Beazley said this morning that it saw the rate increases achieved so far this year as in line with expectations, despite the market being “awash with capital” and while also noting that “non-traditional capital providers… maintained their commitment to the market.”
The specialist Lloyd’s fof London focused insurance and reinsurance firm upsized on its underwriting in 2018, particularly property and reinsurance, to take advantage of the availability of higher rates after the major hurricanes and other catastrophes of 2017.
The company experienced top-line growth so far this year and despite the market being “awash with capital” as the CEO said this morning, the company also expects the growth to drive higher returns across the year.
CEO Andrew Horton said today, “Beazley saw strong top line growth during the first half of the year, with premiums up 15%. Growth in premiums was strongest in our property division, where rates have risen sharply following the heavy catastrophe losses incurred by insurers and reinsurers last year.
“The extent of price firming for catastrophe exposed lines of business was in line with our expectations. Our market was awash with capital prior to the onslaught of last year’s hurricanes, earthquakes and wildfires and we did not expect to see the dramatic reduction in capacity that some had predicted. By and large, the non-traditional capital providers, who shouldered some of the largest reinsurance losses last year, have maintained their commitment to the market.”
Beazley has of course been taking advantage of this wave of capital itself, not least through the recently established special purpose arrangement at Lloyd’s SPA 5623.
Beazley launched the SPA, Syndicate 5623 for the start of 2018, with the vehicle taking a quota share of the broker facilities business that Beazley underwrites through its Syndicate 3623 and being largely backed by a range of third-party investors, including some capital from the ILS market.
Beazley does provide a 33.85% share of capital for Syndicate 5623 through one of its Corporate Members vehicles.
But Beazley has found a way to utilise third-party capital to reinsurer the facilities business it underwrites, which will add a level of efficiency to that piece of the portfolio and likely mean the firm is able to retain more of the underwriting profit, as well as some new fee income, than had it reinsured it to the open market.
Beazley seems more confident than some and more at ease with the current market pricing as well, with no sign of the company saying pricing has not lived up to its expectations.
The fact it sees price increases as having been adequate, or in line, suggests that the firm is being realistic about the current state of the market and this will likely lead the company to upsize on its use of third-party capital going forwards, if it can find the right mix of reinsurance support, cost-saving and fee income input, by utilising it.
Looking ahead, Horton said, “We now see a better rating environment in which we can seek growth across a broader range of business lines… We expect the rate rises seen in the first half of the year will help us deliver stronger returns going forward.”
Perhaps a sign that Beazley is one re/insurer that is getting to grips with the market cycle, finding a level of capital, rate and profitability that will allow it to deliver returns despite the continued competitive environment.
Of course efficiency will also be key and Horton recognised that at Lloyd’s, “Its cost base is currently too high for the volume of business written. Work is being undertaken by the London Market Group to address this; and at Beazley we plan to play our part, working closely with our brokers and with other insurers in the market to generate access to more business and more capital efficiently.”
Alongside the use of third-party capital, to make reinsurance more cost-effective and efficient while driving some fee income for underwriting and management services, reducing spend will be the other lever that could allow Beazley to prosper, despite the levels of capital and competition in the market.
It will be interesting to see how the firm reports in quarters to come if the market turns once again into a more softening environment.