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Demand for insurance against online fraud is rising fast
Thursday 01 Feb 2018 Author: David Stevenson

Lloyd’s of London insurer Beazley (BEZ) is expanding its range of products to keep up with the changing nature of 21st Century        security threats.

Market leading cyber security product Beazley Breach Response (BBR) can carry out an assessment of vulnerabilities and recommendations for improvements across networks, servers and databases. BBR also includes consultation services to try and help implement incident response plans as well as other critical procedures.

As this fast-growing part of the business increases its contribution to earnings and becomes better understood by the market it may help lift Beazley’s shares.

BEAZLEY BOLSTERS ITS POSITION

At an investor day last month, Lloyd’s identified several areas it thinks provide ‘strong growth across the market’ including the impact of the sharing economy, cyber and political risk.

Investment bank Jefferies notes that Beazley already has these lines of business as a key focus which it argues is a demonstration of ‘why the group business mix is highly attractive’.

The most important growth element for Beazley is cyber according to Jefferies. It is currently producing 11% of gross written premiums and expected to hit a compound annual growth rate (CAGR) of 26% between 2018 and 2019.

That CAGR should see this niche account for 15% of premiums and 25% of earnings by 2019. However, Jefferies analyst Philip Kett suggests that rival companies who notice these figures will want a slice of the action and by getting involved in cyber could drive down margins.

Kett says while this may be a threat, he notes that prices rose 20% in 2015 and have remained stable since as industry supply has kept pace with demand. ‘In our view, flat prices are of no concern, as margins are attractive and volume growth should drive earnings’.

At 546p and based on Jefferies’ 2018 forecasts, the shares trade on a price to earnings ratio of 15.2 and yield 4%.

Larger companies

GOOD TIME TO TEST

Beazley says: ‘As the US tax season reaches its peak, cybercriminals will be ramping up their efforts to steal W-2 tax information [US tax form to report wages], file false returns and pocket tax refunds.’

This is the perfect time to test its new systems, as last year W-2 phishing incidents rose 10-fold in January. Breaches usually result in hackers using the data to defraud individuals in a few hours.

Beazley has set up a rapid response service for its US clients to deal with any breaches. The company can assign legal help, notify employees and provide access to credit monitoring all within a single day. (DS)

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