Alternative reinsurance capital a positive and negative for Beazley

One of the enduring themes of recent quarters has been the ability for insurers and reinsurers to report both positive and negative impacts to their business due to the influx of alternative reinsurance capital sourced from institutional investors like pension funds.

Beazley plc has reported its six months results for 2014 this morning and is a prime example of a company feeling both positive benefits, in its reinsurance buying, as well as negative impacts, in the price declines it has seen across the reinsurance lines it underwrites.

Beazley reports intense competition in some of its core business areas, such as its large risks business written in London where its book has shrunk. This is likely due to an increased interest in this business from global reinsurers and others seeking to avoid the highly competitive and price impacted property catastrophe reinsurance.

But Beazley benefited from reduced reinsurance costs in its property division, its second largest business unit, finding it could acquire cover more cheaply thus offsetting some of the impact on the underwriting side. Beazley is now finding the best opportunities in small and medium property business, with the large risks so competitive.

Beazley notes that there has been a continued influx of capital from the likes of pension funds into reinsurance and that this has continued to depress rates this year. Beazley’s reinsurance division represents 15% of its gross premiums and it has seen rates on its renewals fall by 10%.

However, Beazley is now looking further afield for its reinsurance business, having offices around the world, helping it to focus less on U.S. reinsurance business and search for areas where competition is lower and rates better.

Beazley said that it expects the trends seen in the first half of the year to carry on into the second half. It believes the best opportunities may be found in less competitive, non-catastrophe short-tail business, such as professional and management liability lines. It also intends to focus more on smaller scale risks and less on large risks, so its London unit may shrink its business in this area.

Finally, Beazley says that underwriting profit will be the core focus. A very good point to close on as maintaining profit is going to be another key theme in the current results season.