Beazley: a compelling specialist insurer
The insurer Beazley is unusually profitable at present, and that looks set to continue. The stock is also a valuable portfolio diversifier, says Jamie Ward
The insurance market splits into commoditised and specialist products. Commoditised products, such as car or home insurance, are standardised, widely available and easy to price. Competition is intense, driving premiums down and margins close to the cost of capital.
Specialist products, such as cyber liability or offshore oil-rig cover, are complex and harder to sell. Their bespoke nature and the expertise required allow higher premiums and stronger returns when managed well. Put simply, specialised insurance markets tend to be more profitable but smaller, while less specialised ones are larger but less lucrative.
Beazley (LSE: BEZ), founded in 1986 and listed on the FTSE 100, operates across this spectrum. Headquartered in London, it underwrites through seven Lloyd’s syndicates and has a global footprint in Europe, North America, Asia and Latin America. Its business is divided into five segments: cyber risks, MAP (marine, aviation, political) risks, property risks, specialty risks (such as professional indemnity and healthcare), and digital products for small and medium-sized businesses (SMEs).
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Beazley is a market leader in high-margin lines such as cyber liability, directors and officers (D&O), and environmental liability, but it also writes property and reinsurance, including small commercial and high-value residential properties.
Unlike mass-market insurers, Beazley focuses on areas requiring deep expertise. Its property-risks division insures complex assets such as industrial sites, major art collections and high-value homes, where competition is lower and margins higher. Its cyber-risks division, supported by Beazley Security, addresses the growing threat of ransomware and data breaches, a segment with rising demand.
At the same time, it writes more accessible SME liability products through digital channels, balancing dependable lower-margin lines with its specialist core.
Diversity is Beazley’s strategic strength
Beazley’s ability to mix commoditised and specialist products is a strategic strength. Commoditised lines, such as business-premises insurance, provide stable cash flows and a broad customer base. These products are easier to scale, helped by Beazley’s digital platforms and Lloyd’s broker network, though their returns remain thin.
Specialist lines, such as cyber or marine insurance, require skilled underwriters and carry higher risks, but can deliver strong profits when executed well. For instance, Beazley’s cyber products, including Beazley Breach Response, have captured surging demand, with premiums in this segment growing strongly over the past two decades.
This blend of dependable work mixed with lucrative specialist business provides balance to Beazley and mitigates volatility. In 2017, when hurricanes Harvey, Irma and Maria struck, property and reinsurance businesses posted heavy losses across the sector.
Beazley was also hit, but its specialty lines cushioned the impact and allowed it to report a modest group profit. In other words, it acted like a portfolio of businesses within Beazley lowering overall risk.
The company ended the year tested but resilient. Strong diversification and balance-sheet strength underpin high-quality insurance businesses, as years with large losses are inevitable in the industry. Beazley’s geographic spread adds another layer of resilience, with less than half of premiums now earned inside the US, down from 66% a decade ago.
By blending dependable and higher-return lines, Beazley has delivered consistent performance across cycles. Book value per share has compounded at an impressive 10% per annum since the global financial crisis, with a rising and dependable dividend, enhancing shareholder returns.
Lloyd’s of London: the heart of operations
Beazley’s success is closely linked to Lloyd’s of London, the world’s oldest and largest insurance market, dating back to 1688. Lloyd’s is not a single insurer, but a marketplace where syndicates pool risks. Beazley manages seven syndicates, which are groups of underwriters backed by capital providers.
Lloyd’s global broker network and trading licences give Beazley access to risk markets worldwide, including areas such as marine and political contingency that were pioneered at Lloyd’s.
Lloyd’s requires syndicates to hold capital well above normal regulatory solvency levels. This is to protect the credit rating of Lloyd’s and ensure it can borrow at a low rate. Beazley goes further than the already stringent regulations, keeping additional capital to ensure it can write business even after major losses.
This conservative approach allows it to expand in “hard” markets following catastrophes, when weaker competitors withdraw and premiums rise. During these periods, the best business is written, making financial resilience critical.
The combined ratio explained
The combined ratio is the insurance industry’s key profitability measure. It compares claims and expenses with premiums earned. A ratio below 100% indicates an underwriting profit, while above 100% signals a loss. For example, a ratio of 94% means 94p of every £1 in premiums goes to claims and costs, leaving 6p profit before investment income.
The ratio is cyclical. High ratios, often caused by large catastrophe claims, cut industry capital and force insurers to raise premiums. This creates a hard market, with lower ratios and stronger profitability. Conversely, long periods of low ratios attract competition, driving premiums down and ratios higher in a “soft” market. This cycle means unusually high or low ratios rarely last long.
After years of high ratios and losses, the industry is currently very profitable as capital left the sector seeking better returns elsewhere. In other words, the industry has recently spent several years in a soft market, but has moved much harder recently.
Beazley’s journey through the cycle
Beazley’s combined ratio has reflected these cycles. In 2017, hurricanes in the US and Mexico pushed its property division’s ratio to very high levels, although group diversification kept the overall figure more manageable.
The early 2020s saw elevated ratios again, with business interruption due to Covid claims leading to a half-year loss in 2020. The market hardened after Covid, with reduced competition and higher premiums. By 2023, Beazley’s undiscounted combined ratio had fallen to record lows, though recent announcements suggest the market is beginning to ease, which may lead to more modest profitability for a time.
These low ratios reflect strong underwriting and favourable markets. Beazley has benefited from premium increases in specialist lines such as cyber and professional liability, while its efficient claims handling keeps costs down. Although current conditions cannot last indefinitely, well-managed insurers such as Beazley remain well placed across market cycles.
A well-run firm with a strong balance sheet
Beazley’s current profitability may be at a cyclical peak, but its operational strength and financial health suggest durability. Led by CEO Adrian Cox since 2021, the company has maintained a culture of underwriting excellence, with experienced teams empowered to act quickly. The balance sheet is strong, with capital buffers well above Lloyd’s requirements.
This strength allowed Beazley to write $5.7 billion in premiums in 2024, up from $5.4 billion the previous year.
Beyond underwriting, Beazley earns income from investing its float. A float represents the premiums that are collected before claims are paid – in other words, money received for selling insurance but not yet paid out in claims. This float is often held for months or years and provides a steady revenue source.
Beazley invests mainly in high-quality, short-duration bonds, such as government and corporate debt, to ensure liquidity and match liabilities. This conservative approach aligns investment maturities with claims and protects capital. It also allowed Beazley to benefit from higher interest rates in 2022 and 2023, boosting returns without increasing risk.
Staying afloat
The size and management of the float are critical to Beazley’s profitability. Underwriting is cyclical, but investment income provides stability during volatile periods. Beazley avoids equities or illiquid assets, focusing instead on bonds rated A or higher, which make up 80% of its portfolio. This discipline helped it navigate the low-yield environment of the 2010s and to capitalise on the rate rises of recent years.
Float investment carries risks, such as interest-rate changes affecting bond values or prolonged low rates reducing yields. Beazley manages this through active portfolio adjustments, shifting durations and diversifying into cash and short-term securities. Combined with oversight from Lloyd’s, this approach ensures the float contributes reliably to profitability. In 2023, Beazley reported a 30% return on equity, underlining the value of this dual-income model.
A valuable portfolio diversifier
Beazley’s investment appeal lies in its diversification. Insurance stocks often move independently of broader markets, since their performance depends on underwriting cycles and catastrophic events rather than general economic growth. This low correlation provides a useful hedge, especially for equity-heavy portfolios.
Specialist lines, which benefit in hard markets, add a counter-cyclical element, while commoditised lines provide stability.
Risks remain. A softening market could raise combined ratios and cut profits. Large catastrophes could strain reserves. Regulatory changes or a surge in cyber claims could also create challenges.
Takeover speculation, as seen in 2024, adds further uncertainty, though Beazley’s scale and syndicate strength make it an attractive premium target. Yet its diversified book, conservative balance sheet and underwriting record help mitigate these risks.
A stock to watch
Investing in specialist insurance companies can appear daunting, but Beazley is a high-quality business with a strong record. Its discipline in underwriting and capital management has produced returns that outperform the wider market. Beazley may not be widely known outside the insurance sector, but its expertise and global reach make it a leading FTSE 100 insurer.
By combining commoditised and specialist products, using Lloyd’s global platform and maintaining a strong balance sheet, it has delivered consistent value. Its combined ratio may now be close to historic lows, signalling peak profitability, but its quality and diversification should ensure resilience as markets shift.
For investors seeking diversification and exposure to a well-run insurer, Beazley offers a compelling case. With a record of navigating cycles and a valuation that underplays its quality, this is a stock to watch.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Jamie is an analyst and former fund manager. He writes about companies for MoneyWeek and consults on investments to professional investors.