Forecasts & Results
Beazley plc FY22 results
Posted 02/03/2023 – Quick takes
Beazley has released its preliminary results for the financial year ending 31st December 2022
The headlines from the statement are:
- Gross written premiums (GWP) increased by +14% to US$5,269m (FY21: US$4,619m)
- Combined ratio (CoR) of 89% (FY21: 93%) of which the claims ratio was 54% (FY21: 58%) and the expense ratio was 35% (FY21: 25%)
- Rate increase on renewal portfolio (RARC) of +14% (FY21: +24%). Rate expectations across the group “lower in 2023 than in 2022”
- Prior year reserve releases of US$133m (FY21: US$210m)
- Reinsurance spend in FY22 of US$1,393m (FY21: $1,107m). As a percentage of GWP, spend increased to 26% from 24% in FY21
- Net (unrealised) investment losses of US$(180)m (FY21: income of US$116m) which offset the improvement in the CoR and resulted in a fall in the group Profit before Tax (PBT) to US$191m (FY21: US$369m)
- Yield on investment portfolio of 4.7% at end of December 2022
- Estimate for losses arising from the war in Ukraine unchanged from 1H22 results at US$50m net (excluding aircraft trapped in Russia)
- Expectation of losses for Hurricane Ian remains US$120m net of reinsurance
- The margin of reserves (prudence) held above the actuarial estimate 5.3% at the end of FY22 (FY21: 6.4%) within the target range of 5-10%
Adrian Cox, CEO, said: “… very strong underwriting result in 2022 … despite a challenging geopolitical environment and mark to market investment losses … [Beazley’s] diversified book … enables us to redeploy capital to areas where we see the most attractive growth prospects … After raising [US$404m of new] equity in November, along with a solid January renewal season, we continue to lean into the opportunity we are seeing in the Property market whilst executing on our Cyber growth plans … In early 2023, we launched the market’s first cyber catastrophe bond … For 2023, our growth expectations are for higher net premium growth than gross premium growth, with net growing in the mid-20s while gross is at mid-teens. The difference is caused by us no longer writing portfolio underwriting through the Group in 2023 (as syndicate 5623 became a standalone syndicate and no longer requires the Group to cede the majority of the business written to it), alongside our reduction in purchased reinsurance on both Cyber Risks and Specialty Risks … Taking the above into account, we expect to deliver a high-80s combined ratio for [FY] 2023 assuming average claims experience.”
Bob Quane, CUO, comments on underwriting:
- The Directors and Officers insurance (D&O) market saw competition emerge and a slowdown in IPOs and SPACs, resulting in an oversupply of capacity and lack of demand driving rates down.
- Cyber rates continued an upward path, albeit at a more conservative pace following the much needed price correction of the previous two years.
- In Property Risks we have reached a market turning point, and we anticipate significant rate increases in Treaty reinsurance and the direct Property market in 2023.
- The cumulative rate change across all divisions since 2017 is now 78%
Beazley continues to flex the premiums written in each division in response to market conditions and a desire to maintain a balanced and diversified portfolio:
- Increase in GWP to US$1,156m (FY21: US$814m)
- Cyber CoR 79% (FY21: not disclosed)
- Continued strong rate increases of +40% in FY22 (FY21: +88%) but rate increases began to moderate during 2022, albeit they remained at very significant levels. A flattening of rate increases is expected to continue through 2023 after substantial rate increases over the last 2-3 years
- Continued sustainable demand growth, with a fast growing international build out – focused on North America, Europe domestic and London and Asia wholesale
- In January 2023, Beazley launched the market’s first cyber catastrophe bond and with strong demand from investors they expect to be able to launch additional tranches through 2023 and beyond
- Market leadership on cyber war wording and catastrophic language
- GWP increased to US$1,108m (FY21: US$898m)
- MAP CoR of 84% (FY21: 85%)
- Profit of US$92m (FY21: US$168m) despite exposure to Ukraine via the Marine, Aviation, Political Risk and Terrorism lines
- Overall rate increases of 4%, but now seeing pressure in some lines, including Aviation where capacity has returned after COVID-19
- Syndicate 5623 has delivered three consecutive years of profit. In January 2023, Syndicate 5623 became a full standalone syndicate. Beazley will be providing c18% of the capacity for the 2023 YoA for this syndicate
- GWP increased to US$860m (FY21: $813m)
- Despite Hurricane Ian, Property CoR 98% (FY21: 106%)
- Hurricane Ian expected to be a US$120m net loss
- Overall rate increases of 11% in FY22, with property treaty rate increases expected to be up to +50% in 2023 and more than 15% in the direct property book during 2023
- Beazley sees a multi-year opportunity to build its property franchise
- GWP of US$1,940m (FY21: $1,904m)
- CoR improved to 93% (2021: 95%)
- Rate increases of 2%, impacted by the softening of the D&O market
- Scale and diversification via 27 different product lines, across global geographies and different types of companies
- Reduced appetite in D&O as conditions moderated from 2Q22 onwards. D&O market expected to stabilise in 2023
Prior year reserve releases in 2022 totalled US$133m (2021: $210m) or 3.7% of earned premium. The reduction in reserve releases was driven primarily by a reduction in releases from Cyber Risks and Property Risks.
Prior year reserve adjustments
- The improvement in the CoR to 89% reflects both improving underwriting conditions, as well as a disciplined approach to underwriting by the group.
- It is a pity that the overall profitability has been impacted by the negative investment return, but this was as expected and is as a result of the turmoil in fixed income and equity markets during 2022. The overall investment return of -2.1% (vs. +1.6% in FY21) compares favourably, for instance, with the -3.5% FY22 return reported by Lancashire plc.
- As the rate of growth in the cyber division slows, Beazley is highlighting the significant growth opportunities in property – particularly property treaty where rate increases were strong at the 1/1 renewals. We applaud the flexibility that Beazley demonstrates in dynamically allocating capital to those underwriting lines of business that it believes offer the most attractive risk-reward.
- Overall we are pleased with these results and believe that they should offer encouragement for those members who support Beazley’s syndicates 623, 5623 & 6107.