Beazley plc issued a Trading Statement as at 30 September today with summary information and comment on market conditions as follows:
- Gross premiums written increased by 22% to $3,980m (Q3 2021: $3,271m)
- Premium rates on renewal business increased by 17% (Q3 2021: 23%)
- Initial Hurricane Ian loss estimate of $120m net of reinsurance
- Mark to market investment loss of $289m or 3.6% year to date (Q3 2021: income of $99m or 1.4%)
- High 80's combined ratio guidance remains for 2022 full year
- Across the group rate increases year-on-year were +17%.
The following quotes (the Trading Statement is available in full here) provide a precis of the current trading conditions and expectations:
Cyber Risks: in the year to date we have seen rate increases of 51%, albeit this trend moderated somewhat in Q3. We have been taking advantage of new business opportunities and have put more exposure on the book this year, as planned, resulting in premium growth of 66%. We expect continued growth into 2023 and beyond.
Property Risks: given the change in market sentiment in Q3 we expect growth to accelerate. We are now beginning to see positive movement on rates and as material hardening occurs with outsized returns available, we would expect to deploy more capital across our primary property and reinsurance books.
Specialty Risks: The D&O market has been more competitive than we originally thought at the start of 2022. As a result, growth is slightly less than expected within Specialty Risks, however, it is still strong at 10%.
Total natural catastrophes so far this year have been within the margins held in our reserves for such events, with an initial Hurricane Ian estimate of around $120m net of reinsurance.
The improving trajectory on the frequency of our ransomware claims in our cyber portfolio has continued following the remediation action we have been taking since October 2020. The latest data shows frequency reductions of 35% per policy, and 70% when premium rate changes are also allowed for.
We continue to monitor inflation to ensure adequate pricing and remain cautious in areas where our product set is most exposed. The impact of inflation on our claims environment has been as expected.
Our investments returned a loss of 1.2%, or $96m in the third quarter of 2022, bringing the year-to-date loss to 3.6%, or $289m. This is a consequence of the unprecedented increase in interest rates, in the first nine months of the year, generating mark to market losses in our fixed income portfolio. Risk assets have also seen weakness, as global equity markets fell by more than 25%. At 30 September, our fixed income portfolio had a duration of 1.9 years and a market yield of 4.6%, which is indicative of the much higher returns we hope to achieve in future periods, once yields stabilise.
In common with most other (re)insurers' statements, investment losses are affecting the bottom line for the current calendar year. The corollary of this is that the investment income on future years is already moving much higher which will benefit future years. The underwriting conditions are clearly very positive hence their guidance of a high 80's combined ratio in this calendar year. Beazley's shares were up this morning at the time of writing.
Beazley plc issued on 15 November to the LSE a proposal to raise further capital of £385m through the issue of shares and the statement (available in full here) contained the following extract:
Rate changes for the nine-month period ended 30 September 2022 were particularly encouraging, with an average rate increase of 17% and three divisions achieving double digit increases. The Company expects this momentum to continue, particularly within the property classes where a significant dislocation is emerging. Property (re)insurance classes are experiencing a hardening rating environment with terms and conditions also improving. The Company expects rates to increase by 15% for direct and 50% for reinsurance in 2023 and believes the market dislocation is likely to persist for a number of years. Rate hardening is being driven by increased demand due to inflationary pressures; increasing frequency and severity of natural catastrophes due to climate change; reduced supply of capacity with carriers either exiting the market or materially reducing their risk appetite; poor returns in the catastrophe business in the last five years; and a decline in the supply of retrocession and reinsurance, amplified by a strengthening dollar and years of trapped capital with less appetite expected from alternative capital markets. While the Company has previously been cautious on property (re)insurance given the inadequate pricing environment, the hardening market facilitates an increase in capacity and cat exposure. The Company believes this to be a significant opportunity to be a leader in the market in London, helping drive the underwriting of property (re)insurance and providing a springboard for Beazley's long term US ambitions.
Growth in property classes improves the diversification of the Company's overall portfolio and facilitates the retention of greater written premium in cyber and specialty business. This is an attractive proposition as cyber rates remain high, and demand continues to outweigh supply with significant barriers to entry for new carriers. Currently, the Company writes more cyber exposure than it is able to retain in order to maintain a healthy balance of class exposure. The Company expects the opportunity to write more new business in cyber to continue into 2023 and beyond and growth in property classes will enable the Company to accelerate growth holistically, retaining more cyber and specialty business on balance sheet, increasing exposure to profitable business already written by Beazley and reducing the need for additional purchases of reinsurance.