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Beat Capital’s deal to acquire Syndicate 4242 is both bold and shrewd

John Cavanagh has always been a vocal proponent of encouraging innovation in the London market.

As CEO of Willis Re, he stood up on stage and said that Lloyd’s in particular was not doing enough to promote and foster entrepreneurialism.

He also warned that the marketplace was at risk of losing the best talent to MGAs – now the go-to route for ambitious individuals to launch their own underwriting operation.

Cavanagh also described the circa 40 percent expense ratio in the London market as untenable and warned that London carriers would eventually lose out to nimbler, leaner operations if they did not act on their cost burden.

So with all that in mind, the deal the executive has just struck via Beat Capital is both bold and shrewd.

As this publication revealed last week, the Tom Milligan-led venture capital firm has agreed to a deal with Paraline UK that will see it effectively acquire Icat Syndicate 4242.

This means Beat can have its own Lloyd’s syndicate with which to support its MGAs, with minority investor Neon as a supplementary option as paper provider.

In doing this deal, Beat has taken advantage of the tidying up exercise with Paraline, following the sale of most of Icat to Marsh’s MGA arm Victor last year. And by getting it done, it will soon have a neat structure allowing it to back its pipeline of MGA start-ups.

The model chimes with Cavanagh’s ambitions to bring innovation and entrepreneurial spirit back into Lloyd’s, albeit indirectly.

But perhaps the most interesting part of this deal is the potential for it to change the way the market thinks about MGAs accessing low-cost capital.

Syndicate 4242 is only around 20 percent aligned, meaning that over time there will be scope for Beat to add to or change the syndicate’s capital providers as it grows.

In theory, Beat could arrange it so that Syndicate 4242 becomes a vehicle for MGAs to access low-cost capital. The technical hurdles for bringing in, say, sovereign wealth fund or pension fund money are now low given the Lloyd’s corporate member structure.

And at the same time, the MGAs Beat brings on board benefit from the A rating and global licensing they both need and want.

The set-up Beat has created with Syndicate 4242 is a step closer to a scenario this publication has talked about before – where by gaining access to capital with lower return hurdles, MGAs can have the upper hand in the ongoing battle to secure their place in the already-strained value chain.

The access to ILS money we theorised on in that piece isn’t yet a feature of the Beat model. But given the ambitions of Cavanagh and the wider Beat team, it would not be a big leap to think that this next step isn’t far away.

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