wider collateralised reinsurance space following the success of the company’s debut cat bond, which provides the firm with a source of capital markets-backed retrocession protection against US named storm and earthquake risks.

“We’re really pleased with what we achieved there with the $100 million limit,” said Carvey. “We are looking at collateralised reinsurance now as certainly something which is still of interest to us.”

The CEO went on to explain that for Conduit, ILS will certainty have a place alongside and around what the firm buys in the traditional market.

One of the positives, according to Carvey, is that over the last couple of years, “the ILS space seems to have gotten more broad in its product offering.”

“So, certainly, it’s something which we’re looking at and will continue to explore over the course of the coming couple of years,” he continued.

Ahead of its initial cat bond issuance in June of last year, Conduit had been looking at the space for some months, but wanted to enter the market at a time when it could secure coverage at a similar rate to its traditional retro arrangements.

Pricing in June 2023 was more in the reinsurer’s sweet spot, and Conduit eventually secured its first cat bond with pricing that was finalised 9% below the initial mid-point of guidance.

Cat bond spreads hit record highs in the second half of 2023, and after some tightening in the early months of this year, there’s again been some evidence of widening with some of the more recent issuances.

With the mid-year renewals fast approaching, which have a focus US property cat, Carvey noted that there’s definitely more supply in the excess of loss space, with more capacity around for the binary, high attaching parts of the cat risk spectrum.

“I think it’s had an effect on the cat bond space,” he said. “Obviously, the spreads there have reacted over the course of the last 12 months or so, and it’s had an impact there. That’s now filtering through into the higher end, more remote attaching property cat.”

However, given that regions like Florida are not a major part of what Conduit does in terms of pure cat, taking up a relatively minor part of the reinsurer’s portfolio, Carvey asserted that while the firm will observe and monitor trends, he’s positive on Conduit’s ability to successfully trade through the upcoming renewal season.