London-listed Lloyd's insurer Beazley PLC is splitting its $1.29 billion gross written premium specialty business into two divisions at the start of 2019.
The insurer confirmed the move to S&P Global Market Intelligence after Jefferies equity analyst Philip Kett published a research note May 31 saying the split was on the cards. "With specialty lines now contributing 56%+ of Beazley's gross written premium," he wrote, "we emphatically agree with management that now is the opportune moment to split the division — we consider this a clear incremental positive."
The existing specialty unit will be split into specialty, headed by James Eaton, and technology, media and business services, or TMB, and management liability, headed by Mike Donovan, a Beazley spokeswoman said in an email. Both new division heads are internal recruits. Eaton previously was head of the specialty lines global team focusing on small business, while Donovan was head of the technology, media and business services team, which includes cyber.
The spokeswoman added that the change followed the appointment of Adrian Cox as chief underwriting officer from Jan. 1, 2019, replacing Neil Maidment, who is retiring at the end of 2018.
'A welcome development'
Beazley's specialty gross written premium of $1.29 billion for full year 2017 made up 55% of the group's total of $2.34 billion that year. The bulk of the business comes from the U.S., although the insurer has been working on growing its non-U.S. specialty business, having hired Gerard Bloom in 2016 to spearhead the expansion.
Kett said that although the specialty business was a "differentiating factor" for Beazley, "it has always been a diverse and complex business." He added that the split was "a welcome development" that offered "clear operational benefits (aside from improving investor disclosure)."
He further wrote: "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 [directors' and officers' liability] and management liability — both of which are already traditional strengths of Beazley."
Beazley did not provide a premium breakdown of the new divisions, but Kett estimated that the business would be split roughly into $700 million for specialty, $350 million for TMB and 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 800 [pence]," he said.
Jefferies has a price target of 680 pence for Beazley.
Further growth
Kett's note followed a Beazley briefing to analysts on 30 May, which also covered the growth prospects for its non-U.S. specialty business. Kett said in his note that international specialty lines would drive long-term growth, adding that the company wrote $170 million of non-U.S. specialty business in 2017 and is targeting $240 million for 2018, representing growth of 41%.
Investec analyst Ben Cohen said in a May 31 research note that Beazley was aiming to make international specialty a $500 million premium business. He added that because of Beazley's "ongoing delivery of industry-leading growth, with material opportunities across the specialty business," Investec had increased its target price/earnings multiple for the company to 14x from 13x. Investec's price target for Beazley is 665p.
Beazley's share price closed at 594p on May 30 and was up 0.42% to 596.50p at 3:14 p.m. in London on May 31.
