Beazley’s Smart Tracker “significantly oversubscribed by third party capital”

Demonstrating that the returns of Lloyd’s insurance and reinsurance market business remains very attractive to investors, Beazley said this morning that its Smart Tracker special purpose arrangement (SPA) syndicate 5623 is now “significantly oversubscribed by third party capital”.

Beazley’ SPA Syndicate 5623 was launched at the beginning of 2018  with plans to take a 75% quota share of broker facilities business that the company underwrote through its Syndicate 3623, with backing from third-party institutional level investors.

Backers from the start included well-known pension investors that allocate to insurance-linked securities (ILS) and it’s always been apparent that this would prove to be an attractive vehicle, as investors looked to back Beazley’s underwriting to access a differentiated source of returns.

As we explained recently, investor appetite for differentiated insurance or reinsurance-linked returns has been rising significantly and the London market continues to be seen as a venue where this can be achieved, with the right partnerships and structures.

Beazley appears to have developed an access point to London market risks that investors really appreciate, as the company reported both continuing performance improvements for the Smart Tracker and also very strong investor demand.

Beazley’s Smart Tracker reported premiums written of $198.2 million for 2021, up on 2020’s $133.4 million.

Alongside the growth, the Smart Tracker also delivered a combined ratio of 98% for 2021, which is a big improvement on 2020’s 106%.

“Beazley Smart Tracker’s fourth year in business saw ongoing success, both in achieving its business plan and delivering strong results. Smart Tracker works by designing and selecting approved leaders into a bespoke facility that meets the needs of brokers and their clients and there is a strong pipeline of brokers asking for support,” Beazley’s Chief Underwriting Officer Bob Quane reported this morning.

Adding that, “Syndicate 5623 continued to see its acquisition costs fall as it grew, delivering an expense ratio of 23% in 2021, demonstrating the success of its low-cost tracker model.”

The 49% growth in premiums written by the Market Facilities division at Beazley, which encompasses the Smart Tracker syndicate 5623 and also the recently launched ESG consortium syndicate 4321, is a reflection of the strategy finding both the right business mix and the right investors, to allow it to expand.

It’s making the structure very attractive to third-party capital investors, who see it as a way to access the returns of a broad spread of Lloyd’s insurance and reinsurance linked returns, under the guidance of one of the strongest underwriting houses in the market.

As a result, investor demand to access the Smart Tracker is high still and we understand investors have been looking for new opportunities to expand their commitments to it.

“Due to Syndicate 5623’s performance, it is significantly oversubscribed by third party capital. Looking forward we hope to continue to be able to offer opportunities to existing investors and to new ones,” Quane explained.

Growth is on the agenda though and Beazley wants to accommodate more third-party capital.

Quane said, “Looking forward we hope to continue to be able to offer opportunities to existing investors and to new ones.”

Beazley’s CEO recently explained that the company would be open to using the Lloyd’s sponsored insurance-linked securities (ILS) structure, London Bridge Risk PCC, as a vehicle to bring in more third-party capital to the business.

That’s one way it could welcome more investor capital, but it does need to have the underwriting opportunities there to support its deployment, which is likely why Beazley is being careful and gating the Smart Tracker strategy for now, only allowing more capital as it can be profitably deployed.

The ESG syndicate that also sits in the Market Facilities unit and operates a consortium arrangement led by Syndicates 623/2623 that deploys capacity to clients meeting an ESG criteria, is also experiencing strong demand from third-party investors, we’ve been told.

In fact, we were told some large ILS end-investors had been very attracted to this strategy when it launched, suggesting it too is likely being closely controlled for matching capacity to the underwriting opportunity by Beazley, at this stage.

For Beazley, the following market and consortium-led strategies, that seek to bring capital into Lloyd’s more efficiently, are definitely working and expansion is likely to continue.

It will be interesting to see how Beazley can satisfy the strong appetite of investors for the Smart Tracker and the new ESG syndicate strategy, as we understand it to be strong and that other writers at Lloyd’s may also be considering whether they can replicate the creation of attractive access points to the market for large institutional and ILS investors.

“Our growth trajectory continues in the right direction, and in 2021 this meant we could expand and add dedicated actuarial and underwriting resource to our team. The outlook remains strong, and we look forward to reporting continued success for the smart tracker next year as well as a positive first year for Syndicate 4321,” CUO Quane said.