Beazley may consider a catastrophe bond at 2014 renewal

Specialist Lloyd’s focused insurance and reinsurance firm Beazley has clearly seen the attractive pricing and spread compression in the insurance-linked securities space as its financial director recently told analysts that it would consider issuing a catastrophe bond.

Martin Bride, Group Finance Director of Beazley, told analysts on Wednesday that the re/insurer may look to the catastrophe bond market as it seeks to renew its retrocessional reinsurance coverage in April 2014.

According to Canaccord Genuity research analysts Ben Cohen and Ming Zhu, Beazley expects cheaper retrocession to help it improve its earned premiums to written premiums ratio. Beazley has seen its earned premiums under pressure, partly due to declines in reinsurance pricing. However those same declines in pricing will allow Beazley to benefit from cheaper retrocession and perhaps an opportunity to look at issuing its first cat bond.

Further declines in reinsurance pricing are expected at the January renewals, which will impact Beazley’s top-line. One of the ways re/insurers can offset some of the price declines seen in business they write is to also take advantage of the best pricing available for their own reinsurance and retrocession.

Beazley would not be the first Lloyd’s player to issue a catastrophe bond, that honour goes to Catlin, now having issued four cat bonds, including the recent Galileo Re Ltd. 2013-1, Bay Haven Ltd. in 2006, Newton Re Ltd. in 2007 and Newton Re Ltd. (Series 2008-1) in 2008.

It makes perfect sense for re/insurers like Beazley to look seriously at the catastrophe bond market right now. Pricing is at all-time lows and the flexibility of coverage options has perhaps never been higher due to recent structural innovations. For re/insurers looking to lock in attractively priced retro cover the cat bond market has perhaps never looked so good.