Specialist Lloyd’s focused insurance and reinsurance player Beazley is set to expand the size of its innovative Smart Tracker product to a stamp capacity of US $133 million for 2019, signaling demand for the product which sits as part of special purpose arrangement (SPA) syndicate 5623.
The Beazley Smart Tracker product is designed to offer third-party investors, including many of the kind who would allocate to ILS funds, a way to access the returns of a spread of the Lloyd’s underwriting market.
Beazley underwrites a portfolio of risks through facilities for its Syndicate 3623 and the Smart Tracker accesses this business through a quota share reinsurance arrangement into the SPA 5623, aiming to achieve a portfolio that has a broad exposure to the Lloyd’s market, but with a competitive loss ratio achieved through selection.
The result is a structure with an efficient cost-base and operating structure, which delivers on two fronts. Providing Beazley with efficient reinsurance capacity to augment its facilities underwriting business and providing the third-party investors with a way to track the performance of much of the Lloyd’s marketplace, without the underperforming business lines thanks to Beazley’s active selection.
Through it, Beazley has been trying to underwrite facilities business more cheaply than the following market’s at Lloyd’s, thanks to the use of efficient capital to augment its own underwriting.
Hence the firm has been targeting growth for the Smart Tracker and confirmed to Artemis that this has been achieved, with the expected stamp capacity for 2019 set to be US $133 million.
That’s up from the just $30 to $50 million of capacity that the Smart Tracker vehicle operated with in 2018, so a significant increase, as a result providing the investors backing it with a chance to grow their breadth of exposure to the market and Beazley with an expanded source of efficient facilities capacity.
The SPA itself acts rather like a reinsurance sidecar for Beazley, in that it provides access to diversified capital and capacity to augment its own and is largely backed by a range of third-party investors, with ILS capital providers a known target for the firm. The Smart Tracker is just one part of the SPA, with it used for some other arrangements as well, we understand.
With ILS type investors now backing the Smart Tracker, we’re told, Beazley is doing precisely what it should in the Lloyd’s market, lowering its own cost-of-capital using the efficiency of the capital markets, through a unique product offering for ILS investors and as a result earning fee income as well as increasing its usefulness to counterparties at the same time.
That’s leveraging Beazley’s expertise and intellectual capital to enhance its earnings and increase its relevance in the marketplace, a model that other Lloyd’s players should consider following.