Beazley plc has released to the London Stock Market its results statement for the first half of 2022 available in full here reporting (despite a $193m investment loss for the period) a profit before tax of US$22.3m, ahead of analysts' expectations.
Adrian Cox, Chief Executive Officer, said:
“We have maintained the momentum of the second half of 2021 with gross premiums increasing by 26% alongside better than expected claims experience. A challenging investment environment has impacted profit; however I’m delighted that we have achieved our best combined ratio at a half year since 2015.
We continue to manage actively for inflation and recession and our estimate for the war in Ukraine remains unchanged. Given the positive experience in the first half of this year we are in a position to update our combined ratio guidance to high 80s for 2022 assuming average claims experience for the second half of the year.”
We have selected the following extracts:-
- Profit before tax of US$22.3m (30 June 2021: US$167.3m)
- Gross premiums written increased by 26% to US$2,554.9m (30 June 2021: US$2,035.3m)
- Combined ratio of 87% (30 June 2021: 94%) "our best half year combined ratio in seven years" (since 2015);
- Rate increase on renewal portfolio of 18% (30 June 2021: increase of 20%)
- Prior year reserve releases of US$92.6m (30 June 2021: US$95.7m)
- Reserve surplus stands at 5.9% above actuarial estimates (30 June 2021: 6.6%)
- Net investment loss of US$193.0m (30 June 2021: gain of US$83.6m) on a portfolio of US$7.9bn; the effects of Ukraine have "impacted the financial markets, leading to an unusual trading environment. As a result of this the Group has registered an investment loss of $193.0m or 5.0% annualised."
- Ukraine - estimate for Russia-Ukraine conflict remains unchanged at US$50m for Political Violence, Trade Credit, Aviation and Marine books. "The number above does not allow for potential claims for aircraft stranded in Russia as no losses have been incurred. Whilst the environment remains complex and the outcome uncertain, were we to include these potential exposures our combined ratio guidance would remain unchanged. We have also not included potential second order impacts, on products such as D&O, within this estimate."
Performance of five divisions:
Pages 7 and 8 of the presentation slides to analysts available here illustrate the rate increases by division and as a whole.
Cyber - see slides 19 to 23
"Cyber Risks has taken advantage of the favourable rating environment in the first half of 2022, almost doubling its premium to $472.7m ($267.1m HY 2021) achieving a combined ratio of 74% (2021: 96%)."
Digital - see slides 24 to 26
"Our Digital segment underwrites a variety of marine, contingency and SME liability risks through Digital channels such as e-trading platforms and broker portals. Digital has made a good start to the year, delivering gross premiums written of $98.0m (2021: $84.1m) a combined ratio of 85% (2021: 79%)"
Marine, Accident and Political (MAP) Risks - see slides 27 to 29
"Our MAP Risks team has taken the brunt of our Ukraine exposure, as marine, aviation and political risk have all been impacted by the conflict. As a result the division recorded a combined ratio of 98% for the first half of 2022 (2021: 86%). Due to losses on the investment portfolio the division registered a loss before tax of $17.3m (2021: profit of
Beazley leads 60% of this book and much of it is placed at Lloyd's. See "Innovation" below.
Property includes the Reinsurance Team - see slides 30 to 32
"The start to 2022 has seen relatively low frequency of natural catastrophes resulting in our Property Risks division recording a combined ratio of 77% (2021: 101%) which contributed to the division delivering a profit of $44.1m (2021: $20.8m)."
Specialty Risks (global Executive Risk, Financial Lines and E&O) - see slides 33 to 35
"Specialty Risks made a strong start to 2022, delivering premium growth of 19% buoyed by a rate change of 4%. The division made a loss before tax of $53.6m due to investment losses despite registering a combined ratio of 94% (2021: 96%)."
Inflation and reserves - see slides 13 to 16
"Within both our best estimate and actuarial reserves, we have applied an excess inflation load since 2021. This is over and above the normal economic and social inflation already allowed for in our reserves."
"During the first half of 2022 we have increased these loads further to reflect expectations around both the increased levels and duration of inflation."..."It is important to note that the actuarial estimates used here already allow for the excess inflation loadings described above."
"With the move to IFRS 17 we are taking opportunity to review reserving strategy. There will be changes to how we set and disclose reserve margin (risk adjustment under IFRS 17). Our current approach is to set reserves within corridor of 5-10% above actuarial estimates (which already incorporate a level of prudence). The new approach will be to set reserves at a confidence level above best estimate. The expectation is that the range under IFRS 17 will be lower than the current range."
Capital and 2023 growth plans - see slide 17
"We remain well capitalised and strongly positioned to deploy our capital in areas where we can make the most of market opportunities. We estimate our capital surplus to be 28% at 31 December 2022 (31 December 2021: 27%). The Lloyd's capital requirements shown are based on the initial view of the 2023 business plan, and thus already take into account the additional growth in the mid-teens expected next year. "
"As we reflect on the first half of 2022, no one can be in any doubt that we are in the middle of an uncertain and complex risk environment, where unpredictability is a dominant feature. In these circumstances it is our responsibility to do the right thing, supporting our clients to navigate through, offering them relevant insurance protection and capacity, matched by first-rate risk management and loss prevention strategies.
Beazley will continue to deliver in line with our vision for the remainder of 2022 and beyond and I look forward to reporting a successful set of full year results to you in February 2023 where our current expectation is a combined ratio in the high 80s assuming an average claims experience for the second half of the year."
"Working with a small group of peer insurers, we deployed our market leading space expertise to create not just the world's first but perhaps the galaxy's first commercial lunar insurance product."
"We see Space as an area where we can leverage our expertise to create global firsts, such as our recent underwriting of the first insurance product for a lunar landing vehicle or in early efforts to create an insurance solution for the development of data centres on the moon."
As announced on 21 July 2022, after nearly five years as Chair of Beazley plc, David Roberts will be stepping down from the Board in Autumn 2022 to take a new role as Chair of the Court of the Bank of England.
We have not received the 2020 and 2021 estimates for the managed syndicates (623 and 5623) as at the end of June as these will not be published until 17th August. From every perspective including trading conditions, capital and reserves, these results portray a healthy and optimistic outlook. The shares rose 7% on the day. It looks as if syndicate 623 will pre-empt for 2023 Year of Account.