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Beat’s Milligan: Cat is 'a very hard place to commit capital right now'

Beat Tom Milligan London 2.jpg

Beat Capital founder Tom Milligan said his company is taking a bearish stance on the prospects for the property catastrophe market after a sustained period of elevated losses.

“Cat risk is a very hard place to commit capital right now,” the former Ariel CEO told Insurance Insider in an interview. “We are very cautious about this particular kind of inflation [in cat loss activity].”

He added: “Our businesses have taken very aggressive actions over the last few years to minimise exposure to cats.”

Milligan’s comments come after modelling agency RMS issued a comprehensive loss estimate for Hurricane Ida which warned that, including the Northeast flooding, the industry could face $31bn-$44bn losses, including NFIP claims.

The industry has passed through a period of painful catastrophe losses between 2017 and 2021, including some shock losses, and is reckoning with the impact of climate change on the severity and frequency of losses.

Milligan said that if Beat companies miss out on future profits because the “weather changes” and there is a period of relatively low cat activity, mirroring what was seen after the 2005 hurricane season, “that’s fine – we can live with that".

In a wide-ranging interview with this publication, Beat Capital director Milligan:

  • Said Beat has had around 250 inbound opportunities since it started back in 2017, investing in just three of those

  • Explained that he has no specific growth ambitions for Beat, but that he just wants it to be “as big as we can be”, while delivering profitable and low-volatility underwriting results

  • Talked about how the firm has a fixed investment framework, and looks for six characteristics when deciding whether or not to back an underwriting team

  • Gave his opinion on some  of the challenges facing the market, including inflation and innovation

Growth ambitions

Milligan set up venture capital firm Beat Capital in 2017 as a vehicle to sponsor MGA start-ups, with John Cavanagh fully coming on board after he stepped down as CEO of Willis Re.

Cavanagh, Milligan and their team have so far invested in eight companies, with five self-generated opportunities and three of 250 in-bound proposals. The investments are Alcor, Brace, Chord Re, Munitus, Peterborough, Satinwood, Tarian and Tegron. Beat also acquired Icat Syndicate 4242.

Beat Capital milestones timeline2.jpg

The company’s underwriting businesses write gross premiums in excess of $500mn.

Milligan said that he didn’t have any specific growth ambitions for Beat and explained that the business did not start with that kind of business plan. He is cautious about “throwing up a growth plan on the wall, and then measuring ourselves against that”.

“Doing that is a difficult way to make money in insurance”.

His aspiration for the firm, more broadly, is “to be as big as we can be, whilst recognising that we underwrite in a volatile marketplace that presents variable opportunity”.

Milligan talked about Beat as being a company founded around a perpetual mindset and observed that if an underwriting business is launched with an exit strategy in mind, “then that fact is going to shape how you build that business, for better or for worse".

He argued that more sustainable and successful underwriting businesses are based on a model that emphasises perpetual ownership, with returns for entrepreneurs driven by a reliable stream of dividends.

He continued: “You know, that perpetual outlook is what drives how they act, how they behave and how they think about risk. So, if we do our job right, then the capital providers to our businesses will have much better long-term outcomes, and our business leaders will then also have much better personal outcomes.”

He also mentioned that one key pillar for senior underwriters in Beat entities is putting up “cash capital” against their own underwriting, paralleling the old Lloyd’s convention that active underwriters would back their syndicates as Names. “That makes it very real for these people.”

Investment framework

When deciding whether to back a company, Milligan and the team use a framework which includes looking out for six key characteristics.

He stressed the imperative for a verifiable record of excellence in underwriting and the need for underwriters with the “heft” to move build and move quality business.

Another key test was whether a prospective business head had a “relentless commitment” to making long-term returns for their underwriting capital.

One of the other characteristics of importance he noted was transparent risk selection procedures that can be “independently verified”, which he believes are “critical”.

“So, if you're a guru, we're not the right place for you. There needs to be some science around the underwriting,” he added, saying this allowed underwriting continue even without the principal.

Beat capital approach table september 17 2021.jpg

According to Milligan, Beat has had around 250 inbound opportunities since it started back in 2017, and the hit rate for these is about 1%.

The Beat CEO set out his approach to working with Beat businesses in order to leverage the benefits of scale without, at the same time, constraining the CEOs running their underwriting companies.

He noted: “We provide operational services and support from within the business and through partners like Asta, and that means that we can get operating leverage into all of the underwriting businesses by providing the same service."

But he added that tensions might naturally arise around the interaction between its individual underwriting businesses and Syndicate 4242.

Milligan said that Syndicate 4242’s job is to “quite simply make the best possible return for the lowest possible volatility”, and that desire sometimes coincides “really neatly” with an individual Beat business’s aspirations, but “sometimes it doesn't”. In these instances, he said that the interests of the syndicate’s capital providers always won out.


Questioned about the industry’s long-term failure on innovation around new products, and whether an incubator like Beat could be part of the solution, Milligan dismissed the idea.

“We are in the proven-idea business, right? That’s just what we do.”

He continued: “Other people are in much better places to do that [product innovation], and some are doing a really good job of that, but that’s not us.

“My personal view is I'm happy to let other people innovate, prove the point, and then back it when the facts support it.”

Milligan said that the thesis around Beat had not been to back fresh and untested ideas, but rather to provide successful underwriters that had established a following in the market with an opportunity to establish a business in the way such underwriters would have been able to set up a syndicate 30 years ago.

We are in the proven-idea business, right? That’s just what we do

Questioned whether the uptick in inflation seen in developed economies as Covid unwinds was starting to be priced into insurance business now, Milligan said: “We've been pricing and changing inflation trends in the broadest sense for some time now, and we're going to continue to do so pretty aggressively.”

Zooming out to the broader sector, Milligan added: “Whether these broad inflationary trends are making an impact on pricing yet, I think is pretty moot.”

However, he noted that the insurance industry has historically not been very good at reacting to an inflationary trend until it must, by which point “it's sometimes too late.”

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