Beazley cyber, casualty releases praised by analysts

Equity analysts from Jefferies have praised the significant cyber and casualty at specialty insurer Beazley in 2017.

Having waited for a “further step-up in cyber reserve releases in 2017, we were not disappointed - cyber releases soared more than +47 percent to more than $40 million, an acceleration from +38 percent in 2016 and +44 percent in 2015,” Jefferies analysts said in a Feb. 28 research note. “Yet this paled in comparison to casualty reserve releases, rising a phenomenal +97 percent to more than $80 million.”

Beazley has a policy of only releasing cyber reserves after 3 years. Specialty Lines began releasing the 2015 underwriting year in 2017.

At £30 million from 2015 and a further £10 million from 2014, Jefferies estimates that cyber releases rose 47 percent in 2017 and infer that the underwriting year cyber combined ratio is in the low 70's.

Considering cyber premiums rose in excess of 25 percent in 2016 and have continued to rapidly grow since, the outlook for future cyber releases seems secure. The analysts estimate that releases will nearly double within 3 years (~$80 million by 2020) and contribute 22.8 percent of PBT (profit before tax) in 2020, making cyber releases the most material driver of earnings growth.

Though cyber remains the structural driver of earnings growth, Jefferies expects that it was the release of $80 million of casualty reserves that really caught the market's attention.

An analysis of casualty reserving indicates that the current year claims ratio has fallen materially (67 percent to 70 percent over 2010-2013, 62 percent to 65 percent over 2014-2016 and <62 percent in 2017). Due to casualty's longer tail, Jefferies expects only limited loss development in the first year, leading the expectation that current year claims are a reasonable proxy for the initial loss pick. Jefferies expects that this lower initial loss pick, combined with substantial 2017 releases, means that current year losses are now more representative of underlying claims and higher current year casualty earnings and lower reserve releases going forward can be expected.

Furthermore, analysts were “pleasantly surprised by updated management guidance that Beazley now expects ‘double digit growth in 2018’ as a result of firming rates.

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