So far the billions raised won’t be enough to reverse near-universal price rises, a trend which looks set to continue throughout 2021, but it will go some way to ease capacity constraints in challenging areas, especially casualty.

Beazley’s new cash for growth

Lloyd’s re/insurer Beazley is one of many carriers to have garnered fresh capital. “We’ve raised $300 million, for two reasons,” says Chief Financial Officer Sally Lake. The main goal is to take advantage of “real change” in the market. “We do not want capital constraints on growth during the hardening market,” Lake says. 

A minor diminution of Beazley’s capital due to Covid-related losses was the second, linked driver. The transaction was supported by Beazley’s existing institutional shareholders, through J.P. Morgan and Numis Securities, and completed in May. 

The funds are already being deployed against next year’s business plan. Beazley sees renewed attraction in several lines it drew back from during the soft market, including marine. “The Lloyd’s marine market has been through a number of years of reducing rates, and we shrunk the book,” Lake says. “But we have seen a real shift, so we will reverse the shrinking into a much more exciting market.” 

Another area Beazley will use its new funds to grow is D&O, which has hardened significantly. “Generally we have been under-weight in D&O, so now is a good time to capitalise and add exposure,” Lake says, noting that these lines are just two of many where Beazley will enlarge its book. “The growth is net positive, more than it has been for a number of years,” she said. 

Fortegra’s new E&S operation

Alongside balance-sheet-bolstering by established players, many new operations have been launched. Florida-based Fortegra Financial isn’t new, but its excess and surplus lines subsidiary is. Fortegra Specialty Insurance Company was launched in October. 

London-based Chief Underwriting Officer David Barber is leaping at attractive opportunities with fresh funds. “The market is changing hugely,” he says, citing general moves away from badly performing binding authorities, under-priced property risk, and legacy casualty.

After a 29-year career in Lloyd’s, most recently as Head of Speciality Lines at Chaucer, Barber was parachuted into Fortegra to take advantage by building a London E&S offering. “It’s a fantastic opportunity to open up and develop Fortegra as an E&S company in London,” he says. 

He has mapped a diverse book comprising direct and reinsurance business, alongside MGA binders. It will focus initially on E&O, MedMal, GL, transactional liability, and miscellaneous short-tail business. After growing Chaucer’s binder book from $10 million to $150 million before the market went south, he targets a $50 million book for Fortegra by the end of 2021. 

To fund the venture, Fortegra raised a $200million in senior secured credit from a syndicate of banks. The oversubscribed facility provides working capital and letters of credit to back underwriting, and according to Fortegra allows “greater freedom in building shareholder value through domestic and international expansion.” 

Third Point launches MGA Arcadian 

Some existing risk carriers have chosen to expand into the hard market by deploying capital for growth into the hardening market through new ventures. One example is Third Point Re, the Bermuda reinsurer, soon to merge with international carrier Sirius. It has launched a new Bermuda-based MGA to capture new risk, and retained a minority stake in the venture. In September Third Point and industry veteran John Boylan (of AIG, XL Insurance, and latterly Max Re) announced the creation of Arcadian Risk Capital to underwrite excess casualty and professional lines risks on Third Point Re paper. 

“Some of the balance-sheet entities have raised hundreds of millions, but we choose the MGA route as a quicker, more efficient vehicle to deploy capacity,” he says of the operation, which has multi-line, multi-platform ambitions. Boylan had retired from underwriting in 2018, but always with a view to returning when the market turned. He could have dropped into Third Point and begun to build teams, but the economics of the MGA structure presented the potential returns needed to attract and incentivise teams for book-building. 

Over the past six months, he has hired 16 well-known, seasoned underwriters who’ve delivered market-leading results. Most will be on board by year end. In the interim, Arcadian has already started putting down lines in its $15 million excess $5 million sweet spot.

Boylan says the hard market is “a rare event,” but that he and his growing team know how to handle it, since they’ve done it before: many of his new hires are old colleagues from XL and Max Re. “A lot of companies are currently involved in book remediation, but we have no legacy, so we can go full tilt at the marketplace.” 

Experience rules

The examples of Boylan, Barber, and the enormously successful team at Beazley suggest strongly that the vast sums of risk capital newly deployed in the global insurance sector will be handled with care. These are not individuals who will be anxious to push prices down. Instead, they are set to support improved conditions, rather than fuel their deterioration. 

With that in mind, we expect new funds and new entities to ease conditions in the most difficult areas of the market, like excess casualty and D&O, rather than to set the course towards a new softening cycle. Only time will tell how this plays out in the longer term – we’re not calling the death of the cycle yet – but for now, expect welcome new capital to be deployed at sustainable prices.