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Feb 05, 2021

Beazley 2020 year end results

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Beazley Plc has reported its 2020 year-end results today to the London Stock Market.

The key numbers are:

· Loss before tax of $50.4m (2019: Profit before tax of $267.7m; 2018: $76.4m)

· Return on equity of -3%; (2019:15%; 2018: 5%)

· Gross premiums written increased by 19% to $3,563.8m (2019: 15% to $3,003.9m; 2018: $2,615.3m) supported by rate rises across most divisions

· Combined ratio of 109% (2019:100%; 2018: 98%) primarily due to high volumes of claims arising on COVID-19 impacted lines of business

· Rate increase on renewal portfolio of 15% (2019:6%; 2018: 3%) with the Market Facilities and Cyber & Executive Risk divisions seeing the largest movement

· Prior year reserve releases of $93.1m (2019:$9.5m; 2018: $115.0m) all divisions contributing releases except Cyber & Executive Risk where an uptick of cyber ransomware activity resulted in a strengthening of $4.4m this year. Specialty Lines division has seen an increase in releases to $58.0m

· Net investment income of $188.1m (2019:$263.7m; 2018: $41.1m) the total value of investments, cash and cash equivalents reached $6,671.5m.

The full Press Release is available here from Beazley's website

Cumulative renewal rate changes since 2015 below:


2015

2016

2017

2018

2019

2020

Cyber & Executive Risk

100%

100%

100%

99%

104%

122%

Marine

100%

93%

90%

93%

103%

120%

Market Facilities

-

-

-

100%

103%

123%

Political, Accident & Contingency

100%

96%

92%

91%

91%

95%

Property

100%

96%

96%

106%

117%

135%

Reinsurance

100%

96%

94%

100%

105%

118%

Speciality Lines

100%

101%

102%

102%

107%

122%

All Divisions

100%

98%

97%

100%

106%

122%

The announcement mentions:

  • Cyber & Executive Risk (CyEx) grew premiums by 24% to $1,020.1m, amid the long-awaited hard market.
  • Following several years in planning for the D&O market turn, rates grew by 53%, enabling us to grow while remaining highly selective and diversified in our appetite.
  • Cyber rates began to harden in the second half of the year with over 20% rate increases in the fourth quarter… The biggest influence has been a significant rise in frequency and severity of ransomware claims, which our team had been anticipating and adjusting for in our underwriting.
  • Following several years of careful cycle management amid soft pricing and market losses, the Marine division achieved premiums of $337.4m and a combined ratio of 90%, as market conditions improved across most of the portfolio.
  • Rate hardening has been particularly strong across the aviation and cargo portfolios, with average rate rises of 30% and 18% respectively
  • The marine war account also saw considerable growth in 2020, largely due to increased claims activity in and around the Persian Gulf driving additional premium payments.
  • The property division reported a combined ratio of 120%, reflecting claims due to COVID-19, which masked corrective actions taken throughout 2019 and early 2020 to improve performance, while premiums grew by 10% to $470.5m.
  • Reinsurance: High frequency of medium-range natural catastrophe activity impacted profitability in the reinsurance division; however, the portfolio benefited from more substantial rate rises during the mid-year renewals contributing to premiums of $194.5m on a combined ratio of 105%.
  • Specialty Lines: The division wrote $1,134.9m of premiums and reported a profit of $151.6m achieving a combined ratio of 94%, in a year of much-needed rate hardening following several years of soft market conditions and heightened claims volatility. Overall rates increased in the year by 15% on average with the sharpest premium growth across international financial lines and management liability.
  • Political, Accident & Contingency (PAC) had a challenging year as the division hardest hit by COVID-19, due to the high number of cancelled events insured within the Contingency book. PAC reported premium of $273.0m and a combined ratio of 212%.

Covid-19

“We are reserved prudently to manage the effects of COVID-19 on the secondary property market and we continue to observe legal decisions regarding the primary market to ensure we respond quickly to the impact on the reinsurance market.”

“Specialty Lines has continued to pursue consistent underwriting and careful risk selection in lines of heightened risk, mindful of the long development nature of both COVID-19 and recession-related losses. To date, we have seen few claims arising from either event; however, we have strengthened reserves in exposed classes in anticipation of such claims starting to materialise in the future.”

“This estimate [$340M] will only be revised again if events continue to be cancelled in the second half of 2021. We estimated this potential deterioration to be a further $50m net of reinsurance. After the end of 2021 we have very little exposure for further deterioration."

Comment

This is an upbeat announcement with unchanged Covid estimates and plenty of detail concerning the expectation for a return to profits thanks to the very much better trading environment as evident in the separate classes of business above. The statements of the CEO Andrew Horton support this "I am very positive about the year ahead. We have the capital strength to support our growth plans and look forward to a continued favourable rate environment and expansion of our specialist products globally. I am confident we can return to paying dividends during the course of 2021" and “We expect to deliver a low-90s combined ratio for 2021 assuming average claims experience.” The Chairman’s comments “2021 begins on a trajectory of further strong sustainable growth and we are well placed to deliver the financial returns that have been synonymous with Beazley over the years."

Beazley's share price up 13% this morning at the time of writing.

The analysts presentation slides available here as a pdf

Beazley's Report and Accounts for the year is available here

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