Specialist re/insurer Beazley is seeing opportunities to deploy its recently raised capital for growth as the efforts of the Lloyd’s marketplace drives greater underwriting discipline, reports Jefferies.
Beazley announced on May 18th plans for a $300 million equity placement to support growth and to capitalise on rising rates being seen across its book.
The capital raise was successful, and recent comments from management have confirmed that the firm is already seeing opportunities for growth.
In a discussion with Jefferies, Chief Executive Officer (CEO) Andrew Horton highlighted that the recent actions taken by the Lloyd’s insurance and reinsurance marketplace were having an effect. While the wider market was in “some form of disarray,” said Horton, the efforts at Lloyd’s has resulted in greater underwriting discipline.
For Beazley, this heightened level of underwriting discipline is creating opportunities to deploy its recently raised capital for growth in areas where other players would have been forced to exit, says Jefferies.
It was clear from the initial announcement that Beazley’s capital raise was not just to support its business in light of the COVID-19 pandemic, but also to capitalise on any growth opportunities that arise in the current market.
Management noted that although it’s a challenge to forecast COVID-19 related claims in liability lines of business, they expect to see losses in the employment practices segment as unemployment levels increase.
Importantly, notes Jefferies, Beazley is not renewing all of its contracts, and is proactively minimising exposure and only writing “claims made” policies. Additionally, when claims do happen, Jefferies notes that the cash cost will be spread over many years, so it’s a manageable exposure.
Horton, alongside Finance Director Sally Lake, confirmed the rate trends reported by brokers, explaining that in early May prices continued to rise in the majority of lines. In fact, Beazley management suggested that this hard market would likely continue throughout 2021. In light of consecutive years of fading margins, this is “particularly positive”, says Jefferies.
For Beazley, analysts at Jefferies expect this to lead to higher growth in 2020 and 2021, with margins normalising back to a combined ratio of 93.3% by 2022.
For the full year 2019, Beazley’s combined ratio deteriorated to 100% from the 98% recorded in the prior year. In its Q1 2020 trading statement, the company reported a COVID-19 hit on its first-party business of $170 million, and top line growth of 13%.