In a report released by J.P Morgan based on findings from a recent conference call with Beazley’s Global Head of Cyber & Technology, Paul Bantick, to discuss the specialist insurers cyber business, it states that Beazley has war exclusions in every cyber policy.
The report adds that the exclusions have two hurdles, need war/armed conflict, and that there needs to be attribution to states, a scenario that they believe would be likely based on what they are currently seeing, and their dialogue with intelligence agencies and governments.
In addition, J.P Morgan stated that by maintaining an active dialogue with its cyber clients, Beazley has been able to warn them about the risks that are driven by the current threat landscape.
In the report, Bantick saids, that when companies are warned that risk has increased and to make preparations, “fewer risks actually materialise.”
The report also highlighted that cyber made up around 18% of premiums in 2021 for Beazley.
In addition, growth has been very strong in the US market, but in recent years, the non-US opportunity should lead to greater geographical balance within the company’s portfolio.
The report reads, “Beazley likes to cover clients that either have good controls and have made investments in IT security and are therefore more resilient to attacks or to partner with those that want to improve their controls and risk management.”
Furthermore, the report adds that Beazley Breach Response (BBR) a privacy breach response management and information solution, is still the company’s flagship product, and that it makes up around 50-60% of the business.
BBR’s support team, which is now known as cyber services, help clients 24/7, 365 days per year, and is backed by a panel of vendors which has helped to reduce claims costs by 20-30% versus the market.
The report also highlighted how Beazley has a team of experts that work in-house that looks at systemic risks on a daily basis, and how the company spends a great deal of time quantifying and assessing the potential of systemic risks to manage its exposure.
As a result of this, J.P Morgan added that Beazley has 12 scenarios to look at the potential impact of the largest scenarios, with the largest likely being related to a cloud/outage failure.
In addition, reinsurance protection is also in place to help the insurer manage its risk to some of the most severe scenarios. However despite an increase in cyber premiums, total exposure has reduced in recent years as premiums have been driven by price increases rather than business growth.
Meanwhile, the report added that during the conference call, cyber pricing was described by Bantick as being in a “hard market”.
Through a combination of losses, underwriting actions and reduced capacity, it has led to hardening conditions that are likely to remain in place until more capacity enters the market.
However, the report states that whilst some carriers have sought to restrict exposure, or to introduce tougher terms and conditions, Beazley has in general tried to maintain the integrity of its product.
J.P Morgan also addressed Beazley’s investment thesis, as the report highlighted how the insurers shares have outperformed the sector in 2021, but it remains among their top picks as they see further room for re-rating based on a few reasons.
Firstly, J.P Morgan stated that they believe Beazley is one of the best positioned insurers to benefit from the current pricing momentum, and that in light of market conditions, premiums grew strongly in 2021 and they believe the momentum can be sustained into 1H22 where prices are likely still to improve in cyber in particular.
Secondly, J.P Morgan added that cyber uncertainties are likely behind us, and that since the market pricing has improved significantly, Beazley has taken “proactive steps” in its portfolio, which includes re-underwriting and enhancing risk management capabilities to improve loss frequency.
Lastly, in the report, J.P Morgan said that in their view, Beazley has adequate capital to support its growth ambitions in the improved market.