Beazley’s $417m capital raise for 10% stake a ‘proactive’ move in hardening market

London-listed insurer  Beazley has completed a £350 million (approximately $417 million) equity raise to provide growth capital to fund “attractive underwriting opportunities” in the hardening market, especially cyber, specialty and property business. Analysts believe the capital raise is “proactive move” by the insurer in view of the bullish pricing outlook, and also to reduce its reinsurance protection.

The company has sold 60,959,017 new shares in the business, equivalent to a 9.99% stake with “strong support from existing shareholders”. The issue price of 575 pence represents a discount of 8% to the closing share price of 625 pence on November 15. The placing was conducted by JP Morgan Cazanove and Numis through an accelerated bookbuilding process.

“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,” the company said.

“Rate changes for the nine-month period ended 30 September 2022 were particularly encouraging, with an average rate increase of 17% and three divisions achieving double digit increases,” it noted. “The Company expects this momentum to continue, particularly within the property classes where a significant dislocation is emerging.”

Beazley expects the opportunity to write more new business in cyber to continue into 2023 and beyond and growth in property classes to 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.

“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,” the company said.

Analysts at Jefferies, however, do not expect anything close to the 50% that Beazley is expecting for property reinsurance in 2023. But, they believe the capital raise is a “proactive move” from Beazley given the bullish pricing outlook.

Beazley’s equity raise shows that the company is “doubling down on the hardening market,” Jefferies said in its report. “Given these rate increases, we can reasonably expect Beazley’s underlying margins to improve even further on a normalised basis, which is impressive given the already very strong level of technical profitability.”

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