Forecasts & Results

Beazley plc first half results announcement

Posted 22.07.2022 – Quick takes

Beazley plc first half results announcement

Beazley plc has announced its financial results for the 6-month period ending 30th June 2022. The underlying results for the plc are undoubtedly positive, despite the fact that the group’s headline profitability was significantly impacted by an investment loss during the first half of the year.

Summary

Gross Written Premiums for Beazley plc grew by 26% to US$2,554.9m (vs. US$2,035.3m in 1H21) and the combined ratio improved by 7 points to 87% (1H21: 94%). The Ukraine loss estimate is stable at US$50m net of reinsurance, but this excludes any potential losses from the leased aircraft trapped in Russia (because no losses have, as yet, been incurred). Nor does this Ukraine loss estimate include any impact from potential second order effects in areas such as D&O. Risk Adjusted Rate Change (RARC) during the period was +18%, only slightly lower than the +20% achieved during the same period last year.  The group continues to monitor the impact of both social & economic inflation and price risks accordingly. Prior year reserve releases were stable at US$92.6m (1H21: $95.7m). Held reserves also remained stable, with a surplus of 5.9% above actuarial estimates (1H21: 6.6%).

The only negative within the results was the investment loss of US$193.0m (vs. a gain of US$83.6m in 1H21) due to the turbulence in global financial markets driven by the war in Ukraine, the rise in inflation and continued supply chain disruptions as a result of continued COVID-19 lockdowns in major manufacturing economies such as China.

Adrian Cox, CEO, commented: “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.”

Details

Beazley’s divisional reorganisation is now in place, with the creation of four new underwriting divisions: Cyber Risks; MAP (Marine, Aviation and Political) Risks; Property Risks (combining Property Direct and Property Reinsurance); and Specialty Risks. These new underwriting divisions are designed to optimise scale benefits and generate efficiencies & innovation. In addition, Beazley plc has created a Digital division to address the SME (small & medium enterprises) market using technology to distribute its smaller ticket insurance products.

The Cyber division has taken advantage of the continuing favourable rating environment to almost doubling its GWP to US$472.7m (US$267.1m in 1H21), with a combined ratio of 74% (1H21: 96%). Beazley plc’s extensive cyber ecosystem (including threat intelligence, data & analytics and incident response services) has had a positive impact on the frequency and size of attacks. The latest data shows frequency reductions since 4Q20 of 30% per policy, or 70% when premium rate changes are also allowed for. Beazley has made it clear that the very high double digit rises in cyber premiums will not continue forever and that it expects cyber rates to reach an “equilibrium” over the next “year or so.”

The Digital division wrote GWP of US$98.0m (1H21: US$84.1m) at a combined ratio of 85% (1H21: 79%).

The MAP division has borne the brunt of Beazley plc’s Ukraine exposure, with marine, aviation and political risks all impacted by the conflict. As a result the division recorded a combined ratio of 98% for 1H22 (1H21: 86%). Remedial action has been taken to mitigate the loss potential and the impact of sanctions.

The Property division has seen a relatively low frequency of natural catastrophes resulting in a combined ratio of 77% (1H21: 101%).

The Specialty Risks division saw 1H22 GWP growth of 19%, including a RARC of 4% and a combined ratio of 94% (1H21: 96%).

The overall cumulative RARC changes for the various division is as follows:

2017 2018 2019 2020 2021 2022HY
Cyber Risks 100% 98% 99% 106% 200% 342%
Digital 100% 95% 98% 98% 107% 124%
MAP Risks 100% 101% 107% 119% 129% 136%
Property Risks 100% 109% 119% 135% 149% 162%
Specialty Risks 100% 102% 111% 136% 152% 158%
All Divisions 100% 103% 109% 126% 156% 184%

Source: Beazley plc

 

Beazley plc, which reports under International Financial Reporting Standards (IFRS) will introduce IFRS 17 (which includes a new, actuarial-driven basis for valuing insurance contracts on the balance sheet as well as determining revenue/profit in the P&L) from 1st January 2023, but this will not impact the Lloyd’s three-year of account methodology.

Beazley plc’s investment loss of US$193.0m (-2.5%) in 1H22 compares to a gain of US$83.6m (+1.2%) in 1H21. This adverse outcome reflects very volatile conditions in financial markets, particularly for fixed interest securities (the largest element in Beazley plc’s portfolio).

Alpha comment

The very positive equity market reaction to these plc results is entirely understandable. The only obvious blot was the investment loss, but that was inevitable given the market turmoil across most asset classes so far this calendar year. Ukraine reserves remain unchanged to date based on non-aviation related exposures which is reassuring.  Although the plc will almost certainly face some losses as a result of the leasehold aircraft stranded in Russia, we continue to believe that this loss will be manageable for both Beazley and the Lloyd’s market as a whole. What is more, the GWP growth, RARC improvements and loss ratios all bode well for our members who support Beazley’s various Lloyd’s syndicates, namely 623, 5623 & 6107.

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