Specialist insurer Beazley plans to issue 60,959,017 new ordinary shares of five pence each to raise gross proceeds of £385 million, alongside an additional retail share issuance, as the company looks to take advantage of “attractive underwriting conditions.”
The new ordinary shares Beazley intends to issue represents 9.9% of its existing issued share capital to raise the £385 million, based on the carrier’s share price close on November 14th, 2022.
It’s comprised of a non-pre-emptive placing of new ordinary shares at the issue price, with certain Directors at Beazley expected to participate in the raise.
In conjunction with this, Beazley says that it will make an offer on the PrimaryBid platform of new ordinary shares at the issue price in order to provide retail investors with an opportunity to participate in the capital raise, which suggests that the total proceeds could be more for the insurer.
The firm explains that the capital raise is designed to support organic growth and provide growth capital to fund “attractive underwriting opportunities.”
“The market dislocation in select insurance classes gives us a strategic opportunity to accelerate our growth trajectory and increase net premium exposure in areas where we believe we can deliver outsized returns, namely cyber and specialty business,” says Beazley.
For the nine-month period ended September 30th, 2022, Beazley states that rate changes were encouraging. In fact, the firm recorded an average rate increase of 17%, with three divisions achieving double-digit rises.
Ultimately, Beazley sees the current market trend persisting, notably within property classes where it highlights the emergence of a significant dislocation.
“Property (re)insurance classes are experiencing a hardening rating environment with terms and conditions also improving. The Company expects rates to increase by 15% for direct and 50% for reinsurance in 2023 and believes the market dislocation is likely to persist for a number of years,” says Beazley.
“Rate hardening is being driven by increased demand due to inflationary pressures; increasing frequency and severity of natural catastrophes due to climate change; reduced supply of capacity with carriers either exiting the market or materially reducing their risk appetite; poor returns in the catastrophe business in the last five years; and a decline in the supply of retrocession and reinsurance, amplified by a strengthening dollar and years of trapped capital with less appetite expected from alternative capital markets,” it adds.
Interestingly, Beazley says that while it has previously been cautious on property re/insurance in response to a lack of rate, the hardening market environment facilitates growth in capacity and cat exposure.
“The Company believes this to be a significant opportunity to be a leader in the market in London, helping drive the underwriting of property (re)insurance and providing a springboard for Beazley’s long term US ambitions.
“Growth in property classes improves the diversification of the Company’s overall portfolio and facilitates the retention of greater written premium in cyber and specialty business. This is an attractive proposition as cyber rates remain high, and demand continues to outweigh supply with significant barriers to entry for new carriers,” says the firm.
Currently, says the insurer, it writes more cyber risk than it is able to retain if it is to maintain a healthy balance of class exposure.
“The Company expects the opportunity to write more new business in cyber to continue into 2023 and beyond and growth in property classes will enable the Company to accelerate growth holistically, retaining more cyber and specialty business on balance sheet, increasing exposure to profitable business already written by Beazley and reducing the need for additional purchases of reinsurance,” says Beazley.
The Board has decided that this is the right time to raise capital to fuel Beazley’s growth plans while maintaining a strong balance sheet that is able to navigate a range of stress scenarios.
Last week, Beazley announced that gross written premiums rose by 22% for 9M 2022 when compared to the first nine months of last year. At this time, management said that the carrier was seeing increased demand across many lines of business.