Beazley suffers Q1 cyber jolt on ‘messy’ market move to war exclusions

Specialist re/insurer  Beazley has suffered a “dampening” in sales of cyber cover following its Q4 move to write tighter war exclusions into its coverage, but is ready to jump on an expected normalisation as pricing in the sector looks strong, top officials have indicated.

Beazley expects a “short-term disruption on our cyber book that will impact the book through the first quarter of this year,” CEO Adrian Cox told his company’s Q4 investor meeting. “We are expecting the market to settle over the coming months.”

Overall, Beazley's appetite for cyber remains “undiminished” even as rate growth moderates. Rates are currently fully adequate given the two-year rally in pricing and the recent tempering of loss trend, Cox said.

“For the current environment, cyber business is priced pretty adequately: we don’t need more rate,” Cox said. The moderation of rate gains seems “logical” in the mix between prior rate gain and recent loss moderation.

Continued strong demand is increasingly being met by a cyber insurance industry increasingly “confident” on losses, Cox said. “It’s a short tail business, so prices are driven by loss experience. We are comfortable with that.”

Beazley expects an increasing share of the increase in demand for cyber to come from international operations, versus the historical lean towards the US market, he indicated.

”We are expecting demand to grow increasingly internationally,” Cox said. “We are positioned to capture the growth as it comes.”

The industry’s transition to tighter or clearer wordings looks “a little bit messy” and, despite an overhanging March deadline from Lloyd’s, “not all insurers have determined what they want to do.”

The disruption is “not a pricing thing,” but a waywardness among clients as rival underwriters move slowly in addressing such gaps in wording. “The industry historically hasn’t been any good at making changes before something happens,” Cox surmised.

“Our central expectation is that the market will settle down,” Cox said. “Reinsurers are very focused on it; regulators are very focused on it … it just takes a bit of time.”

If the market disruption continues, Cox admitted, Beazley will have to come back and revise downward its guidance for gross written premium growth in 2023 in the mid-teens and net written premium growth in the mid-twenties.

Allocation caps for the cyber book are less of an issue now that the property segment is growing at a supercharged pace, Cox noted.

“The more we have good growth engines, the more we can grow cyber,” Cox told analysts.

For cyber reinsurance purchase, Beazley reduced cover for its cyber book at the 1.1 renewals. The reduction came much to the dismay, Beazley claims, of its reinsurance partners who were “clamouring” for more Beazley cyber business. Terms and conditions and price of the reduced quota share cover “were entirely unchanged,” Cox said of the 1.1 programme.

Beazley took a major step towards greasing market growth with the launch of the industry’s first cyber cat bond in early January. The $45 million tradeable bond gives Beazley indemnity against all perils in excess of a $300 million catastrophe event, with the potential for additional tranches to be released through 2023 and beyond.

“We expect to be able to announce additions” later in 2023, chief underwriting officer Bob Quane reiterated.

To read more about Beazley's growth strategy and new cyber cat bond, click on the following:

Beazley likes property & cyber, eyes 2023 premium growth in mid-20s

Major ILS investors back Beazley’s groundbreaking $45m cyber catastrophe bond

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