Interim Results

Beazley Group PLC 30 August 2006 Press release Continued delivery against strategic objectives Beazley Group plc, interim results for the six months ended 30 June 2006 London, UK, August 30, 2006 • Profit before tax of £28.3m (H1 2005 £35.2m); • Profit before tax and foreign exchange on non-monetary items £36.2m (H1 2005 £28.9m); • Gross premiums written up 43% at £394.3m (H1 2005 £275.4m); • Overall increase of 10% on rates on renewal; • Premiums in the USA increased to $27.4m (Full year 2005 $15.4m); • Increased dividend to 1.6p (H1 2005 1.5p); and • Our 2005 hurricane estimates remain unaltered. H1 2006 H1 2005 % Change £m £m Gross premiums written 394.3 275.4 43% Net premiums written 255.2 188.9 35% Net earned premiums 225.7 166.4 36% Profit before tax and foreign exchange adjustments on non monetary items 36.2 28.9 25% Profit before tax 28.3 35.2 (20%) Claims ratio 56% 57% Expense ratio 34% 32% Combined ratio 90% 89% Earnings per share (p) 5.5 6.8 (19%) Dividends per share (p) 1.6 1.5 7% Net assets per share (p) 79.8 82.9 (4%) Cash and investments (£m) 923.2 778.0 19% Andrew Beazley, Chief Executive of Beazley, said: 'The business remains strong and I am particularly pleased that our 20 year record of profitability remains intact. Demand is strong in many of our core areas of business and prospects for returning profits remain good. Our expansion into the US is gaining momentum as we gain support from US domestic broker networks and continue to attract talented individuals. We are pleased to propose an increased dividend to 1.6p per share and look to the future with confidence.' ENDS For further information, please contact: Beazley Group plc Andrew Beazley T: +44 (0)20 7667 0623 Andrew Horton T: +44 (0)20 7667 0623 Finsbury Simon Moyse Amanda Lee T: +44 (0)20 7251 3801 Notes to editors: Based in London, U.K. since 1986, Beazley (BEZ.L) is the parent company of a global specialist risk insurance and reinsurance business operating through Lloyd's syndicates 2623 and 623 in the UK and Beazley Insurance Company, Inc., a US admitted carrier in all 50 states. Both syndicates are rated A by A.M. Best with an aggregate capacity for 2006 of £830m (over $1.4bn). Beazley Insurance Company, Inc. is rated A- by A.M. Best. Beazley is a market leader in many of its chosen lines of business, which include professional indemnity, marine, reinsurance, commercial property and personal lines. Further information about us is available at www.beazley.com -------------- We are pleased to announce a profit before tax of £28.3m for the six months to 30 June 2006. As a result, our net assets per share have increased to 80p from 78p at the end of 2005. Overall results 2006 is an exciting and challenging time for the insurance industry with strong underwriting conditions following the significant claims incurred by the hurricane season of 2005, which resulted in the highest insured loss in history. In line with our predictions at the end of last year, we have seen significant rate increases in all US hurricane impacted business lines, particularly across our US commercial property, offshore energy and treaty reinsurance accounts. Our gross written premiums increased by 43% to £394.3m (2005: £275.4m) and net earned premiums increased to £225.7m (2005: £166.4m). In 2006 the group increased its share in the combined capacity of syndicates 2623 and 623 to 78% (2005: 70%). At the same time our managed capacity at Lloyd's increased to £830m (2005: £742m). The increase in capacity was driven by the rise in insurance rates following the catastrophic events of 2005 together with our desire to take a greater share in the risks we lead and know well. The combined ratio for the group remains stable at 90% (2005: 89%), although this is a significant improvement on the year end ratio of 105%. The expense ratio has increased to 34% (2005: 32%) primarily as a result of start up costs in our US business, which is in its first full year of operation. The group's estimates for claims made in 2005 for hurricanes Katrina, Rita and Wilma remain in line with previous forecasts. Our reinsurers are responding well. We continue to monitor the progress of any likely claims incurred closely, but are confident of the estimates of reserves being carried. Our specialty lines claims are developing better than reserved for and we have released £7.4m of prior year reserves. This has contributed to an increase in our forecast return on capacity on the 2004 year of account from 6.5% to 7.4%. Our 2005 year of account forecast remains at breakeven. Dividend The board is pleased to report that it will pay an interim dividend of 1.6p (2005: 1.5p). This will be paid on 10 October 2006 to shareholders on the register on 22 September 2006. 20th year anniversary 2006 marks the 20th anniversary of Beazley Furlonge Limited as a managing agent at Lloyd's. Over this period the managing agency and more recently the group have never made a loss on an underwriting year basis, despite some catastrophic and costly natural and man-made events. We believe this is testament to our consistent delivery of the highest levels of underwriting and claims expertise, which when combined with robust risk management policies, have secured our reputation as a premier risk taker. Rating environment As previously mentioned, trading conditions have strengthened significantly in certain classes over the past six months following last year's hurricanes. The market is, in certain sectors, proving yet again to be a responsive and vibrant place, with increases in rates averaging over 60% in certain classes of business. The average renewal rate increases across all our lines was 10% (2005: a reduction of 1%). Our largest division, specialty lines, has seen its own premium rates increase by 3%, which is ahead of our budgeted expectations. Renewal rates movement based on the 2001 prevailing rates 2001 2002 2003 2004 2005 2006 year to date Specialty 100 135 160 166 168 173 Lines Property 100 126 132 125 123 139 Reinsurance 100 142 149 149 148 191 Marine 100 118 128 128 131 147 Total 100 131 145 146 146 161 US business Currently in its first full year of operation, the US business was established in 2005 to enable us to access insurance business that would not traditionally come to Lloyd's. We have successfully recruited a number of high-calibre individuals to take the US business forward through our own managing general agent (MGA), which writes business both for our syndicates at Lloyd's and the admitted insurance company. Our MGA writes insurance business for our Lloyd's syndicates in both the specialty lines and the property sectors. The focus of the specialty lines business is professional liability and directors and officers insurance, while the property team focus on high-value homeowners' insurance in Florida and the Carolinas. In the six months to 30 June 2006, the MGA had written $10.7m of specialty lines business and $3.2m in respect of property. Both of these are in line with the group expectations. Our MGA writes specialty lines insurance business for Beazley Insurance Company Incorporated (BICI) for small and medium sized clients who would not traditionally have purchased insurance through Lloyd's. Recently its portfolio has been extended to include US Cargo and we plan to launch a US admitted commercial property business. The insurance company has written $13.5m in the six months to 30 June 2006. Reinsurance protection The availability of reinsurance protection at competitive prices in our hurricane impacted classes of business has been scarce during the first half of the year. We have seen rates rise significantly in our own treaty reinsurance division and likewise our reinsurers have adjusted their pricing in a similar manner. We have therefore had to monitor our exposures carefully throughout the period, and have managed them in line with the availability and price of reinsurance. We maintain strict control over our aggregate exposures, to the point of rejecting otherwise profitable business should its addition exceed our risk appetite. Specialty Lines For the first half of 2006, the overall trading environment has been at or above expectations and the team continues to evolve the portfolio to concentrate on areas that offer a sustainable margin. We have also focussed on implementing key strategic initiatives. The admitted business is building momentum and the US and London teams are fully integrated. Our skills and expertise are effectively leveraged on a global basis, which ensures consistency of approach and product offering. Our claims initiative continues to develop, with new team members in London, Farmington and New York. The American teams are servicing US business written across the whole of specialty lines. Full integration of the claims team into the underwriting process and the ability to manage claims locally should improve operational efficiency and effectiveness. Property Trading conditions are generally favourable in all lines, especially for business in natural catastrophe exposed areas of the US where continued shortage of capacity has secured substantial rate and deductible increases. Conditions are more competitive outside such areas, where it is expected that rates will remain flat in most lines of business. Commercial property's performance is substantially ahead of interim results in 2005 due to reduced capacity and more responsible competitor pricing. The UK homeowners and jewellers accounts are also performing well. The UK engineering team are in line to meet their targets for the year and have secured orders with many high profile clients. We are also on schedule to launch our Singapore office, which will write further engineering business in the fourth quarter of 2006. Reinsurance The degree of impact from the hurricanes Katrina, Rita and Wilma on trading conditions, has varied by geographic region. We had expected a quicker and broader reaction to the impact from the hurricanes during the first quarter of the year. International markets remained historically profitable, yet stable pricing levels whilst the US property reinsurance market dramatically hardened as the year progressed. The portfolio has been restructured to fit market conditions and our ability to match the group's risk appetite. Dramatically increased pricing of our own reinsurance protections and the general lack of capacity for retrocessional cover has led to a downward revision of our forecast premium income. We are taking on less exposure and buying less cover than last year. Parts of the reinsurance market are expected to remain dislocated for the foreseeable future which will bring both challenges and opportunities for this section of our business. Marine The first half of 2006 saw an aggressive but controlled growth of the energy income. This book will be 40% of marine income and takes full advantage of the significant rises witnessed for the Gulf of Mexico offshore energy portfolio. Increases on Gulf exposed structures have ranged up to 350%. Currently the rate rises on the worldwide portfolio are averaging 66% on renewal business and the trend is upwards. The rates for hull, cargo and war are beginning to come under downward pressure but are expected to remain profitable and deliver the group's return on equity targets. We have added additional underwriting resource to our UK cargo team to enable further expansion in the north of England and diversification of the portfolio. Marine liability rates are rising in line with inflation and continue to be profitable. Investments The group's investment and cash balances grew over the six month period, with managed funds increasing to £923.2m (31 Dec 2005: £884.5m). These are mainly held in short duration bonds although we continue to invest up to 12% in alternative investments including high yield bonds, equities and hedge funds. Capital Our capital comes from three sources - our own shareholders' funds, our syndicated debt facility of £150m, and subordinated loan notes. We use this capital to support our underwriting operations both at Lloyd's and in the US. The capacity of the combined syndicates is planned to increase to £860m (2006: £830m) for the 2007 underwriting year, subject to approval by Lloyd's. This is a reflection of our belief that underwriting conditions will continue to remain favourable for at least a further 12 months. The group's own capacity is anticipated to be at least £670m (2006: £647m). We recently submitted our first estimate of our capital requirement, or individual capital assessment (ICA), to Lloyd's. We believe our plan is robust and that our ICA fully reflects our risk exposures including capital for not only our main risk of underwriting, but also capital for market, credit, liquidity and operational risks to which we may have exposure. Our 2006 ICA estimated that over 70% of our risk concentration was in underwriting risk, with capital set at 47% of premium capacity. Additional capacity on syndicate 623 As part of the Lloyd's auction process we have made an offer to the Names on syndicate 623 for their remaining capacity (£183m). We have offered 2.7p for each £1 of capacity. This is a mandatory offer as our capacity on the combined syndicates 623/2623 crossed the 75% threshold, as determined by Lloyd's last year. Board Changes We recently appointed Marty Becker and Dan Jones to the Beazley Group board as non-executive directors. Marty has more than 28 years of experience in the insurance industry where he is currently serving as chairman and chief executive officer of LaSalle Reinsurance Re. Dan joins us with over 20 years experience in insurance broking, most recently with Marsh Inc. Joe Sargent and Tom Sullivan will be stepping down from the board. Joe, who joined Beazley in 1993, has had a key role in the development of the group, including his role as chairman during the IPO in 2002. Tom joined Beazley in 1997 as a non-executive director, serving on both our audit and remuneration committees. I'd like to take this opportunity to thank both Joe and Tom for their wise guidance and significant contributions to the group. Outlook Our US business is now well established and we expect premium flow to increase further in the second half. The addition of commercial property to our insurance company offering is an important step in building awareness of our capabilities in the US domestic market. Greater efficiency, improved customer relations, and cost control over claims remain key strategic initiatives. We are actively recruiting claims and legal experts to enhance our capabilities in this area, which we believe will bring significant long term benefits to the group. The business is having a strong year, we are optimistic for the future and look forward to the opportunities offered by such positive underwriting conditions. Andrew Beazley Chief Executive Income Statement For the period ended 30 June 2006 Note 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Gross premiums written 2 394.3 275.4 558.0 Written premiums ceded to reinsurers (139.1) (86.5) (132.2) Net premiums written 2 255.2 188.9 425.8 Change in gross provision for (100.8) (61.8) (73.7) unearned premiums Reinsurer's share of change in the 71.3 39.3 20.2 provision for unearned premiums Change in the provision for unearned (29.5) (22.5) (53.5) premiums 2 225.7 166.4 372.3 Net earned premiums Net investment income 3 19.1 12.3 31.6 Other income 4 3.4 3.3 6.9 22.5 15.6 38.5 Revenue 2 248.2 182.0 410.8 Insurance claims 161.8 128.9 463.7 Insurance claims recovered from (34.5) (34.0) (190.7) reinsurers Net insurance claims 2,7 127.3 94.9 273.0 Expenses for the acquisition of 60.1 42.1 95.5 insurance contracts Administrative expenses 17.2 10.6 23.0 Other expenses 13.6 (1.3) 1.4 Operating expenses 90.9 51.4 119.9 2 218.2 146.3 392.9 Expenses Results of operating activities 30.0 35.7 17.9 Finance costs 1.7 0.5 1.8 Profit before tax 28.3 35.2 16.1 Comprises: Profit before tax and foreign 36.2 28.9 7.9 exchange adjustments on non monetary items Foreign exchange on non monetary (7.9) 6.3 8.2 items Income tax expense (8.4) (10.6) (5.0) Profit after tax 19.9 24.6 11.1 Earnings per share (pence per share): Basic 5 5.5 6.8 3.1 Diluted 5 5.5 6.8 3.1 Balance Sheet As at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Assets Intangible assets 19.8 14.8 18.2 Plant and equipment 6.1 0.9 2.5 Investments in associates 1.3 1.3 1.3 Deferred acquisition costs 70.5 49.2 52.7 Financial investments 802.4 601.6 771.9 Insurance receivables 234.0 136.8 158.9 Deferred income tax 3.2 2.7 2.4 Reinsurance assets 420.5 271.6 394.5 Other receivables 36.4 22.6 28.4 Cash and cash equivalents 120.8 176.4 112.6 Total assets 1,715.0 1,277.9 1,543.4 Equity Share capital 18.0 18.0 18.0 Reserves 228.5 231.9 232.1 Retained earnings 41.3 49.2 30.3 Total equity 287.8 299.1 280.4 Liabilities Insurance liabilities 1,198.0 803.0 1,096.4 Borrowings 27.0 27.3 29.1 Deferred income tax 12.4 16.3 6.0 Current income tax liabilities 4.5 2.7 4.5 Creditors 183.4 126.6 124.1 Retirement benefit obligations 1.9 2.9 2.9 Total liabilities 1,427.2 978.8 1,263.0 Total equity and liabilities 1,715.0 1,277.9 1,543.4 Statement of movements in equity For the period ended 30 June 2006 Share Reserves Retained Total Capital Earnings £m £m £m £m Balance as at 1 January 2005 18.0 232.5 27.1 277.6 Retained profits for the period - - 24.6 24.6 2004 final dividends paid - - (2.5) (2.5) Increase in employee share - 0.1 - 0.1 options Acquisition of own shares held - (1.7) - (1.7) in trust Foreign exchange translation - 1.0 - 1.0 differences Balance as at 30 June 2005 18.0 231.9 49.2 299.1 Retained profits for the period - - (13.5) (13.5) 2005 interim dividends paid - - (5.4) (5.4) Increase in employee share - 0.3 - 0.3 options Acquisition of own shares held - 0.1 - 0.1 in trust Foreign exchange translation - (0.2) - (0.2) differences Balance as at 31 December 2005 18.0 232.1 30.3 280.4 Retained profits for the period - - 19.9 19.9 Increase in employee share - 0.4 - 0.4 options Acquisition of own shares held - (2.8) - (2.8) in trust Foreign exchange translation - (1.2) - (1.2) differences 2005 final dividends paid - - (8.9) (8.9) Balance as at 30 June 2006 18.0 228.5 41.3 287.8 Cash flow statement For the period ended 30 June 2006 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Cash flow from operating activities Profit before tax 28.3 35.2 16.1 Adjustments for non-cash items: Amortisation of intangibles 0.4 - 0.3 Depreciation of fixed assets 0.3 - - Equity settled share based 0.4 0.3 0.4 compensation Foreign exchange on translation of (1.3) 1.0 1.9 foreign subsidiary Foreign exchange on translation of (2.1) - - borrowings Net fair value losses/(gains) on 1.0 0.7 (3.0) financial investments Changes in operating assets and liabilities Increase in insurance liabilities 101.6 342.5 635.9 Increase in insurance receivables (75.1) (47.8) (69.9) Decrease/(increase) in other (8.0) 2.7 (3.0) receivables Increase in deferred acquisition (17.8) (10.9) (14.4) costs Increase in reinsurance assets (26.0) (173.3) (296.2) Increase in creditors 64.3 73.1 69.0 Income tax paid (2.9) (3.1) (5.8) Contribution to pension fund (1.0) (1.0) (1.0) Acquisition of own shares in trust (2.8) (1.7) (1.6) Net cash from operating activities 59.3 217.7 328.7 Cash flow from investing activities Purchase of syndicate capacity - - (1.6) Purchase of insurance licences - (5.0) (5.1) Purchase of plant and equipment (3.9) (0.9) (2.5) Purchase of software development (2.0) (1.8) (3.6) Purchase of investments (529.5) (863.9) (1,419.3) Proceeds from sale of investments 498.0 731.5 1,120.2 Net cash used in investing (37.4) (140.1) (311.9) activities Cash flow from financing activities Proceeds from borrowings - 17.9 18.6 Dividends paid (8.9) (2.5) (7.9) Net cash used in financing (8.9) 15.4 10.7 activities Net increase in cash and cash 12.8 93.0 27.5 equivalents Cash and cash equivalents at 112.6 81.5 81.5 beginning of period Effect of exchange rate changes on (4.6) 1.9 3.6 cash and cash equivalents Cash and cash equivalents at end of 120.8 176.4 112.6 period Notes to the financial statements For the period ended 30 June 2006 1. Statement of accounting policies Beazley Group plc is a group incorporated in England and Wales. The interim financial statements of the group for the six months ended 30 June 2006 comprise the group and its subsidiaries and the group's interest in associates. The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The accounting policies applied by the group in these consolidated interim financial statements are the same as those applied by the group in its consolidated financial statements as at and for the year ended 31 December 2005. Our full accounting policies are set out in the group's 2005 annual report. 2. Segmental analysis The principal activity of the group is insurance. The following primary business segments, marine, property, specialty lines and reinsurance have been applied. All foreign exchange differences on non-monetary items have been included within the unallocated totals, together with any expenses which cannot be allocated to specific business segments. The foreign exchange has been split out as this provides a fairer representation of the loss ratios, which would otherwise be distorted by the mismatch arising under IFRS whereby unearned premium reserves and DAC are treated as non-monetary items and claims reserves are treated as monetary items. 30 June 2006 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 179.3 92.9 40.4 81.7 - 394.3 written Net premiums written 108.0 64.3 20.9 62.0 - 255.2 Net earned premiums 114.3 51.6 17.4 42.9 (0.5) 225.7 Net investment 12.3 2.7 1.5 2.6 - 19.1 income Other income 1.5 0.8 0.4 0.7 - 3.4 Revenue 128.1 55.1 19.3 46.2 (0.5) 248.2 Net insurance claims 72.7 25.5 10.1 19.0 - 127.3 Expenses for the 5.5 (0.9) 60.1 acquisition of insurance contracts 27.1 16.5 11.9 Administrative 9.3 4.6 1.0 2.3 - 17.2 expenses Other expenses 2.5 1.2 0.5 1.1 8.3 13.6 Expenses 111.6 47.8 17.1 34.3 7.4 218.2 Results from operating activities 16.5 7.3 2.2 11.9 (7.9) 30.0 Finance costs (1.7) Profit before tax 28.3 Tax expense (8.4) Profit after tax 19.9 Claims ratio 64% 49% 58% 44% 56% Expense ratio 32% 41% 37% 33% 34% Combined ratio 96% 90% 95% 77% 90% 30 June 2005 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 124.6 61.6 41.5 47.7 - 275.4 written Net premiums written 77.8 48.4 28.3 34.4 - 188.9 Net earned premiums 85.0 35.2 15.8 28.9 1.5 166.4 Net investment income 7.7 2.2 1.2 1.2 - 12.3 Other income 0.7 1.1 0.8 0.7 - 3.3 Revenue 93.4 38.5 17.8 30.8 1.5 182.0 Net insurance claims 58.8 15.0 7.3 13.8 - 94.9 Expenses for the acquisition of insurance contracts 17.8 11.6 3.8 8.1 0.8 42.1 Administrative 5.5 2.8 1.0 1.3 - 10.6 expenses Other expenses 1.8 1.5 0.5 0.5 (5.6) (1.3) Expenses 83.9 30.9 12.6 23.7 (4.8) 146.3 Results from 9.5 7.6 5.2 7.1 6.3 35.7 operating activities Finance costs (0.5) Profit before tax 35.2 Tax expense (10.6) Profit after tax 24.6 Claims ratio 69% 43% 46% 48% 57% Expense ratio 27% 41% 30% 33% 32% Combined ratio 96% 84% 76% 81% 89% 31 December 2005 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 270.9 128.1 65.5 93.5 - 558.0 written Net premiums written 207.7 98.5 41.0 78.6 - 425.8 Net earned premiums 192.2 81.2 37.2 64.5 (2.8) 372.3 Net investment income 19.5 5.8 3.0 3.3 - 31.6 Other income 2.4 1.4 0.2 2.9 - 6.9 Revenue 214.1 88.4 40.4 70.7 (2.8) 410.8 Net insurance claims 135.8 49.1 56.0 32.1 - 273.0 Expenses for the 39.4 27.9 10.1 17.8 0.3 95.5 acquisition of insurance contracts Administrative 12.8 5.7 2.3 2.2 - 23.0 expenses Other expenses 5.9 3.2 1.2 2.4 (11.3) 1.4 Expenses 193.9 85.9 69.6 54.5 (11.0) 392.9 Results from 20.2 2.5 (29.2) 16.2 8.2 17.9 operating activities Finance costs (1.8) Profit before tax 16.1 Tax expense (5.0) Profit after tax 11.1 Claims ratio 71% 60% 151% 50% 73% Expense ratio 27% 41% 33% 31% 32% Combined ratio 98% 101% 184% 81% 105% 3. Net investment return 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Investment income at fair value through income statement - dividend income -- 0.1 - - interest income 19.0 13.6 31.3 Realised gains/(losses) on financial investments at fair value through income statement - realised gains 2.8 0.3 1.8 - realised losses (0.9) (0.5) (3.6) Net fair value gains/(losses) on financial investments through income statement - fair value gains 1.1 - 5.7 - fair value losses (2.1) (0.7) (2.7) Investment management expenses (0.8) (0.5) (0.9) Net Investment Income 19.1 12.3 31.6 4. Other income 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Profit commissions 2.9 2.6 4.9 Agency fees 0.5 0.6 1.3 Other income - 0.1 0.7 Other Income 3.4 3.3 6.9 5. Earnings per share 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) Basic 5.5p 6.8p 3.1 p Diluted 5.5p 6.8p 3.1 p Basic Basic earnings per share is calculated by dividing profit after tax of £19.9m (2005: £24.6m) by the weighted average number of issued shares during the period of 360.6m (2005: 360.6 m). Diluted Diluted earnings per share is calculated by dividing profit after tax of £19.9m (2005: £24.6m) by the adjusted weighted average number of shares of 364.0m (2005: 360.8m). The adjusted weighted average number of shares assumes conversion of all dilutive potential ordinary shares, being share options. 6. Dividends An interim net dividend of 1.6p (2005: 1.5p) per ordinary share is payable on 10 October 2006 to shareholders registered on 22 September 2006 in respect of the six months to 30 June 2006. These financial statements do not provide for the dividends as a liability. 7. Net insurance claims The table below analyses our net insurance claims between current year claims and adjustments to prior year net claims reserves. These have been broken down by department and period. 6 months ended 30 June 2006 Specialty Property Reinsurance Marine £m Total £m (unaudited) £m Lines £m £m Current year 80.1 26.2 10.5 21.8 138.6 Prior year - 2003 and earlier (4.4) (0.7) 0.1 (0.6) (5.6) - 2004 year of account (3.0) 1.1 (0.5) (2.2) (4.6) - 2005 year of account - (1.1) - - (1.1) (7.4) (0.7) (0.4) (2.8) (11.3) Total 72.7 25.5 10.1 19.0 127.3 6 months ended 30 June 2005 Specialty Property Reinsurance Marine £m Total £m (unaudited) Lines £m £m £m Current year 58.8 18.4 8.5 14.9 100.6 Prior year - 2002 and earlier - (0.8) - (0.1) (0.9) - 2003 year of account - (1.2) - (0.7) (1.9) - 2004 year of account - (1.4) (1.2) (0.3) (2.9) - (3.4) (1.2) (1.1) (5.7) Total 58.8 15.0 7.3 13.8 94.9 Independent review report to Beazley Group plc Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2006 which comprises the income statement, balance sheet, statement of movements in equity, cash flow statement and the related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the UK. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Statements on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2006. KPMG Audit Plc Chartered Accountants 8 Salisbury Square London EC4Y 8BB 30 August 2006 Directors Jonathan Agnew* - Chairman Andrew Beazley - Chief Executive Marty Becker* Dudley Fishburn* Nicholas Furlonge Jonathan Gray Andrew Horton - Finance Director Dan Jones* Neil Maidment Andy Pomfret* Johnny Rowell Joe Sargent* Tom Sullivan* * non executive director Company Secretary Arthur Manners Glossary of Terms Admitted carrier An insurance company authorised to do business in the US. A charger agreement is entered into which stipulates the terms and conditions under which a business must conduct within a state in the US. 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. 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 balance sheet strength, operating performance and business profile. Beazley Group plc obtained an A rating, while Beazley Insurance Company, Inc., received a rating of A-. 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. 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 percent, of net insurance claims to net earned premiums. Combined ratio Ratio, in percent, 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. Coverholder/managing general agent 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, calculated by dividing the consolidated profit after tax by the weighted average number of ordinary shares issued, excluding shares issued by the group. For calculating diluted earnings per share the number of shares and profit or loss for the year is adjusted of all dilutive potential ordinary shares like share options granted to employees. 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 of each risk involved in each loss. Expense ratio Ratio, in percent, sum of expenses for acquisition of insurance contracts and administrative expenses to net earned premiums. Facultative reinsurance A reinsurance risk that is placed by means of 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, including any brokerage and commission deducted by intermediaries. 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 although no claims have been reported so far. 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). International accounting standards board (IASB) An international panel of accounting experts responsible for developing IAS/ IFRS. 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. Lloyd's Lloyd's is the world's leading specialist insurance market and expects to have the capacity to write approximately £14.8bn of business in 2006. It occupies sixth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. In 2006, 62 syndicates are underwriting insurance at Lloyd's, covering all classes of business from more than 200 countries and territories worldwide. Long tail This refers to a type of insurance where claims may be made many years after the period of the insurance has expired. Liability insurance is an example of long tail business. Managed syndicate The combination of syndicate 2623 and 623 through which the group underwrite insurance business. Managing agent A company that is permitted by Lloyd's to manage the underwriting of a syndicate. 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 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. Pro rate reinsurance A generic term describing quota share and surplus share reinsurance in which the reinsurer shares a proportional part of the ceded reinsurance liability, premiums, and losses of the ceding company. Also known as Participating Reinsurance and Proportional Reinsurance. Provision for outstanding claims Provision for claims that have already been incurred at the balance sheet 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. Reinsurance to close (RITC) A reinsurance which closes a year of account 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. Return on equity (ROE) Ratio, in percent calculated by dividing the consolidated profit after tax by the average total equity. Risk This term may variously 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. Soft market An insurance market where prevalent prices are low, and terms and conditions offered by insurers are less restrictive. Stamp capacity The volume of business measured in gross written premiums net of acquisition costs underwritten by the group through its managed syndicates at Lloyd's of London Total shareholder return The increase in the share price plus the value of any 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 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 balance date is accounted for as unearned premiums in the underwriting provisions. Vertical Limits Reinsurance coverage limits which exceed the groups retention limits. Registered office and advisors Registered office Plantation Place South 60 Great Tower Street London EC3R 5AD Company number 4082477 Auditors KPMG Audit Plc Chartered Accountants 8 Salisbury Square London EC4Y 8BB Legal advisors Norton Rose Kempson House Camomile Street London EC3A 7AN Financial advisors Lexicon Partners Limited One Paternoster Square London EC4M 7DX Stockbrokers Numis Securities Limited Cheapside House 138 Cheapside London EC2V 6LH Principle bankers Lloyds TSB Bank plc 113-116 Leadenhall Street London EC3A 4AX Registrars Lloyds TSB Registrars The Causeway Worthing West Sussex BN99 6DA Beazley Group plc Plantation Place South 60 Great Tower Street London EC3R 5AD Tel: +44 (0) 20 7667 0623 Fax: +44 (0) 20 7674 7100 www.beazley.com This information is provided by RNS The company news service from the London Stock Exchange

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