Beazley’s third-party capital backed Smart Tracker premiums rise 330%

Beazley, the specialist Lloyd’s focused insurance and reinsurance underwriter, lifted the amount of premiums written within its third-party capital backed ‘smart tracker’ special purpose arrangement (SPA) syndicate 5623 significantly in 2019.

Beazley’ SPA Syndicate 5623 was launched at the beginning of 2018  and saw the vehicle taking a 75% quota share of broker facilities business that Beazley underwritten through its Syndicate 3623, with backing from third-party institutional level investors.

The special purpose syndicate acts as a kind of sidecar for Beazley’s facilities underwriting business, providing access to diversified capital and reinsurance capacity and is largely backed by a range of third-party investors, with ILS capital providers among the capital raise targets the company had sought to bring into the structure, we understand.

As we explained before, Beazley’s smart tracker is seen by the firm as a particularly important initiative, helping it to drive down the cost of re/insurance capital for its clients.

Beazley also sees its Smart Tracker sidecar syndicate as a way to lower the cost of doing business at Lloyd’s, something the company has been completely open about, saying that more efficient ways to reduce the cost-of-capital of operating there are required.

“Underwriting for the account of third party investors, the syndicate aims to offer a low cost mechanism for placing follow business within the Lloyd’s market,” Beazley explained.

The last year saw the tracking sidecar used much more as a source of efficient reinsurance capacity to back the facilities business.

Beazley said, “In 2019, we underwrote market facilities premiums of $36.0m through the syndicate, up 330% from the previous year.”

That’s faster traction than the company had been anticipating a year ago, as CEO Andrew Horton had forecast, “We are aiming to grow 5623 by two and a half times in 2019 and if the model works we will continue to grow this business going forward.”

The special purpose syndicate enters into a reinsurance quota share with Beazley’s Syndicate 3623, taking facilities business only. It is capitalised by third-party investors seeking a way to follow Beazley’s performance and efficiently access the diversified insurance-linked returns of facilities business placed in the Lloyd’s market.

Beazley has taken steps over the years to make it’s own operations at Lloyd’s more efficient with the support of third-party capital, rather than going down the route of becoming an increasingly large corporate player.

It’s telling that Lloyd’s is now looking to develop new lead/follow structures and mechanisms for investors to access the marketplace.

Beazley’s mission with 5623 is to drive down the cost of underwriting capital for clients, with operational efficiency and rigorous underwriting at its core and access to diversified and lower-cost sources of capital supporting this.

Beazley previously said that brokers should lower their commissions for this type of following business, as otherwise the price of underwriting capital is higher than it should be.