Interim Results

RNS Number : 2894W

Beazley PLC

27 July 2009

 



Beazley Announces Interim Results

Beazley plc results for the six months ended 30 June 2009

July 27, 2009

Financial Highlights

• Profit before tax and foreign exchange adjustments on non-monetary items of £69.9m (2008: £46.0m) *  

• Profit before tax of £20.1m (2008: £45.0m)

• Gross written premiums up 46% to £596.4m; net written premiums up 17% to £341.5m

• Gross written premiums on a constant currency basis up 23.8%

• Rates on renewal business increased by 5% across the portfolio

• Stable claims environment and combined ratio of 90% (2008: 89%)

• Annualised investment return of 2.9% (2008: 1.7%)

• Interim dividend of 2.3p (2008: 2.2p)

Operational Highlights

• Raised additional equity capital of £150m - completed in April 2009 and deployed to support additional underwriting and acquisition

• Acquisition of First State, a US underwriting manager specialising in commercial property insurance, completed on 1st April 2009 for a cash consideration of $35.4m. 

• Redomiciliation of the group to the Republic of Ireland completed in July 2009.

• New investment team in place and credit portfolio de-risking completed.

• Full management team now in place. During 2009, three new board members have joined the group: Martin Bride as Group Finance Director; and Padraic O'Connor and Vincent Sheridan, both as non-executive directors of Beazley plc.

* Under International Financial Reporting Standards (IFRS), unearned premium and deferred acquisition costs are carried at historic exchange rates, while the corresponding monetary items are translated at closing rates. The 2009 interim result includes a £49.8m foreign exchange loss, which results mainly from the unwinding of the £46m gain recognised in 2008.

	6 months ended   30 June 2009	6 months ended   30 June 2008	% increase/  (decrease)
Gross written premiums (£m)	596.4	407.3	46%
Net written premiums (£m)	341.5	292.3	17%
Net earned premiums (£m)	358.7	312.2	15%
Profit before tax (£m)	20.1	45.0	(55%)
Comprises:
Profit before tax and foreign exchange adjustments on non-monetary items	69.9	46.0
Foreign exchange on non-monetary items	(49.8)	(1.0)
Earnings per share	4.9p	8.9p	(45%)
Dividend per share	2.3p	2.2p	5%
Net assets per share	107.7p	111.3p	(3%)

Andrew Horton, Chief Executive Officer, said:

'Our businesses performed well in the first half of the year against a backdrop of continued turbulence in both insurance and investment markets.   Across our portfolio, we saw a 5% increase in renewal premium rates, driven by significant rate rises for classes of business - such as energy, large scale commercial property, and reinsurance - that were affected by last year's severe hurricane season.  

'Rates for casualty business have been, as we anticipated, slower to move. But we expect the depressed investment returns experienced by the market as a whole to put upward pressure on casualty rates before the end of the year. 

'In the medium term we expect market conditions to further enhance the already strong reputation for financial stability and underwriting discipline that Lloyd's enjoys among insureds and brokers.  The way risk is spread through the syndicated structure of the Lloyd's market is also attractive to insureds at a time of growing concern about counterparty risk.' 

For further information, please contact:
Beazley plc		Finsbury
Andrew Horton		Vanessa Neill
Tel: [phone]		Tel: [phone]

Note to editors:

Beazley plc (BEZ.L), is the parent company of global, specialist insurance businesses with operations in the UK, US, France, Germany, Ireland, Singapore, Hong Kong and Australia.  Beazley manages four Lloyd's syndicates: Syndicate 2623 and Syndicate 623 underwrite a 
broad range of insurance and reinsurance business worldwide; Syndicate 3623 focuses on accident and health business; and 3622 is a dedicated life syndicate. In 2008, Beazley underwrote gross premiums of £875.7 million. All Lloyd's syndicates are rated A by A.M. Best.  

In the US, Beazley's underwriters focus on writing specialist insurance products in the admitted market, backed by Beazley Insurance Company, Inc., an admitted carrier in all 50 states; and surplus lines risks, backed by the Beazley syndicates at Lloyd's. Beazley Insurance Company, Inc. is rated A by A.M. Best. 

Beazley is a market leader in many of its chosen lines, which include professional indemnity, property, marine, reinsurance, accident and life, and political risks and contingency business. 

For more information please go to: www.beazley.com

Results for the six months ended 30 June 2009

	6 months 2009	6 months 2008	Full year 2008
	£m	£m	£m
Gross premiums written	596.4	407.3	875.7
Net premiums written	341.5	292.3	740.4
Net earned premiums	358.7	312.2	683.1
Profit before tax and foreign exchange adjustments on non-monetary items	69.9	46.0	41.0
Profit before tax	20.1	45.0	87.2
Claims ratio	54%	54%	56%
Expense ratio	36%	35%	34%
Combined ratio	90%	89%	90%
Earnings per share (p)	4.9	8.9	18.2
Dividend per share (p) - Interim and final	2.3	2.2	6.6
Net assets per share (p)	107.7	111.3	122.5
Renewal rate increase/(reduction)	5%	(8)%	(6)%
Employee numbers	669	507	550
Underwriters	170	128	149
Support and group	499	379	401
Return on equity	8.5%	16.8%	16.0%
Cash and investments	2,093.6	1,569.7	1,994.2
Annualised investment returns	2.9%	1.7%	(1.5)%

Chief executive's report

The board are pleased to announce profits of £20.1m - £69.9m excluding the effect of foreign exchange on non-monetary items. This is a very satisfactory operating performance which has been achieved in a market that has developed during 2009 largely in line with our expectations. We had positioned ourselves to take advantage of opportunities to underwrite increased volumes of business at improved rates and these have materialised. Our gross written premiums are up 46% on the same period in 2008 and we have achieved average rate increases of 5% across the portfolio.

We have delivered on all of our strategic initiatives alongside our organic growth. We raised £150m of capital through the rights issue and this capital has been deployed through the successful acquisition and integration of First State Management Group Inc. ('First State') as well as organic growth opportunities within our core Lloyd's market operation.  We have also completed the redomiciliation to the Republic of Ireland that we announced with the year end results and rights issue, generating a positive effect on net operating profit with effect from 1st January 2009. Our accident and life business is also developing as we expected and has been fully integrated into Beazley.

We have delivered a satisfactory investment performance in H1 2009 after a disappointing 2008 and have completed the transition of our asset management activity to our significantly reinforced internal team. As we highlighted in our first quarter interim management statement, we have also de-risked our bond portfolios and they now have a substantially lower residual credit risk. We have also made good progress towards transferring this team into a new FSA regulated company Falcon Money Management and we expect this to be completed in the third quarter.

The market place has evolved in the last nine months, and whilst competition remains, as few insurers are withdrawing from the market place, many risk managers and buyers are now looking much more closely at the spread of counterparty risk across their insurance portfolios. This has led to an increased desire for diversification of insurance provider and presents significant opportunities in both London and the US operations for Beazley as a specialist insurer and leading participant in the syndicated market place that permits insurance buyers to diversify away from their traditional markets.

Business development

The group has deployed the new capital raised at the start of 2009 by increasing gross premiums written to £596.4m (up 46%) in the first six months of 2009. The increase was driven by number of factors: the effect of the devaluation of sterling against the US dollar; increased writing in core lines due to favourable markets; and new acquisitions (First State and Momentum Underwriting Management Limited). 

A large proportion of the increase in written premiums was due to the devaluation of sterling in 2008 / early 2009. Around 75% of the group's premiums are written in US dollars. At like for like exchange rates the real increase is 23.8%. 

Our catastrophe exposed lines of business saw premiums grow due to strong demand following the financial crisis and the impact of the hurricane activity in 2008. Our reinsurance team saw premiums rise by 44% to £73.3m, US commercial property by 38% to £42.2m, whilst our offshore energy account increased by 58% to £31.2m.

The group has also successfully integrated two acquisitions:

• First State, acquired in April 2009, which writes surplus lines commercial property insurance takes forward our US strategy in gaining access to profitable business that would not normally come to London. It contributed $54.0m in gross written premiums in the six month period to 30 June 2009; and

• The accident and life business (formerly Momentum Underwriting Management Limited), acquired in the fourth quarter of 2008, has made a solid start contributing £23.7m of premium during the six month period.

Market overview

		2001	2002	2003	2004	2005	2006	2007	2008	HY 2009
Marine		100%	117%	128%	128%	130%	140%	131%	123%	138%
Political risk and contingency		100%	120%	122%	114%	107%	101%	93%	87%	87%
Property		100%	127%	132%	125%	124%	139%	136%	128%	138%
Reinsurance		100%	143%	149%	148%	149%	188%	195%	183%	201%
Specialty lines		100%	137%	165%	173%	175%	175%	166%	155%	153%
Total		100%	131%	145%	145%	146%	154%	148%	139%	146%

Rates on our renewal business increased by 5% in the first six months of 2009 (2008: down 8%). 

As forecast in our 2008 annual report, catastrophe exposed lines saw large increases following the 2008 hurricane activity. Hurricanes Ike and Gustav in the US, along with other natural catastrophes, served as a timely reminder of the important role insurance plays. Pricing of these risks was adjusted accordingly as insurers strive to maintain margins at original prices. In the past six months we have seen rates increase in all hurricane impacted lines: reinsurance - up 10%; offshore energy - up 35%; and US commercial property rates up 13%.

Our largest team, specialty lines, saw rates for renewal business fall by around 1% in the first six months of 2009. The pace of decline has slowed this year, and we expect this trend to continue as the economic downturn continues to exert upwards pressure on coverage costs. We continue to see increased demand for highly rated cover in these uncertain times and many clients are turning to Beazley both at Lloyd's and in our US admitted insurance company. As highlighted by the rating increase chart above, despite the small rating declines in recent years, we are still trading at historically high levels. Premiums achieved in 2009 were rated 53% higher than similar risks in 2001

Reinsurance protection

The group increased the amount of reinsurance cover in 2009 to £254.9m (2008: £115.0m). Reinsurance is purchased for a number of reasons:

• to mitigate the impact of catastrophes such as hurricanes;

• to enable the group to write large or lead lines on risks we underwrite; and

• to manage capital to lower levels

The value of reinsurance purchased in 2009 has increased due to three main factors:

• the devaluation of sterling against the US dollar. A large proportion of our reinsurance programme is in US dollars and we estimate the impact of retranslating 2008 reinsurance premium at 2009 exchange rates would result in an uplift of 26%

• the inclusion of the First State reinsurance programme (estimated impact £44m)

• additional reinsurance cover in our specialty lines surplus reinsurance programme where we have increased cover by lowering the amount of any loss retained by Beazley

Claims 

The most significant catastrophes during the first half of 2009 have been the Australian bushfires, the Italian earthquake and Windstorm Klaus, which affected France and Spain. None of these events gave rise to material losses to the group.

In the first six months of 2009 we released £35.7m (2008: £23.4m) of prior year claims reserves. The majority of these claims releases came from marine, reinsurance and specialty lines, where claims reserves have continued to develop well. The 2008 hurricane reserves remain unchanged from those announced at the time of our 2008 results, and these continue to develop as expected.  

The table below highlights where we have been able to make prior year claims reserve releases.  

	2009	2008
	£m	£m
Marine	8.2	5.4
Political risk and contingency	(0.6)	2.4
Property	1.9	2.6
Reinsurance	5.7	4.0
Specialty lines	20.5	9.0
TOTAL	35.7	23.4

As previously disclosed, we prudently hold a higher level of reserves in the specialty lines classes of business initially. We typically look to release these reserves from the fourth year onwards as we gain more certainty around the portfolio's performance. This can be seen clearly in our loss development tables which are set out in note 7.

In 2009 we have made releases mainly from our 2003, 2004 and 2005 underwriting years. These years continue to look very profitable. 

Other than specialty lines, the reinsurance and marine accounts have also been able to make significant reserve releases. The reinsurance team's release arose from a reassessment of the conservatively set 2005 hurricane reserves and the marine team's release arose following better than expected claims experience on the 2007 underwriting year across a number of classes.  

The political risks market has experienced significant numbers of claims arising from the severe financial crisis that has affected most of the developed economies over the last year. Against this backdrop, the Beazley political and contingency account increased reserves on the 2007 and 2008 underwriting years. The total quantum of these reserve increases is less than £3m.

The held reserve is established by reviewing the emerging claims experience on a bottom up claim by claim basis. In addition, our internal actuarial team perform a top down more statistical review which is compared to the bottom up analysis. Beazley's reserving philosophy is annually to set conservative estimates initially which are released on a consistent basis as we gain more certainty on the claim experience. One of the tests performed to monitor this is a comparison of the held reserves to the internal actuarial best estimate. To date, the held estimates have been consistently within the range 5-10% above the actuarial best estimate.  

Recession update

Our underwriting and claims teams continue to monitor the impact of the recession and the economic downturn on the claims environment. A consequence of the recessionary environment is the potential for increased claims frequency. During 2008, all relevant business areas, most notably within our specialty lines team, developed recession plans to make the most of opportunities and mitigate risks.  Claims frequency is a useful statistic to monitor as it provides an early warning indicator for the potential of increased claims costs, particularly for our medium tail specialty lines business which is underwritten on a claims made basis such that the universe of claims is reasonably clear after 1-2 years.  Otherwise, it can take up to 4 years to identify any increase based purely on claims quantum.  We are pleased to note that in most cases the claims frequency trend is stable.  In cases where an increase has been observed, we have executed a detailed plan of underwriting actions and we have started to see claims frequency stabilise again as a result.  We continue to monitor claims frequency on a quarterly basis.

Marine

The marine team has made an excellent start to 2009 writing £103.7m of premium for the first six months of the year against £71.2m in 2008. Premium rates have increased on the whole by 11% driven primarily by increases in our energy account of 35% following the Gulf of Mexico hurricane activity in 2008.

Despite the macro economic situation causing a downward trend in ship prices and shipping volumes, pricing within the hull and cargo accounts is broadly in line with expectation, showing rate increases of 2% and 1% respectively. Our war account is ahead of budget as a result of the heightened risk posed by piracy and insurgency in the Gulf of Yemen, Nigeria and the Middle East. 

Political risk and contingency

The team has made a solid start to 2009, with premiums of £48.0m (2008: £29.7m). Across the portfolio rates have declined 0.6% in line with expectation.

Terrorism renewals have held up better than anticipated both in terms of volume and rate change, whilst contingency and political have relatively high proportion of new business in the respective portfolios. Volumes in contingency have been affected by the prevailing economic environment with a combination of fewer events and reduced spends/revenues affecting sums insured and, therefore, premium volumes. The team is also taking a robust approach to communicable disease exposures and is seeking to reduce our exposure to catastrophic events such as flu pandemics.

For political, the risk environment remains very complex indeed and, whilst the number of enquiries is up relative to 2008, we have revised our forecast income downwards to reflect the lack of attractive underwriting opportunities in the market. The first half year has been notable for increases in claims frequency, especially in the area of trade credit/structured trade credit; we have adjusted our reserves for ultimate losses for the 2007 and 2008 years of account accordingly. Our focus continues to be on portfolio management and positioning the business to take advantage of opportunities when market conditions improve.

Property

Overall written premiums for property have increased from £85.0m for the first six months of 2008 to £132.2m in the first half of 2009.

Across property, rates have increased by 8% during the first half of 2009, compared to a 8% reduction during the corresponding period in 2008. Rate increases have been seen in our large US commercial property account with average rate increases of 14% in the year to date.  The engineering account has been affected by the economic slowdown with construction projects either being cancelled or put on hold, which has resulted in written premiums reducing by £3.9m in 2009 compared to 2008. Following the restructuring of our UK homeowners account in the first half of 2008, we have seen a significant improvement in the performance of this portfolio. 

The outlook is positive as we expect rates to continue to increase during the rest of the year as catastrophe capacity remains tight and insurance buyers look to diversify their insurance and credit risk by placing their business with a broad base of financially secure insurers.    

Reinsurance 

We achieved written premiums of £97.0m in our reinsurance business during the first half of 2009 (2008: £50.9m).  This includes a first contribution from our accident and life business of £23.7m. In terms of the rating environment, we have experienced a gradual hardening of rates through the first six months of the year particularly in the capital intensive areas such as the US, Europe and Japan. This has been driven predominantly by the unfolding economic crisis which impacted clients' balance sheets and led to increased demand for reinsurance capital at a time of a reduction in corresponding supply. This imbalance, compounded by the market impact of Hurricane Ike last year, has caused catastrophe rates to increase by 14% in the US and by 5% in other territories.

In terms of claims, the first half of the year has been stable for the reinsurance team with no significant activity on the per risk or catastrophe lines. The beginning of the year saw two natural perils events, Windstorm Klaus in France and Spain and the bushfires in Southern Australia. While the market losses for these events are estimated at $2bn and $1bn respectively, the losses to the team are manageable and within the planned attritional loss ratio for the portfolio. 

The accident and life team (A&L), which was acquired in the fourth quarter of 2008, has made a good start. Gross premiums written are ahead of expectations at this stage. The underwriting team have experienced a positive response to their presence at Lloyd's which has meant that not only have they been able to retain key business, they are reporting an increase in new business written due to increased access to the market. 

The Munich office has enjoyed a strong first eight months of operations since it opened in October 2008. The team has been able to diversify Beazley's existing portfolio with small to mid-sized risks which are generally not seen in the London market.

Specialty lines

Specialty lines has performed well during the first half of the year, writing gross premiums of £215.5m (2008: £170.5m). 

Whilst competition remains, as few insurers are withdrawing from the market place, our brand awareness is growing and the Lloyd's brand is very strong and this continues to attract insureds looking to manage their exposures during the difficult economic conditions.

The prior years continue to develop well. In the first half of the year reserve releases of £20.5m (2008 : £9.0m) were generated. 

The team continues to adhere to the cycle management and recession strategies in place and these are consistently monitored. Specialty lines continues to grow in areas that show the most opportunity, and we are investing in the underwriting teams both in London and the US across D&O, Healthcare and Technology & Media. In June we announced plans to establish an environmental risks team led by John Beauchamp.  

US operations 

We have continued to develop our US operations in 2009, growing gross premiums written by 36% to $188.5m driven by the acquisition of First State which wrote $54.0m during the period. The US operation was established in 2005, and we have seen sustained growth year on year since it started. In November 2008, AM Best reaffirmed the rating of our insurance carrier, Beazley Insurance Company, Inc ('BICI') as A (excellent). The company is separately capitalised to $111.0m.

The US initiative is a core part of the group's strategy as it enables access to the US market which would not ordinarily be available to traditional Lloyd's carriers. We write business in the US through our own managing general agent (MGA), on behalf of both the syndicates at Lloyd's and the US domestic insurance company, BICI. During 2009, we saw premiums written by BICI increase to $87.0m (2008: $74.2m), whilst $101.5m (2008: $64.9m) was written on a surplus lines basis through our Lloyd's syndicates. 

We underwrite two main product lines in the US - specialty lines liability insurance and property insurance. Our specialty lines team, which represents around 58% of business written, has had a satisfactory six months, writing premiums of $109.8m (up 3%). We were particularly pleased to see the development of our technology and media product, which grew by 39% to $27.2m, and our management liability account, which grew 41% to $26.9m. Our largest line in the US, architects and engineers insurance remained stable at $42.1m (2008:$41.1m). 

The property group has continued to expand its local presence in the US market place with the acquisition of First State. It provides access to one of the most profitable surplus lines property teams in the US market with an extensive distribution network. Beazley know the business well, having participated on First State's reinsurance programme for over 15 years. Together with our existing surplus lines homeowners businesses and admitted commercial property businesses we are able to offer a broad range of products, highly experienced underwriters, flexible coverage and rapid and accurate policy issuance. 

The property group in the US has achieved a large increase in premiums written to $78.7m.  First State alone accounted for $54.0m, including $25.5m of policies that were transferred to Beazley as part of the acquisition agreement. 

Last year, we underwrote $269.1m for the full year through our US operations and have set ourselves an objective for 2009 of $450m.

Investment performance

Investment income for the first six months was £27.0m or an annualised return of 2.9%, compared with £13.2m (annualised 1.7%) over the same period in 2008.  

During April 2009, Beazley commenced a restructuring of its investment portfolio which included, in the first instance, a de-risking programme to reduce the investment risk in our portfolios, and to increase the allocation to highly liquid and government guaranteed investments, a process largely completed by mid-June. Over the course of the year we will make further moderate allocations to alternative assets in order to optimise the risk/ return profile of the portfolio.

Beazley have worked during 2009 to establish Falcon Money Management ('Falcon'), an associate firm providing investment management and advisory services. This followed a strategic review of the group investment approach in late 2008. Falcon is a team of 12 highly experienced investment professionals, headed by Michael Perotti, formerly chief investment officer of Union Bancaire Privee's London branch. Falcon is aiming to enhance our investment returns whilst at the same time minimising risk. Falcon is currently applying to be a separately authorised FSA investment manager. Initially investment management and advisory services will be offered solely to Beazley and only at a later stage to third party institutional investors.

In the second quarter, the impact of the various central government stimulus packages started to take effect, combined with a feeling in the markets that the worst of the economic slowdown was now behind us. Credit and equity markets were robust during May and June, and the performance of our credit and alternative asset portfolios was encouraging throughout these periods. The asset breakdown below shows a reduction in riskier fixed interest assets. Meanwhile exposure to governmental organisations and financial institutions that are supported by governments has increased significantly.

As of the end of June, our portfolio breakdown was:

Asset class	30  June  2009			31 December 2008
	£m	%		£m	%
Government	419	20.0%		429	21.5%
Government Agency	277	13.2%		58	2.9%
Regional and Supranational	84	4.0%		20	1.0%
Asset Backed (CMBS & MBS)	51	2.4%		56	2.8%
Corporate Bond (non Financial)	64	3.1%		181	9.1%
Corporate Bond (Financial - Govt supported *)	384	18.4%		106	5.3%
Corporate Bond (Financial - other)	106	5.1%		377	18.9%
Total bond portfolio	1,385	66.2%		1,227	61.5%
Fixed income pooled vehicles	97	4.6%		181	9.1%
Equities	-	-		18	0.9%
Hedge Funds	85	4%		103	5.2%
Cash + Money Market + Overseas Deposits	526	25.2%		465	23.3%
Total	2,093	100.0%		1,994	100.0%

* These represent corporate bond issues that receive sovereign support. Depending on jurisdiction and / or institution involved this support may take the form of a direct guarantee or a guarantee from a state sponsored vehicle

The breakdown of our bond portfolio at 30 June 2009 was:

	30 June 2009	30 June 2009		31 December 2008	31 December 2008
	£m	%		£m	%
Government, Agency and Supranational	780	37.3%		508	25.5%
AAA	444	21.2%		246	12.3%
AA+ to AA-	48	2.3%		136	6.8%
A+ to A-	82	3.9%		269	13.5%
BBB+ to BBB-	30	1.4%		68	3.4%
Sub investment grade	1	0.1%		-	-
% of total portfolio	1,385	66.2%		1,227	61.5%

The weighted average duration of our overall portfolio is 9 months (31 December 2008: 9 months). The weighted average yield to maturity of our overall portfolio is 1.5% (31 December 2008: 3.4%)

Investment Return 

Comparison of return by major asset class:

	30 June 2009	30 June 2009  annualised return		31 December 2008	31 December 2008  annual return
	£m	%		£m	%
Bond - $	14.9	3.8		(5.3)	(0.8%)
Bond - Sterling	3.3	1.0		17.5	1.9%
Equities	1.8	14.5		(20.9)	(33.9%)
Hedge Funds	4.9	11.0		(18.1)	(18.1%)
Cash	2.1	2.1		1.0	1.3%
Overall return	27.0	2.9		(25.8)	(1.5%)

Capital management and dividends

At the start of 2009 the group identified a number of reasons to increase the amount of capital it holds:

• to support the expansion of the group's existing underwriting activities driven by current rating improvements and the effects of the strengthening of the US dollar against sterling; and

• to fund the acquisition of First State and capitalise this underwriting activity

On 3rd April 2009, the group reported that £150m of additional equity capital net of fees was raised. This was achieved through a fully underwritten 9 for 19 rights issue and a placement. Of the shares issued, 165.6m were accepted by existing shareholders with the other 17.4m being placed with investors at an average price of 90.0p.

We continue to monitor closely our surplus capital position, which can be analysed as follows:

	2009 HY	2008
Sources of funds
- shareholders funds	560.5	412.7
- Debt (£m)	160.9	162.5
	721.4	575.2
Uses of funds
- Lloyd's underwriting (£m)	494.4	360.8
- US insurance company (£m)	67.3	77.1
	561.7	437.9
Surplus (£m)	159.7	137.3
Unavailable surplus (£m) *	(47.6)	(18.0)
Fixed and intangible assets (£m)	(70.5)	(60.6)
	41.6	58.7

* The principal element of this is profit on business underwritten at Lloyd's that has not yet been released under the Lloyd's accounting system.

The board is pleased to report that it will pay an increased interim dividend of 2.3p (2008: 2.2p). This will be paid on 28 August 2009 to shareholders on the register on 31 July 2009. 

Redomiciliation to Ireland

We have changed the corporate structure of the group by putting in place a new parent company, Beazley plc, which is UK listed, incorporated in Jersey and tax resident in the Republic of Ireland. We have also established a new reinsurer in the Republic of Ireland, Beazley Re Ltd.  

The move to Ireland will benefit the group in the following ways:

• provide a base from which the group can develop its European insurance operations; 

• through lowering the effective tax rate from the UK rate of 28% to a hybrid rate of around 19% from 2009; and

• generate a one-off benefit of approximately £4m in 2009 arising from applying the new lower effective tax rate to deferred tax balances brought forward from 2008.

Management Changes

The new management team is now in place.  Martin Bride joined Beazley as group finance director on 27th April, and was appointed to the board of Beazley plc on 5th May 2009. Martin joins us from Zurich Financial Services where he was CFO of the UK life business. Prior to joining Zurich, he was CFO of Aviva France and his career includes a number of senior level finance and general management roles in insurance.

Padraic O'Connor and Vincent Sheridan have been appointed as non-executive directors of Beazley plc. Padraic is currently chairman of the Irish Stock Exchange, chairman of Hewitt Associates in Ireland and a non-executive director of a number of companies including ACC Bank. Vincent Sheridan is currently chairman of the Truelife Group and a non-executive director of FBD Holdings Ltd. He retired as chief executive of Vhi Healthcare in 2008 and was previously group chief executive of the Norwich Union Insurance Group in Ireland for ten years. He was a director of the Irish Stock Exchange for nine years to June 2004.

Outlook

The first half of 2009 has seen an encouraging underwriting performance complemented by a satisfactory investment return. We have positioned ourselves to take advantage of hardening markets and we have already achieved rate increases across substantial parts of our portfolio, particular those affected by the 2008 hurricanes. The insurance and financial events in 2008 again focused attention of insurance buyers towards strongly rated and capitalised vehicles such as Beazley and Lloyd's. The capital raising and the acquisition of First State have ensured we are in a good position to benefit from the favourable conditions that prevail.  

In specialty lines we continue to underwrite selectively and with a focus on profitability and we expect to be able to take advantage of opportunities to grow our portfolio during 2009 and 2010 as the further rate increases that we believe the market requires materialise.

I have also been pleased with the way the new management team have settled over the past year and the huge amount of energy that they have displayed. The volume of corporate activity, from capital raising, to the First State acquisition, to redomiciliation to the Republic of Ireland, through quick, yet measured decisions, is a testament to this effort. I am confident that the team is capable and ready to take the business forward in these exciting times.

Andrew Horton

 Income Statement - For the period ended 30 June 2009

	Note		6 months ended 30 June 2009  £m		6 months ended 30 June 2008  £m		Year to 31 December 2008 £m
Gross premiums written	2		596.4		407.3		875.7
Written premiums ceded to reinsurers			(254.9)		(115.0)		(135.3)
Net premiums written	2		341.5		292.3		740.4
Change in gross provision for unearned premiums			(134.9)		(25.3)		(53.4)
Reinsurer's share of change in the provision for unearned premiums			152.1		45.2		(3.9)
Change in net provision for unearned premiums			17.2		19.9		(57.3)
Net earned premiums	2		358.7		312.2		683.1
Net investment income	3		27.0		13.2		(25.8)
Other income	4		6.4		4.1		10.1
			33.4		17.3		(15.7)
Revenue	2		392.1		329.5		667.4
Insurance claims			283.0		214.2		522.1
Insurance claims recovered from reinsurers			(73.5)		(45.4)		(121.0)
Net insurance claims	2,7		209.5		168.8		401.1
Expenses for the acquisition of insurance contracts			91.3		82.0		182.6
Administrative expenses			37.3		29.1		54.7
Foreign exchange (gain)/ loss			29.6		(1.4)		(70.8)
Operating expenses			158.2		109.7		166.5
Expenses	2		367.7		278.5		567.6
Results of operating activities			24.4		51.0		99.8
Finance costs			(4.3)		(6.0)		(12.6)
Profit before tax			20.1		45.0		87.2
Comprises:
Profit before tax and foreign exchange adjustments on non-monetary items			69.9		46.0		41.0
Foreign exchange adjustments on non-monetary items			(49.8)		(1.0)		46.2
Income tax credit / (expense)	8		0.7		(12.9)		(22.8)
Profit after tax			20.8		32.1		64.4
Earnings per share (pence per share):
Basic	5		4.9		8.9		18.2
Diluted	5		4.7		8.6		17.4

Statement of comprehensive income

For the period ended 30 June 2009

		30 June 2009  £m		30 June 2008  £m		31 December 2008 £m
Profit after tax		20.8		32.1		64.4
Other comprehensive income
Change in net investment hedge		6.7		0.7		(14.7)
Foreign exchange translation differences		(16.0)		0.9		27.2
Total other comprehensive income		(9.3)		1.6		12.5
Total comprehensive income recognised		11.5		33.7		76.9

Statement of changes in equity

For the period ended 30 June 2009

			Share Capital  £m		Reserves £m		Retained Earnings £m		Total £m
Balance as at 1 January 2008			18.4		223.1		157.1		398.6
Total comprehensive income recognised			-		1.6		32.1		33.7
Dividends paid			-		-		(27.9)		(27.9)
Issue of shares			0.1		-		-		0.1
Equity settled share-based payments			-		2.3		-		2.3
Acquisition of own shares held in trust			-		(5.4)		-		(5.4)
Purchase of treasury shares			-		(24.9)		-		(24.9)
Balance as at 30 June 2008			18.5		196.7		161.3		376.5
Total comprehensive income recognised			-		10.9		32.3		43.2
Dividends paid			-		-		(7.5)		(7.5)
Issue of shares			-		0.8		-		0.8
Equity settled share-based payments			-		1.1		-		1.1
Acquisition of own shares held in trust			-		(1.6)		-		(1.6)
Purchase of treasury shares			-		-		-		-
Transfer of shares to employees			-		0.2		-		0.2
Balance as at 31 December 2008			18.5		208.1		186.1		412.7
Total comprehensive income recognised			-		(9.3)		20.8		11.5
2008 final dividends paid			-		-		(14.8)		(14.8)
Issue of shares			9.2		140.9		-		150.1
Equity settled share-based payments			-		2.4		-		2.4
Acquisition of own shares held in trust			-		(1.4)		-		(1.4)
Cancellation of treasury shares			(1.0)		1.0		-		-
Transfer on scheme of arrangement and reverse acquisition					(358.4)		358.4		-
Balance as at 30 June 2009			26.7		(16.7)		550.5		560.5

Balance Sheet

As at 30 June 2009

		30 June 2009  £m		30 June 2008  £m		31 December 2008 £m
Assets
Intangible assets		63.6		26.7		52.5
Plant and equipment		6.9		6.7		8.1
Investments in associates		-		1.3		-
Deferred acquisition costs		98.1		91.4		91.5
Deferred income tax		5.4		4.7		6.8
Financial investments		1,567.3		1,198.9		1,550.6
Derivative financial instruments		4.6		-		2.7
Insurance receivables		336.0		248.9		287.8
Reinsurance assets		686.8		443.8		538.6
Other receivables		31.1		19.7		15.3
Cash and cash equivalents		526.3		370.8		443.6
Total assets		3,326.1		2,412.9		2,997.5
Equity
Share capital		26.7		18.5		18.5
Reserves		(16.7)		196.7		208.1
Retained earnings		550.5		161.3		186.1
Total equity		560.5		376.5		412.7
Liabilities
Insurance liabilities		2,315.5		1,692.4		2,246.7
Borrowings		171.1		153.8		177.5
Derivative financial instruments		-		1.1		-
Deferred income tax		15.4		34.2		37.1
Current income tax liabilities		20.1		5.4		7.8
Creditors		243.5		149.5		115.7
Total liabilities		2,765.6		2,036.4		2,584.8
Total equity and liabilities		3,326.1		2,412.9		2,997.5

Cash flow statement

For the period ended 30 June 2009

		6 months ended 30 June 2009  £m		6 months ended 30 June 2008  £m		Year to 31 December 2008 £m
Cash flow from operating activities
Profit before tax		20.1		45.0		87.2
Adjustments for non-cash items:
Amortisation of intangibles		0.7		2.5		3.5
Depreciation of plant and equipment		1.5		0.6		2.6
Equity settled share based compensation		0.6		1.6		3.4
Retranslation of overseas net assets		3.6		-		(5.6)
Net fair value losses/(gains) on financial investments		(3.4)		(16.2)		38.1
Transfer of shares to employees		1.2		0.9		1.2
Increase in insurance and other liabilities		207.6		261.8		775.4
Increase in insurance, reinsurance and other receivables		(211.0)		(147.1)		(276.4)
Decrease in deferred acquisition costs		(6.6)		(9.4)		(9.5)
Financial income		(31.2)		(26.2)		(65.1)
Financial expense		4.3		6.0		12.6
Income tax paid		(18.2)		(17.9)		(26.2)
Contribution to pension fund		-		(0.9)		(0.9)
Acquisition of own shares in trust		(0.8)		(5.4)		(7.1)
Net cash from operating activities		(31.6)		95.3		533.2
Cash flow from investing activities
Purchase of plant and equipment		(0.3)		(0.3)		(3.5)
Purchase of syndicate capacity		-		-		(0.5)
Disposal of licenses		-
Purchase of subsidiary (net of cash acquired)		(13.4)		-		(9.4)
Expenditure on software development		(2.0)		(0.3)		(3.3)
Purchase of investments		(6,371.9)		(1,659.8)		(2,873.1)
Proceeds from sale of investments		6,358.6		1,609.3		2,415.7
Interest and dividends received		31.2		26.2		65.1
Net cash used in investing activities		2.2		(24.9)		(409.0)
Cash flow from financing activities
Proceeds from issue of shares		150.0		0.8		0.8
Purchase of treasury shares		-		(24.9)		(24.9)
Interest paid		(4.3)		(6.0)		(12.6)
Dividends paid		(14.8)		(27.8)		(35.4)
Net cash used in financing activities		130.9		(57.9)		(72.1)
Net increase in cash and cash equivalents		101.5		12.5		52.1
Cash and cash equivalents at beginning of period		443.6		358.3		358.3
Effect of exchange rate changes on cash and cash equivalents		(18.8)		-		33.2
Cash and cash equivalents at end of period		526.3		370.8		443.6

Notes to the financial statements

For the period ended 30 June 2009

1.    Statement of accounting policies

Beazley plc is a group incorporated in Jersey and domiciled in the Republic of Ireland. The interim financial statements of the group for the six months ended 30 June 2009 comprise the parent company 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 2008 and have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. Our full accounting policies are set out in the Beazley Group plc 2008 annual report.  These accounting policies have been applied in addition to the following amendments that have become effective during 2009:

IAS 1 (amended) 'Presentation of Financial Statements'

IFRS 7 (amended) 'Financial Instruments: Disclosures'

New holding company

Beazley plc was incorporated in Jersey on 20 February 2009 under the Jersey Companies Law as a public company limited by shares and with registered number 102680. With effect from 9 June 2009, under a scheme of arrangement involving a share exchange with the members of Beazley Group plc, the company became the new holding company of the Beazley group of companies.

Throughout the period from incorporation to 9 June 2009 Beazley plc was a shell company with no material revenues and assets and did not constitute a 'business' as defined by IFRS 3 Business combinations. Consequently, due to the relative values of both companies, the shareholders of Beazley Group plc immediately before the share exchange acquired, in effect, 100 per cent of the share capital of Beazley plc on completion of the transaction.

In order to appropriately reflect the substance of the transaction outlined above, the new holding company has been accounted for using the reverse acquisition principles outlined in IFRS 3. Consequently, Beazley Group plc is deemed to be the acquirer for accounting purposes and the legal parent company, Beazley plc is treated as a subsidiary whose identifiable assets and liabilities are incorporated into the group at fair value.

The Group's consolidated financial statements are issued in the name of the legal parent company, Beazley plc. However, as a consequence of applying reverse acquisition accounting, the results for the six month period ended 30 June 2009 represent a continuation of the consolidated activities of the Beazley group of companies. The consolidated balance sheet at 30 June 2009 reflects the issued share capital and reserves of Beazley plc. The comparative figures are those of Beazley Group plc as originally reported for the relevant period. 

The comparative figures for the financial year ended 31 December 2008 are extracted from the statutory accounts of Beazley Group plc for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) of 237 (3) of the Companies Act 1985.

2.    Segmental analysis

Segment information is presented in respect of reportable segments. This is based on the group's management and internal reporting structures and represents the level at which financial information is reported to the board, being the chief operating decision maker as defined in IFRS 8. 

Foreign exchange differences on non-monetary items have been left unallocated. This has been separately disclosed as it provides a fairer representation of the loss ratios, which would otherwise be distorted by the mismatch arising under IFRSs whereby unearned premium reserve, reinsurers share of unearned premium reserve and DAC are treated as non-monetary items and claims reserves are treated as monetary items. Non-monetary items are carried at historic exchange rates, while monetary items are translated at closing rates. This imbalance creates volatility in our accounts which cannot be hedged as the mismatch is not monetary in nature.  

Finance costs and taxation have not been allocated to operating segments as these items are determined by entity level factors and do not relate to operating performance.

30 June 2009
	Marine £m	Political risk and contingency £m	Property  £m	Reinsurance  £m	Specialty lines £m	Total reportable segments	Unallocated £m	Total £m
Gross premiums written	103.7	48.0	132.2	97.0	215.5	596.4	-	596.4
Net premiums written	82.1	34.4	49.3	76.4	99.3	341.5	-	341.5
Net earned premiums	72.2	34.4	71.2	41.6	171.0	390.4	(31.7)	358.7
Net investment income	2.9	1.3	3.8	1.9	17.1	27.0	-	27.0
Other income	0.7	0.3	1.6	1.5	2.3	6.4		6.4
Revenue	75.8	36.0	76.6	45.0	190.4	423.8	(31.7)	392.1
Net insurance claims	31.2	18.5	39.0	15.4	105.4	209.5	-	209.5
Expenses for the acquisition of insurance contracts	19.7	8.6	24.1	8.9	40.3	101.6	(10.3)	91.3
Administrative expenses	5.2	3.6	8.4	6.5	13.6	37.3	-	37.3
Foreign exchange loss	0.2	0.1	0.2	0.2	0.5	1.2	28.4	29.6
Expenses	56.3	30.8	71.7	31.0	159.8	349.6	18.1	367.7
Segments result	19.5	5.2	4.9	14.0	30.6	74.2	(49.8)	24.4
Finance costs								(4.3)
Profit before tax								20.1
Income tax credit								0.7
Profit after tax								20.8
Claims ratio	43%	54%	55%	37%	62%	54%
Expense ratio	34%	35%	46%	37%	32%	36%
Combined ratio	77%	89%	101%	74%	94%	90%

30 June 2008
	Marine £m	Political risk and contingency £m	Property  £m	Reinsurance £m	Specialty lines £m	Total reportable segments	Unallocated £m	Total £m
Gross premiums written	71.2	29.7	85.0	50.9	170.5	407.3	-	407.3
Net premiums written	53.9	19.3	57.9	39.7	121.5	292.3	-	292.3
Net earned premiums	54.7	24.0	63.3	28.6	142.4	313.0	(0.8)	312.2
Net investment income	1.4	1.0	1.7	1.6	7.5	13.2	-	13.2
Other income	1.1	0.5	1.2	0.4	0.9	4.1	-	4.1
Revenue	57.2	25.5	66.2	30.6	150.8	330.3	(0.8)	329.5
Net insurance claims	21.4	10.2	36.3	12.1	88.8	168.8	-	168.8
Expenses for the acquisition of insurance contracts	16.6	7.1	18.3	5.0	34.8	81.8	0.2	82.0
Administrative expenses	4.6	3.1	5.7	2.8	12.9	29.1	-	29.1
Foreign exchange (gain)	(0.2)	-	(0.2)	(0.3)	(0.7)	(1.4)	-	(1.4)
Expenses	42.4	20.4	60.1	19.6	135.8	278.3	0.2	278.5
Segments result	14.8	5.1	6.1	11.0	15.0	52.0	(1.0)	51.0
Finance costs								(6.0)
Profit before tax								45.0
Income tax expense								(12.9)
Profit after tax								32.1
Claims ratio	39%	43%	57%	42%	62%	54%
Expense ratio	39%	43%	38%	27%	33%	35%
Combined ratio	78%	86%	95%	69%	95%	89%

31 December 2008
	Marine £m	Political risk and contingency £m	Property  £m	Reinsurance £m	Specialty lines £m	Total reportable segments £m	Unallocated £m	Total £m
Gross premiums written	148.7	70.4	179.2	70.2	407.2	875.7	-	875.7
Net premiums written	128.2	56.0	147.2	58.0	351.0	740.4	-	740.4
Net earned premiums	127.4	55.0	157.8	55.9	316.8	712.9	(29.8)	683.1
Net investment income	(2.9)	(0.3)	(2.8)	(1.7)	(18.1)	(25.8)	-	(25.8)
Other income	1.5	0.6	2.7	0.7	4.6	10.1	-	10.1
Revenue	126.0	55.3	157.7	54.9	303.3	697.2	(29.8)	667.4
Net insurance claims	61.8	14.4	105.2	21.8	197.9	401.1	-	401.1
Expenses for the acquisition of insurance contracts	37.8	13.8	53.8	10.5	71.0	186.9	(4.3)	182.6
Administrative expenses	8.2	6.0	9.1	4.6	26.7	54.6	0.1	54.7
Foreign exchange loss / (gain)	0.1	0.1	0.3	0.1	0.4	1.0	(71.8)	(70.8)
Expenses	107.9	34.3	168.4	37.0	296.0	643.6	(76.0)	567.6
Segments result	18.1	21.0	(10.7)	17.9	7.3	53.6	46.2	99.8
Finance costs								(12.6)
Profit before tax								87.2
Income tax expense								(22.8)
Profit after tax								64.4
Claims ratio	49%	26%	67%	39%	62%	56%
Expense ratio	36%	36%	40%	27%	31%	34%
Combined ratio	85%	62%	107%	66%	93%	90%

3. Net investment return

		6 months ended 30 June 2009  £m		6 months ended 30 June 2008  £m		Year to 31 December 2008 £m
Investment income at fair value through income statement		31.2		26.2		65.1
Realised losses on financial investments at fair value through income statement		(4.0)		(17.3)		(49.5)
Net fair value gains/(losses) on financial investments through income statement		3.4		5.5		(38.1)
Investment management expenses		(3.6)		(1.2)		(3.3)
		27.0		13.2		(25.8)

4. Other income

		6 months ended 30 June 2009  £m		6 months ended 30 June 2008  £m		Year to 31 December 2008 £m
Profit commissions		1.7		2.5		5.0
Agency fees		0.4		0.5		1.0
Other income		4.3		1.1		4.1
		6.4		4.1		10.1

5.  Earnings per share

		6 months ended 30 June 2009		6 months ended 30 June 2008		Year to 31 December 2008
Basic		4.9p		8.9p		18.2p
Diluted		4.7p		8.6p		17.4p

Basic

Basic earnings per share is calculated by dividing profit after tax of £20.8m (2008: £32.1m) by the weighted average number of issued shares during the period of 425.8m (2008: 362.1m). The shares held in the ESOP have been excluded from the calculation until such time as they vest unconditionally with the employees. 

Diluted

Diluted earnings per share is calculated by dividing profit after tax of £20.8m (2008: £32.1m) by the adjusted weighted average number of shares of 440.1m (2008: 374.1m). The adjusted weighted average number of shares assumes conversion of all dilutive potential ordinary shares, being share options. The shares held in the ESOP have been excluded from the calculation until such time as they vest unconditionally with the employees.

The weighted average has been adjusted for the effect of bonus shares issued at the time of the rights issue in March 2009 resulting from the discounted offer. Under IAS 33 the bonus element of the rights issue must be reflected in the calculation of earnings per share as though these bonus shares had always been in issue. The comparative figures have been accordingly re-stated for both basic and diluted calculations.

6.  Dividends

An interim net dividend of 2.3p (2008: 2.2p) per ordinary share is payable on 28 August 2009 to shareholders registered on 31 July 2009 in respect of the six months to 30 June 2009. These financial statements do not provide for the dividends as a liability.

7.  Insurance claims

The loss development tables below provide information about historical claims development by the five segments - marine, political risk and 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 ratio and ultimate net claims ratio. 

The top part of the table illustrates how the group's estimated 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 balance sheet.

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 redundancies or deficiencies of the past on current claims liabilities. The group believes that the estimates of total claims liabilities as at 30 June 2009 are adequate. However, due to inherent uncertainties in the reserving process, it cannot be assured that such balances will ultimately prove to be adequate. 

 

END

 

 

IR DBGDRBDDGGCS