In a wide-ranging interview for the latest Leading Voices episode, the CEO told The Insurer that his most important priority is to achieve the 2021 business plan which his predecessor, Andrew Horton, set out at the beginning of this year.
“We had a difficult year last year,” said Cox. “We’ve got a good plan this year and I think it’s important that we can show ourselves, our investors and all our other stakeholders that we can achieve it.”
Geographically, Beazley has been concentrating its growth efforts in North America and Europe.
“There’s lots of headroom in all three sets of markets, particularly in Europe where we’re newer, but also in North America where we’ll write about $1.5bn this year – which is a lot for us. We’re still a relatively small insurer, so there’s lots of runway there too,” said Cox.
But overall, Cox was positive on reporting growth in 85 percent of the group’s portfolio in 2021, which he explained is “actually fairly positive for Beazley” given the “push and pull” within its portfolio management.
Books of business the markets can expect to see Beazley grow into include, liability, first party specialty risks, property, marine and parts of its reinsurance portfolio.
Earlier this year, The Insurer reported that Beazley’s Syndicate 623 had led the charge with 2022 pre-emption requests, targeting a 26.1 percent uplift on its 2021 stamp of £515.5mn, and Cox affirmed that continued growth at Lloyd’s is very much part of the overall strategy.
Although pre-emption documents seen by this publication peg Syndicate 623’s approved increase at 14.1 percent and not the 26.1 percent the business was looking for, there is room for the insurer to capitalise on current market conditions.
“We are in a relatively hard or hardish market at the moment and we’re also in a period of elevated risk across much of our portfolio, but at least we can underwrite for it and price for it,” Cox said.
“Those situations don’t tend to last forever so it’s important to capitalise on them when they’re there. A lot of our business goes on the Lloyd’s platform and that’s reflected in the stamp growth that we’re planning for next year,” he added.
Inflation risk key area of concern
“We’re growing about 85 percent of our book, but still slightly cautious on areas particularly impacted by social inflation and inflation more generally and a lot of work is going into our approach to cyber. I’d also say we’re probably more positive on insurance than reinsurance,” said Cox.
On inflation, Cox explained that it affects all parts of the business.
“In our 2022 plans, there are specific plans in terms of how we control our costs, the impact of inflation on the asset side of our business and we’re factoring this risk into both our investment strategy for next year, as well as on the underwriting side,” he said.
“On the underwriting side, I think we’ve put loads in for inflation where we see it having a particular impact and as a result, that’s impacted our loss [picks] for next year and again it will impact how we price that business,” Cox explained.
But as inflation tends to impact slightly different areas of a business, Beazley is working to factor this in accordingly.
“Social inflation or the recession loads are going in different places, but we are being very overt about doing that because as we look forward into next year, it’s not obvious that the things that are driving inflation now are going to go away,” continued Cox.
Cat losses and pricing for climate change
The impact of 2021 cat losses to date is creating a number of dynamics for reinsurers in the run-up to the 1 January 2022 renewals.
Alongside the more expected loss events, the industry has had to brace for the unexpected, including the summer floods in Europe, wildfires, the Texas freeze and hurricanes with unexpected tracks – which we saw with Ida.
Talking specifically about reinsurance, Cox said: “These events have put further pressure on the bottom layers of programs and the aggregate bits of programs.”
He added: “We heard at CIAB recently that a lot of reinsurers are apparently going to be positioning themselves away from those areas into layers where it’s predominantly the major perils they’re exposed to again and that may cause some interesting dynamics in terms of pricing at the bottom versus the mid to top.
“We’ll certainly take on board that information and factor it into our plans accordingly.”
If reinsurers are moving away from those lower layers, it begs the question, who is writing business in that segment?
“It’s an interesting point,” mused Cox. “One of the funny things that’s happened these last few years is that whenever there has been capital leaving, more capital has arrived in anticipation of better prices for it. I think that’s happened consistently to some people’s surprise, but it will be interesting to see if that happens again and I don’t think anyone really knows yet.”
One of the biggest underwriting challenges the industry is facing, said Cox, is how carriers price for climate change across property insurance and reinsurance books.
“It has become obvious that unmodelled perils continue to cost the industry significantly for which we’re not getting the right premium, so we need to figure out how to get that right,” he said.
“Traditionally the insurance industry is not very good at pricing for exposures that haven’t manifested themselves in losses yet because a lot of models look backwards. We need to figure out how we take that on board because we have to expect those things to continue to manifest and possibly at an increasing rate.
“If we’re going to price for it properly, we need to change the way we model. And if we’re going to help our clients get more resilient, we’re going to need to take into account climate change more overtly,” said Cox.