Beazley, the specialist Lloyd’s focused insurance and reinsurance underwriter, has reported improving performance for its Smart Tracker special purpose arrangement (SPA) syndicate 5623 and now plans to house a new ESG focused consortium under the same Market Facilities unit.
Beazley’ SPA Syndicate 5623 was launched at the beginning of 2018 with plans to take a 75% quota share of broker facilities business that Beazley underwritten through its Syndicate 3623, with backing from third-party institutional level investors.
As a result, you can think of the Smart Tracker special purpose syndicate as a kind of sidecar for Beazley’s facilities underwriting business.
It provides the company with access to diversified capital and reinsurance capacity, which is largely sourced from a range of third-party investors, some of which are insurance-linked securities (ILS) investors, we understand.
The strategy has grown over the last year and its performance has been improving as well.
Beazley CEO Adrian Cox commented in the firms results statement, released this morning, “Our Market Facilities division, established 18 months ago, has made good progress in the first half of this year through Beazley Smart Tracker, Beazley’s follow-only special purpose syndicate, which aims to drive efficiency within the London market. The book is on course to hit its plan this year with 12% rate increase and half year gross premium at $88.8m (H1 2020: $60.7m), growing by 46%.”
The Smart Tracker Beazley operates is challenging to track, from a profits point of view as the third-party investors have to take their share.
But Beazley did report that the segment made a profit for the company this half-year, of $200,000.
Perhaps a better measure of improving performance though is its combined ratio, which has always been elevated due to the way expenses and investor shares are reported.
But for the half-year in 2021 the combined ratio came down to 101%, down from 114% a year earlier and 106% for the full-year 2020, signalling an improvement in underwriting performance.
Another sign of the progress being made by the Smart Tracker syndicate is its growth, as its assets were reported at $174.3 million at the end of June 2020, $182.5 million at the end of December 2020, but had ballooned to $605.1 million by the middle of 2021.
Reflecting growth in underwriting and as a result the commensurate assets gathered under the tracker facility.
Beazley is now planning to house a new ESG focused facility, which it expects to run as a consortium of capital providers, within the same division as the Smart Tracker.
CEO Cox said, “A planned Economic, Social and Governance (ESG) Consortium that aims to provide additional capacity to clients that perform particularly well against ESG metrics will sit within this division when it begins underwriting in January 2022, subject to approvals.”
This ESG consortium will be launched in January 2022, pending approval and will be supported by Beazley as well as third-party capital, the company said.
The ESG strategy will “provide additional capacity to responsible risks that perform well against ESG metrics,” Beazley explained.
It sounds like this will also be a following-facility of sorts. But with its ESG metric focus this could be particularly appealing to investors.
Again, it seems Beazley is seeking to lower the cost of capital in the Lloyd’s market, by aggregating capacity from third-parties and itself, while following a method for selecting risks and building out a large portfolio.
That should benefit the market as well as the investors backing the ESG consortium, as firms at Lloyd’s and elsewhere may appreciate access to risk capacity that has a dedicated ESG mandate.
As a reminder, Beazley has said before that brokers should lower their commissions for the type of following business written by its Smart Tracker, as otherwise the price of underwriting capital is higher than it should be.
The same may apply to the ESG consortium.