The Lloyd’s of London insurer Beazley has not been used to life being tough (Katherine Griffiths writes). One of the UK’s only independent specialist insurers at Lloyd’s, the company has attracted investors for its apparently smart management in growing in the US and moving into emerging areas such as cyber-insurance.
Given its good track record in risk management and strategic direction, investors and analysts have been confused by its clumsy handling of the coronavirus crisis. In common with many insurers, Beazley said it would be hit by large claims, told investors that the outlook was strong because of increasing rates and raised capital in May, then two weeks ago warned losses could be $340 million — double what it had expected. The shares have fallen 45 per cent this year. The sequence of events was “disappointing”, analysts at Jefferies noted.
Beazley had been caught out by predictions about conferences. It had thought more would return this autumn, but has found that events which were postponed have now been cancelled. As a major writer of conference cover, it is not good that there can be so little confidence that large professional gatherings will return any time soon.
The insurer has taken this into account — its new estimate includes claims for cancelled events into the first six months of year, with a resumption of some events in the second half — which seems a realistic bet.
It is also the case that the premiums Beazley can charge customers are rising — in guidance overshadowed by the ugly increase in potential losses, the company said premiums were up 13 per cent at the end of August and were accelerating, with an expectation that the growth will be in the mid-teens for the year.
Beazley now looks cheap by historic standards, but prospective investors face a tricky question. That is not so much the uncertainty of the Financial Conduct Authority’s test case over business interruption payouts, which Beazley has said will only have a minimal impact.
It is over whether the company now has enough capital. Beazley raised £247 million in what was seen as a successful, speedy action. Like its rival Hiscox it raised cash via a placing completed through an accelerated book build, not a rights issue. Such a manoeuvre can go down badly with shareholders as not everyone gets access to the process.
Beazley largely got away with it in May, with most investors who wanted shares getting them. But in the wake of its share price fall after its gloomy trading update, the sum it raised may not be quite enough.
Philip Kett, an analyst at Jefferies, said: “Following the trading update, we estimate Beazley’s Lloyd’s economic capital ratio to be between 112 per cent and 115 per cent, at or marginally below the group’s minimum target capital adequacy. This leaves Beazley with adequate but not comfortable levels of capital.”
That will make any natural disaster losses that come along in the final three months of the year “a far more material concern”, he said.
Beazley could raise more capital, but as it has already executed an accelerated book build for 15 per cent of its shares, it could only raise another 5 per cent in a similar way, which may not be enough. That would force Beazley into a rights issue, which would presumably annoy those who stumped up in May, given its dilutive impact.
Mr Kett points out that Beazley has another option — more reinsurance, which would ease its capital requirements. That would be costly and mean capital is diverted from new business opportunities, but would avoid diluting shareholders.
Advice Buy
Why Beazley may be feeling a pinch, but that will pass and the company remains well placed to grow at a time of increasing rates
Martin Currie Global Portfolio Trust
Football pundits often talk about a new manager bounce when an incoming boss transforms a previously underperforming group of players (Greig Cameron writes).
If the same were true for fund managers then there would perhaps be more transfer activity among those running investment trusts.
Zehrid Osmani was once an aspiring footballer in the academy at Paris Saint Germain before entering the world of finance. He joined Martin Currie, the Edinburgh-based boutique which is part of the US giant Legg Mason, in 2018 from Blackrock.
He took over as manager of the Martin Currie Global Portfolio Trust in October 2018. It would be unfair to suggest the trust was struggling before he arrived but Mr Osmani has made an encouraging start.
The portfolio is typically between 25 and 40 picks with the bulk of it in North America and Europe at the moment. The trust, founded in 1999, aims to outperform the MSCI All Country World index over the long-term. Its asset value was up 15.9 per cent over the 12 months to August, compared with 6.5 per cent for the benchmark over the same timeframe.
The largest holdings are Masimo, the US medical device firm, and Microsoft, the computing and software provider. Next come Adobe, the software maker, the payments group Visa, and Straumann, a Swiss dental equipment manufacturer.
A US presidential election being fought against the backdrop of the coronavirus has not yet prompted any major shifts in the portfolio.
Mr Osmani was more concerned by the prospect of personal and corporate tax rises to help pay for coronavirus support measures.
He said: “There are areas of the [US] economy facing high degrees of uncertainty, such as the transportation, tourism and hospitality sectors in particular, but there are also question marks about office space usage, and ultimately real estate overhang as a result.”
The trust’s shares entered 2020 at 306p and fell to 236p in March as lockdown restrictions were imposed in the UK.
That ground has been regained, with the stock changing hands at more than 340p in recent days.
Advice Buy
Why A concentrated portfolio which looks to have more growth in it
