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Beazley Chief Executive: M&A Might Be Only Route for Growth Left for Insurers

Source: A.M. Best

Posted on 26 Mar 2012

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Andrew Horton, the chief executive of Beazley plc, said he sees mergers and acquisitions as the route for insurers to grow during tough financial times. Horton, a speaker at I-Day, hosted by the Insurance Society of Philadelphia, also talked to Best's News Service about recruiting young people into the industry, investment returns and the importance of underwriting.

Q: On the topic of consolidation, you said that organic growth is tough in today's market. Are you expecting to see more M&A?

A: I think M&A will definitely happen while almost every company I speak to wants to actually grow. And if organic growth is tough by default you're sort of forced down the acquisition route. I know boards, including my own board, want us to contemplate acquisitions all the time. Acquisitions historically have not been great earnings generators for the insurance industry. I think they'll be quite careful about doing it but I think while they're trying to grow, this may be the only route.

Q: One of the things that you said during your presentation was that investors have to expect lower returns. Can you talk to us a little bit about that?

A: The industry has done incredibly well in the early 2000s-2005, 6, 7, and 8. Returns to the insurance industry have been very good. Investment yields are now lower. There's plenty of capital in the industry. The companies aren't handing that capital back. Ratings come down, and the expectation has got to be lower returns for 2012 and beyond.

Q: One of the topics you addressed was underwriting judgment versus modeling. Talk a little bit about that.

A: We all use cat models and there are only about three providers of cat models in the world and we all have to use them for our reinsurance and property catastrophe business. The danger is if we just rely purely on the model. It will take away any of the underwriter judgment and the issue then is the industry all has problems at the same time. So I'm really keen that our underwriters use a model as a tool and not actually follow the model completely.

Q: One of the big topics here at the conference is getting some young blood into the industry. How do we attract new talent?

A: Well, I think because of the challenges in the other parts of the financial service industries, its a golden opportunity to bring people who would have gone into banking and investment banking. I know when I was a bit younger, investment banking was always a glamorous industry that everybody aspired to get into. I think through our own pushing of insurance at this point in time, against the challenges of the banks, we will attract those youngsters in. We do need to explain to people that insurance is incredibly exciting, relating to the actual things we cover. Because most people, most youngsters that I speak to when I talk about insurance, just think of auto and homeowners, which can be exciting in themselves but there are so many other types that a lot of people don't even think about.