Beazley’s SPA 5623 to give investors diverse risks, including liability

Lloyd’s specialist insurance and reinsurance player Beazley’s special purpose arrangement (SPA) syndicate 5623 is set to offer its third-party investor backers access to a broad and diverse range of risks, with the facilities access likely to mean risks in the portfolio that typical ILS funds or strategies do not underwrite.

Beazley launched the SPA, Syndicate 5623 for the start of the 2018 underwriting year, with the vehicle set to take a quota share of broker facilities business that Beazley underwrites through its Syndicate 3623.

The special purpose syndicate, which acts rather like a sidecar for Beazley in that it provides access to diversified capital and reinsurance capacity to augment its own, is largely backed by a range of third-party investors, with ILS capital providers a known target for the firm.

It’s never been disclosed what the range of business in the special purpose syndicate would be, but it’s now become clear that it could be among the most diverse insurance-linked portfolios that third-party investors are able to access.

In the ILS world the focus remains on property catastrophe risks, short-tailed classes of specialty lines, life insurance risks and in some cases other reinsurance business, but typically anything with a longer-tail requires a partner to assist.

But the Beazley SPA 5623 is taking on risks as diverse as employment practices liability (EPL) which is sourced through the re/insurers new Concorde Consortium, which targets bringing increased insurance capacity to market for wage & hour risks held by U.S. organisations.

This consortium, which is effectively a facility, targets the underwriting of wage & hour risks on a surplus lines basis in the United States.

This includes coverage for the liability costs associated with issues such as non-payment or under-payment of wages, misclassification of the status of workers and other employers liability issues.

It’s largely focused on big employers with over 5,000 staff, but can also cover the employment practices liabilities of much larger businesses as well.

Beazley’s underwriters will quote and bind 100% of all risks for the consortium, on a primary and excess basis, offering limits up to $25 million to cover the costs of defending and indemnifying U.S. organisations that are alleged to have violated their obligations under wage & hour laws.

This type of liability risk is not frequently seen in the world of ILS funds or insurance-linked investments, but at Lloyd’s it can be quite common for third-party capital providers to end up backing portfolios containing this and other liability risks.

Beazley said that “additional capacity” for this consortium is being provided by its special purpose syndicate 5623, which targets bringing the types of investors that allocate to ILS strategies into the Lloyd’s market and could capitalise on the interest in insurance and reinsurance as an asset class.

Beazley told Artemis, “Beazley syndicate 5623 is of interest to ILS investors which is of particular relevance at the moment as we raise capital for the 2019 year of account.”

We’ve been told by an investor source that Beazley is proposing to increase the size of syndicate 5623 for 2019, with a much larger amount of capital likely and certain ILS investors have been approached, we’re told.

It makes perfect sense for Beazley to broaden the appeal of its Lloyd’s SPA beyond the more traditional third-party capital providers that have invested at Lloyd’s in the past, especially given the appetite for access to insurance-linked returns.

The diverse nature of the portfolio that Beazley could create will be attractive to some, as well as the ability to follow the form of the facilities the underwriter participates in and manages.

How common these types of liability risks can become in ILS will depend on the structures and mechanisms used to channel them to ILS investors, and in syndicate 5623 Beazley has found one way it can offer investors access to a broad range of insurance returns without too much focus on the tail, as it will be so diversified.