Beazley raises $350m to target 50% higher reinsurance rates

London headquartered specialty insurance and reinsurance firm Beazley has successfully raised £350 million in the share placing it announced last night, falling a little short of the aggregate target as its share price declined.

Beazley had been aiming to raise £385 million from an issuance of Ordinary shares and an additional retail placing, as the company sought additional capital to build a war chest to fund underwriting growth in 2023.

This morning Beazley revealed that, in aggregate, the share issues have raised gross proceeds of approximately £350 million (roughly US $417m), short of the £385 million (roughly US $452m) stated target.

The main reason being that Beazley had launched the issue with it valued based on its closing share price at November 14th, which was 625 pence, but actually issued the shares at an 8% discount to that, at 575 pence. This morning, Beazley’s share price sits at around 600 pence.

Pricing of the capital raise and any questions over dilution for existing shareholders aside, Beazley has secured a significant new sum of capital to deploy into the hardening insurance and reinsurance market, which should support share price rises back to the levels originally anticipated for the raise.

Beazley has forecast that reinsurance rates in 2023 will rise by 50%, while direct insurance rates are expected to rise 15% and the company wants to capitalise on this opportunity.

Beazley said that it “believes the market dislocation is likely to persist for a number of years” and said that the hardening of rates is now sufficient to support growth into property reinsurance and an increase in capacity and cat exposure.

Beazley said it sees a “significant opportunity to be a leader in the market in London, helping drive the underwriting of property (re)insurance and providing a springboard for Beazley’s long term US ambitions.”

The added diversification from growing the property and catastrophe insurance and reinsurance book at Beazley will also allow the company to expand in other lines, with cyber one additional area of growth expected.

“This is an attractive proposition as cyber rates remain high, and demand continues to outweigh supply with significant barriers to entry for new carriers,” Beazley said.

Currently, Beazley feels it is writing more cyber than it is able to retain, but “growth in property classes will 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.”

While the capital raise fell a little short, Beazley does have other options to help fund and support its growth and expansion into the hard reinsurance market in 2023.

Beazley’s CEO previously explained that the company is open to leveraging Lloyd’s new ILS structure London Bridge to bring new capital from third-party investors in to support its business growth.

With the launch of the new London Bridge 2 ILS structure, Lloyd’s now has a much more flexible platform for ILS capital to flow in and that could be attractive for Beazley, if indeed it wants to build an even larger supportive capital base.

In addition, the Bermuda based special purpose insurer (SPI) named Fuchsia Re Ltd., which we believe to be Beazley’s, has so far not been utilised, as far as we’re aware, which could be another option for the company.

In addition to which, back in 2018, Beazley registered a UK domiciled insurance-linked securities (ILS) vehicle named Fuchsia Capital PCC Ltd., which to our knowledge has also not been utilised to-date.

So Beazley has always shown intent to leverage third-party capital and this hard reinsurance market, with much higher rates expected, could be just the right moment to explore those avenues again.