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Jul 23, 2020

Beazley Plc Interim 2020 Results

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Beazley plc published its 2020 half-year results on 23 July

Financial highlights:

  • Loss before tax of $13.8m (30 June 2019: profit before tax of $166.4m)
  • Gross premiums written increased by 12% to $1,663.9m (30 June 2019: $1,483.6m)
  • Combined ratio of 107% (30 June 2019: 100%)
  • Rate increase on renewal portfolio of 11% (30 June 2019: increase of 5%)
  • Prior year reserve releases of $58.6m (30 June 2019: $3.4m)
  • Net investment income of $83.2m (30 June 2019: $170.3m)

Extracts from the announcement as follows:

1. Comments on Covid losses

The total claims arising from COVID-19 are predicted by some to be the largest insurance market losses of all time. Our estimated share of this remains at $170m net of reinsurance, split between our political, accident and contingency book ($70m) and our marine, property and reinsurance books ($100m). We continue to be mindful of the potential claims on our liability business arising from the likely economic recession caused by COVID-19. While it is too early to provide guidance on the value of claims arising from business written pre-COVID-19, we have been actively adjusting our underwriting strategy on business written post the COVID-19 outbreak. These adjustments include proactively minimising the exposure by carefully assessing renewals as well as making amendments to the cover provided and wording of policies.

There is still uncertainty around how COVID-19 will impact liability lines of business.

For the 2020 underwriting year, if the combination of claims arising from COVID-19 and recession increased claims by around $10m we would begin to recover under this reinsurance contract. The limit of this contract is $140m of which we would bear 20% of any losses. The reinsurance programme is a multiyear programme and has been purchased for the 2021 underwriting year already.

2. Rates and outlook

We are seeing pleasing growth in addition to rate change in many areas, but at the same time have been taking a number of underwriting actions, including withdrawal from classes of business such as UK marine, as well as our recession planning actions. As such, the 12% growth seen in the first half of 2020 is only slightly ahead of the average rate change seen across the group of 11%.

Growth was achieved across six of our seven divisions. Two areas of significant growth were in our specialty lines and cyber & executive risk divisions which saw increases of 15% and 21% respectively driven by a strong performance from our US insurance company.

Our reinsurance division experienced a reduction in premium year on year. We have taken prompt action in our reinsurance division to actively manage the portfolio to ensure we are maximising profitability. This involved reducing our risk appetite for catastrophe reinsurance after the large natural catastrophes seen in 2017, 2018 and 2019 did not lead to large enough rate movements meaning that the margins for this business did not meet our profitability expectations. However, at the July renewals we have started to see rates improving and so have decided to allocate more of our overall risk appetite for the second half of the year.

The following table shows the cumulative rate changes (%) since 2015 by business division.


2015

2016

2017

2018

2019

2020HY


Cyber and executive risk

100

100

100

99

104

118


Marine

100

93

90

93

103

118


Market facilities

-

-

-

100

103

116


Political, accident & contingency

100

96

92

91

91

93


Property

100

96

96

106

117

135


Reinsurance

100

96

94

100

105

114


Specialty Lines

100

101

102

103

107

116


All divisions

100

98

97

100

106

118


3. Capital position

In May 2020, we successfully raised $292.6m of new capital through a non-pre-emptive share issuance.

At 30 June 2020, we have surplus capital of 22% of projected year end ECR on a Solvency II basis (31 December 2019: 22%). This capital surplus position allows for our increased expectation of growth into 2021 as well as Solvency II adjustments which include an allowance for future claims arising from COVID-19 and recession.

This extra capital means we can continue to make the most of the many planned growth opportunities present in the market whilst ensuring we remain in a strong position to address any developments in liability claims arising from COVID-19 in the second half of the year


The full release is available here. and slides from the presentation to analysts here.