Beazley and Catlin chase extra cash with rights issues

Lloyd’s insurers Beazley and Catlin have entered into rights issues to take advantage of expected hardening rates and to combat currency fluctuations between the dollar and sterling.

Analysts have largely backed the move. “It’s the logical answer,” said Ian Clark, insurance partner at Deloitte.

“The rating environment for the Lloyd’s-based businesses is going up significantly, therefore their premium base is going up. If they want to continue to write that premium, particularly when the dollar and sterling exchange rate has changed so considerably, then they need a strong capital base,” he said.

“Going out with rights issues is sensible in the current environment rather than trying to get debt on board. Both are very strong businesses.”

Some analysts were divided about the timing of the move. “We would prefer it if they raised more capital only after rates harden, otherwise there is no case for it,” said one.

But Clark said: “You have to go at the time you are setting the plans out, not when you have written the business and you need the extra money. If you can’t get the extra cash, you have to close the business. It’s just sensible.”

Catlin is seeking to raise £200m (net of expenses) from its rights issue. Beazley is looking to place £150m.

Beazley separately announced that it has bought First State Management Group, a US underwriting manager specialising in excess and surplus commercial property lines.

“It has bought a business that it has reinsured before so there is no crisis there. It’s a good move,” said an analyst.

News of the acquisition came as Beazley revealed pre-tax profit of £87.2m for 2008, down from £138.5m in 2007. However, gross written premium increased 12% to £875.7m from £780.5m in 2007. The company’s combined ratio remained steady at 90%.

Beazley is also set to change its corporate structure through the creation of a new parent company for Beazley Group, incorporated in Jersey and tax resident in the Republic of Ireland.