Beazley fully leveraged fresh capital despite view to Q4 growth & solvency
A late 2022 move by Beazley to raise fresh capital ahead of the 1.1 reinsurance renewals proved its value for growth, despite Q4 premium gains below expectation and signs that excess capital has piled up ever higher, stock market analysts said in unison after publication of Q4 earnings from the group.
Q4 premium growth at some 14% may have been some five points below the market expectation but could largely be put to a hiccup in cyber while the run-up in excess capital both builds resilience and speaks well to growth opportunities in 2023, analysts suggest.
“In our view, not only has Beazley delivered on the promises made when it raised capital - by delivering over +40% growth in Property risk at January and providing strong growth guidance - but capital is also in a far better position than we had anticipated,” analysts at Jeffries wrote in their note to markets.
Analysts at the Berenberg investment house concurred, claiming Beazley has “successfully deployed” the $400 million capital raised in late 2022 during the January reinsurance renewals and setting itself up for “a multi-year ambition in growing its property insurance business.”
But shares of the firm had been down on the release of Q4 earnings and 2023 outlook, speaking potentially to market doubts that growth was sufficiently robust or capital adequately engaged. That reaction was clearly “overdone,” Berenberg analysts claimed.
Gross written premiums were 4.0% behind consensus expectations and net written premiums lagged 5.3%. The surplus capital ratio had risen to 40% from 28%.
Cyber took the brunt of the blame for the Q4 lag in premiums, with analysts ready to agree with management that Beazley’s early move to add war exclusions to wordings had created a short-term competitive disadvantage that would even out by Q2 as the industry came on line to the new standard.
“We expect this to only be a near term headwind, given that Lloyd’s have set guidelines for these changes to be implemented by March 2023,” Jeffries analysts said. “We expect volumes in Cyber to pick up throughout the coming year.”
Even with the cyber glitch continuing well into Q1, Beazley is boasting of plans for net premium percentage growth in the mid-20's for 2023, well ahead of a mid-teen growth rate in gross written premium as the group pares back reinsurance purchase.
Property lines are nonetheless the driver, management5 had told the Q4 earnings call. Beazley anticipates property treaty reinsurance rate increases of up to 50% and over 15% in the direct property book during 2023, management said in its combined statement. Growth in property enables growth in cyber, where appetite remains strong, but Beazley has to keep an eye on allocation caps, officials said.
Elevated surplus capital, less than a sign of under-deployment, is a keg of dry powder, analysts added. The sum looks “all the more impressive given that this includes Beazley's mid-20s net premium growth guidance for 2023,” Jeffries added.
“This win-win situation partly arises due to the strong diversification benefits of growing cyber exposures along with property risks,” Berenberg surmises, claiming increased ability by Beazley to withstand higher attritional and peak losses even as some repositioning has cut exposure to peak perils “marginally” to what Berenberg calls an all-time low at 16% of equity.
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