Beazley to use reinsurance to manage 2021 mid-teens growth target

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Beazley, the Lloyd’s market focused specialist insurance and reinsurance underwriter, has had its business plan approved for 2021 by Lloyd’s and is targeting mid-teens growth.

beazley-logoThe company is planning to grow across much of its book, including more volatile lines of business, but noted today that it will user reinsurance to help in managing that volatility.

The news will be pleasing for Beazley’s shareholders, as analysts have been urging the company to make greater use of reinsurance as it moves forwards with plans to capitalise on market hardening.

The escalation of losses reported in the wake of catastrophe events, as well as the impacts from the COVID-19 pandemic, which the company had doubled its estimate of in September, have all drawn into focus the potential volatility in a book of business like Beazley’s and the importance of moderating that through effective reinsurance purchases.

No specific announcement on reinsurance purchases has been made, but it’s likely Beazley already has some additional cover in place, or is in the market for it at this time.

Of course, it’s all driven by the opportunity at this time, with pricing hardening across Lloyd’s specialty classes and reinsurance as well.

Beazley said this morning that, “Rates are increasing in most of our classes and in many areas are now at levels where the risk reward ratio warrants writing materially more business.”

Adding that, “Our 2021 business plan for our syndicates has been approved by Lloyd’s, together with the accompanying capital requirements. We are planning for mid-teens percentage growth in 2021.”

Of course, reinsurance is also a cost and involves ceding some of that premium growth away and Beazley suggests that as much as 5% could be ceded under reinsurance arrangements it will implement, based on mid-teens being the gross premium growth.

“We also plan to use reinsurance to manage growth in some of the more volatile lines, and so expect growth of around 10% net of reinsurance next year,” the company said.

In terms of recent volatility, Beazley reported $80 million of catastrophe losses for Q3, net of reinsurance claims.

Beazley has also reported that it has chose to “open our cyber reserves higher” in response to claims trends.

Given Beazley’s position in the cyber market, this is likely to be seen at other underwriters as well and the company notes that the cyber insurance market is currently “repricing and restricting coverage” in response to escalating claims trends.

Also of notes with Beazley, the market facilities business line which includes its third-party capital backed beta-like market tracking structures, has continued to expand rapidly.

As we’ve reported before, Beazley sees a huge opportunity to grow its third-party capital backed ‘smart tracker’ special purpose arrangement (SPA) syndicate 5623 over the coming years.

This arrangement sits as part of what the re/insurer now calls “market facilities” and is broken out as its own business line.

The goal is to bring lower-cost capital more efficiently into the Lloyd’s underwriting market, to provide more efficient products to clients and beta-like returns to investors.

“Our market facilities division grew 182% year on year albeit from a small base,” Beazley said.

Premiums written reached $96 million, while rate increases in this division hit 12%, signalling increasingly profitable growth for Beazley.

This is an area of real opportunity for Beazley, as it can underwrite these facilities with the support of its third-party investors and it is all additive to the bottom-line being a new and expanding division for the company.

Andrew Horton, Chief Executive Officer, commented on the results, “We have seen strong, double-digit premium growth across our business as a whole so far this year, driven primarily by rate rises across all divisions.

“Pricing conditions are positive and we have the expertise and the capital in place to take advantage of these market conditions. We have great confidence in our ability to deliver mid-teens growth next year and strong shareholder returns in 2021 and beyond.”

Use of reinsurance may be critical to delivering those returns, meaning there is a distinct opportunity for Beazley to tap all forms of reinsurance capital and potentially to look at other structures as well, as it moves through the underwriting opportunity in 2021.

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