The Beazley view: strategy in cyber, digital, property, specialty & more

Beazley won’t back down on cyber, given success driving down frequency during the ransomware boom, will build over 20% growth on its digital platforms, and will continue to hold mid-frequency property risks at bay, officials indicated amongst strategic priorities reviewed during its Capital Market Day.

Following are highlights from the strategy review:

Top-down positioning and strategy:  Beazley is a top-end specialist. “One of our defining characteristics is that there is a lot more that we don’t do than that we do do,” CEO Cox (pictured) said. “Our strategy is the intersection of two separate strategies: a product strategy and a platform strategy.” By product,  Beazley will position itself for specialist products requiring expertise and service with long-term demand growth and the ability to exercise some pricing power.  Beazley likes wholesale markets for the opportunity to write high-end specialist, and can be small and manoeuvrable in cycle management. Then  Beazley likes the admitted market for its size, access to risk and the easier margins that come from being closer to the end-client. Building into an admitted market (usually on D&O) is time-consuming, worth the effort, but only for the largest markets.

Cyber outlook: Europe could be home to some "exciting" growth as the continent is some 5 to 6 years behind the US market and ransomware has scared corporate Europe into action, Bantick said.  That European explosion could coincide with a move from large-caps into mid-market and SME. THE group is "on plan" for a previously announced $1.35 billion premium target.  The shift in focus from data breach to ransomware and the threat of major business interruption gave the market its growth kick. But the shift in focus also reduced the length of the tail in policies. “The tail is shorter because of the change in threat,” Bantick said. “That won’t always be as once we are through with ransomware, there will be something else.  No change to Beazley’s strategy of building all the know-how and service capacity in-house. “We believe in this model.”

Cyber frequency:  Beazley believes in focusing on frequency reduction through tech and protection services.  "It's the biggest win-win I can see right now," Bantick said.  Beazley claims that frequency per policy count since October 2020 is down 25% at end-Q1, having been down 20% at end-2021 or 15% at the end of Q3 2021.  Counted against premium (with rate gains baked in), frequency is now down 65%. Improvements also follow having shed some policies in 2021 after identifying clients with higher incident likelihoods, Bantick said.  "2021 finished with a lot more rate for a lot less exposure," Bantick said. Cyber frequency is down during the war. “The cyber power they have is focused on each other,” Bantick said of operators in Russia and Ukraine. “And when people are on high alert, less bad things happen.

Cyber systemic risk: Expert teams are scratching their heads day and night for years. For now, none of the systemic events out there have added up to even a single large-scale ransomware event. The key  Beazley response is diversification, Bantick argued.

Property and climate change:  Beazley has trimmed exposure in property on account of the vagaries of climate change, Chief Underwriting officer Bob Cuane said. “While we were growing premium in the hard market, we weren’t growing the exposure,” Cuane said, “largely on account of climate change.”  Nominal exposure has grown in the 1:250 events area, but continues to come down in the 1:10. “We believe climate change will make property underwriting more difficult and therefore less commoditized.”  Across property,  Beazley sees “more rate adequacy” in primary coverage than in reinsurance where “we were hoping for a lot more.”

Specialty: Sounds opportunistic and focused on cycle management.  “The confidence to grow where we want to grow and shrink where we want to shrink” while keeping heads up for the arrival of new niche opportunities, division leader Bethany Greenwood said. Outperform on the upside, then “have the discipline when we don’t feel we are seeing the right market cycle or getting the right price for the risk we are taking.”

Digital:  Beazley will hit $200 million in gross written premium from its upstart digital specialist platform, the proceed to minimum 20% top line growth annually, the unit’s leader Ian Fantozzi – said. The unit is highly independent with “limited reliance on central support functions at  Beazley.”  Beazley is working to help more brokers into the API and Hub connections with less reliance on standard interactions requiring human intervention. “Plenty of opportunity to remove manual processing,” Fantozzi said. The test will be the absolute control or freeze of headcount as the top-line grows.

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