Conduit management bullish on wildfire driven market firming

By Ryan Hewlett

Feb 19 - (The Insurer) - Conduit Re CUO Greg Roberts has predicted that reinsurance rates will rise as the market responds to mounting California wildfire losses, highlighting that the London-listed reinsurer will be well positioned to benefit from any upward movement in pricing and terms and conditions.

Speaking to journalists on the impact of recent catastrophic events, Roberts emphasised that the devastating wildfires which impacted California in January represented a “massive data point” for the industry, driving better understanding of exposure, insurance-to-value ratios and the need for (re)insurance.

Roberts said the event, for which industry loss estimates are now converging at between $35 billion and $50 billion, could drive growth in demand for specific contracts and hardening of catastrophe pricing, especially in the US. He said that the first signs of this will emerge during the coming Q2 property cat renewal season.

“Does it require more aggregate limit at the industry level? Probably. Does that have an effect on average rates? I would expect so as well,” Roberts explained on the call following the release of conduits year-end results.

“There's a lot of business outside of Florida-specific contracts traded between now and July. There's a lot of business to be reviewed between now and July. I would point to a lot of US businesses in particular, responding to that big data point.”

This was backed by chairman Neil Eckert, the industry entrepreneur who launched Bermuda-based Conduit Re in December 2020. Eckert described the wildfires as “one of the foremost serious events” he had seen during his career, alongside hurricanes Andrew and Katrina and the World Trade Centre loss in 2001.

“This is a concentrated loss, and it is high-impact … Some commentators are already talking about stabilisation or, in part, rate increase … We believe it will have an effect on pricing, and that will enable the opportunity for us to continue to develop our business.”

Eckert said the event will “certainly” arrest rate decline, but stressed that there is a “strong potential” for the event to prove “very serious”.

On Wednesday the reinsurer disclosed a preliminary undiscounted ultimate loss estimate of between $100 million and $140 million, net of reinsurance recoveries and reinstatement premiums, for the January 2025 California wildfires.

The preliminary estimate is based on an analysis of in-force contracts with exposure within the Los Angeles area, an evaluation of initial information received from brokers, cedants and other industry sources, along with a review of the latest modelled losses for Conduit Re’s portfolio at various return periods.

Conduit CEO Trevor Carvey, noted that a loss event or a “resetting event” in one specific class typically has implications across multiple lines and geographies.

“On the property cat side, other parts of the globe are more likely to respond more slowly to the events in California, but for the US in particular, I think there'll be resets around the wildfire coverage language and also basic pricing,” said Carvey.

Carvey added: “Historically, large events like this have had implications in other areas. I think it remains to be seen how much that does manifest itself post the wildfires.”