TIDMBEZ
RNS Number : 1322O
Beazley PLC
05 February 2021
Press Release
Strong premium growth in a challenging year
London, 5 February 2021
Beazley plc results for year ended 31 December 2020
-- Loss before tax of $50.4m (2019: Profit $267.7m)
-- Return on equity of (3%) (2019: 15%)
-- Gross premiums written increased by 19% to $3,563.8m (2019: $3,003.9m)
-- Combined ratio of 109% (2019: 100%)
-- Rate increase on renewal portfolio of 15% (2019: 6%)
-- Prior year reserve releases of $93.1m (2019: $9.5m)
-- Net investment income of $188.1m (2019: $263.7m)
Year ended Year ended % movement
31 December 2020 31 December 2019
Gross premiums written
($m) 3,563.8 3,003.9 19%
Net premiums written
($m) 2,917.0 2,503.5 17%
(Loss)/Profit before
tax ($m) (50.4) 267.7 (250%)
Earnings per share (pence) (6.3) 35.0 (119%)
Net assets per share
(pence) 219.1 235.0 (7%)
Net tangible assets per
share (pence) 203.8 217.3 (6%)
Dividend per share (pence) 0.0 12.3 (100%)
Andrew Horton, Chief Executive Officer, said:
"Beazley's gross premiums written increased by 19% to $3,563.8m,
supported by rate rises across most of our divisions. We also
achieved a strong investment income in the face of volatile
conditions.
I am very positive about the year ahead. We have the capital
strength to support our growth plans and look forward to a
continued favourable rate environment and expansion of our
specialist products globally. I am confident we can return to
paying dividends during the course of 2021".
For further information, please contact:
Beazley plc Finsbury Glover Hering
Sally Lake Guy Lamming/Humza Vanderman
Tel: +44 (020) 7674 7375 Tel: +44 (020) 7251 3801
Note to editors:
Beazley plc (BEZ.L), is the parent company of specialist
insurance businesses with operations in Europe, North America,
Latin America and Asia. Beazley manages six Lloyd's syndicates and,
in 2020, underwrote gross premiums worldwide of $3,563.8 million.
All Lloyd's syndicates are rated A by A.M. Best.
Beazley's underwriters in the United States focus on writing a
range of specialist insurance products. In the admitted market,
coverage is provided by Beazley Insurance Company, Inc., an A.M.
Best A rated carrier licensed in all 50 states. In the surplus
lines market, coverage is provided by the Beazley syndicates at
Lloyd's.
Beazley's European insurance company, Beazley Insurance dac, is
regulated by the Central Bank of Ireland and is A rated by A.M.
Best and A+ by Fitch.
Beazley is a market leader in many of its chosen lines, which
include professional indemnity, cyber liability, property, marine,
reinsurance, accident and life, and political risks and contingency
business.
For more information please go to: www.beazley.com
Statement of the Chair
Beazley delivered strong premium growth in 2020, with premiums
rising 19% to $3,563.8m (2019: $3,003.9m) in a market that saw
rates respond sharply to heightened claims activity in many lines
of business. However, the pre-tax loss of $50.4m (2019: Profit
$267.7m), driven by a combined ratio that deteriorated to 109%
(2019: 100%), is disappointing.
Shareholders' support for our growth strategy and the benefit of
the capital raised in May means we are well placed to capture the
opportunities ahead of us. Beazley enters 2021 on a firm footing to
deliver long-term growth across a diversified portfolio and your
board is determined to resume delivery of consistent,
market-leading returns.
The spread of COVID-19 has triggered a deep global recession and
widened existing wealth and health divisions, having a more
extensive effect on society than one could have imagined. It has
tested the insurance industry and our role in protecting society
against risk and unforeseen events. It has also demonstrated the
need for collaboration across the industry and government to
deliver solutions that protect populations from the biggest threats
of our time, from pandemics to natural catastrophe, and from
climate change to cyber-attack and terrorism.
The global pandemic impacted a number of lines of business, most
notably our contingency book where we quickly settled claims
arising from cancelled or postponed events. The global events and
hospitality sector has been a very successful area for Beazley for
many years and we are working closely with clients to provide
financial support and flexibility around coverage ahead of its
return to full strength in more normal times. In total our booked
first-party losses related to COVID-19 have reached $340m. We took
action when we saw that COVID-19 was likely to impact the economy,
and this strategy, allied with our underwriting action over the
previous year in anticipation of a future recession, will mitigate
the impact in our longer tail liability classes, where claims are
expected to materialise from 2021 onwards.
As an insurer we must manage our exposure to multiple,
interconnected risks, including the actual and future effects of
climate change. Beazley actively manages its carbon footprint and
participates with industry to reduce our impact and support a lower
carbon economy. In 2020 the board increased its focus on both the
risks and opportunities arising from climate change and worked with
management to refine and develop our Environmental, Social and
Governance (ESG) strategy. Further details are contained later in
this report.
The challenging events of the past 12 months have been the
catalyst for improvements to how we work and trade. The pandemic
has brought about lasting and positive change. As a board, our
responsibility lies in protecting the financial health of our
business and ensuring we have the right people, investment, and
risk appetite to deliver on our promises. We depend on our
motivated and engaged people supported by Beazley's strong culture,
to continue growing and developing as a business. In the last 12
months we have focused extensively on the physical and mental
wellbeing of our people. The resilience of colleagues and the
positive attitude of management to understanding people's unique
circumstances has shown the company at its best. We have made
further progress in broadening the diversity of our workforce, with
good progress against our current targets. However, we all
recognise we have more to do and as such the board has agreed a set
of new stretching targets for the business.
Throughout this year the board and management have adapted well
to working together in this virtual environment. I thank my fellow
board members for their deep commitment to the business and our
stakeholders. We have benefitted from the expertise of John
Sauerland and Sir Andrew Likierman over the past five and six years
respectively. As they retire from the board, we wish them very well
for the future and we thank them for their valued contribution.
In line with our board composition strategy we have sought to
bolster the diversity of our board as well as seeking to ensure the
board has access to the relevant skills and experience to support
and challenge management as they execute our growth strategy. We
are pleased to have appointed Pierre-Olivier Desaulle to the board,
and are seeking to appoint an additional director with experience
of US markets.
We have come through a very hard year for everyone and we look
forward to the prospect of a return to some form of normality,
while harnessing the best of the innovation and fresh thinking that
has come out of this period. The insurance market has responded to
the heightened risk and claims environment by increasing rate, and
tightening conditions across most of the lines we participate in.
These market movements, combined with Beazley's strong underwriting
discipline and rigorous focus on capital allocation and returns,
mean the company is well placed to take advantage of the market
opportunities ahead. Given the financial result combined with the
continued uncertainty surrounding COVID-19, the board decided not
to declare a dividend at the end of 2020. The board remain fully
committed to the progressive dividend strategy, and are focused on
profitability and returning to paying dividends in 2021. 2021
begins on a trajectory of further strong sustainable growth and we
are well placed to deliver the financial returns that have been
synonymous with Beazley over the years.
David Roberts
Chair
Chief Executives statement
Beazley achieved a third year of double digit premium growth in
2020, with rate rises driving gross premiums written up 19% to
$3,563.8m (2019: $3,003.9m). Loss before income tax of $50.4m
(2019: Profit $267.7m) was softened by a strong investment return.
Our combined ratio of 109% (2019: 100%) was heavily impacted by the
volume of COVID-19 related claims in this unprecedented year.
As insurers our role is to be ready for unforeseen events and to
expect and manage change. We are accustomed to a pace that
continues to accelerate - reflective of a more technologically
driven joined-up world - designing insurance solutions that flex
and respond to evolving risk.
Yet despite the volume of information, data and predictive
analytics at our fingertips, we didn't foresee the events of this
year. As individuals and organisations, we have all been hit hard
by the global pandemic, which has disrupted normal ways of life and
doing business. In responding to this crisis, insurance has been
one of the levers to help with economic and social recovery
alongside government, community action and individual acts of care.
We have paid claims quickly and efficiently and adapted to deliver
insurance solutions that protect customers as they navigate the
challenges of operating between the virtual and real worlds.
However we are still in the midst of the pandemic and its full
impact will not be felt for some time. The unprecedented challenge
has taught us valuable lessons, from how we operate to the need to
review the stress testing of our realistic disaster scenarios.
Business performance
At Beazley we felt the impact of pandemic-related losses,
reporting an estimated $340m in first-party claims net of
reinsurance in 2020, largely driven by our exposure to cancelled
events, and to have ultimately yielded a financial loss has been
disappointing.
Yet this masks some real success and I am proud of the strength
of the company and of the resilience of our people and their
unwavering commitment to serve clients and support our
business.
We entered 2020 on a strong foundation having taken action on
underperforming areas of the book and invested in infrastructure.
These measures to build a more efficient and agile organisation
strengthened our core resilience and enabled us to make significant
progress throughout the year. We continued to attract talented
individuals, launch new products, expand our global footprint and
make significant changes to how we work as a business. In March, we
acted quickly to ensure we were well resourced to respond to the
impact of the pandemic and we continued paying claims well and
efficiently whilst finding new ways to support partners through
these troubled times. Our commitment to delivering on our promise
to customers and to acting as a responsible, consistent partner has
not wavered and we look forward to returning to profit in 2021 and
delivering our most ambitious growth plan in more than a
decade.
Reflecting on 2020
We began the year on a strong footing prepped to respond to the
improved rating environment and having remediated underperforming
areas of our book. We took further rating and underwriting action
in March to respond to the economic effects of the pandemic,
particularly in recession-exposed lines, as rates began to increase
more sharply in almost every class of business.
Throughout the year we have achieved strong targeted growth and
taken responsible action to manage our exposure in lines where
COVID-19 and recession-related claims have led to capacity
withdrawal elsewhere.
To support renewed growth opportunities, and in response to
COVID-19 losses we strengthened our capital position by raising
$292.6m of new equity from shareholders in May and extended our
debt facility from $225m to $450m. We also added additional
reinsurance during the year to support our position in terms of
growth opportunities and managing COVID-19 losses. Throughout the
year we continued to optimise our capital position and our surplus
capital remains within our target range at year end. In December,
we set up a captive insurance company to more efficiently manage
our capital requirements and support the growth of our US
operation.
Our investment strategy has remained cautious, in response to
renewed market weakness and elevated economic uncertainty. After
actively reducing investment risk as markets fell during the first
quarter, we added risk as markets recovered, achieving a return of
3%, exceeding our original expectations, notwithstanding the
volatile conditions.
Another major issue for the insurance industry this year has
been the rise of ransomware to become the biggest cyber risk
currently facing organisations. In over a decade of managing tens
of thousands of incidents on behalf of clients, we have
consistently combined risk transfer and risk prevention to reduce
the likelihood of an attack and to manage down the impact. As the
forms of attack become more severe and complex, we need the
clearest possible view of the routes that bad actors take and where
the weaknesses are that they can target. We have therefore
increased our investment in data and analytics to help build a
clearer picture of clients' cyber security vulnerabilities and to
improve their risk rating, enabling us to make more informed
decisions on our exposure and rates, whilst offering clients the
ability to identify their vulnerabilities and mitigate their
risks.
Growth and opportunity
The return of rating discipline has been welcome after a
prolonged soft rating environment, enabling us to continue strong
growth in core markets and deliver against our long-term strategy
to grow in a targeted way across Asia, Europe and Latin
America.
In the US, premium growth was 23%, getting us closer to our US
near-term target of $2bn. Growth was strongest across our Specialty
Lines, Cyber & Executive Risk (CyEx) and Property books. We
continued to launch new products including standalone liability
cover for social media influencers and online publishers. We
welcomed a Product Recall underwriting team mid-year who
demonstrated the art of the possible by launching our new offering
entirely remotely.
The improved ratings, responsive underwriting and rollout of
innovative products has driven significant growth outside the US,
particularly in financial lines, healthcare and cyber. In Asia
Pacific we launched our etrading broker portal myBeazley, providing
access to specialist digital products for smaller businesses
through an efficient digital platform. In France we launched fine
art and jewellers' block to support our strategy of growing in
mainland Europe, where we see opportunities for our specialist
insurance offering to add value to clients.
Beazley Virtual Care, a pioneering product that insures a
multitude of risks facing organisations in the digital health
space, came into its own in 2020 as many more healthcare providers
moved to treat patients remotely. Already available in the US and
UK, Virtual Care was launched in Singapore, Hong Kong, Canada,
Spain, Chile and Colombia in 2020 and we also continued to expand
our healthcare footprint by rolling out our more established
medical malpractice and life sciences cover to more
territories.
London market
We underwrite the majority of our Marine and Reinsurance risks
as well as a significant portion of our Property business in
London. Whilst we continue to build our footprint globally we
continue to play a very active role in ensuring Lloyd's remains a
competitive and thriving insurance hub. Progress comes more quickly
where we work cohesively and we continue to support the Future at
Lloyd's programme and particularly the strides made in driving
efficiency in claims and electronic trading. London's ability to
implement necessary change depends on the market's willingness to
adapt and a healthy culture that fosters dynamism and a shared
purpose. Along with Lloyd's, we are looking at how we can harness
the best of both the remote and the real-world trading
environments, building on the advances towards greater digital
trading and slicker processes achieved during lockdown.
Our people
Maintaining a culture of openness and transparency as we grow
does not happen on its own. We are fortunate we have many people
across the company dedicated to keeping us connected with one
another. The challenges of this year meant we focused many more
resources on supporting the health and wellbeing of our employees.
Additional wellbeing days were introduced, mental health first
aiders were trained to provide confidential support, and a free app
was made available that provides access to support and counselling
when needed. Like most organisations we have further to go in
building a more diverse workplace. Good data holds the key to
driving meaningful change. Having met our original target of 36%
female representation in our senior team by 2020, we have set a new
target of at least 45% female representation by 2023. We are
building a similar strategy to improve ethnic diversity within
teams and aim to announce our targets in regards to this during the
course of 2021.
Our people are what drives us forward and we continued to
promote and hire talented individuals to our global teams. Bethany
Greenwood, head of our Cyber & Executive Risk division joined
the group's executive committee in June 2020 taking over from Mike
Donovan, and continues to demonstrate the expertise and
capabilities needed to drive the business forward. We have also
created new roles that are key to our growth as a company. Among
them, Chris Illman joined us as sustainability officer to work with
the wider leadership team on developing our Environmental, Social
and Governance (ESG) strategy. Further information can be found
within the responsible business section of this report, as well as
our standalone responsible business report. Our new underwriting
incubation hub, led by George Beattie, is collaborating across the
business to turn our fledgling ideas into our successful products
and solutions of tomorrow.
There are now 168 people at Beazley who never stepped foot
inside our offices in 2020 due to COVID-19 restrictions. Meeting up
in person will be the real incentive to getting back in the office
when circumstances allow it. However, we will not be returning to
pre-pandemic 'business as usual'. Rather, we are looking forward to
seeing how our new blended approach to working will evolve over
time and how the wider market adapts. The new working practices we
introduced in September make us a more flexible, productive and
attractive place to work. The incredible resilience of our people
during 2020, supported by prior years of investment in our IT
systems and tools, has shown we are entirely capable of delivering
consistently high service remotely to our brokers and clients.
Claims
One of the clearest demonstrations of collaboration and
resilience in 2020 has been in the work of our claims team, led by
Beth Diamond, to maintain service levels throughout the peak of the
crisis. In the moment of truth for our clients, colleagues adopted
an all-hands-on-deck approach to support claims service delivery.
People across the business who had spare capacity volunteered to
support claims in administrative or support roles to ease pressure
on our claims specialists. The slowdown of the court system due to
social distancing allowed some opportunity to settle a number of
outstanding claims.
Lessons learnt
There have been many opportunities to learn lessons in how to
prepare for and respond to a significant crisis in the future. Even
in the midst of a fast-moving situation, we are reminded of the
critical importance of maintaining strong internal and external
communication to manage both expectations and the clarity of our
response. A review of our realistic disaster scenarios is also
underway, looking at their ongoing efficacy and ability to respond
to new information or to an event that escalates beyond the initial
assumptions built into the stress test.
Outlook
The year demonstrated the importance of flexibility and the need
for a clear and consistent strategy. The strength of our
diversified business and significant growth in many classes in 2020
is a testament to the expertise of our people and a long-term
strategic underwriting approach. We anticipate the favourable
rating environment will continue throughout 2021 and we will
continue to pursue growth in areas where we can deliver consistent
value for brokers and clients while managing our claims and
expenses.
Despite the harsh effects of the pandemic and a deep global
recession, we are optimistic that the positive market change of the
last 12 months and the resilience that we have demonstrated puts us
on a strong financial and operational footing to support our
clients and to grow profitably in 2021. We expect to deliver a
low-90s combined ratio for 2021 assuming average claims
experience.
Andrew Horton
Chief executive officer
Chief underwriting officer's report
Beazley achieved premium growth of 19% against a challenging
claims environment driven by COVID-19 losses which hit our
contingency book particularly hard. The combined ratio was 109%.
Our premium growth exceeded plan to reach $3,563.8m, giving us a
strong platform for growth in the future.
Never before has our role in society been so tested. How we
responded as a market, as companies and indeed individuals was
firmly under the spotlight and rightly scrutinised. As an
organisation we have weathered this crisis well. We adapted to the
new environment and, above all, our people and culture have ensured
that we remained true to our core: taking responsibility for the
needs of clients and partners, building resilience and delivering a
consistent strategy in the face of adversity. Whilst we did not
foresee a global pandemic, the optimisation of our portfolios that
started in 2018 and 2019 in preparation for harsher economic
conditions gave us a solid head start in responding to this crisis.
Our swift action and core culture have enabled us to flex and adapt
quickly to the new environment and continue to support our partners
with confidence and consistency.
Our underwriting approach
Beazley has a history of building long-term partnerships with
brokers and customers founded on mutual respect and trust.
Throughout this period of upheaval our teams have demonstrated
commitment to working with partners and doing the right thing
through our consistent underwriting strategy and transparent,
timely communication over cover and claims. Feedback over the past
12 months suggests that our partners and clients have appreciated
how we have handled the crisis. We incurred $1,958.3m in claims in
2020, of which 17% was driven by COVID-19 and the impact on the
economy, leading us to make an underwriting loss of $239.3m. Whilst
our overall result was disappointing, our premium growth in the
year has exceeded plan to reach $3,563.8m, giving us a strong
platform for growth in the future.
Cancelled events were the main driver of our COVID-related
losses, when the hospitality and events industries were shut by the
enforced lockdown. Since March we have worked closely with clients
and brokers to manage through the uncertainty by offering
flexibility in our coverage, premium pauses and/or returns where
rescheduled events have had to be cancelled or postponed, in order
to support the viability of their businesses.
Recession exposure
We took swift action in March to re-underwrite certain parts of
the business that would be exposed to COVID-19 and its subsequent
impacts. Although liability claims are yet to manifest across the
industry, our central assumption is that they will, and we have
made provisions for them on our balance sheet. Where we were
previously deliberately underweight in Directors' & Officers'
(D&O) and Property we have been able to execute our growth plan
to take a larger market share. In a period of elevated corporate
risk, we are able to underwrite and appropriately price for it,
allowing us to actively grow scale and relevance in this space.
Data focus
While the crisis has in many ways made trading more complex, and
we have missed the ease of face-to-face interactions, it has also
been a driver of innovation. In the last 12 months there has been a
revolution in the adoption of digital technologies to transact
business. Our underwriters increasingly incorporate data and
analytics and modelling information into building a clearer
overview of risk exposure. It is our responsibility to keep in step
with this transformation to ensure we offer relevant risk
mitigation and transfer solutions.
This year, despite the uncertainty, we were able to launch
innovative products including Transmission Failure for virtual
events. We rolled out our healthcare product for digital health
providers, Virtual Care, to a further six countries - both examples
of products designed to respond to the changing needs of clients
that came into their own under lockdown. Increasingly we are
meeting customers' appetite for solutions that offer more than risk
transfer by designing products that incorporate service
propositions to mitigate and manage risk as well.
In support of ongoing innovation, we formed a new incubation
underwriting team specifically focused on developing ideas to
manage new and emerging risks. This team both supports underwriters
in evolving existing products and nurtures entirely new concepts,
including underwriting new products in their infancy in order to
drive focus and de-risk main business lines.
This uncertain climate is no time to shy away from investing in
innovative ways to improve on what we deliver and how; hence the
ongoing development of our digital strategy. Our Faster, Smarter
Underwriting strategic initiative is driving teams across the
business to apply data and analytics to risk selection and
management. The aims of our strategic initiative are four-fold: to
maximise underwriting performance by providing additional sources
of data and management information dashboards; to extract more
value from our existing data; to better leverage our investments in
technology to help in areas such as workflow; and to transform our
underwriting of complex risks. We have seen the benefits of this
within our cyber book by using tools to scan client cyber security
for weaknesses, in gaining clearer behavioural insights about
individuals and boards to manage our D&O exposures, and through
more advanced modelling of secondary perils such as wildfire or
hail within our property book.
For smaller risks we are rolling out our etrading platform to
more territories, while ensuring these platforms are robust and
intuitive for brokers to use without losing the specialist
underwriting advantage that Beazley is known for. At the larger
end, our Smart Tracker business has achieved growth to $133.4m
gross written premium. Designed to reduce underwriting costs in the
Lloyd's market by making the follow-market work more efficiently,
the tracker is now working with 30 facilities alongside some newer
similarly styled syndicates within the market.
Within the Lloyd's market we are keen participants in the
Product Innovation Facility (PIF), an initiative designed to speed
up (re)insurance product development for new and emerging risks.
Lloyd's commitment to accelerating the market has accelerated
during lockdown, which has been a positive development in tandem
with the much improved growth prospects. Lockdown has also reminded
us that our resilience as a market depends on continued
collaboration and an openness to disrupt how we do things to
deliver greater value for clients and thus society. This will be
achieved through more efficient and effective products and services
coupled with enhanced standards that improve business
resilience.
Few could have predicted the first pandemic in a century and its
cataclysmic effect on the global economy. However, the economic
downturn was exacerbated, not created, by the pandemic. Our
recession planning began in 2018 and hence we have achieved
targeted growth in lines of business where higher losses and
changes in appetite among more exposed carriers contributed to a
return to a more fair and favourable rating environment. The
pandemic accelerated the hardening market across recession-prone
lines. However, it has been more than a decade since the last hard
market and therefore, for many underwriters, this is a new
experience requiring a different skill set and approach. We have
been investing in building our underwriting talent, in training,
and in the products and platforms that enable us to trade more
effectively with brokers and better serve clients. Feedback from
brokers has been overwhelmingly positive regarding the service and
clarity that our underwriters have been delivering. This is hugely
important to us as we strive to demonstrate our commitment to
building long-term partnerships and to deliver a consistent,
sustainable strategy. We wish to be able to capitalise fully on the
opportunities that a strong market presents, one of which is to
grow the business at a faster pace than usual and for that
accelerated growth to provide the base for Beazley for the next
5-10 years. In this situation, it is useful to have a number of
capital levers available and we have therefore bought a contingent
quota share reinsurance of our Specialty Lines and CyEx divisions
which allows us to trigger unilaterally up to $200m of ceded
premium.
Cyber & Executive Risk
Cyber & Executive Risk (CyEx) under a new leadership
structure led by Bethany Greenwood, grew premiums by 24% to
$1,020.1m, amid the long-awaited hard market. Profitability was
impacted by losses in employment practices liability (EPL) and the
rise in ransomware, producing a combined ratio of 101%.
Now in its second full year as a standalone division, CyEx
brings together Beazley's executive risks (US D&O, EPL, and
Crime insurance) with global M&A and Cyber and Technology
underwriting. In a year of contrasts across the division, Executive
Risk experienced its sharpest rate rises to date even as
competition remained steady, with rates expected to hold strong
into 2021. This came after more than a decade of market inertia in
which premiums failed to keep pace with higher litigation costs,
settlement amounts, jury payouts and increased claims aligned to
high-profile social justice movements. Following several years in
planning for the D&O market turn, rates grew by 53%, enabling
us to grow while remaining highly selective and diversified in our
appetite.
Crime, to a much lower extent, followed the D&O market up
while M&A also saw rates rise following a slow start to the
year when acquisition deals dried up in the first lockdown. Our EPL
book has been the most heavily remediated area, where exposure to
ongoing social inflation has meant increased frequency and higher
claims costs.
By contrast Cyber rates began to harden in the second half of
the year with over 20% rate increases in the fourth quarter. The
past year has seen significant changes to the cyber market
landscape, with reductions in capacity, underwriting restrictions,
tightening of terms and conditions, and rate change. The biggest
influence has been a significant rise in frequency and severity of
ransomware claims, which our team had been anticipating and
adjusting for in our underwriting. We continue to focus on a
tailored approach for each client, which reduces loss frequency and
improves profitability. Our approach includes scanning clients
during the policy lifecycle for vulnerabilities to help identify
risks and threats; offering advice to help proactively correct
vulnerabilities; and increasing rate to fully reflect the risk. Our
goal remains to improve overall risk management of our clients by
raising the standards to better detect, prevent and respond to
these events. As a leading insurer, we have access to data,
expertise and insight that we are applying to support clients and
brokers as best we can.
Marine
Following several years of careful cycle management amid soft
pricing and market losses, the Marine division achieved premiums of
$337.4m and a combined ratio of 90%, as market conditions improved
across most of the portfolio.
Hardening rates in Marine have been a longtime coming and have
been assisted by Lloyd's action to correct underperforming classes
and a subsequent contraction of the market.
As most of the book is placed through Lloyd's, Marine has seen
some benefit from the improved trading environment. Action has also
been taken to remediate selected areas of the account, resulting in
Beazley exiting the UK Marine portfolio in January 2020.
Rate hardening has been particularly strong across the aviation
and cargo portfolios, with average rate rises of 30% and 18%
respectively. Both had previously activated strong cycle management
plans and have weathered turbulence over the past two years, which
has seen a number of peers reducing capacity or withdrawing from
the market altogether.
The marine war account also saw considerable growth in 2020,
largely due to increased claims activity in and around the Persian
Gulf driving additional premium payments.
The exception to the growth across the portfolio has been in the
energy book where reduced global oil prices and a benign claims
environment in the upstream account meant rate increases were
subdued.
The marine division continues to explore opportunities to embed
data and analytics tools to derive more insight into the drivers of
loss and how to mitigate them, working with third parties and
enhancing proprietary data while looking ahead to more consistent
growth opportunities in 2021.
Market Facilities
In its first year as a standalone division outside Specialty
Lines, Market Facilities, led by Will Roscoe, has reported gross
premiums written of $133.4m, more than doubling over 2019.
The Beazley Smart Tracker launched in 2018 as the London
market's first follow-only special purpose syndicate. It tracks the
market with the same underwriting, reserving and pricing approach
as one would find within the main Beazley syndicates. Backed by
Beazley and third-party capital, the model has shown resilience in
the hardening market environment, with investors over-subscribing
to back the syndicate during this year's round of funding. This
inspires confidence in the model as a diversification opportunity
in the new trading environment as well as the old, attracting a
range of investors from Lloyd's Names and hedge funds through to
larger pension funds and traditional reinsurers.
Beazley Smart Tracker aims to deliver lower acquisition costs
and fees, and greater efficiency for the follow market. Its future
success hinges on ongoing appetite for market facilities and
consortia to follow in the market, which have both grown in number
in 2020. We anticipate and hope the influx of third-party capital
will continue to fuel more similarly styled follow-only syndicates,
which will only help to drive greater efficiency within the London
market.
As the net premium increased by more than 60% compared to last
year, the division reduced it claims ratio to 30% (2019: 36%) and
its expense ratio to 76% (2019: 78%). Lloyd's has approved growth
for Beazley Smart Tracker to $200m in 2021, and the expense ratio
is expected to reduce further through scale.
Political, Accident & Contingency
Political, Accident & Contingency (PAC) had a challenging
year as the division hardest hit by COVID-19, due to the high
number of cancelled events insured within the Contingency book.
However other parts of the business performed well, benefiting from
positive prior year movements. PAC reported premium of $273.0m and
a combined ratio of 212%.
Following controlled growth in recent years, Beazley writes a
sizeable contingency book that has absorbed a sharp increase in
claims due to the severe impact of the pandemic on the events and
hospitality industries. COVID-19-related Contingency loss estimates
of $70m net of reinsurance were reported in the first half of the
year. In September, Beazley's overall loss estimate for first-party
claims increased by a further $170m net of reinsurance, which was
largely attributable to the ongoing cancellation of events into
2021.
Our underwriting and claims teams have been working tirelessly
with clients and brokers to pay claims quickly and to ensure
coverage meets the needs of policyholders in the new hybrid world
we are entering. The development of our Transmission Failure
product for virtual events is an excellent example of our team
acting to respond to the changing environment to create solutions
that address future risks.
Growth in our Political Risk product was also dampened due to
COVID-19, reflecting a slowdown in activities within the financial
services industry as major projects ground to a halt. While this
book and its performance are correlated with global economic
cycles, there were no significant losses in a relatively benign
claims environment, while rates strengthened in response to more
competitive market conditions.
Premium grew across the terrorism portfolio, where there were a
number of new underwriting opportunities globally. Growth was in
part driven by more property exclusions put in place, contributing
to an increase in appetite for standalone cover. Rates remained
flat following a number of years of declining rates. Our Deadly
Weapons Protection (DWP) product continued to grow in the US and
also internationally. In the second half we developed a new joint
US distribution strategy for DWP and Safeguard, a specialist
product that provides cover and prevention services to reduce
incidents of abuse, given insureds are typically in similar
sectors.
Growth in Accident & Health was positive throughout the year
with the main growth coming from the insurance portfolio. Life
business, which largely sells group life policies through
employers, had an increase in claims due to COVID-19, which were
managed promptly and paid quickly.
Property
The property division reported a combined ratio of 120%,
reflecting claims due to COVID-19, which masked corrective actions
taken throughout 2019 and early 2020 to improve performance, while
premiums grew by 10% to $470.5m.
The overall property market has continued to see a second year
of rate increases in 2020, following soft market conditions going
back at least five years. During this time the global property team
has been diligently remediating the book through tighter risk
selection to better diversify the portfolio and reduce loss
frequency.
The division began the year on a strong footing, having
significantly improved the management of attritional losses and
catastrophe-exposed areas of the book. It remained focused on
delivering profit over top-line growth through consistent
underwriting, supported by improved rating tools and data capture
across the portfolio as well as a sharp focus on reviewing wordings
to ensure policies provide clarity and certainty to clients. We
continue to invest in tools to better understand and underwrite our
risk exposures, while also continuing to optimise our natural
catastrophe perils using a data-led analytical approach to managing
these exposures. We were pleased to continue to welcome new talent
to the team over the course of the year, including additional
underwriting expertise and one of the sector's most highly regarded
wordings specialists.
Continued enhancements and diligence in our risk analysis and
selection have addressed and reduced exposure to attritional loss,
including water losses, which remain a growing issue across the
industry. In addition an innovative approach to mitigating risk in
the small property book through wind and earthquake buy-down
products has helped us continue to grow in a highly competitive
technology-driven market segment.
The Jewellery, Fine Art & Specie (JFAS) sector remains
fairly competitive, with rate increases lagging the overall
property market. While largely a London market book for Beazley, in
2020 we began underwriting in Asia via the Lloyd's China platform
and in November launched a new Fine Art & Jewellers' block
offering in France targeting mainland Europe.
The actions taken throughout 2020 let us head into 2021 with
confidence in achieving targeted growth opportunities and highly
selective underwriting.
Reinsurance
High frequency of medium-range natural catastrophe activity
impacted profitability in the reinsurance division; however, the
portfolio benefited from more substantial rate rises during the
mid-year renewals contributing to premiums of $194.5m on a combined
ratio of 105%.
A new dynamic in the market saw the reinsurance division refocus
on core property catastrophe business and reduce exposure to niche
areas including miscellaneous treaty and also crop, which is the
area of the portfolio most exposed to climate change risk.
Reinsurance was slower to experience increased premium than the
primary market, but low-level rate increases materialised at the
start of the year in areas of the property treaty book directly
impacted by natural catastrophes in prior years. Market hardening
across the book began in earnest at the mid-year point in response
to concern around under-pricing and the potential impact of
COVID-19 overlaying a number of years of significant
weather-related losses, notably Hurricane Irma in 2017 and Typhoon
Jebi in 2018. Although wildfires continued to burn in 2020, the
division was less impacted having re-underwritten exposed areas of
the book using improved modelling around secondary perils. Wind
continued to prove the greater driver of claims, this year, in the
form of Hurricane Laura and Mid-west Derecho.
We are reserved prudently to manage the effects of COVID-19 on
the secondary property market and we continue to observe legal
decisions regarding the primary market to ensure we respond quickly
to the impact on the reinsurance market.
Specialty Lines
This is the second full year of reporting since the launch of
CyEx as a separate division and the first in which Market
Facilities has been a standalone business line, both having started
life within Specialty Lines.
The division wrote $1,134.9m of premiums and reported a profit
of $151.6m achieving a combined ratio of 94%, in a year of
much-needed rate hardening following several years of soft market
conditions and heightened claims volatility.
Specialty Lines began the year in a relatively flat market,
having prepared a portfolio and pricing strategy to grow the book
in a disciplined manner with an active recession plan in place. As
the economic impact of COVID-19 became more apparent from March,
the division took rapid steps to manage exposure and re-underwrite
exposed lines where necessary. Faced with a pandemic combined with
ongoing social inflation, poor historical results and the prospect
of a deeper than anticipated recession, the markets almost
unanimously reacted by adjusting pricing, triggering a market reset
that is expected to continue throughout 2021.
This market turn has also coincided with the significant planned
expansion of our book in Europe, Asia, Canada and Latin America
across international financial lines, management liability and
healthcare, as well as small digital business via our myBeazley
platform. Throughout the year the division launched more than 50
international products in over ten countries and in many different
languages, as part of a long-term strategy of hiring regionally
based underwriters and building a diversified footprint, to
complement our Lloyd's operation.
We were also delighted to welcome a team of product recall
specialists who launched our US offering virtually, providing
strong cross-sell and growth opportunities in 2021.
Overall rates increased in the year by 15% on average with the
sharpest premium growth across international financial lines and
management liability, and particularly in those territories with
traditionally higher litigation costs, including Australia, and
risks exposed in the US. International D&O increased by more
than 120% on top of rate hardening in 2018 and 2019.
Specialty Lines has continued to pursue consistent underwriting
and careful risk selection in lines of heightened risk, mindful of
the long development nature of both COVID-19 and recession-related
losses. To date, we have seen few claims arising from either event;
however, we have strengthened reserves in exposed classes in
anticipation of such claims starting to materialise in the
future.
The performance of the lawyers professional liability book
continues to improve with increased pricing and limit management,
while the economic downturn has slowed growth in Environmental
Liability although this remains one of our most profitable
areas.
Most areas of healthcare have seen steady growth and we have
substantially increased the footprint of our pioneering Virtual
Care product, which insures a multitude of risks facing digital
health providers. We have rolled out the offering in six countries,
at a time when remote health consultations have become commonplace
under social distancing rules.
Rate adjustment in both Healthcare Management Liability and
Hospital Medical Malpractice Liability came later in the year;
although we anticipate that these will continue to strengthen in
2021.
The Architects and Engineers, professional liability book
remains very competitive in a crowded marketplace; however, we are
hopeful of change in the future as this sector begins to feel the
impact of recession-related claims.
Specialty Treaty, which tends to reinsure other specialist
insurers, has grown profitably in a steadily improving rating
environment. The rollout and expansion of the myBeazley platform
has also proved successful in digitally delivering our specialist
products to SME clients across a large global footprint, with this
business proving profitable and less volatile despite the harsh
economic conditions facing many smaller businesses.
Looking into 2021 we expect consistent growth against our plan
and we anticipate further product expansion internationally as well
as the continued roll-out of our Global Programmes
capabilities.
Cumulative renewal rate changes since 2015 below:
2015 2016 2017 2018 2019 2020
--------------------- ----- ----- ----- ----- ----- -----
Cyber & Executive
Risk 100% 100% 100% 99% 104% 122%
Marine 100% 93% 90% 93% 103% 120%
Market Facilities - - - 100% 103% 123%
Political, Accident
& Contingency 100% 96% 92% 91% 91% 95%
Property 100% 96% 96% 106% 117% 135%
Reinsurance 100% 96% 94% 100% 105% 118%
Speciality Lines 100% 101% 102% 102% 107% 122%
All Divisions 100% 98% 97% 100% 106% 122%
Adrian Cox
Chief underwriting officer
Q&A with the chief executive
Do you have sufficient capital to take advantage of the
opportunities that deliver greater shareholder value while ensuring
you still pay claims?
The short answer is yes. Our surplus capital is currently
$476.3m, which at 23% is well within the range of the 15%-25%
surplus we want to hold in excess of our Lloyd's capital
requirements. Our capital is in place to support the growth in our
Lloyd's, US and European businesses and we have enough capital for
our planned 15%-20% growth this year in gross written premiums. We
will be buying a bit more reinsurance in 2021 to take out the
volatility in the areas of greatest growth, such as Directors'
& Officers' liability and Financial Institutions. Regarding our
claims-paying ability, this has never been in question. We have a
thorough process in place that ensures that we sufficiently reserve
for claims; and a strong, resilient review structure that ensures
the amounts we set aside are fair given existing market conditions,
yet robust enough to withstand any headwinds.
Why did you get your initial COVID-19 estimate of loss so wrong?
Based on the fact you had to revise your loss estimate, how
confident are you that it won't deteriorate further?
Our initial loss estimate was based on the assumption shared by
many that lockdown would come to an end in late summer meaning that
both conferences and sporting events would start again in
September. We estimated our event cancellation loss on this basis,
assuming around six months of events being cancelled or postponed.
By the end of August we could see the situation was deteriorating
in most countries, with most events being cancelled for the
foreseeable future. It was clear the uncertainty would continue
until at least the spring of 2021 and, therefore, we took action
and doubled our loss estimate. This estimate will only be revised
again if events continue to be cancelled in the second half of
2021. We estimated this potential deterioration to be a further
$50m net of reinsurance. After the end of 2021 we have very little
exposure for further deterioration.
Given ongoing uncertainty due to COVID-19 and the recession, how
certain are you of returning to profit in 2021?
Beazley's strong track record of profitability has been achieved
over the years through hard work, business acumen and a consistent
underwriting approach. This year, the world was caught off guard -
no one foresaw the global pandemic or envisaged the impact it would
have. We are in the risk-taking business, which means we can end up
with unexpected losses at times, and this is one of those times.
Even through the turmoil of this year many of our business classes
performed well, and in 2021 we expect to see the third year of rate
increases across many lines of business. While we haven't seen an
escalation in social inflation over the past year, this is still
something we are keeping a keen eye on. The growth in 2020 should
give us good earnings potential in 2021 and beyond. I personally am
looking forward to a return to profitability.
Which geographic areas present the strongest opportunities for
growth?
Our expectations are high and we expect to see growth across the
majority of our geographies. Rates continue to rise at Lloyd's,
offering us the opportunity to capitalise on a hardening market. In
the US, market conditions are favourable and given the size of the
specialty market within which we operate there is plenty of room
for growth. Over the past five years we have been growing at an
average rate of around 17% per annum. Our near-term target is to
increase the premiums in that business to $2bn, a 56% increase on
where we stand today. Our Canadian and European businesses
continued to grow at around 30% and 40% respectively per annum and
we expect further good growth in those businesses. Our smaller
businesses writing into Latin America from Miami, and Singapore,
are also anticipating good growth opportunities. This does not mean
that all lines of businesses will grow in all geographies because
we continue to be cautious about more recession-prone businesses.
Across many of our lines we have seen capacity withdraw and related
rate increases, and in many places we are a relatively small player
in a large market. The outlook however is positive.
Are you concerned that action on climate change has been
side-lined due to the health and economic crises?
One of the things the pandemic did was really shine a light on
the positive impact we can make on the climate crisis as
individuals, communities, industries and nations. Very quickly
after the initial lockdown, photos were posted around the world of
the improvement a lack of travel was having on the natural world. I
think the demonstration of such marked recovery from all across the
globe kept climate change very much on the agenda in 2020 and
provided much-needed impetus for action. Within the insurance
industry climate change has never been so topical or in the
spotlight, and across the market discussions and debates are had in
every boardroom and meeting space about the impact, society's
response, and immediate plans to contribute to a better world.
Beazley's ability to move forward at pace will be shaped by the
appointment of our Sustainability Officer, Chris Illman. Chris is
working across the business to ensure a sharp focus on the
challenges of climate change including threats - in terms of
determining increased losses and the impact on our business, and
opportunities for the development of new products and services that
protect against the potential impact of climate change. Naturally
we are also interested in our own direct impact as a company on the
world around us, which is why we as a management team are committed
to harnessing the positive effects of the last year to drive real,
sustained change for the future, including a commitment to
maintaining significantly lower levels of travel going forward. We
also support Lloyd's recently published ESG strategy, and we look
forward to working with them to deliver their sustainability
targets.
What actions has Beazley taken to improve inclusion and
diversity outcomes?
We made great progress on our inclusion and diversity (I&D)
initiatives in 2020. With regard to gender, currently 36% of our
executive committee and our board members are women. Whilst the
make-up of the company is gender-balanced (48% women, 52% men) our
objective is to ensure that balance is achieved across all levels
and, importantly, across all areas. We've also been talking about
the need for greater focus on race and ethnicity for a while. Now
that we have made great strides forward on gender and are
comfortable that we have the right processes in place to maintain
our trajectory, we are keen to shift our focus and resources to
achieve the same levels of success in ethnic diversity too. Our
longest-standing network, Proud@Beazley, continues to go from
strength to strength, extending its reach across the business - the
latest virtual global pride event attracted strong attendance with
over 400 employees showing support for the network. In the midst of
the pandemic we also launched our mental well being network, with
the dual objective of encouraging colleagues to actively manage
their mental health and supporting more open and honest
conversations on the topic. By partnering with Thrive, the mental
wellbeing app, we can now offer 24/7 support to our employee
population and give them direct access to effective tools and
support at the touch of a button. We will continue to use data and
insight to drive our I&D agenda, and I look forward to updating
you on our continued progress in next year's report.
Financial Review
Result
Loss before tax in 2020 was $50.4m (2019: $267.7m profit). The
group's combined ratio deteriorated to 109% (2019: 100%) primarily
due to high volumes of claims arising on COVID-19 impacted lines of
business. Our investment team achieved an investment return of 3.0%
(2019: 4.8%).
Premiums
Gross premiums written have increased by 19% in 2020 to
$3,563.8m (2019: $3,003.9m). Rates on renewal business on average
increased by 15% across the portfolio (2019: increased by 6%) with
our Market Facilities and Cyber & Executive Risk divisions
seeing the largest movement. During the year, we have been adding
exposure in a number of areas and taking underwriting remediation
action on certain areas of business.
Statement of profit or loss
2020 2019 Movement
$m $m %
---------------------------------------- ------- ------- ---------------
Gross premiums written 3,563.8 3,003.9 19%
Net premiums written 2,917.0 2,503.5 17%
Net earned premiums 2,693.4 2,347.0 15%
Net investment income 188.1 263.7 (29%)
Other income 29.8 25.8 16%
---------------------------------------- ------- ------- ---------------
Revenue 2,911.3 2,636.5 10%
Net insurance claims 1,958.3 1,452.5 35%
Acquisition and administrative expenses 974.4 889.7 10%
Foreign exchange (gain)/loss (11.2) (1.1) 918%
---------------------------------------- ------- ------- ---------------
Expenses 2,921.5 2,341.1 25%
Finance costs (40.2) (27.7)
---------------------------------------- ------- ------- ---------------
Profit before tax (50.4) 267.7
Income tax expense 4.3 (33.6)
---------------------------------------- ------- ------- ---------------
Profit after tax (46.1) 234.1
---------------------------------------- ------- ------- ---------------
Claims ratio 73% 62%
Expense ratio 36% 38%
Combined ratio 109% 100%
Rate increase 15% 6%
Investment return 3.0% 4.8%
Reinsurance purchased
Reinsurance is purchased for a number of reasons:
-- to mitigate the impact of natural catastrophes such as
hurricanes and non-natural catastrophes such as cyber attacks;
-- to enable the group to put down large lead lines on the risks
we underwrite; and
-- to manage capital to lower levels.
The amount the group spent on reinsurance in 2020 was $646.8m
(2019: $500.4m). As a percentage of gross premiums written it
increased to 18% from 17% in 2019.
Combined ratio
The combined ratio of an insurance company is a measure of its
operating performance and represents the ratio of its total costs
(including claims and expenses) to total net earned premium.
A combined ratio under 100% indicates an underwriting profit.
Consistent delivery of operating performance across the market
cycle is clearly a key objective for an insurer. Beazley's combined
ratio deteriorated in 2020 to 109% (2019: 100%) due to the impact
of first-party COVID-19 losses and increases in ransomware
reserves.
Claims
After a series of years with material natural catastrophes,
COVID-19 brought a wave of event cancellation and business
interruption claims that have particularly hit our contingency and
property books. Our first-party COVID-19 claims estimate remains at
$340m net of reinsurance (of which $82.5m has been treated as an
unexpired risk reserve in respect of events dated after 31 December
2020). 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 continue to see increases in
attritional claims due to ransomware and social inflation. As a
result of these trends as well as the COVID-19 related costs, our
claims ratio for the year deteriorated to 73% (2019: 62%).
Reserve releases
Beazley has a consistent reserving philosophy, with initial
reserves being set to include risk margins that may be released
over time as and when any uncertainty reduces. Historically these
margins have given rise to held reserves within the range of 5-10%
above our actuarial estimates, which themselves include some margin
for uncertainty. The margin held above the actuarial estimate was
6.3% at the end of 2020 (2019: 6.8%). Reserve monitoring is
performed at a quarterly 'peer review', which involves a challenge
process contrasting the claims reserves of underwriters and claim
managers, who make detailed claim-by-claim assessments, and the
actuarial team, who provide statistical analysis. This process
allows early identification of areas where claims reserves may need
adjustment. During years where we experience large losses we tend
to see the margin we monitor being lowered as often we hold the
same estimates within both the actuarial and held reserve
estimates. This year, there are a number of drivers which cause
this effect. Firstly, the significant first-party losses resulting
from COVID-19 are held at a similar level in both the held loss
reserves and the actuarial estimates. This is also the case for the
number of natural catastrophes that occurred in the second half of
2020. Finally, as the aggregate reinsurance is operating on a
number of years with Specialty Lines and Cyber and Executive Risk,
this also has the effect of the two measures being similar net of
reinsurance. Allowing for these effects would move the surplus
around the middle of the target range.
The reserve releases in 2020 increased to $93.1m (2019: $9.5m)
with all divisions contributing releases except Cyber &
Executive Risk where an uptick of cyber ransomware activity
resulted in a strengthening of $4.4m this year (2019: $9.4m
release). Our Specialty Lines division has seen an increase in
releases to $58.0m (2019: $36.9m). Our newly separated division
Market Facilities, which was previously within Specialty Lines, is
also contributing a $0.9m release (2019: nil). Our Political,
Accident and Contingency division provided $4.6m of releases (2019:
$16.8m) and our Marine, Property and Reinsurance divisions have all
seen a return to releases this year, with marine contributing $8.9m
(2019: $6.4m strengthening), Property contributing $4.4m (2019:
$17.1m strengthening) and reinsurance contributing $20.7m (2019:
$30.1m strengthening).
Prior year reserve adjustments
5 year
2016 2017 2018 2019 2020 average
$m $m $m $m $m $m
---------------------------------- ----- ----- ------ ------ ----- --------
Cyber & executive risk 6.9 32.5 25.7 9.4 (4.4) 14.0
Marine 15.9 10.7 12.5 (6.4) 8.9 8.3
Market facilities n/a n/a n/a - 0.9 0.3
Political, accident & contingency 27.2 3.9 14.8 16.8 4.6 13.5
Property 36.8 13.2 (47.3) (17.1) 4.4 (2.0)
Reinsurance 32.3 54.7 23.8 (30.1) 20.7 20.3
Specialty lines 61.6 88.9 85.5 36.9 58.0 66.2
---------------------------------- ----- ----- ------ ------ ----- --------
Total 180.7 203.9 115.0 9.5 93.1 120.6
---------------------------------- ----- ----- ------ ------ ----- --------
Releases as a percentage of
net earned premium 10.2% 10.9% 5.5% 0.4% 3.5% 6.1%
Prior year reserve adjustments across all divisions over the
last five years are shown above.
Please refer to the financial statements for further information
on reserve releases and loss development tables.
Acquisition costs and administrative expenses
Business acquisition costs and administrative expenses increased
during 2020 to $974.4m from $889.7m in 2019. The breakdown of these
costs is shown to the right.
2020 2019
$m $m
---------------------------------------------------- ----- -----
Brokerage costs 628.4 533.8
Other acquisition costs 110.5 111.6
---------------------------------------------------- ----- -----
Total acquisition costs 738.9 645.4
Administrative expenses 235.5 244.3
---------------------------------------------------- ----- -----
Total acquisition costs and administrative expenses 974.4 889.7
---------------------------------------------------- ----- -----
Brokerage costs are the premium commissions paid to insurance
intermediaries for providing business. As a percentage of net
earned premiums they have remained a steady 23% in the current year
(2019: 23%). Brokerage costs are deferred and expensed over the
life of the associated premiums in accordance with the group's
accounting policy. Other acquisition costs comprise costs that have
been identified as being directly related to underwriting activity
(e.g. underwriters' salaries and Lloyd's box rental). These costs
are also deferred in line with premium earning patterns.
Beazley focuses on improving our expense ratio during times of
strong growth. In addition, reduced travel during recent times have
dampened expenses during 2020 compared to previous years. Finally,
due to the overall financial result this year, there have been
further reductions as a result of lower discretionary remuneration.
These three effects have led to the overall expense ratio improving
from 38% in 2019 to 36%, with actual administrative expenses
decreasing to $235.5m (2019: $244.3m).
Foreign exchange
The majority of Beazley's business is transacted in US dollars,
which is the currency we have reported in since 2010 and the
currency in which we hold the company's net assets. Changes in the
US dollar exchange rate with sterling, the Canadian dollar and the
euro do have an impact as we receive premiums in those currencies
and a material number of our staff receive their salary in
sterling. Beazley's foreign exchange gain taken through the
statement of profit or loss in 2020 was $11.2m (2019: $1.1m).
Investment performance
Our financial assets continued to grow in 2020: the total value
of our investments, cash and cash equivalents reached $6,671.5m by
the year end (2019: $5,851.3m). These generated an investment
return of 3.0%, or $188.1m, in 2020 (2019: 4.8%, $263.7m). This
outcome is ahead of our expectations at the beginning of the year,
but belies the significant volatility which our investments have
experienced during the period, reflecting the unprecedented global
background.
Most of our fixed income securities, which form the majority of
our investments, are exposed to movements in US risk-free yields.
The value of these investments rose as risk-free yields declined to
near zero in the first quarter, driven by expectations that
COVID-19 would impair economic activity, requiring very low
interest rates for an extended period. However, these gains were
more than offset by losses on our other investments in the first
quarter. Global equity markets declined by more than 20% in this
period, but more significant for Beazley was a widening of credit
spreads on our US corporate debt investments: even short-dated
securities with investment grade credit ratings saw spreads
increase by more than 200 basis points in Q1, generating
significant losses in these securities. We acted quickly to reduce
our exposures to the most volatile asset classes as losses
developed, limiting the impact on our portfolio, but our
investments still lost 1.0% in the first three months.
Notwithstanding the dramatic financial market volatility as
COVID-19 emerged in the first part of the year, the subsequent
recovery in investment performance has arguably been more
remarkable. Fiscal intervention from governments, monetary support
from central banks and the promise of an extended period of low
interest rates have combined to generate strong positive sentiment
from investors through the last three quarters of the year, despite
the continuing impact of COVID-19 on the global economy. Global
equities rallied by more than 45% in this period, while credit
spreads on investment grade securities reversed all of their
earlier widening and ended the year lower than they began.
Our core portfolio exposures returned 2.9% in 2020 overall
(2019: 4.3%), ultimately driven by the decline in risk-free yields
in the first quarter, while our more volatile capital growth
investments returned 3.5% (2019: 8.6%), helped by the robust
recovery in equities, as well as a strong performance from our
hedge fund portfolio.
We added to our equity and credit exposures as these asset
classes recovered from March and this has helped our investment
return. However, our exposures to risk assets in 2020 have
generally been below the levels we would normally maintain,
reflecting our view that investment risk has remained elevated
throughout this unusual year. As a result, our 2020 investment
return is lower than could have been achieved by a more aggressive
strategy, but the volatility of our return during the year
has also been reduced.
Looking ahead, available yields on the high credit quality debt
securities in which we primarily invest are now very low (two-year
US Treasury notes yield less than 0.2%), highlighting the modest
level of returns we expect to be achievable in the near term. More
volatile asset classes may offer better returns, but uncertainty
about the global economic outlook remains elevated, increasing the
risk of further volatility in these securities. We continue to
develop our investment strategy to balance the search for return
against the need to effectively control risk.
The table below details the breakdown of our portfolio by asset
class:
31 Dec 2020 31 Dec 2019
$m % $m %
---------------------------------------- ------- ------ ------- -----
Cash and cash equivalents 309.5 4.6 278.5 4.8
Fixed and floating rate debt securities
- Government issued 2,723.7 40.8 1,862.9 31.9
- Corporate bonds
- Investment grade 2,444.9 36.7 2,706.4 46.3
- High yield 251.1 3.8 235.8 4.0
Syndicate loans 40.6 0.7 8.0 0.1
Derivative financial instruments 28.5 0.4 25.5 0.4
---------------------------------------- ------- ------ ------- -----
Core portfolio 5,798.3 87.0 5,117.1 87.5
---------------------------------------- ------- ------ ------- -----
Equity funds 203.2 3.0 163.6 2.8
Hedge funds 442.1 6.6 354.0 6.0
Illiquid credit assets 227.9 3.4 216.6 3.7
---------------------------------------- ------- ------ ------- -----
Total capital growth assets 873.2 13.0 734.2 12.5
---------------------------------------- ------- ------ ------- -----
Total 6,671.5 100.0 5,851.3 100.0
---------------------------------------- ------- ------ ------- -----
Comparison of return by major asset class:
31 Dec 2020 31 Dec 2019
$m % $m %
---------------------- ------- ---- ------- ----
Core portfolio 160.0 2.9 205.7 4.3
Capital growth assets 28.1 3.5 58.0 8.6
---------------------- ------- ---- ------- ----
Overall return 188.1 3.0 263.7 4.8
---------------------- ------- ---- ------- ----
Tax
Beazley is liable to corporation tax in a number of
jurisdictions, notably the UK, the US and Ireland. Beazley's
effective tax rate is thus a composite tax rate mainly driven by
the Irish, UK and US tax rates. The weighted average of the
statutory tax rates for the year was (2.0%) (2019: 15.0%). The tax
rate of (2.0%) is significantly lower than previous years due to
this year's composition of profits and losses across the group.
Notwithstanding the overall loss before tax, some jurisdictions,
notably with higher tax rates, were profitable. The effective tax
rate has decreased in 2020 to 8.5% (2019: 12.6%). The decrease has
been a result of, in addition to the lower weighted average of the
statutory tax rates, lower favourable prior year tax adjustments in
2020 as compared to 2019.
The group has been monitoring the potential impact of the
diverted profits tax (DPT) following the enactment of new
legislation in April 2015 and has been of the view that no
liability arises. Since 2015 the group has been exchanging
correspondence with the UK's tax authority (HMRC) in relation to
DPT applicability with respect to the intra-group transactions.
These correspondence exchanges with HMRC have now reached a
conclusion with no assessment to DPT being raised.
A Tax Act (the Tax Cuts and Jobs Act) was signed into law in the
US in December 2017. The Tax Act includes base erosion
anti-avoidance tax (the 'BEAT') provisions. We have performed an
assessment for a number of our intra-group transactions for BEAT
purposes. Although the application of this BEAT legislation is
still not fully certain for some types of transactions we believe
that the BEAT impact on the group is not significant. For the year
2020 the amount of $1.1m was provided for in the group financial
statements for BEAT liabilities (for 2019 the group paid BEAT tax
of $3.2m).
In addition, if BEAT encourages other governments to introduce
similar legislation impacting cross-border transactions, Beazley's
tax liability could consequently increase in those countries. We
continue to assess the future impact of BEAT and other tax changes
(including OECD's Pillar 1 and Pillar 2 proposals) on our
business.
Balance sheet management
Summary statement of financial position
2020 2019 Movement
$m $m %
-------------------------------------------- -------- ------- ---------------
Intangible assets 126.3 122.2 3%
Reinsurance assets 1,684.7 1,338.2 26%
Insurance receivables 1,467.9 1,048.0 40%
Other assets 637.3 514.0 24%
Financial assets at fair value and cash and
cash equivalents 6,671.5 5,851.3 14%
-------------------------------------------- -------- ------- ---------------
Total assets 10,587.7 8,873.7 19%
Insurance liabilities 7,378.4 6,059.0 22%
Financial liabilities 558.5 554.8 1%
Other liabilities 841.3 634.6 33%
-------------------------------------------- -------- ------- ---------------
Total liabilities 8,778.2 7,248.4 21%
-------------------------------------------- -------- ------- ---------------
Net assets 1,809.5 1,625.3 11%
-------------------------------------------- -------- ------- ---------------
Net assets per share (cents) 299.0c 309.6c (3%)
-------------------------------------------- -------- ------- ---------------
Net tangible assets per share (cents) 278.0c 286.3c (3%)
-------------------------------------------- -------- ------- ---------------
Net assets per share (pence) 219.1p 235.0p (7%)
-------------------------------------------- -------- ------- ---------------
Net tangible assets per share (pence) 203.8p 217.3p (6%)
-------------------------------------------- -------- ------- ---------------
Number of shares(1) 605.2m 524.9m 15%
-------------------------------------------- -------- ------- ---------------
(1) Excludes shares held in the employee trust and treasury shares.
Intangible assets
Intangible assets consist of goodwill on acquisitions of $62.0m
(2019: $62.0m), purchased syndicate capacity of $10.7m (2019:
$10.7m), US admitted licences of $9.3m (2019: $9.3m), renewal
rights of $8.7m (2019: $17.3m) and capitalised expenditure on IT
projects of $35.6m (2019: $22.9m).
Reinsurance assets
Reinsurance assets represent recoveries from reinsurers in
respect of incurred claims of $1,305.6m (2019: $1,068.8m), and the
unearned reinsurance premiums reserve of $379.1m (2019: $269.4m).
The reinsurance receivables from reinsurers are split between
recoveries on claims paid or notified of $262.2m (2019: $223.7m),
an actuarial estimate of recoveries on claims that have not yet
been reported of $1,034.4m (2019: $845.1m), and unexpired risk
reserve of $9.0m (2019: nil).
The group's exposure to reinsurers is managed through:
-- minimising risk through selection of reinsurers who meet
strict financial criteria (e.g. minimum net assets, minimum 'A'
rating by S&P). These criteria vary by type of business (short
vs medium tail). The chart below shows the profile of these assets
(based on their S&P rating) at the end of 2020;
-- timely calculation and issuance of reinsurance collection
notes from our ceded reinsurance team; and
-- regular monitoring of the outstanding debtor position by our
reinsurance security committee and credit control committee. We
continue to provide against impairment of reinsurance recoveries
and at the end of 2020
our provision in respect of reinsurance recoveries totalled
$14.8m
(2019: $13.7m).
Insurance receivables
Insurance receivables are amounts receivable from brokers in
respect of premiums written. The balance at
31 December 2020 was $1,467.9m (2019: $1,048.0m). The amount of
estimated future premium that remains in insurance receivables
relating to years of account that are more than three years
developed at 31 December 2020 is $13.7m (2019: $11.5m).
Insurance liabilities
Insurance liabilities of $7,378.4m (2019: $6,059.0m) consist of
two main elements, being the unearned premium reserve (UPR) and
gross insurance claims liabilities. Our UPR has increased by 20% to
$1,924.3m (2019: $1,598.7m). The majority of the UPR balance
relates to current year premiums that have been deferred and will
be earned in future periods. Current indicators are that apart from
the specific provisions made in respect of the unexpired risk
reserves detailed in note 11, the business is profitable. Gross
insurance claims reserves are made up of claims which have been
notified to us but not yet paid of $1,507.3m (2019: $1,263.7m), an
estimate of claims incurred but not yet reported (IBNR) of
$3,855.3m (2019: $3,196.6m), and an unexpired risk reserve of
$91.5m (2019: nil). These are estimated as part of the quarterly
reserving process involving the underwriters and group actuary.
Gross insurance claims reserves have increased 22% from 2019 to
$5,454.1m (2019: $4,460.3m). Part of the first-party claims
estimate of $340m has been treated as an unexpired risk reserve, in
respect of those losses which were booked during 2020 in respect of
events that were planned to happen during 2021.
Financial liabilities
Financial liabilities comprise borrowings and derivative
financial liabilities. The group utilises two long term debt
facilities:
-- in November 2016, Beazley Insurance dac issued $250m of
5.875% subordinated tier 2 notes due in 2026; and
-- In September 2019, Beazley Insurance dac issued $300m of 5.5%
subordinated tier 2 notes due in 2029.
A syndicated short term banking facility led by Lloyds Banking
Group plc provides potential borrowings up to $450m, up from $225m
at the start of the year. Under the facility $393.8m may be drawn
as letters of credit to support underwriting at Lloyd's, and up to
$225m may be advanced as cash under a revolving facility. The cost
of the facility is based on a commitment fee of 0.4725% per annum
and any amounts drawn are charged at a margin of 1.35% per
annum.
The cash element of the facility will expire on 23 July 2022,
whilst letters of credit issued under the facility can be used to
provide support for the 2019, 2020 and 2021 underwriting years. In
2020 $225m has been drawn down under the facility and placed as a
letter of credit as Funds at Lloyd's (FAL).
Other assets
Other assets are analysed separately in the notes to the
financial statements. The items included comprise:
-- deferred acquisition costs of $384.9m (2019: $350.7m); and
-- deferred tax assets available for use against future taxes
payable of $26.8m (2019: $41.0m).
Judgement is required in determining the policy for deferring
acquisition costs. Beazley's policy assumes that variable reward
paid to underwriters relates to prior years' business and is not an
acquisition cost. As a result, the quantum of costs classified as
acquisition is towards the lower end of the possible range seen
across the insurance market. Costs identified as related to
acquisition are then deferred in line with premium earnings.
Capital structure
Beazley aims to hold capital in excess of regulatory
requirements in order to be best placed to swiftly take advantage
of growth opportunities arising outside of our business plan, as
well as to provide additional protection against downside
events.
The group actively seeks to manage its capital structure. Our
preferred use of capital is to deploy it on opportunities to
underwrite profitably. However, there may be times in the cycle
when the group will generate excess capital and not have the
opportunity to deploy it. At such points in time the board will
consider returning capital to shareholders.
During 2020 there were significant growth opportunities as many
markets in which we operate saw conditions improving. The
combination of this, along with the increased claims arising during
the year from COVID-19 led to Beazley proceeding with an equity
raise in May 2020. We successfully raised $292.6m of new capital
through a non-pre-emptive share issuance, in part, to aid our
growth ambitions.
Beazley has a number of requirements for capital at a group and
subsidiary level. Capital is primarily required to support
underwriting at Lloyd's, the US and through our European branches
and is subject to prudential regulation by local regulators
(Prudential Regulation Authority, Lloyd's, Central Bank of Ireland,
and the US state level supervisors). Beazley is subject to the
capital adequacy requirements of the European Union (EU) Solvency
II regime (SII). We comply with all relevant SII requirements.
Further capital requirements come from rating agencies who
provide ratings for Beazley Insurance Company, Inc and Beazley
Insurance dac. We aim to manage our capital levels to obtain the
ratings necessary to trade with our preferred client base.
Beazley holds a level of capital over and above its regulatory
requirements. The amount of surplus capital held is considered on
an ongoing basis in light of the current regulatory framework,
opportunities for organic or acquisitive growth and a desire to
maximise returns for investors.
2020 2019
$m $m
-------------------------------- ------- -------
Shareholders' funds 1,809.5 1,625.3
Tier 2 subordinated debt (2026) 249.0 248.9
Tier 2 subordinated debt (2029) 298.1 297.9
Drawdown of letter of credit 225.0 -
-------------------------------- ------- -------
2,581.6 2,172.1
-------------------------------- ------- -------
Our funding comes from a mixture of our own equity alongside
$547.1m ($550.0m gross of capitalised borrowing costs) of tier 2
subordinated debt. We also have a banking facility of $450m (31
December 2019: $225m) of which, $225m has been drawn down and
placed as a letter of credit at Lloyd's to support our Funds at
Lloyd's (FAL).
The following table sets out the group's capital requirement
selected for our internal measure of the group's capital surplus
position:
2020 2019
$m $m
------------------------------------------- ------- -------
Lloyd's economic capital requirement (ECR) 2,116.5 1,828.4
Capital for US insurance companies 246.3 203.9
------------------------------------------- ------- -------
2,362.8 2,032.3
------------------------------------------- ------- -------
The final Lloyd's economic capital requirement (ECR) at year end
2020, as confirmed by Lloyd's, reflects the business we expect to
write through to the end of 2021 as per our business plan.
Furthermore, rather than taking a one year view of this business,
it assumes that all risks run to ultimate. Finally, Lloyds apply a
35% uplift to this number. These three factors make the ECR
requirement considerably more onerous than the standard Solvency II
measure which considers a one year time horizon and contains no
uplift.
Overall we expect our capital requirement to grow broadly in
line with the net written premiums in our business plan, which in
the short-term should be mid double digit growth.
At Beazley we aim to hold excess capital over the Lloyd's ECR
and US capital requirement, expressed as a % of Lloyd's ECR, and
have a preferred range of 15-25%. At 31 December 2020, we have
surplus capital (on a solvency II basis) of 23% of ECR, within our
current target range of 15% to 25% of ECR. Given the stringent
nature of the Lloyd's ECR as noted above, our group surplus capital
ratio is not directly comparable to the standard Solvency II
capital ratio which is based on a one year time horizon.
In addition to the surplus above, we have two further capital
levers which may be called upon. Firstly, the remaining undrawn
banking facility of $225m may be utilised and is not included
within the capital stack used in the capital surplus calculation.
We have also purchased additional contingent reinsurance of our
Specialty Lines and CyEx lines of business.
Following changes to intragroup reinsurance during 2017 with the
introduction of the US BEAT tax, and the continued successful
growth of the US operations, we have seen a significant growth in
capital requirements within Beazley Insurance Company, Inc (BICI)
in recent years. During 2020 we set up a US captive insurer to
continue to ensure capital efficiency is maintained within the
group.
On issuance of tier 2 subordinated debt in 2016, Beazley
Insurance dac was assigned an Insurer Financial Strength (IFS)
rating of 'A+' by Fitch.
Beazley Insurance dac also issued tier 2 debt in September 2019
and maintained its 'A+' rating.
In 2020, Beazley acquired two million of its own shares into the
employee benefit trust. These were acquired at an average price of
528.7p and the cost to the group was $13.6m.
Solvency II
The Solvency II regime came into force on 1 January 2016.
Beazley continue to provide quarterly Solvency II pillar 3
reporting to both Lloyd's for the Beazley managed syndicates and
the Central Bank of Ireland for Beazley Insurance dac and Beazley
plc. During 2020 the fourth annual solvency financial condition
report (SFCR) of Beazley plc was published.
Under Solvency II requirements, the group is required to produce
a Solvency Capital Requirement (SCR) which sets out the amount of
capital that is required to reflect the risks contained within the
business. Lloyd's reviews the syndicates' SCRs to ensure that SCRs
are consistent across the market.
The current SCR has been established using our Solvency II
approved internal model approved by Central Bank of Ireland (CBI)
which has been run within the regime as prescribed by Lloyd's. In
order to perform the capital assessment:
-- we use sophisticated mathematical models that reflect the key
risks in the business allowing for probability of occurrence,
impact if they do occur, and interaction between risk types. A key
focus of these models is to understand the risk posed to individual
teams, and to the business as a whole, of a possible deterioration
in the underwriting cycle; and
-- the internal model process is embedded so that teams can see
the direct and objective link between underwriting decisions and
the capital allocated to that team. This gives a consistent and
comprehensive picture of the risk/reward profile of the business
and allows teams to focus on strategies that improve return on
capital.
IFRS 17
The implementation of IFRS 17: Insurance contracts is currently
scheduled for accounting periods commencing on or after 1 January
2023. Applying this standard is a major undertaking and so the
company has established a multi-disciplinary project group to
oversee this activity.
The project has made good progress during 2020 and Beazley's
preparations for IFRS 17 are on schedule.
Group structure
The group operates across Lloyd's, Europe, Asia, Canada and the
US through a variety of legal entities and structures. The main
entities within the legal entity structure are as follows:
-- Beazley plc - group holding company and investment vehicle, quoted on
the London Stock Exchange;
-- Beazley Ireland Holdings plc - intermediate holding company;
-- Beazley Underwriting Limited - corporate member at Lloyd's
writing business through syndicates 2623, 3622 and 3623;
-- Beazley Furlonge Limited - managing agency for the six
syndicates managed by the group (623, 2623, 3622, 3623, 6107, and
5623);
-- Beazley Insurance dac - insurance company based in Ireland
that accepts non-life reinsurance premiums ceded by the corporate
member Beazley Underwriting Limited, and also writes business
directly from Europe;
-- Syndicate 2623 - corporate body regulated by Lloyd's through
which the group underwrites its general insurance business
excluding accident, life and facilities. Business is written
in parallel with syndicate 623;
-- Syndicate 623 - corporate body regulated by Lloyd's which has
its capital supplied by third party names;
-- Syndicate 6107 - special purpose syndicate writing
reinsurance business, and from 2017 cyber,
on behalf of third party names;
-- Syndicate 3622 - corporate body regulated by Lloyd's through
which the group underwrites its life insurance and reinsurance
business;
-- Syndicate 3623 - corporate body regulated by Lloyd's through
which the group underwrites its personal accident, BICI reinsurance
business and, from 2018, Market Facilities business;
-- Syndicate 5623 - special purpose syndicate writing Market
Facilities ceded from syndicate 3623;
-- Beazley America Insurance Company, Inc. (BAIC) - insurance
company regulated in the US. In the process of obtaining licenses
to write insurance business in all 50 states;
-- Beazley Insurance Company, Inc. (BICI) - insurance company
regulated in the US. Licensed to write insurance business in all 50
states;
-- Beazley USA Services, Inc. (BUSA) - managing general agent
based in Farmington, Connecticut. Underwrites business on behalf of
Beazley syndicates, 2623 and 623, BICI and BAIC; and
-- Beazley NewCo Captive Company, Inc - provides internal
reinsurance to BICI for adverse development on older accident
years.
Consolidated statement of profit or loss for the year ended 31
December 2020
2020 2019
$m $m
---------------------------------------------------- ------- -------
Gross premiums written 3,563.8 3,003.9
Written premiums ceded to reinsurers (646.8) (500.4)
-------------------------------------------------------- ------- -------
Net premiums written 2,917.0 2,503.5
Change in gross provision for unearned premiums (331.7) (184.5)
Reinsurer's share of change in the provision
for unearned premiums 108.1 28.0
-------------------------------------------------------- ------- -------
Change in net provision for unearned premiums (223.6) (156.5)
Net earned premiums 2,693.4 2,347.0
Net investment income 188.1 263.7
Other income 29.8 25.8
-------------------------------------------------------- ------- -------
217.9 289.5
Revenue 2,911.3 2,636.5
Insurance claims 2,589.3 1,842.5
Insurance claims recoverable from reinsurers (631.0) (390.0)
-------------------------------------------------------- ------- -------
Net insurance claims 1,958.3 1,452.5
Expenses for the acquisition of insurance contracts 738.9 645.4
Administrative expenses 235.5 244.3
Foreign exchange (gain) (11.2) (1.1)
-------------------------------------------------------- ------- -------
Operating expenses 963.2 888.6
Expenses 2,921.5 2,341.1
Results of operating activities (10.2) 295.4
Finance costs (40.2) (27.7)
(Loss)/profit before income tax (50.4) 267.7
-------------------------------------------------------- ------- -------
Income tax credit/(expense) 4.3 (33.6)
-------------------------------------------------------- ------- -------
(Loss)/profit for year attributable to equity
shareholders (46.1) 234.1
-------------------------------------------------------- ------- -------
Earnings per share (cents per share):
Basic (8.0) 44.6
Diluted (8.0) 44.0
Earnings per share (pence per share):
Basic (6.3) 35.0
Diluted (6.3) 34.5
Statement of comprehensive income for the year ended 31 December
2020
2020 2019
$m $m
--------------------------------------------------------------- ------ -----
Group
(Loss)/profit for the year attributable to equity shareholders (46.1) 234.1
Other comprehensive income
Items that will never be reclassified to profit or
loss:
(Loss)/gain on remeasurement of retirement benefit
obligations (2.0) 6.6
Income tax on defined benefit obligation (0.5) (0.4)
Items that may be reclassified subsequently to profit
or loss:
Foreign exchange translation differences 2.8 1.8
--------------------------------------------------------------- ------ -----
Total other comprehensive income 0.3 8.0
--------------------------------------------------------------- ------ -----
Total comprehensive (loss)/income recognised (45.8) 242.1
--------------------------------------------------------------- ------ -----
Statement of comprehensive income for the year ended 31 December
2020
2020 2019
$m $m
-------------------------------------------------------- ---- ----
Company
Profit for the year attributable to equity shareholders 47.9 75.7
Total comprehensive income recognised 47.9 75.7
-------------------------------------------------------- ---- ----
Statement of changes in equity for the year ended 31 December
2020
Foreign
currency
Share Share translation Other Retained
capital premium reserve reserves earnings Total
$m $m $m $m $m $m
-------------------------- -------- -------- ------------ --------- --------- -------
Group
Balance at 1 January
2019 38.0 1.6 (95.9) 16.5 1,507.0 1,467.2
Total comprehensive
income recognised - - 1.8 - 240.3 242.1
Dividends paid - - - - (79.5) (79.5)
Issue of shares 0.1 1.6 - - - 1.7
Equity settled share
based payments - - - 4.7 - 4.7
Acquisition of own shares
in trust - - - (13.8) - (13.8)
Tax on share option
vestings - - - (1.0) 2.6 3.6
Transfer of shares to
employees - - - (4.8) 4.1 (0.7)
--------------------------- -------- -------- ------------ --------- --------- -------
Balance at 31 December
2019 38.1 3.2 (94.1) 3.6 1,674.5 1,625.3
--------------------------- -------- -------- ------------ --------- --------- -------
Balance at 1 January
2020 38.1 3.2 (94.1) 3.6 1,674.5 1,625.3
--------------------------- -------- -------- ------------ --------- --------- -------
Total comprehensive
(loss)/income recognised - - 2.8 - (48.6) (45.8)
Dividends paid - - - - (50.2) (50.2)
Issue of shares - 2.1 - - - 2.1
Equity raise(1) 4.8 - - - 287.8 292.6
Equity settled share
based payments - - - 2.8 - 2.8
Acquisition of own shares
in trust - - - (13.6) - (13.6)
Tax on share option
vestings - - - (5.4) 1.2 (4.2)
Transfer of shares to
employees - - - 3.2 (2.7) 0.5
--------------------------- -------- -------- ------------ --------- --------- -------
Balance at 31 December
2020 42.9 5.3 (91.3) (9.4) 1,862.0 1,809.5
--------------------------- -------- -------- ------------ --------- --------- -------
1 During the financial year ended 31 December 2020, the group
raised $292.6m through a share issuance via a cash box structure.
Merger relief under the Companies Act 2006, section 612 was
available, and thus no share premium was recognised. As the
redemption of the cash box entity's shares was in the form of cash,
the transaction was treated as qualifying consideration and the
premium is therefore considered to be immediately distributable and
can be recognised within retained earnings. The funds raised are
net of issuance costs.
Statement of changes in equity for the year ended 31 December
2020
Foreign
currency
Share
premium
Share $m translation Other Retained
Merger
capital reserve(2) reserve reserves earnings Total
$m $m $m $m $m $m
-------------------------- -------- --------- ----------- ------------ ---------- --------- ------
Company
Balance at 1 January
2019 38.0 1.6 55.4 0.7 4.6 621.0 721.3
Total comprehensive
income recognised - - - - - 75.7 75.7
Dividends paid - - - - - (79.5) (79.5)
Issue of shares 0.1 1.6 - - - - 1.7
Equity settled share
based payments - - - - 4.7 - 4.7
Acquisition of own shares
in trust - - - - (13.8) - (13.8)
Transfer of shares to
employees - - - - (4.8) 4.1 (0.7)
------------------------------ -------- --------- ----------- ------------ ---------- --------- ------
Balance at 31 December
2019 38.1 3.2 55.4 0.7 (9.3) 621.3 709.4
------------------------------ -------- --------- ----------- ------------ ---------- --------- ------
Balance at 1 January
2020 38.1 3.2 55.4 0.7 (9.3) 621.3 709.4
Total comprehensive
income recognised - - - - - 47.9 47.9
Dividends paid - - - - - (50.2) (50.2)
Issue of shares - 2.1 - - - - 2.1
Equity raise(1) 4.8 - - - - 287.8 292.6
Equity settled share
based payments - - - - 2.8 - 2.8
Acquisition of own shares
in trust - - - - (13.6) - (13.6)
Transfer of shares to
employees - - - - 3.2 (2.7) 0.5
------------------------------ -------- --------- ----------- ------------ ---------- --------- ------
5Balance at 31 December
2020 42.9 5.3 55.4 0.7 (16.9) 904.1 991.5
------------------------------ -------- --------- ----------- ------------ ---------- --------- ------
1 During the financial year ended 31 December 2020, the group
raised $292.6m through a share issuance via a cash box structure.
Merger relief under the Companies Act 2006, section 612 was
available, and thus no share premium was recognised. As the
redemption of the cash box entity's shares was in the form of cash,
the transaction was treated as qualifying consideration and the
premium is therefore considered to be immediately distributable and
can be recognised within retained earnings. The funds raised are
net of issuance costs.
2 A merger reserve was created through a scheme of arrangement
on 13 April 2016, in which Beazley plc became the parent company of
the group.
Statements of financial position as at 31 December 2020
2020 2019
Group Company Group Company
$m $m $m $m
------------------------------------- -------- ------- -------- -------
Assets
Intangible assets 126.3 - 122.2 -
Plant and equipment 19.7 - 8.9 -
Right of use assets 86.4 - 35.9 -
Deferred tax asset 26.8 - 41.0 -
Investment in subsidiaries - 724.6 - 724.6
Investment in associates 0.3 - 0.1 -
Deferred acquisition costs 384.9 - 350.7 -
Retirement benefit asset 4.8 - 5.4 -
Reinsurance assets 1,684.7 - 1,338.2 -
Financial assets at fair value 6,362.0 - 5,572.8 -
Insurance receivables 1,467.9 - 1,048.0 -
Other receivables 86.5 267.9 72.0 -
Current income tax asset 27.9 1.9 - 1.1
Cash and cash equivalents 309.5 0.9 278.5 -
-------------------------------------- -------- ------- -------- -------
Total assets 10,587.7 995.3 8,873.7 725.7
-------------------------------------- -------- ------- -------- -------
Equity
Share capital 42.9 42.9 38.1 38.1
Share premium 5.3 5.3 3.2 3.2
Merger reserve - 55.4 - 55.4
Foreign currency translation reserve (91.3) 0.7 (94.1) 0.7
Other reserves (9.4) (16.9) 3.6 (9.3)
Retained earnings 1,862.0 904.1 1,674.5 621.3
-------------------------------------- -------- ------- -------- -------
Total equity 1,809.5 991.5 1,625.3 709.4
-------------------------------------- -------- ------- -------- -------
Liabilities
Insurance liabilities 7,378.4 - 6,059.0 7,378.4
Financial liabilities 558.5 - 554.8 558.5
Lease liabilities 90.1 - 39.4 90.1
Deferred tax liabilities 0.6 - 19.5 0.6
Current income tax liability 16.7 - 9.3 16.7
Other payables 733.9 3.8 566.4 16.3
-------------------------------------- -------- ------- -------- -------
Total liabilities 8,778.2 3.8 7,248.4 16.3
-------------------------------------- -------- ------- -------- -------
Total equity and liabilities 10,587.7 995.3 8,873.7 725.7
-------------------------------------- -------- ------- -------- -------
Statements of cash flows for the year ended 31 December 2020
20 20 2019
Group Company Group Company
$m $m $m $m
-------------------------------------------- --------- ------- --------- -------
Cash flow from operating activities
(Loss)/profit before income tax (50.4) 46.1 267.7 74.7
Adjustments for:
Amortisation of intangibles 16.7 - 14.1 -
Equity settled share based compensation 2.8 2.8 4.7 4.7
Net fair value gain on financial assets (83.0) - (151.6) -
Depreciation of plant and equipment 3.2 - 2.4 -
Depreciation of right of use assets 13.0 - 10.1 -
Impairment of reinsurance assets recognised 1.1 - 1.5 -
(Decrease)/increase in insurance and
other payables 1,486.9 (12.5) 722.8 0.1
(Increase)/decrease in insurance,
reinsurance and other receivables (782.1) (268.7) (265.0) 10.3
Increase in deferred acquisition costs (34.2) - (43.3) -
Financial income (110.9) (55.5) (120.9) (80.2)
Financial expense 40.2 5.6 27.7 1.9
Foreign exchange on financial liabilities - - (3.2) -
Income tax paid (26.5) - (6.8) -
--------------------------------------------- --------- ------- --------- -------
Net cash generated from operating
activities 476.8 (282.2) 460.2 11.5
Cash flow from investing activities
Purchase of plant and equipment (12.9) - (6.3) -
Expenditure on software development (20.5) - (12.3) -
Purchase of investments (6,126.6) - (4,824.5) -
Proceeds from sale of investments 5,443.8 - 4,125.3 -
Interest and dividends received 104.3 55.5 112.0 80.2
Net cash (used in)/from investing
activities (611.9) 55.5 (605.8) 80.2
Cash flow from financing activities
Acquisition of own shares in trust (13.6) (13.6) (13.8) (13.8)
Payment of lease liabilities (15.3) - (10.8) -
Repayment of borrowings - - (92.6) -
Issuance of debt - - 297.8 -
Equity raise 292.6 292.6 - -
Finance costs (37.8) (5.6) (25.8) (1.9)
Issuance of shares 2.1 2.1 1.7 1.7
Dividend paid (50.2) (50.2) (79.5) (79.5)
--------------------------------------------- --------- ------- --------- -------
Net cash from/(used in) financing
activities 177.8 225.3 77.0 (93.5)
--------------------------------------------- --------- ------- --------- -------
Net increase/(decrease) in cash and
cash equivalents 42.7 (1.4) (68.6) (1.8)
Cash and cash equivalents at beginning
of year 278.5 - 336.3 2.4
Effect of exchange rate changes on
cash and cash equivalents (11.7) 2.3 10.8 (0.6)
--------------------------------------------- --------- ------- --------- -------
Cash and cash equivalents at end of
year 309.5 0.9 278.5 -
--------------------------------------------- --------- ------- --------- -------
1 Statement of accounting policies
Beazley plc (registered number 09763575) is a company
incorporated in England and Wales and is resident for tax purposes
in the United Kingdom. The company's registered address is
Plantation Place South, 60 Great Tower Street, London EC3R 5AD,
United Kingdom. The group financial statements for the year ended
31 December 2020 comprise the parent company, its subsidiaries and
the group's interest in associates. The principal activity of the
company and its subsidiaries (the 'group') is to participate as a
specialist insurer which transacts primarily in commercial lines of
business through its subsidiaries and through Lloyd's
syndicates.
The financial statements of the parent company, Beazley plc, and
the group financial statements have been prepared and approved by
the directors in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006 and
in accordance with International Financial Reporting Standards
(IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union (EU). On publishing the parent
company financial statements together with the group financial
statements, the company is taking advantage of the exemption in
s408 of the Companies Act 2006 not to present its individual
statement of profit or loss and related notes that form a part of
these approved financial statements.
In the current year, the group have applied amendments to IFRS
issued by the International Accounting Standards Board (IASB) that
are mandatorily effective for an accounting period that begins on
or after 1 January 2020. The new effective amendments are:
-- IFRS 3: Amendment: Definition of a business (IASB effective date: 1 January 2020);
-- IAS 1 and IAS 8: Amendment: Definition of Material (IASB effective date: 1 January 2020);
-- IFRS 9, IFRS 7 and IAS 39: Amendment: Interest Rate Benchmark
Reform (IASB effective date: 1 January 2020); and
-- Amendments to References to the Conceptual Framework in IFRS
Standards (IASB effective date: 1 January 2020);
-- Interest Rate Benchmark Reform (IBOR) - Phase 1 (Amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective date: 1
January 2020)
-- IFRS 16: COVID-19-Related Rent concessions (2020)
None of the amendments issued by the IASB have had a material
impact to the group.
A number of new standards and interpretations adopted by the EU
which are not mandatorily effective, as well as standards and
interpretations issued by the IASB but not yet adopted by the EU,
have not been applied in preparing these financial statements. The
group does not plan to adopt these standards early; instead it
expects to apply them from their effective dates as determined by
their dates of EU endorsement. The group is still reviewing the
upcoming standards to determine their impact:
-- IFRS 9: Financial Instruments (EU effective date: 1 January
2018, deferred in line with implementation of IFRS 17);
-- IFRS 9: Amendment: Prepayment Features with Negative
Compensation (EU effective date: 1 January 2019, deferred in line
with implementation of IFRS 17);
-- Interest Rate Benchmark Reform (IBOR) - Phase 2 (Amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective date: 1
January 2021)
-- IFRS 17: Insurance Contracts (IASB effective date: 1 January 2023);(1) and
-- IFRS 10 and IAS 28: Amendment: Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
(IASB effective date: optional);(1)
(1) Have not been endorsed by EU.
Of the upcoming accounting standard changes that we are aware
of, we anticipate that IFRS 17 and IFRS 9 will have the most
material impact on the financial statements' presentation and
disclosures. The accounting developments and implementation
timelines of IFRS 17 and IFRS 9 are being closely monitored and the
impacts of the standards themselves are being assessed
and prepared for. A brief overview of each of these standards is
provided below:
-- IFRS 17 will fundamentally change the way insurance contracts
are accounted for and reported. Revenue will no longer be equal to
premiums written but instead reflect a change in the contract
liability on which consideration is expected. On initial assessment
the major change will be on the presentation of the statement of
profit or loss, with premium and claims figures being replaced with
insurance contract revenue, insurance service expense and insurance
finance income and expense. It is currently unknown what impact the
new requirements will have on the group's profit and financial
position, but it is expected that the timing of profit recognition
will be altered. During 2020, the group continued to undertake a
number of tasks in preparation for IFRS 17. These tasks
included:
o Concluding on writing and presenting technical papers to
governance committees of how the standard will be applied;
o Building upon data requirements documented in 2019 to land and
conform the majority of gross data that can be consumed for IFRS 17
purposes, as well as documenting the requirements for the landing
and conforming of reinsurance data;
o Developing an internal calculation engine/user interface as a
means of testing a vendor solution or to use as an alternative
solution; and
o Outlining the requirements and plan of a target operating
model/operational readiness framework within affected teams as well
as outlining the impacts and plan to resolve impacts for the wider
stakeholders of the group.
-- As was stated in the 2017 annual report, the group chose to
apply the temporary exemption permitted by IFRS 4 from applying
IFRS 9: Financial Instruments. The group qualifies for this
exemption because, as at 31 December 2015, $5,040.7m or 95% of its
total liabilities were connected with insurance. There has been no
material change in the group's activities since 31 December 2015,
therefore the exemption still remains. The group has also disclosed
information in relation to specific types of financial instruments
to ensure the comparability with the entities applying IFRS 9. As
such, fair values are disclosed separately for the group's
financial assets which are managed and evaluated on a fair value
basis and those which meet the solely payments of principal and
interest (SPPI) test under IFRS 9. Beazley plc as a standalone
company adopted IFRS 9 from 1 January 2018. However, as the
standalone company has no financial investments the adoption had an
immaterial impact on its financial statements. Below is a table
outlining the fair value of assets which are managed and evaluated
on a fair value basis and those which meet the SPPI test under IFRS
9.
On 25 June 2020, the International Accounting Standards Board
(IASB) issued amendments to IFRS 17 Insurance Contracts, which
included the deferral of the effective date of IFRS 17 and IFRS 9
(for qualifying insurers) to 1 January 2023.
2020 2019
$m $m
------------------------------------------------------- ------- -------
Financial assets managed and evaluated on a fair value
basis
Fixed and floating rate debt securities:
- Government issued 2,723.7 1,870.9
- Corporate bonds
- Investment grade 2,444.9 2,696.4
- High yield 251.1 235.8
Syndicate loans 40.6 8.0
Equity funds 203.2 163.6
Hedge funds 442.1 354.0
Illiquid credit assets 227.9 216.6
Derivative financial assets 28.5 25.5
------------------------------------------------------- ------- -------
Total financial assets managed and evaluated on a fair
value basis 6,362.0 5,570.8
------------------------------------------------------- ------- -------
Financial assets meeting the SPPI test
Cash and cash equivalents 309.5 278.5
Other receivables 86.5 72.0
--------------------------------------------- ----- -----
Total financial assets meeting the SPPI test 396.0 350.5
--------------------------------------------- ----- -----
Basis of presentation
The group financial statements are prepared using the historical
cost convention, with the exception of financial assets and
derivative financial instruments which are stated at their fair
value. All amounts presented are in US dollars and millions, unless
stated otherwise.
In accordance with the requirements of IAS 1 the financial
statements' assets and liabilities have been presented in order of
liquidity which provides information that is more reliable and
relevant for a financial institution.
Going Concern
The financial statements of Beazley plc have been prepared on a
going concern basis. The group's business activities, together with
the factors likely to affect its future development, performance
and position, are set out in the Strategic report contained in the
group's Annual Report & Accounts. In addition, the Risk report
includes the group's risk management objectives and the group's
objectives, policies and processes for managing its capital.
The group continues to monitor and respond to the global
COVID-19 outbreak, in particular in relation to the impact on the
group that is expected to relate to claims on the business
previously written. The current assessment is an exposure of $340m
net of reinsurance across our political, accident and contingency,
property, marine and reinsurance divisions. It is too early to say
what the quantum of claims within our liability classes will be as
these will emerge as the impact of the pandemic is fully realised
over the next few years. The group has taken a number of
underwriting actions on its future business which should reduce
this impact.
The capital raised from the share issuance in May 2020
($292.6m), while predominantly held to better position the business
for future growth opportunities, also provides additional strength
to the statement of financial position in light of the continued
uncertainty from COVID-19.
In assessing the group's going concern position as at 31
December 2020, the directors have considered a number of factors,
including the current statement of financial position, the group's
strategic and financial plan, taking account of possible changes in
trading performance and funding retention, and stress testing and
scenario analysis. The assessment concluded that, for the
foreseeable future, the group has sufficient capital and liquidity
for the next 12 months. As at its most recent regulatory
submission, the group's capital ratios and its total capital
resources are comfortably in excess of regulatory solvency
requirements and internal stress testing indicates the group can
withstand severe economic and competitive stresses.
As a result of the assessment, the directors have a reasonable
expectation that the company and the group have adequate resources
to continue in operational existence for the foreseeable future and
therefore believe that the group is well placed to manage its
business risks successfully. Accordingly, they continue to adopt
the going concern basis in preparing the consolidated financial
statements.
Part VII transfer
On 30 December 2020, the group transferred all relevant policies
(and related liabilities) underwritten by the group's syndicates to
Lloyd's Insurance Company S.A. ('Lloyd's Brussels'), in accordance
with Part VII of the Financial Services and Markets Act 2000. On
the same date, the group entered into a 100% Quota Share
Reinsurance Agreement whereby Lloyd's Brussels reinsured all risks
on the same policies back to the group. The purpose of these
transactions were to ensure these policies could be serviced after
Brexit on the 31 December 2020.
Following the sanction of the scheme by the High Court on 25
November 2020, the scheme took effect on 30 December 2020 and the
group transferred the impacted EEA policies and related liabilities
to Lloyd's Brussels, together with cash of $229.2m. On the same
date, under the Reinsurance Agreement, Lloyd's Brussels reinsured
the same risks back, together with an equal amount of cash of
$229.2m. The combined effect of the two transactions had no
economic impact for the group, and accordingly there is no impact
on the group's financial statements.
Use of estimates and judgements
The preparation of financial statements requires the use of
certain critical accounting estimates and judgements that affect
the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from those on which management's
estimates are based. Estimates and assumptions are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable. Estimates which are based on future economic
conditions, and sensitive to changes in those conditions, have been
impacted by COVID-19.
a) Estimates
Estimates are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
Provision & claims
The most critical estimate included within the group's financial
position is the estimate for insurance losses incurred but not
reported (IBNR), which is included within total insurance
liabilities and reinsurance assets in the statement of financial
position. This estimate is critical as it outlines the current
liability for future expenses expected to be incurred in relation
to claims. If this estimation was to prove inadequate then an
exposure would arise in future years where a liability has not been
provided for. The total estimate for insurance losses incurred but
not reported gross of reinsurers' share as at 31 December 2020 is
$3,855.3m (2019: $3,196.6m). The total estimate for insurance
losses incurred but not reported net of reinsurers' share as at 31
December 2020 is $2,820.9m (2019: $2,351.5m) and is included within
total insurance liabilities and reinsurance assets in the statement
of financial position.
Another critical estimate within insurance liabilities is the
estimation of an unexpired risk reserve (URR) for the expected
value of net claims and expenses attributable to the unexpired
periods of policies in force at the balance sheet date which
exceeds the unearned premium reserve. The provision has been
determined by reviewing various policies/events which are expected
to trigger a COVID-19 related claims loss in the first half of
2021. This estimate is based on the assumption that various
government restrictions are predicted to ease from July 2021. If
this estimation was to prove inadequate, the unexpired risk reserve
provision could be understated. The total estimate for URR gross of
reinsurers' shares at 31 December 2020 was $91.5m (2019: nil). The
total estimate for URR net of reinsurers' shares at 31 December
2020 was $82.5m (2019: nil).
The claims handling expense provision is based on a set
percentage of IBNR and URR which is reviewed on an annual
basis.
The best estimate of the most likely ultimate outcome is used
when calculating notified claims. This estimate is based upon the
facts available at the time, in conjunction with the claims
manager's view of likely future developments.
Financial assets & liabilities
Another critical area of estimation is the group's financial
assets and liabilities.
Premium estimates
Other critical estimates contained within our close process are
premium estimates and the earning pattern of recognising premium
over the life of the contract. In the syndicates the premium
written is initially based on the estimated premium income (EPI) of
each contract. Where premium is sourced through binders, the binder
EPI is pro-rated across the binder period. This is done on a
straight-line basis unless the underlying writing pattern from the
prior period indicates the actual underlying writing pattern is
materially different. The underwriters adjust their EPI estimates
as the year of account matures. As the year of account closes
premiums are adjusted to match the actual signed premium. An
accrual for estimated future reinstatement premiums is retained.
Premiums are earned on a straight-line basis over the life of each
contract. At a portfolio level this is considered to provide a
reasonable estimate for the full year of the pattern of risk over
the coverage period.
Estimation techniques are necessary to quantify the future
premium on all syndicate business written and are commonly used
within the Lloyd's insurance market. The majority of the estimation
arises within the binder and lineslip estimates where the premium
amounts are dependent on the volume of policies that are insured
under the binder/lineslip over the coverage period. In these cases
underwriters estimate an initial premium volume and then adjust
throughout the life of the binder/lineslip as and when new
information becomes available. The process of determining the EPI
is based on a number of factors, which can include:
-- Coverholder business plan documents supplied prior to binding;
-- Historical trends of business written;
-- Current and expected market conditions for this line of business; and
-- Life to date bordereaux submissions versus expectation
Due to the nature of the Lloyd's business and the settlement
patterns of the underlying business it is also not uncommon for
some contracts to take a number of years to finalise and settle,
and as such remain a receivable on the balance sheet remains. The
amount of estimated future premium that remains in insurance
receivables relating to years of account that are more than three
years developed at 31 December 2020 is $13.7m (2019: $11.5m).
Goodwill
Another estimate used by Beazley is based on the key assumptions
underlying the recoverable amounts used in assessing the impairment
of goodwill. The key assumptions used in the preparation of future
cash flows are: premium growth rates, claims experience, discount
rates, retention rates and expected future market conditions.
b) Judgements
Information about areas of judgements in applying accounting
policies that have the most significant effect on the amounts
recognised in the financial statements are described in this
statement of accounting policies and also specifically in the
following notes:
note 1a: accounting treatment for the group's interest in
managed syndicates
2 Segmental analysis
a) Reporting segments
Segment information is presented in respect of reportable
segments. These are based on the group's management and internal
reporting structures and represent the level at which financial
information is reported to the board, being the chief operating
decision-maker as defined in IFRS 8.
The operating segments are based upon the different types of
insurance risk underwritten by the group, as described below:
Cyber & Executive Risk
This segment underwrites management liabilities such as
employment practices risks and directors and officers, alongside
cyber and technology, media and business services.
Marine
This segment underwrites a broad spectrum of marine classes
including hull, energy, cargo and specie, piracy, satellite,
aviation,
kidnap & ransom and war risks.
Market Facilities
This new segment underwrites entire portfolios of business with
the aim of offering a low cost mechanism for placing follow
business within the Lloyd's market.
Political, Accident & Contingency
This segment underwrites terrorism, political violence,
expropriation and credit risks as well as contingency and risks
associated with contract frustration. In addition, this segment
underwrites life, health, personal accident, sports and income
protection risks.
Property
The property segment underwrites commercial and high-value
homeowners' property insurance on a worldwide basis.
Reinsurance
This segment specialises in writing property catastrophe,
property per risk, casualty clash, aggregate excess of loss and
pro-rata business.
Specialty Lines
This segment underwrites a wide portfolio of business, including
architects and engineers, healthcare, lawyers and environmental
liability, market facilities business and international financial
institutions.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Those items that are allocated on a reasonable
basis are split based on each segments capital requirements which
is taken from the group's most up to date Business plan. The
reporting segments do not cross-sell business to each other. There
are no individual policyholders who comprise greater than 10% of
the group's total gross premiums written.
b) Segment information
Cyber Political,
& Accident
Executive Market & Specialty
Risk Marine Facilities Contingency Property Reinsurance Lines Total
2020 $m $m $m $m $m $m $m $m
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Gross premiums
written 1,020.1 337.4 133.4 273.0 470.5 194.5 1,134.9 3,563.8
Net premiums
written 864.6 309.4 37.3 227.1 389.9 126.9 961.8 2,917.0
Net earned
premiums 787.2 297.1 27.9 213.8 360.7 124.3 882.4 2,693.4
Net investment
income 53.6 12.8 0.5 10.6 21.4 11.9 77.3 188.1
Other income 2.8 1.7 0.1 4.1 5.1 1.7 14.3 29.8
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Revenue 843.6 311.6 28.5 228.5 387.2 137.9 974.0 2,911.3
Net insurance
claims 557.7 160.5 8.3 354.1 291.3 86.8 499.6 1,958.3
Expenses for the
acquisition
of insurance
contracts 180.0 82.2 19.3 75.9 105.4 32.0 244.1 738.9
Administrative
expenses 54.4 25.1 1.9 23.1 36.4 12.2 82.4 235.5
Foreign exchange
(gain) (3.3) (1.2) (0.1) (0.9) (1.5) (0.5) (3.7) (11.2)
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Expenses 788.8 266.6 29.4 452.2 431.6 130.5 822.4 2,921.5
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Segment result 54.8 45.0 (0.9) (223.7) (44.4) 7.4 151.6 (10.2)
Finance costs (40.2)
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Loss before
income
tax (50.4)
Income tax credit 4.3
Loss for the year
attributable
to equity
shareholders (46.1)
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Claims ratio 71% 54% 30% 166% 81% 70% 57% 73%
Expense ratio 30% 36% 76% 46% 39% 35% 37% 36%
Combined ratio 101% 90% 106% 212% 120% 105% 94% 109%
Segment assets and
liabilities
Segment assets 2,909.9 707.4 182.5 786.3 1,216.7 734.1 4,050.8 10,587.7
Segment
liabilities (2,389.8) (612.2) (170.7) (678.4) (966.0) (591.2) (3,369.9) (8,778.2)
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Net assets 520.1 95.2 11.8 107.9 250.7 142.9 680.9 1,809.5
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Additional
information
Capital
expenditure 8.5 1.6 0.2 1.8 4.1 2.3 11.2 29.7
Amortisation and
depreciation (3.4) (2.2) (0.1) (0.7) (1.6) (0.9) (11.0) (19.9)
Net cash flow 8.9 1.6 0.2 1.9 4.3 2.4 11.7 31.0
----------------- ------------ --------- ------------ ----------- ---------- ------------- ----------- -----------
Political,
Cyber & Accident
Executive Market & Specialty
risk Marine Facilities Contingency Property Reinsurance Lines Total
2019(1) $m $m $m $m $m $m $m $m
----------------- ------------ --------- ------------ ----------- -------- ------------- ----------- -----------
Gross premiums
written 823.0 306.4 60.5 272.7 428.7 206.0 906.6 3,003.9
Net premiums
written 712.2 222.1 22.3 245.8 365.6 123.0 812.5 2,503.5
Net earned
premiums 644.5 222.2 15.1 237.4 361.8 123.0 743.0 2,347.0
Net investment
income 76.8 21.8 0.9 13.0 28.7 17.0 105.5 263.7
Other income 6.2 1.3 - 1.7 5.1 1.2 10.3 25.8
----------------- ------------ --------- ------------ ----------- -------- ------------- ----------- -----------
Revenue 727.5 245.3 16.0 252.1 395.6 141.2 858.8 2,636.5
Net insurance
claims 395.7 126.8 5.5 110.5 207.3 144.6 462.1 1,452.5
Expenses for the
acquisition
of insurance
contracts 143.2 82.4 9.9 76.4 110.3 30.6 192.6 645.4
Administrative
expenses 62.2 27.8 1.8 24.1 34.9 14.3 79.2 244.3
Foreign exchange
loss (0.2) (0.1) - (0.1) (0.2) (0.1) (0.4) (1.1)
----------------- ------------ --------- ------------ ----------- -------- ------------- ----------- -----------
Expenses 600.9 236.9 17.2 210.9 352.3 189.4 733.5 2,341.1
----------------- ------------ --------- ------------ ----------- -------- ------------- ----------- -----------
Segment result 126.6 8.4 (1.2) 41.2 43.3 (48.2) 125.3 295.4
Finance costs (27.7)
----------------- ------------ --------- ------------ ----------- -------- ------------- ----------- -----------
Profit before
income
tax 267.7
Income tax
expense (33.6)
Profit for the
year
attributable
to equity
shareholders 234.1
----------------- ------------ --------- ------------ ----------- -------- ------------- ----------- -----------
Claims ratio 61% 57% 36% 47% 57% 118% 62% 62%
Expense ratio 32% 50% 78% 42% 40% 36% 37% 38%
Combined ratio 93% 107% 114% 89% 97% 154% 99% 100%
Segment assets and
liabilities
Segment assets 2,481.2 633.3 68.1 479.0 976.5 767.5 3,468.1 8,873.7
Segment
liabilities (1,980.5) (560.8) (60.8) (385.0) (772.2) (630.5) (2,858.6) (7,248.4)
Net assets 500.7 72.5 7.3 94.0 204.3 137.0 609.5 1,625.3
Additional
information
Capital
expenditure 5.7 0.8 0.1 1.1 2.3 1.6 7.0 18.6
Amortisation and
depreciation (2.6) (1.9) - (0.5) (1.0) (7.6) (2.9) (16.5)
Net cash flow (17.8) (2.6) (0.3) (3.3) (7.3) (4.9) (21.2) (57.4)
----------------- ------------ --------- ------------ ----------- -------- ------------- ----------- -----------
(1) From 1 January 2020, the Market Facilities division has been
split from Specialty Lines. The prior year comparative has been
re-presented to allow comparison.
c) Information about geographical areas
The group's operating segments are also managed geographically
by placement of risk. UK earned premium in the analysis below
represents all risks placed at Lloyd's; US earned premium
represents all risks placed at the group's US insurance company,
Beazley Insurance Company, Inc; and Europe earned premium
represents all risks placed at the group's European insurance
company, Beazley Insurance dac.
2020 2019
$m $m
--------------------- ------- -------
Net earned premiums
UK (Lloyd's) 2,214.6 1,974.3
US (Non-Lloyd's) 430.7 346.3
Europe (Non-Lloyd's) 48.1 26.4
--------------------- ------- -------
2,693.4 2,347.0
--------------------- ------- -------
2020 2019
$m $m
--------------------- -------- -------
Segment assets
UK (Lloyd's) 9,433.1 8,046.5
US (Non-Lloyd's) 976.6 762.4
Europe (Non-Lloyd's) 178.0 64.8
--------------------- -------- -------
10,587.7 8,873.7
--------------------- -------- -------
Segment assets are allocated based on where the assets are
located.
2020 2019
$m $m
-------------------- ---- ----
Capital expenditure
Non-US 23.2 13.7
US 6.5 4.9
-------------------- ---- ----
29.7 18.6
-------------------- ---- ----
3 Net investment income
2020 2019
$m $m
--------------------------------------------------------- ----- -----
Interest and dividends on financial investments at
fair value through profit or loss 110.7 120.6
Interest on cash and cash equivalents 0.2 0.3
Net realised gains on financial investments at fair
value through profit or loss 46.3 21.5
Net unrealised fair value gains on financial investments
at fair value through profit or loss 36.7 130.1
--------------------------------------------------------- ----- -----
Investment income from financial investments 193.9 272.5
Investment management expenses (5.8) (8.8)
--------------------------------------------------------- ----- -----
188.1 263.7
--------------------------------------------------------- ----- -----
4 Other income
2020 2019
$m $m
-------------------------------------------------- ----- ----
Commissions received by Beazley service companies 23.6 21.2
Profit commissions from syndicates (0.5) 1.0
Agency fees from syndicate 623 3.0 2.5
Other income 3.7 1.1
-------------------------------------------------- ----- ----
29.8 25.8
-------------------------------------------------- ----- ----
Profit Commissions:
There is an agreement between syndicate 623 and Beazley Furlonge
Limited (the managing agent) where the syndicate remunerates
Beazley for writing business in parallel with syndicate 2623. As
such, profitability of 623 is a performance criterion for this
contract. The transaction price represents a fixed percentage on
profit by YOA. No other variable considerations (for example:
discounts, rebates, refunds, incentives) are attached. The value of
a transaction price is derived at each reporting period from the
actual profit syndicate 623 has made to date, therefore represents
the most likely amount of consideration at the reporting date.
As at 31 December 2020 there is nil (31 December 2019: nil)
accrued profit commission at risk of being reversed if there was to
be an adverse impact on syndicate 623's profit. As at 31 December
2020 $0.5m of previously recognised profit commissions from
business written by Beazley Canada Limited prior to acquisition by
Beazley in 2017 was reversed due to adverse impacts on profit
(2019: nil).
Commissions received from service companies:
Commission is payable to the group by syndicate 623 due to group
service companies writing business on behalf of the syndicate.
While the commercial purpose of the contract is to pass business to
623, the remuneration is triggered by incurring expenses,
irrespective of volume of business gained. The performance
criterion is deemed to be the realisation of expenses.
Other income:
As part of other income, the group has received $0.2m of
government grants relating to COVID-19 for wage relief for our
Singapore employees (31 December 2019: nil). These grants are
deemed to be tax free in the hands of the employer. Under IAS 20:
Government Grants, government grants are recognised where there is
reasonable assurance that the grant will be received and all
attached conditions will be complied with. When the grant relates
to an expense item, it is recognised as income on a systematic
basis over the periods that the related costs, for which it is
intended to compensate, are expensed.
5 Operating expenses
2020 2019
$m $m
---------------------------------------------------- ---- ----
Operating expenses include:
Amounts receivable by the auditor(1) and associates
in respect of:
- audit services for the group and subsidiaries 2.4 1.2
- audit-related assurance services 1.0 0.7
- taxation compliance services - -
- other non-audit services 0.5 0.5
---------------------------------------------------- ---- ----
3.9 2.4
Impairment loss recognised on reinsurance assets 1.1 1.5
---------------------------------------------------- ---- ----
(1) Other than the fees disclosed above, no other fees were paid
to the company's auditor.
6 Employee benefit expenses
2020 2019
$m $m
------------------------------------------------- ---------- ---------
Wages and salaries 179.6 165.2
Short term incentive payments 39.1 56.2
Social security 17.5 17.0
Share based remuneration 3.0 4.9
Pension costs (1) 13.0 11.5
------------------------------------------------- ---------- ---------
252.2 254.8
Recharged to syndicate 623 (33.2) (36.0)
------------------------------------------------- ---------- ---------
219.0 218.8
------------------------------------------------- ---------- ---------
(1) Pension costs also include contributions made under the defined
contribution scheme.
The average number of employees for 2020 was 1,497 (2019:
1,399).
7 Finance costs
2020 2019
$m $m
------------------------------------------ ---- ----
Interest expense on financial liabilities 37.8 25.8
Interest expense on lease liabilities 2.4 1.9
------------------------------------------ ---- ----
40.2 27.7
------------------------------------------ ---- ----
8 Income tax expense
2020 2019
$m $m
-------------------------------------------------- ------ -----
Current tax expense
Current tax expense 12.9 38.8
Prior year adjustments (6.5) (4.0)
-------------------------------------------------- ------ -----
6.4 34.8
Deferred tax expense
Origination and reversal of temporary differences (12.1) 2.3
Impact of change in UK/US tax rates (0.4) (0.5)
Prior year adjustments 1.8 (3.0)
-------------------------------------------------- ------ -----
(10.7) (1.2)
-------------------------------------------------- ------ -----
Income tax (credit)/charge (4.3) 33.6
-------------------------------------------------- ------ -----
Reconciliation of tax expense
The weighted average of statutory tax rates applied to the
profits earned in each country in which the group operates is 2%
(2019: 15.0%), whereas the tax charged for the year 31 December
2020 as a percentage of loss before tax is 8.5% (2019: 12.6%). The
reasons for the difference are explained below:
2020 2020 2019 2019
$m % $m %
----------------------------------------------- ------- ------ ------ ------
(Loss)/profit before tax (50.4) - 267.7 -
Tax calculated at the weighted average
of statutory tax rate (1.0) 2.0 40.3 15.0
Effects of:
- non-deductible expenses 2.1 (4.2) 1.5 0.6
- tax relief on share based payments
- current and future years (0.4) 0.8 (0.7) (0.3)
- over provided in prior years (4.6) 9.1 (7.0) (2.6)
- change in UK/US tax rates (1) (0.4) 0.8 (0.5) (0.1)
----------------------------------------------- ------- ------ ------ ------
Tax (credit)/charge for the period (4.3) 8.5 33.6 12.6
----------------------------------------------- ------- ------ ------ ------
(1) A change to the main UK corporation tax rate, announced in the
Budget on 11 March 2020, was substantively enacted on 17 March 2020.
The rate applicable from 1 April 2020 now remains at 19 percent,
rather than the previously enacted reduction to 17 percent. The 19
percent tax rate has been reflected in the calculation of the deferred
tax balance as at 31 December 2020.
The group has assessed the potential impact of the diverted
profits tax (DPT) following the enactment of new legislation in
April 2015 and is of the view that no liability arises. Since 2015
the group has been exchanging correspondence with the UK's tax
authority (HMRC) in relation to DPT applicability with respect to
the intra-group transactions. These correspondence exchanges with
HMRC have now reached a conclusion with no assessment to DPT being
raised.
A new Tax Act (the Tax Cuts and Jobs Act) was signed into law in
the US in December 2017. The Tax Act includes base erosion
anti-avoidance tax provisions (the "BEAT"). We have performed an
assessment for our intra-group transactions potentially in
scope of BEAT. The application of this new BEAT legislation is
still uncertain for some types of transaction and we are
keeping
developments under review. With support from external advisors,
we believe that the BEAT impact on the group is not
significant.
For the year 2020 $1.1m was provided in the group accounts for
BEAT liabilities (for 2019 the group paid BEAT tax of $3.2m).
The ultimate outcome may differ and if any additional amounts
did fall within the scope of the BEAT, incremental tax at 10%
might arise on some or all of those amounts.
Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting
period and not recognised in net profits or loss or other
comprehensive income but directly debited or (credited) to
equity:
2020 2019
$m $m
----------------------------------- ----- -----
Current tax: share based payments (1.2) (2.6)
Deferred tax: share based payments 5.4 (1.0)
----------------------------------- ----- -----
4.2 (3.6)
----------------------------------- ----- -----
9 (Loss)/earnings per share
2020 2019
---------------- ------ -----
Basic (cents) (8.0)c 44.6c
Diluted (cents) (8.0)c 44.0c
Basic (pence) (6.3)p 35.0p
Diluted (pence) (6.3)p 34.5p
---------------- ------ -----
Basic
Basic (loss)/earnings per share are calculated by dividing loss
after tax of $46.1m (2019: Profit $234.1m) by the weighted average
number of shares in issue during the year of 573.8m (2019: 525.1m).
The shares held in the Employee Share Options Plan (ESOP) of 3.8m
(2019: 4.8m) have been excluded from the calculation, until such
time as they vest unconditionally with the employees.
Diluted
Diluted (loss)/earnings per share are calculated by dividing
loss after tax of $46.1m (2019: Profit $234.1m) by the adjusted
weighted average number of shares of 582.6m (2019: 532.4m). The
adjusted weighted average number of shares assumes conversion of
dilutive potential ordinary shares, being shares from the equity
settled compensation schemes. The shares held in the ESOP of 3.8m
(2019: 4.8m) have been excluded from the calculation, until such
time as they vest unconditionally with the employees.
10 Dividends per share
In light of the current uncertainty as to the economic impact of
the COVID-19 pandemic, the directors do not propose a payment of a
dividend in respect of the year ended 31 December 2020 (2019: 12.3p
per ordinary share)
11 Insurance liabilities and reinsurance assets
2020 2019
$m $m
------------------------------------------------- ------- -------
Gross
Claims reported and loss adjustment expenses 1,507.3 1,263.7
Unexpired risk reserve 91.5 -
Claims incurred but not reported 3,855.3 3,196.6
------------------------------------------------- ------- -------
Gross claims liabilities 5,454.1 4,460.3
Unearned premiums 1,924.3 1,598.7
------------------------------------------------- ------- -------
Total insurance liabilities, gross 7,378.4 6,059.0
------------------------------------------------- ------- -------
Recoverable from reinsurers
Claims reported and loss adjustment expenses 262.2 223.7
Unexpired risk reserve 9.0 -
Claims incurred but not reported 1,034.4 845.1
------------------------------------------------- ------- -------
Reinsurers' share of claims liabilities 1,305.6 1,068.8
Unearned premiums 379.1 269.4
------------------------------------------------- ------- -------
Total reinsurers' share of insurance liabilities 1,684.7 1,338.2
------------------------------------------------- ------- -------
Net
Claims reported and loss adjustment expenses 1,245.1 1,040.0
Unexpired risk reserve 82.5 -
Claims incurred but not reported 2,820.9 2,351.5
------------------------------------------------- ------- -------
Net claims liabilities 4,148.5 3,391.5
Unearned premiums 1,545.2 1,329.3
------------------------------------------------- ------- -------
Total insurance liabilities, net 5,693.7 4,720.8
------------------------------------------------- ------- -------
The gross claims reported, the loss adjustment liabilities and
the liabilities for claims incurred but not reported are net of
recoveries from salvage and subrogation.
11.1 Movements in insurance liabilities and reinsurance
assets
a) Claims and loss adjustment expenses
2020 2019
Gross Reinsurance Net Gross Reinsurance Net
$m $m $m $m $m $m
--------------------------------- --------- ----------- --------- --------- ----------- ---------
Claims reported and loss
adjustment expenses 1,263.7 (223.7) 1,040.0 1,171.2 (231.9) 939.3
Claims incurred but not reported 3,196.6 (845.1) 2,351.5 2,869.5 (719.8) 2,149.7
--------------------------------- --------- ----------- --------- --------- ----------- ---------
Balance at 1 January 4,460.3 (1,068.8) 3,391.5 4,040.7 (951.7) 3,089.0
--------------------------------- --------- ----------- --------- --------- ----------- ---------
Claims paid (1,671.1) 404.7 (1,266.4) (1,439.5) 280.1 (1,159.4)
Increase in claims
- Arising from current year
claims 2,698.2 (646.8) 2,051.4 1,860.6 (398.6) 1,462.0
- Arising from prior year
claims (109.8) 16.7 (93.1) (18.2) 8.7 (9.5)
Net exchange differences 76.5 (11.4) 65.1 16.7 (7.3) 9.4
--------------------------------- --------- ----------- --------- --------- ----------- ---------
Balance at 31 December 5,454.1 (1,305.6) 4,148.5 4,460.3 (1,068.8) 3,391.5
--------------------------------- --------- ----------- --------- --------- ----------- ---------
Claims reported and loss
adjustment expenses 1,507.3 (262.2) 1,245.1 1,263.7 (223.7) 1,040.0
Unexpired risk reserve 91.5 (9.0) 82.5 - - -
--------------------------------- --------- ----------- --------- --------- ----------- ---------
Claims incurred but not reported 3,855.3 (1,034.4) 2,820.9 3,196.6 (845.1) 2,351.5
--------------------------------- --------- ----------- --------- --------- ----------- ---------
Balance at 31 December 5,454.1 (1,305.6) 4,148.5 4,460.3 (1,068.8) 3,391.5
--------------------------------- --------- ----------- --------- --------- ----------- ---------
b) Unearned premiums reserve
2020 2019
Gross Reinsurance Net Gross Reinsurance Net
$m $m $m $m $m $m
----------------------- --------- ----------- --------- --------- ----------- ---------
Balance at 1 January 1,598.7 (269.4) 1,329.3 1,415.5 (241.1) 1,174.4
Increase in the year 3,563.8 (655.7) 2,908.1 3,003.9 (508.0) 2,495.9
Release in the year (3,238.2) 546.0 (2,692.2) (2,820.7) 479.7 (2,341.0)
----------------------- --------- ----------- --------- --------- ----------- ---------
Balance at 31 December 1,924.3 (379.1) 1,545.2 1,598.7 (269.4) 1,329.3
----------------------- --------- ----------- --------- --------- ----------- ---------
11.2 Assumptions, changes in assumptions and claims reserve
strength analysis
a) Process used to decide on assumptions
The peer review reserving process Beazley uses a quarterly dual
track process to set its reserves:
-- the actuarial team uses several actuarial and statistical
methods to estimate the ultimate premium and claims costs, with the
most appropriate methods selected depending on the nature of each
class of business; and
-- the underwriting teams concurrently review the development of
the incurred loss ratio over time, work with our claims managers to
set reserve estimates for identified claims and utilise their
detailed understanding of both risks underwritten and the nature of
the claims to establish an alternative estimate of ultimate claims
cost, which is compared to the actuarially established figures.
A formal internal peer review process is then undertaken to
determine the reserves held for accounting purposes which, in
totality, are not lower than the actuarially established
figure.
The group has a consistent reserving philosophy, with initial
reserves being set to include risk margins which may be released
over time as uncertainty reduces.
Actuarial assumptions
Chain-ladder techniques are applied to premiums, paid claims and
incurred claims (i.e. paid claims plus case estimates). The basic
technique involves the analysis of historical claims development
factors and the selection of estimated development factors based on
historical patterns. The selected development factors are then
applied to cumulative claims data for each underwriting year that
is not yet fully developed to produce an estimated ultimate claims
cost for each underwriting year.
Chain-ladder techniques are most appropriate for classes of
business that have a relatively stable development pattern.
Chain-ladder techniques are less suitable in cases in which the
insurer does not have a developed claims history for a particular
class of business, or for underwriting years that are still at
immature stages of development where there is a higher level of
assumption volatility.
The Bornhuetter-Ferguson method uses a combination of a
benchmark/market-based estimate and an estimate based on claims
experience. The former is based on a measure of exposure such as
premiums; the latter is based on the paid or incurred claims
observed to date. The two estimates are combined using a formula
that gives more weight to the experience-based estimate as time
passes. This technique has been used in situations where developed
claims experience was not available for the projection (e.g. recent
underwriting years or new classes of business).
The expected loss ratio method uses a benchmark/market-based
estimate applied to the expected premium and is used for classes
with little or no relevant historical data.
The choice of selected results for each underwriting year of
each class of business depends on an assessment of the technique
that has been most appropriate to observed historical developments.
In certain instances, this has meant that different techniques or
combinations of techniques have been selected for individual
underwriting years or groups of underwriting years within the same
class of business. As such, there are many assumptions used to
estimate general insurance liabilities.
We also review triangulations of the paid/outstanding claim
ratios as a way of monitoring any changes in the strength of the
outstanding claim estimates between underwriting years so that
adjustments can be made to mitigate any subsequent over/(under)
reserving. To date, this analysis indicates no systematic change to
the outstanding claim strength across underwriting years.
Where significant large losses impact an underwriting year (e.g.
first-party COVID-19 losses, the events of 11 September 2001, the
hurricanes in 2004, 2005, 2008, 2012, 2017, 2018 and 2019, the
typhoons in 2018 and 2019, or the earthquakes in 2010, 2011 and
2017), the development is usually very different from the
attritional losses. In these situations, the large loss total is
extracted from the remainder of the data and analysed separately by
the respective claims managers using exposure analysis of the
policies in force in the areas affected.
Further assumptions are required to convert gross of reinsurance
estimates of ultimate claims cost to a net of reinsurance level and
to establish reserves for unallocated claims handling expenses and
reinsurance bad debt.
b) Major assumptions
The main assumption underlying these techniques is that the
group's past claims development experience (with appropriate
adjustments for known changes) can be used to project future claims
development and hence ultimate claims costs. As such these methods
extrapolate the development of premiums, paid and incurred losses,
average costs per claim and claim numbers for each underwriting
year based on the observed development of earlier years.
Another assumption used within insurance liabilities is the
estimation of an unexpired risk reserve (URR) for the expected
value of net claims and expenses attributable to the unexpired
periods of policies in force at the balance sheet date which
exceeds the unearned premium reserve. The provision has been
determined by reviewing various policies/events which are expected
to trigger a COVID-19 related claims loss in the first half of
2021. This estimate is based on the assumption that various
government restrictions are predicted to ease from July 2021.
Throughout, judgement is used to assess the extent to which past
trends may or may not apply in the future; for example, to reflect
changes in external or market factors such as economic conditions,
public attitudes to claiming, levels of claims inflation, premium
rate changes, judicial decisions and legislation, as well as
internal factors such as portfolio mix, policy conditions and
claims handling procedures.
c) Changes in assumptions
As already discussed, general insurance business requires many
different assumptions.
Given the range of assumptions used, the group's profit or loss
is relatively insensitive to changes to a particular assumption
used for an underwriting year/class combination. However, the
group's profit or loss is potentially more sensitive to a
systematic change in assumptions that affect many classes, such as
judicial changes or when catastrophes produce more claims than
expected. The group uses a range of risk mitigation strategies to
reduce such volatility including the purchase of reinsurance. In
addition, the group holds capital to absorb volatility.
d) Claims reserve strength analysis
The estimation of IBNR reserves for future claim notifications
is subject to a greater degree of uncertainty than the estimation
of the outstanding claims already notified. This is particularly
true for the Specialty Lines and executive risk business, which
will typically display greater variations between initial estimates
and final outcomes as a result of the greater degree of difficulty
in estimating these reserves. The estimation of IBNR reserves for
other business written is generally subject to less variability as
claims are generally reported and settled relatively quickly.
As such, our reserving assumptions contain a reasonable margin
for prudence given the uncertainties inherent in the insurance
business underwritten, particularly on the longer tailed Specialty
Lines and executive risk classes.
Since year end 2004, we have identified a range of possible
outcomes for each class and underwriting year combination directly
from our internal model (previously our individual capital
assessment (ICA)) process. Comparing these with our pricing
assumptions and reserving estimates gives our management team
increased insight into our perceived reserving strength and the
relative uncertainties of the business written.
To illustrate the robustness of our reserves, the loss
development tables below provide information about historical
claims development by the seven segments - Cyber & Executive
Risk, Marine, Market Facilities, Political, Accident &
Contingency, Property, Reinsurance and Specialty Lines. The tables
are by underwriting year which in our view provides the most
transparent reserving basis. We have supplied tables for both
ultimate gross claims and ultimate net claims.
The top part of the table illustrates how the group's estimate
of the claims ratio for each underwriting year has changed at
successive year ends. The bottom half of the table reconciles the
gross and net claims to the amount appearing in the statement of
financial position.
For the assessment of first-party COVID-19 losses, underlying
policies' exposure to event cancellation and business interruption
losses resulting from the pandemic were considered. Expected losses
were then assumed by considering the individual contract wordings
for each policy. A key uncertainty is the future event cancellation
exposure in 2021 within the contingency book. Event cancellation
losses are assumed to occur during the first half of 2021 in line
with that experienced during 2020, with an assumption of a return
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.
While the information in the table provides a historical
perspective on the adequacy of the claims liabilities established
in previous years, users of these financial statements are
cautioned against extrapolating past redundancies or deficiencies
on current claims liabilities. The group believes that the estimate
of total claims liabilities as at 31 December 2020 is adequate.
However, due to inherent uncertainties in the reserving process, it
cannot be assured that such balances will ultimately prove to be
adequate.
2010
ae 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Gross ultimate
claims % % % % % % % % % % %
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Cyber & Executive
Risk
12 months 75.1 71.6 71.0 66.0 64.3 61.9 59.5 61.1 61.8 73.5
24 months 74.2 71.8 71.3 66.2 64.4 61.9 61.5 62.3 72.0
36 months 78.8 69.1 71.1 63.6 59.0 58.5 56.8 61.4
48 months 76.2 65.5 69.0 65.0 54.0 58.2 56.5
60 months 76.7 63.7 66.3 69.7 55.9 59.4
72 months 68.8 61.4 62.8 68.3 57.4
84 months 72.0 60.8 62.9 69.0
96 months 74.4 59.6 63.4
108 months 76.4 59.8
120 months 75.9
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Marine
12 months 54.8 56.0 56.9 57.8 56.7 59.5 68.0 61.9 60.2 57.7
24 months 47.5 46.3 52.2 47.0 53.9 70.2 62.3 68.2 56.8
36 months 39.2 34.6 44.7 47.2 47.3 65.4 61.6 66.3
48 months 33.8 32.0 43.0 46.8 45.3 63.8 57.9
60 months 35.5 31.3 42.4 55.9 43.2 62.4
72 months 31.9 30.5 41.8 53.9 42.6
84 months 31.0 29.8 40.6 52.7
96 months 29.5 29.6 39.6
108 months 29.4 29.7
120 months 29.4
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Market
Facilities
12 months - - - - - - - 66.3 73.0 76.7
24 months - - - - - - - 66.2 72.9
36 months - - - - - - - 55.1
48 months - - - - - - -
60 months - - - - - -
72 months - - - - -
84 months - - - -
96 months - - -
108 months - -
120 months -
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Political, Accident
& Contingency
12 months 57.5 60.0 59.5 59.5 60.3 61.7 57.9 59.3 56.9 111.0
24 months 45.0 55.9 51.0 52.2 59.6 55.5 49.8 55.2 143.2
36 months 45.6 53.0 46.6 48.3 58.0 50.7 46.4 92.1
48 months 41.0 50.6 45.7 51.3 58.8 49.3 49.7
60 months 39.3 47.4 47.5 52.5 55.2 47.7
72 months 37.2 46.6 47.3 53.5 54.2
84 months 36.8 45.7 47.2 54.5
96 months 36.9 45.8 46.7
108 months 36.9 45.6
120 months 36.7
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Property
12 months 59.0 52.9 54.9 53.2 55.0 59.0 72.3 63.4 53.2 67.9
24 months 49.5 47.4 48.9 47.7 49.1 68.4 88.5 63.5 63.3
36 months 48.7 39.6 45.6 41.4 46.0 71.3 91.2 65.4
48 months 46.9 36.5 45.6 40.6 44.8 71.8 91.3
60 months 46.0 35.9 45.5 39.7 43.7 71.8
72 months 44.8 35.3 47.2 40.2 46.0
84 months 44.3 35.2 46.6 39.7
96 months 44.0 36.6 47.0
108 months 44.0 37.6
120 months 44.2
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Reinsurance
12 months 78.3 62.8 60.0 61.4 65.9 68.0 121.3 98.5 100.9 79.4
24 months 77.4 37.0 46.1 33.4 33.6 41.6 116.6 124.4 69.3
36 months 70.0 31.5 43.5 30.8 25.6 40.4 128.3 122.9
48 months 66.2 30.4 42.1 27.7 25.4 41.2 131.0
60 months 63.4 30.6 39.2 27.5 25.3 40.5
72 months 63.2 30.4 38.9 27.0 25.0
84 months 58.3 30.4 38.0 27.0
96 months 58.4 30.1 37.9
108 months 58.9 30.0
120 months 58.8
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Specialty Lines
12 months 75.2 74.9 74.6 69.8 69.3 67.6 65.9 68.5 66.9 68.3
24 months 76.0 75.0 74.2 69.5 69.9 67.5 66.1 69.0 68.6
36 months 74.5 73.7 73.9 65.8 68.3 65.4 65.9 65.9
48 months 73.9 74.0 69.4 61.7 67.4 64.1 62.1
60 months 71.5 70.3 64.2 58.1 69.3 60.8
72 months 68.4 69.2 62.1 55.7 78.1
84 months 64.6 68.8 61.5 54.0
96 months 62.7 71.1 60.1
108 months 60.9 72.4
120 months 60.7
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Total
12 months 67.2 64.6 63.9 62.1 62.5 63.3 70.0 66.7 64.6 72.7
24 months 63.0 58.3 59.4 55.8 58.4 62.8 71.0 69.5 73.9
36 months 60.6 53.3 56.7 52.6 54.4 60.7 70.9 71.2
48 months 57.9 51.4 54.7 51.7 52.6 60.1 69.7
60 months 57.0 49.5 52.7 53.2 52.7 59.1
72 months 53.8 48.4 51.7 52.2 55.5
84 months 52.5 48.0 51.1 51.8
96 months 52.0 48.6 50.8
108 months 51.9 49.1
120 months 51.7
Estimated total
ultimate
losses
($m) 7,108.3 851.2 869.1 933.6 996.9 1,125.3 1,275.2 1,711.8 1,917.2 2,276.0 2,443.9 21,508.5
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Less paid
claims
($m) (6,962.0) (776.3) (779.8) (818.4) (910.4) (879.4) (960.9) (1,116.4) (933.9) (530.2) (157.8) (14,825.5)
Less unearned
portion of
ultimate
losses ($m) - - - - - - - - (38.6) (227.7) (962.6) (1,228.9)
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
Gross claims
liabilities
($m) 146.3 74.9 89.3 115.2 86.5 245.9 314.3 595.4 944.7 1,518.1 1,323.5 5,454.1
--------------- --------- ------- ------- ------- ------- -------- -------- --------- -------- -------- -------- ----------
2010ae 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Net ultimate
claims % % % % % % % % % % %
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Cyber &
Executive
Risk
12 months 72.0 68.2 66.5 63.2 60.4 59.2 57.9 58.2 59.9 72.3
24 months 71.5 68.5 66.8 63.8 60.4 59.2 59.0 60.5 68.1
36 months 72.9 65.6 65.1 62.3 56.0 56.1 55.5 62.4
48 months 70.1 60.2 62.2 61.3 50.3 56.3 55.8
60 months 69.2 60.3 59.5 65.9 51.5 55.1
72 months 66.1 57.6 56.8 64.9 49.7
84 months 68.2 57.1 56.3 65.5
96 months 69.9 56.0 56.3
108 months 72.2 56.4
120 months 71.2
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Marine
12 months 55.4 55.2 56.4 56.6 56.6 56.6 57.4 59.3 56.6 54.2
24 months 47.5 45.7 53.2 48.7 52.3 62.4 61.2 67.7 55.1
36 months 38.5 36.9 47.6 46.6 47.0 61.4 61.6 68.7
48 months 34.2 34.5 46.1 45.8 46.5 61.8 59.4
60 months 35.3 33.4 45.5 47.1 45.2 60.5
72 months 32.1 32.7 44.9 45.3 44.7
84 months 31.1 32.4 42.8 44.6
96 months 29.9 32.2 42.6
108 months 29.9 32.3
120 months 29.9
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Market
Facilities
12 months - - - - - - - 36.5 24.7 28.3
24 months - - - - - - - 36.5 24.3
36 months - - - - - - - 30.4
48 months - - - - - - -
60 months - - - - - -
72 months - - - - -
84 months - - - -
96 months - - -
108 months - -
120 months -
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Political,
Accident
& Contingency
12 months 55.0 58.7 59.0 57.3 57.8 60.5 57.0 58.5 56.1 90.8
24 months 45.7 53.6 52.4 50.7 56.6 54.4 49.3 54.4 111.5
36 months 47.1 51.4 49.1 46.2 55.8 50.9 45.8 81.9
48 months 44.0 47.9 46.6 50.6 55.1 48.6 46.4
60 months 42.0 44.9 46.8 50.9 52.5 47.4
72 months 40.0 43.9 47.0 51.8 51.8
84 months 39.5 43.4 47.1 52.3
96 months 39.6 43.8 47.0
108 months 39.7 43.7
120 months 39.4
Property
12 months 60.0 56.6 56.2 54.6 55.1 57.6 76.0 64.4 56.4 67.8
24 months 56.0 53.0 56.1 51.5 50.6 69.5 93.5 66.9 66.2
36 months 54.4 46.4 52.2 44.8 47.3 71.3 95.5 68.1
48 months 51.1 41.5 50.4 43.4 45.1 70.8 93.4
60 months 49.7 40.9 50.3 42.4 44.9 69.9
72 months 48.5 40.4 51.9 43.5 46.5
84 months 48.2 40.1 52.1 43.0
96 months 48.0 41.7 52.4
108 months 48.0 42.5
120 months 48.3
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Reinsurance
12 months 88.5 66.6 57.8 58.7 61.8 61.5 103.9 86.8 87.0 85.7
24 months 89.2 44.4 53.0 37.9 34.7 39.2 93.0 100.2 70.3
36 months 80.3 38.0 49.0 34.1 24.9 38.8 103.9 98.1
48 months 74.6 36.3 47.7 31.4 24.5 40.4 107.2
60 months 72.0 36.5 44.1 31.2 24.7 41.4
72 months 72.3 36.2 43.8 30.8 25.0
84 months 67.0 36.2 42.9 30.7
96 months 67.0 35.8 42.8
108 months 67.7 35.8
120 months 67.7
Specialty
Lines
12 months 72.0 71.3 70.4 67.0 65.0 65.0 63.8 66.0 64.7 65.4
24 months 72.4 71.4 70.0 66.6 65.8 65.0 63.7 67.1 65.0
36 months 70.9 70.1 70.0 64.1 63.2 61.2 63.4 64.1
48 months 68.8 68.5 64.1 59.1 58.5 57.0 58.2
60 months 69.6 66.0 59.2 55.8 58.8 52.1
72 months 69.4 66.1 57.7 54.5 62.7
84 months 66.8 66.1 57.6 52.8
96 months 65.6 67.2 56.4
108 months 64.3 68.0
120 months 63.5
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Total
12 months 66.5 63.8 62.1 60.4 59.8 60.6 65.7 63.4 61.6 68.6
24 months 63.7 58.3 60.2 56.1 56.6 60.9 67.6 66.1 69.0
36 months 60.3 53.8 57.4 52.8 52.7 58.8 67.5 68.1
48 months 57.2 50.7 54.5 51.2 49.7 57.5 65.5
60 months 56.7 49.4 52.3 51.4 49.6 55.5
72 months 55.2 48.7 51.6 50.9 50.4
84 months 53.9 48.4 51.1 50.4
96 months 53.5 48.8 50.8
108 months 53.5 49.2
120 months 53.2
Estimated
total
ultimate
losses
($m) 5,127.5 723.7 723.4 798.4 836.5 868.9 1,015.2 1,362.6 1,547.4 1,793.0 1,886.5 16,683.1
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Less paid
claims
($m) (4,987.0) (669.8) (658.9) (709.1) (766.2) (715.0) (806.3) (892.6) (750.2) (403.7) (90.3) (11,449.1)
Less unearned
portion
of ultimate
losses ($m) - - - - - - - (28.0) (215.4) (842.1) (1,085.5)
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Net claims
liabilities
(100% level)
($m) 140.5 53.9 64.5 89.3 70.3 153.9 208.9 470.0 769.2 1,173.9 954.1 4,148.5
-------------- --------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------- ----------
Analysis of movements in loss development tables
We have updated our loss development tables to show the ultimate
loss ratios as at 31 December 2020 for each underwriting year. The
impact of amounts reported in respect of the unexpired risk reserve
are embedded within the loss ratios presented.
Cyber & Executive Risk
The 2019 and 2020 underwriting years have strengthened in
response to cyber ransomware activity. However, these years are now
recovering under aggregate excess of loss reinsurance programmes,
so the impact is reduced net of reinsurance.
Marine
Releases continue on mature underwriting years as the risks
expire. The 2018 underwriting year saw an overall strengthening net
of reinsurance driven by the marine hull account.
Market Facilities
The loss development tables are presented gross of acquisition
costs. Due to the Market Facilities division being significantly
reinsured and this reinsurance being ceded net of acquisition
costs, the net of reinsurance loss development values are much
lower than the gross of reinsurance. The release on the 2018
underwriting year arises as risk expires.
Political, Accident & Contingency
The contingency, accident and life classes within this division
have been significantly impacted by COVID-19 claims, which has led
to strengthening on the 2018 to 2020 underwriting years. The
contingency class benefits from clash reinsurance, causing this
effect to be less pronounced net of reinsurance.
Property
The 2019 and 2020 underwriting years have been impacted by
COVID-19 as well as the recent US hurricane events. The mature
underwriting years continue to see adverse development from the
construction and engineering book, which is now in run off.
Reinsurance
The 2020 underwriting year has been impacted by COVID-19
experience and the recent US hurricanes. Favourable developments on
established catastrophes have led to positive experience on the
2018 and 2019 underwriting years. The increase in 2017 is due to a
reduction in expectation for further reinsurance premiums relating
to the catastrophes within that year.
Specialty Lines
The 2015 year continues to see claims development in excess of
expectations. However, this year is now recovering under aggregate
excess of loss reinsurance programmes so the impact is lower net of
reinsurance. Other underwriting years continue to release as the
risk expires.
Claim releases
The table on the table below our net claims between current year
claims and adjustments to prior year net claims reserves. These
have been broken down by segment and underwriting year. Beazley's
reserving policy is to maintain catastrophe reserve margins either
until the end of the exposure period or until catastrophe events
occur. Therefore margins have been released from prior year
reserves where risks have expired during 2020.
Reserve releases during the year totalled $93.1m (2019: $9.5m).
The net of reinsurance estimates of ultimate claims costs have
improved primarily on the 2017 and prior underwriting years by
$74.7m during 2020 as medium tail reserves in Specialty Lines
mature, while 2018 and 2019 underwriting years' improvements of
$2.3m and $16.1m respectively were partially offset by adverse
development particularly in Cyber and Executive Risk as a result of
an uptick in ransomware activity..
The movements shown on 2017 and earlier are absolute claim
movements and are not impacted by any current year movements in
premium on those underwriting years. .
Cyber Political,
& Executive Accident
Risk & Specialty
$m Marine Marine Contingency Property Reinsurance Lines Total
2020 $m $m $m $m $m $m $m
--------------------- ------------ ------ ------ ------------ -------- ----------- --------- -------
Current year 553.3 169.4 9.2 358.7 295.7 107.5 557.6 2,051.4
Prior year
- 2017 underwriting
year and earlier (28.3) (9.8) - (2.2) 2.1 2.4 (47.3) (74.7)
- 2018 underwriting
year 26.7 1.9 (0.6) (1.9) 3.7 (3.0) (20.7) (2.3)
- 2019 underwriting
year 6.0 (1.0) (0.3) (0.5) (10.2) (20.1) 10.0 (16.1)
--------------------- ------------ ------ ------ ------------ -------- ----------- --------- -------
4.4 (8.9) (0.9) (4.6) (4.4) (20.7) (58.0) (93.1)
--------------------- ------------ ------ ------ ------------ -------- ----------- --------- -------
Net insurance claims 557.7 160.5 8.3 354.1 291.3 86.8 499.6 1,958.3
--------------------- ------------ ------ ------ ------------ -------- ----------- --------- -------
Cyber Political,
& Executive Accident
Risk Market & Specialty
$m Marine Facilities Contingency Property Reinsurance lines Total
2019 $m $m $m $m $m $m $m
--------------------- ------------ ------ ----------- ------------ -------- ----------- --------- -------
Current year 405.1 120.4 5.5 127.3 190.2 114.5 499.0 1,462.0
Prior year
- 2016 underwriting
year and earlier 4.3 (11.1) - (6.6) 9.3 (3.6) (34.2) (41.9)
- 2017 underwriting
year (13.2) 6.1 - (7.8) 8.4 17.4 (3.4) 7.5
- 2018 underwriting
year (0.5) 11.4 - (2.4) (0.6) 16.3 0.7 24.9
--------------------- ------------ ------ ----------- ------------ -------- ----------- --------- -------
(9.4) 6.4 - (16.8) 17.1 30.1 (36.9) (9.5)
--------------------- ------------ ------ ----------- ------------ -------- ----------- --------- -------
Net insurance claims 395.7 126.8 5.5 110.5 207.3 144.6 462.1 1,452.5
--------------------- ------------ ------ ----------- ------------ -------- ----------- --------- -------
12 Subsequent events
There are no events that are material to the operations of the
group that have occurred since the reporting date.
Glossary
Aggregates/aggregations
Accumulations of insurance loss exposures which result from
underwriting multiple risks that are exposed to common causes of
loss.
Aggregate excess of loss
The reinsurer indemnifies an insurance company (the reinsured)
for an aggregate (or cumulative) amount of losses in excess of a
specified aggregate amount.
Alternative performance measures (APMs)
The group uses APMs to help explain its financial performance
and position. These measures, such as combined ratio, expense
ratio, claims ratio, investment return and underwriting profit, are
not defined under IFRS. The group is of the view that the use of
these measures enhances the usefulness of the financial statements.
Definitions of key APMs are included within the glossary.
A.M. Best
A.M. Best is a worldwide insurance-rating and information agency
whose ratings are recognised as an ideal benchmark for assessing
the financial strength of insurance related organisations,
following a rigorous quantitative and qualitative analysis of a
company's statement of financial position strength, operating
performance and business profile.
Binding authority
A contracted agreement between a managing agent and a
coverholder under which the coverholder is authorised to enter into
contracts of insurance for the account of the members of the
syndicate concerned, subject to specified terms and conditions.
Capacity
This is the maximum amount of premiums that can be accepted by a
syndicate. Capacity also refers to the amount of insurance coverage
allocated to a particular policyholder or in the marketplace in
general.
Capital growth assets
These are assets that do not pay a regular income and target an
increase in value over the long term. They will typically have a
higher risk and volatility than that of the core portfolio.
Currently these are the hedge funds, equity funds and illiquid
credit assets.
Catastrophe reinsurance
A form of excess of loss reinsurance which, subject to a
specified limit, indemnifies the reinsured company for the amount
of loss in excess of a specified retention with respect to an
accumulation of losses resulting from a catastrophic event or
series of events.
Claims
Demand by an insured for indemnity under an insurance
contract.
Claims ratio
Ratio, in percentage terms, of net insurance claims to net
earned premiums. The calculation is performed excluding the impact
of foreign exchange. In 2020, this ratio was 73% (2019: 62%). This
represented total claims of $1,958.3m (2019: $1,452.5m) divided by
net earned premiums of $2,693.4m (2019: $2,347.0m).
Combined ratio
Ratio, in percentage terms, of the sum of net insurance claims,
expenses for acquisition of insurance contracts and administrative
expenses to net earned premiums. This is also the sum of the
expense ratio and the claims ratio. The calculation is performed
excluding the impact of foreign exchange. In 2020, this ratio was
109% (2019: 100%). This represents the sum of net insurance claims
of $1,958.3m (2019: $1,452.5m), expenses for acquisition of
insurance contracts of $738.9m (2019: $645.4m) and administrative
expenses of $235.5m (2019: $244.3m) to net earned premiums of
$2,693.4m (2019: $2,347.0m). This is also the sum of the expense
ratio 36% (2019: 38%) and the claims ratio 73% (2019: 62%).
Coverholder
A firm either in the United Kingdom or overseas authorised by a
managing agent under the terms of a binding authority to enter into
contracts of insurance in the name of the members of the syndicate
concerned, subject to certain written terms and conditions. A
Lloyd's broker can act as a coverholder.
Deferred acquisition costs (DAC)
Costs incurred for the acquisition or the renewal of insurance
policies (e.g. brokerage, premium levy and staff related costs)
which are capitalised and amortised over the term of the
contracts.
Earnings per share (EPS) - basic/diluted
Ratio, in pence and cents, calculated by dividing the
consolidated profit after tax by the weighted average number of
ordinary shares issued, excluding shares owned by the group. For
calculating diluted earnings per share the number of shares and
profit or loss for the year is adjusted for certain dilutive
potential ordinary shares such as share options granted to
employees.
Economic Capital Requirement (ECR)
The capital required by a syndicate's members to support their
underwriting. Calculated as the uSCR 'uplifted' by 35% to ensure
capital is in place to support Lloyd's ratings and financial
strength.
Excess per risk reinsurance
A form of excess of loss reinsurance which, subject to a
specified limit, indemnifies the reinsured company against the
amount of loss in excess of a specified retention with respect to
each risk involved in each loss.
Expense ratio
Ratio, in percentage terms, of the sum of expenses for
acquisition of insurance contracts and administrative expenses to
net earned premiums. The calculation is performed excluding the
impact of foreign exchange on non-monetary items. In 2020, the
expense ratio was 36% (2019: 38%). This represents the sum of
expenses for acquisition of insurance contracts of $738.9m (2019:
$645.4m) and administrative expenses of $235.5m (2019: $244.3m) to
earned premiums of $2,693.4m (2019: $2,347.0m).
Facultative reinsurance
A reinsurance risk that is placed by means of a separately
negotiated contract as opposed to one that is ceded under a
reinsurance treaty.
Gross premiums written
Amounts payable by the insured, excluding any taxes or duties
levied on the premium, but including any brokerage and commission
deducted by intermediaries.
Group Surplus Capital Ratio
The group surplus capital ratio is the surplus of funds
available to meet the group's ECR expressed as a percentage of the
ECR. The funds available are calculated on an economic basis,
consistent with how the ECR is calculated.
Hard market
An insurance market where prevalent prices are high, with
restrictive terms and conditions offered by insurers.
Horizontal limits
Reinsurance coverage limits for multiple events.
Incurred but not reported (IBNR)
These are anticipated or likely claims that may result from an
insured event but which have not yet been reported.
International Accounting Standards Board (IASB)
An independent accounting body responsible for developing IFRS
(see below).
International Accounting Standards (IAS)/International Financial
Reporting Standards (IFRS)
Standards formulated by the IASB with the intention of achieving
internationally comparable financial statements. Since 2002, the
standards adopted by the IASB have been referred to as
International Financial Reporting Standards (IFRS). Until existing
standards are renamed, they continue to be referred to as
International Accounting Standards (IAS).
Investment return
Ratio, in percentage terms, calculated by dividing the net
investment income by the average financial assets at fair value,
including cash. In 2020, this was calculated as net investment
income of $188.1m (2019: $263.7m) divided by average financial
assets at fair value, including cash, of $6,261.4m (2019:
$5,452.0m).
Lead underwriter
The underwriter of a syndicate who is responsible for setting
the terms of an insurance or reinsurance contract that is
subscribed by more than one syndicate and who generally has primary
responsibility for handling any claims arising under such a
contract.
Line
The proportion of an insurance or reinsurance risk that is
accepted by an underwriter or which an underwriter is willing to
accept.
Managing agent
A company that is permitted by Lloyd's to manage the
underwriting of a syndicate.
Managing general agent (MGA)
An insurance intermediary acting as an agent on behalf of an
insurer.
Managed premiums
Managed premium refers to all gross premiums written by
Beazley's underwriters. In addition to gross premiums written on
behalf of the group managed premium includes gross premiums written
in syndicate 623 by Beazley's underwriters on behalf of third party
capital providers.
Medium tail
A type of insurance where the claims may be made a few years
after the period of insurance has expired.
Net assets per share
Ratio, in pence and cents, calculated by dividing the net assets
(total equity) by the number of shares issued.
Net premiums written
Net premiums written is equal to gross premiums written less
outward reinsurance premiums written.
Private enterprise
The private enterprise team offers specialised professional and
general liability coverage supported by a high service proposition,
focusing on meeting the needs of small businesses with assets up to
$35.0m and up to 500 employees.
Provision for outstanding claims
Provision for claims that have already been incurred at the
reporting date but have either not yet been reported or not yet
been fully settled.
Rate
The premium expressed as a percentage of the sum insured or
limit of indemnity.
Rate change
The percentage change in premium income charged relative to the
level of risk on renewals.
Reinsurance special purpose syndicate
A special purpose syndicate (SPS) created to operate as a
reinsurance 'sidecar' to Beazley's treaty account, capitalising on
Beazley's position in the treaty reinsurance market.
Reinsurance to close (RITC)
A reinsurance which closes a year of account at Lloyd's by
transferring the responsibility for discharging all the liabilities
that attach to that year of account (and any year of account closed
into that year), plus the right to buy any income due to the
closing year of account, into an open year of account in return for
a premium.
Retention limits
Limits imposed upon underwriters for retention of exposures by
the group after the application of reinsurance programmes.
Retrocessional reinsurance
The reinsurance of the reinsurance account. It serves to 'lay
off' risk.
Return on equity (ROE)
Ratio, in percentage terms, calculated by dividing the
consolidated profit after tax by the average daily total equity. In
2020, this was calculated as loss after tax of $46.1m (2019: Profit
$234.1m) divided by average equity of $1,792.7m (2019:
$1,538.6m).
Risk
This term may refer to:
a) the possibility of some event occurring which causes injury
or loss;
b) the subject matter of an insurance or reinsurance contract;
or
c) an insured peril.
Short tail
A type of insurance where claims are usually made during the
term of the policy or shortly after the policy has expired.
Property insurance is an example of short tail business.
Sidecar special purpose syndicate
Specialty reinsurance company designed to provide additional
capacity to a specific insurance company. It operates by purchasing
a portion or all of a group of insurance policies, typically
catastrophe exposures. These companies have become quite prominent
in the aftermath of Hurricane Katrina as a vehicle to add
risk-bearing capacity, and for investors to participate in the
potential profits resulting from sharp price increases.
Soft market
An insurance market where prevalent prices are low, and terms
and conditions offered by insurers are less restrictive.
Solvency Capital Requirement on an ultimate basis (uSCR)
The capital requirement under Solvency II calculated by
Beazley's internal model which captures the risk in respect of the
planned underwriting for the prospective year of account in full,
covering ultimate adverse development and all exposures.
Surplus lines insurer
An insurer that underwrites surplus lines insurance in the US.
Lloyd's underwriters are surplus lines insurers in all
jurisdictions of the US except Kentucky and the US Virgin
Islands.
Total shareholder return (TSR)
The increase in the share price plus the value of any first and
second dividends paid and proposed during the year.
Treaty reinsurance
A reinsurance contract under which the reinsurer agrees to offer
and to accept all risks of a certain size within a defined
class.
Unearned premiums reserve
The portion of premium income in the business year that is
attributable to periods after the reporting date in the
underwriting provisions.
Underwriting profit
This is calculated as net earned premiums, less net insurance
claims, acquisition costs and administrative expenses.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR TAMFTMTIMMAB
(END) Dow Jones Newswires
February 05, 2021 02:00 ET (07:00 GMT)
Beazley (LSE:BEZ)
Historical Stock Chart
From Mar 2024 to Apr 2024
Beazley (LSE:BEZ)
Historical Stock Chart
From Apr 2023 to Apr 2024
