Insurer Beazley Raises $300M to Strengthen Balance Sheet on COVID-19 Uncertainties

By | May 19, 2020

Beazley, the Lloyd’s specialist insurer, announced it raised £247 million (approximately $300 million) in capital via an equity placement designed to strengthen its balance sheet as a result of the continuing uncertainty created by the COVID-19 crisis.

During the first quarter, London-based Beazley estimated that COVID-19-related claims will be $170 million, net of reinsurance. It also reported a Q1 investment loss of $55 million.

The placing price of 315 pence represents a discount of 4.9% to the closing share price of 331.4 pence on May 18, 2020. The total number of new ordinary shares is approximately 15% of the company’s existing issued share capital prior to the capital raise.

Investors have responded well to the placement with Beazley’s share price rising by 7.79% as of 4:45pm in London.

On May 6, Lloyd’s insurer Hiscox raised capital of £375 million (US$465 million) from an equity placement of new ordinary shares.

Organic Growth

Beazley said the capital raise also will support ongoing organic growth – to be able to respond with capacity for rising rates.

As a result of the elevated claim numbers in recent years, the company said it has seen rates rise steadily across its core markets. During the first quarter, rate changes “were particularly encouraging, with an average rate increase of 8%, with three divisions achieving double digit increases,” said Beazley in its share placement proposal issued on May 18.

Beazley expects this strong momentum to continue. “Certain markets, such as property and marine, have now experienced two consecutive years of rising rates and present attractive near-term opportunities,” the company added.

In addition to the equity capital raise, Beazley has taken several other actions to augment its capital position.

  • It has drawn down $225 million in the form of a letter of credit from a banking facility, which leaves $225 million of unused capacity in the facility. The facility was increased this year from $225 million to $450 million. (Beazley announced this move in its share placement proposal on May 18).
  • The Beazley board decided not to pay a first interim dividend for the six months ending June 30, 2020. (This action was announced on May 18).
  • From April 1, it ceded about 10% of specialty lines and executive risk (not cyber) to its reinsurance partners. The insurer said these are two of its fastest growing businesses. The reinsurance is expected to reduce its capital requirements by around $50 million. (This move was first announced in its Q1 trading statement on April 22).

As a result of these efforts, Beazley said its estimated half-year surplus capital will increase to 35% of the projected Lloyd’s economic capital requirement (ECR) of $1.8 billion. This compares to the original targeted range of 15-25%. In the absence of the equity placement, the estimated half year surplus capital would be 19% of the projected ECR, said the insurer in the statement that announced the proposed placement of new ordinary shares.

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