Buy Beazley for cyber opportunity, Jefferies says

(Sharecast News) - Beazley could have a once-in-a-generation opportunity to insure cyber risk as companies seek to insulate themselves from damaging attacks, Jefferies said as it upgraded the company to 'buy'.
With many people working from home, companies are at greater risk of attacks on their computer systems, Jefferies said. They are likely to offset the risk by buying cyber insurance, the broker said.

This will lead to higher claims as crime goes online and home-working creates extra risk for insurers but there will also be more demand and less competition as claims force some carriers out of the market, Jefferies said.

Beazley faces another tough year for earnings after reporting $170m of virus claims and a $55m investment loss in the first quarter. 2020 looks like being the fourth year running that the Lloyd's of London insurer's earnings will fail to generate adequate returns, Jefferies said.

These losses are being recouped by higher prices but Beazley could find itself short of capital as growth increases. Management is likely to buy more reinsurance and cut the dividend to strengthen capital but the value of future growth will more than make up for exceptional capital measures, the broker said.

Jefferies increased its rating on Beazley shares to 'buy' from 'hold' and cut its price target to 575p from 611p.

"Beazley may be on the cusp of generational opportunity in cyber. With much of the population now working from home, we expect a surge in risk, prices and demand," Jefferies analysts Philip Kett and Nidhi Shah said in a note to clients.

"For businesses paid to take risk, this presents a material opportunity, although one where less surplus capital is the hurdle. Thus, although Beazley may need to take steps to find capital to fund growth, this revenue opportunity is too material to miss."