“We emphatically agree with management that now is the opportune moment to split the division.”
Reacting to Beazley’s decision to divide its specialty lines, investment bank Jefferies said the above in a note – highlighting the fact that the unit now contributes more than 56% of the insurer’s gross written premium (GWP). Jefferies sees the move as a clear positive.
“Despite being Beazley’s clearest differentiating factor, the specialty lines division has always been a diverse and complex business, including a wide variety of long tail casualty lines, alongside short tail cyber liability,” explained Jefferies. “Given the differing growth profiles and profitability, a separation of the division into specialty (casualty) and TMB (cyber / management liability) is a welcome development, with clear operational benefits (aside from improving investor disclosure).
“Though we would have preferred a clean split of cyber from specialty, we accept that as cyber cover is increasingly sold to board level management, it makes sense to manage cyber alongside other board level covers such as D&O and management liability – both of which are already traditional strengths of Beazley.”
Jefferies added that while specifics of the split have yet to be laid down, it expects one part to comprise ~$700 million (in GWP) of casualty; the other ~$350 million of TMB / cyber and ~$240 million of management liability.
“Given that TMB’s cyber products are the most rapidly growing lines, investors will thus receive increasingly more useful disclosures – which we expect will enable the business to be valued at a considerably higher valuation; possibly as high as 800p,” it said.
Meanwhile specialty lines international is proving to be promising.
With recent product launches in Australia, Canada, and Spain, Jefferies believes Beazley’s specialty lines international will drive long-term growth.
“Here Beazley’s investment in its operations is beginning to pay off, with the group now capable of claims-handling on five continents and underwriting teams now located in such places as Singapore, Munich, and Barcelona,” noted the investment bank, which cited sustained growth not just in the US.
It added that specialty lines international has already written $70 million in the first quarter of the year and has set a $240 million target for 2018 to post a 41% growth from last year’s $170 million.
