By Ryan Hewlett

Feb 14 - (The Insurer) - Analysts at Berenberg have raised their estimate for Conduit Re's Los Angeles wildfire loss exposure from $50mn to $90mn, with the London-listed reinsurer tipped as a potential beneficiary from expected catastrophe-driven rate hardening.

In a circular issued on Thursday, analysts at the investment bank said they believe Conduit Re’s exposure to the California wildfires may be equivalent to a circa 0.2 percent market share.

Berenberg said it had upped its exposure assumptions for Conduit Re following a “closer read” of the statements made about the wildfires by the reinsurer’s peers, including Bermudian carrier RenaissanceRe.

“While the European reinsurers have so far maintained their 2025 net profit guidance despite the cost of the LA wildfires, we now believe there is a greater risk of reduced earnings expectations for 2025E at Conduit Re,” said Berenberg.

“This is because the company’s operating profile is closer to that of its Bermuda peers, which include RenaissanceRe, Everest and Arch Capital.”

A loss equal to a 0.2 percent market share was also the basis for Conduit Re’s estimate of the Hurricane Milton loss in fourth quarter of 2024, Berenberg said. In its Q3 2024 results, Conduit Re provided a loss estimate for Milton of $30mn-$50mn.

The aggregate market insured loss for Milton is currently estimated at $17bn-$20bn, down from $22bn-$36bn initially. Berenberg said that this indicates that Conduit Re’s loss from Milton is likely to be at the lower end of its $30mn-$50mn indicated range, with a “modest positive impact” on full-year 2024 consensus estimates.

Berenberg said it believes that there is a circa $40mn earnings forecast risk for Conduit Re, which is equivalent in terms of full-year 2025 estimated net profit to 17 percent less than the $215mn currently forecast.

Berenberg noted that the wildfire loss is not expected to affect Conduit Re’s dividend or the business model, highlighting that the reinsurer is “strongly capitalised and has ample liquidity”.

However, the loss is likely to be partially offset by hardening rates. Berenberg said pricing for natural catastrophe cover at the June and July US renewals is now likely to rise.

“This is because the LA wildfires are, as RenaissanceRe described them in its Q4 2024 results call, a tail event, with the costs significantly higher than what was modelled as a central scenario,” it said.

“We estimate that if we were to factor this potential rise in pricing in to our Conduit estimates, then this would help mitigate the 2025E earnings impact to about -15 percent.”