Beazley sees strong, double-digit premium growth across the business

meeting

Beazley plc (LON:BEZ) has provided its trading statement for the nine months ended 30 September 2020.

Overview

·      Gross premiums written increased by 16% to $2,534m (Q3 2019: $2,192m), ahead of our expectations

·      Premium rates on renewal business increased by 14%

·      Covid-19 first party loss estimate remain unchanged at $340m net of reinsurance

·      Q3 catastrophe estimate of approximately $80m net of reinsurance

·      Investment return of $124m as at 30 September 2020 (Q3 2019: $215m)

Andrew Horton, Chief Executive Officer, said: 

“We have seen strong, double-digit premium growth across our business as a whole so far this year, driven primarily by rate rises across all divisions. I am extremely proud of all Beazley employees who have shown commitment and resilience throughout this time whilst continuing to support our customers and deliver the excellent claims service we pride ourselves on.

Pricing conditions are positive and we have the expertise and the capital in place to take advantage of these market conditions. We have great confidence in our ability to deliver mid-teens growth next year and strong shareholder returns in 2021 and beyond.”

30 September 202030 September 2019% increase
Gross premiums written ($m)2,5342,19216
Investments and cash ($m)6,5115,65715
Year to date investment return2.0%4.0%
Rate increase14%6%

Premiums

Gross premiums written for the nine months ended 30 September 2020 increased by 16% year on year to $2,534m achieved through a combination of rate increases, adding exposure in a number of areas and taking underwriting remediation action on certain areas of business. Growth has been achieved in most of our divisions.

Our performance to the end of September 2020 by business division is:

Gross premiums written 30 September 2020 Gross premiums written 30 September 2019 % increase/ (decrease)Year to date Rate change
$m$m%%
Cyber & executive risk68656721%16%
Marine25623111%18%
Market facilities9634182%12%
Political, accident & contingency2052044%
Property3543375%16%
Reinsurance19219111%
Specialty lines74562819%13%
OVERALL2,5342,19216%14%

From 1 January 2020, the market facilities business has been split out of the specialty lines division to form a separate division. The prior year comparatives have been re-presented to allow comparison.

Our cyber & executive risk division achieved premium growth of 21% with particularly strong rate rises driving the executive risk side as the market continues to respond to the claims environment in directors’ & officers’ and employment practice liability.

Following a rebalancing of the account our marine division took advantage of improved market conditions particularly in war, cargo and aviation, growing overall by 11%.

Elsewhere, our market facilities division grew 182% year on year albeit from a small base. At the start of 2020, we decided to split out this business from specialty lines into its own division.

The political, accident & contingency division remained steady year on year, with growth dampened by significant market contractions particularly in political and contingency due to COVID-19.

In the property division we saw an increase in premiums of 5% being the net result of continued portfolio optimisation and growth supported by market wide rate increases. The hardening of the global property market continues to be bolstered by a variety of events including the effects of COVID-19, Australian and US wildfires and the active 2020 hurricane season.

Whilst benefiting strongly from rate rises, reinsurance was also steady year on year driven by more selective underwriting.

Our specialty lines division saw premium growth of 19% when excluding the prior year inclusion of market facilities business which at the start of this year was established as a standalone division. We have seen rate rises across the division combined with strong volume growth particularly outside of the US.

Business update

We continue to actively engage in cycle management, ensuring we maintain a balanced portfolio whilst fully capitalising on the opportunities. Rates are increasing in most of our classes and in many areas are now at levels where the risk reward ratio warrants writing materially more business. This is particularly true in directors’ and officers’ liability, despite the heightened risk environment, and most marine classes of business where the teams are significantly growing market share. Off-setting this, we continue to restrict appetite where there is particular exposure to the impacts of social inflation, pandemic claims or a recession. The main areas impacted by this are employment practices liability and some professional and healthcare liability classes.

Ransomware attacks have continued to rise in 2020 and are now the dominant cyber exposure faced by our clients. Malicious attacks are, unfortunately, not new but have been increasingly prevalent in the last 18 months and we have been adjusting our underwriting and risk management services accordingly. The investments we made in using technology for threat detection are now being implemented and this enables us, amongst other things, to scan our clients for vulnerabilities and actively underwrite and help our clients remediate them. The market is currently repricing and restricting coverage in response to these issues.

Our 2021 business plan for our syndicates has been approved by Lloyd’s, together with the accompanying capital requirements. We are planning for mid-teens percentage growth in 2021. We also plan to use reinsurance to manage growth in some of the more volatile lines, and so expect growth of around 10% net of reinsurance next year.

Claims update

We announced in September that our first party COVID-19 claims estimate was $340m net of reinsurance, with almost all of the increase compared to our previous expectations being caused by further event cancellation losses. This figure assumes a resumption to some form of normality in the second half of 2021. Were this not to be the case, we estimate that there is potential for a further $50m of claims net of reinsurance to the end of 2021.

We have also considered the recent FCA judgement on business interruption wording and do not expect this outcome to have a material impact on Beazley’s insurance business.

Our initial estimate of the costs of the third quarter catastrophe events including hurricanes Laura and Sally and the wildfires in California is approximately $80m net of reinsurance and reinstatement premiums.

We have chosen to open our cyber reserves higher in response to the current claims trends discussed in the business update. Our prudent and consistent approach to reserving continues and taking all the above into account we are expecting a full year combined ratio of around 110% assuming normalised claims levels for the remainder of the year.

Capital update

Capital surplus is measured with reference to the Lloyd’s economic capital requirement (ECR), which considers requirements on an ultimate basis as well as incorporating a further 35% uplift. This number already allows for the business we expect to write through to the end of 2021 and the current forecast places us within our preferred range of 15-25% above the ECR at the end of the year. We have a further unutilised $225m banking facility which is available in addition.

Investments

Our portfolio allocation was as follows:

30 September 2020
Assets
30 September 2020
Allocation
30 September 2019
Assets
30 September 2019
Allocation
$m%$m%
Cash and cash equivalents305.84.7        423.0            7.5
Fixed and floating rate debt securities
–     Government, quasi-government and supranational2,726.041.8      2,003.0          35.4
–     Corporate bonds
–     Investment grade2,598.839.92,411.642.6
–     High yield154.32.4        182.0            3.2
Syndicate loans17.00.3            7.4            0.1
Derivative financial assets18.40.3            3.0            0.1
Core portfolio5,820.389.4      5,030.0          88.9
Equity funds121.71.9        105.0            1.9
Hedge funds364.35.6        311.0            5.5
Illiquid credit assets204.53.1        211.0            3.7
Capital growth assets690.510.6        627.0          11.1
Total6,510.8100.0    5,657.0       100.0

The year to date investment return to 30 September 2020 was $124m, or 2.7% annualised. Risk assets continued to rally for much of the third quarter, helping add 0.6% to our return in this period. US Sovereign bond yields remain very low, such that our high quality fixed income assets are not likely to contribute materially to returns in the near future. Our investment strategy remains cautious in view of continuing uncertainty in the economic outlook. The yield on our core portfolio as at 30 September 2020 was 0.5% (31 December 2019: 2.1%).       

The weighted average duration of our fixed income portfolio was 2.0 years at 30 September 2020 (30 September 2019: 1.9 years). 

Conference call

We will be hosting a conference call at 8am this morning, dial in details are below, please join 5 minutes before the start:

Tel number: +44 (0) 20 3003 2666

Quote Beazley when prompted by the operator.        

Good news travels fast (but only if you make that happen):

Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on facebook
Facebook
Share on email
Email
Share on whatsapp
WhatsApp

AIM All Share Index