Preliminary Results
Press Release
Beazley Delivers Strong Profits and Growth in 2009
Proceeds from £150 million rights issue profitably deployed
Dublin, February 9, 2010
Beazley plc results for year ended 31st December 2009
· Profit before income tax up 15% to £100.7m (2008: £87.2m)
· Underlying profit* before income tax up 259% to £147.3m (2008: £41.0m)
· Return on equity of 17% (2008: 16%), or 25% based on underlying profit* (2008: 8%)
· Gross written premiums up 27% to £1,115.5m (2008: £875.7m)
· Average rate increase of 3% (2008: 6% decrease)
· Investment income of £56.1m (2008: loss of £25.8m)
· Second interim dividend of 4.7p, taking the full year dividend to 7.0p (2008: 6.6p), up 6%
Strong underwriting performance
· Combined ratio 90% (2008: 90%)
· Prior year reserve releases of £67.2m (2008: £72.8m)
Healthy financial position
· Investment and cash balances up to £2,274.3m (2008: £1,994.2m)
· Net tangible assets (NTA) of £548.1m (2008: £360.2m)
· NTA per share 105.5p down 1% (2008: 106.9p) but up 8% on post rights issue NTA per share of 98.1p
· Net asset value (NAV) per share of 119.0p, down 3% (2008: 122.5p) but up 10% on post rights issue NAV per share of 108.0p
Strategic initiatives
· Raised £150 million in April 2009 to capitalise on attractive growth opportunities at Lloyd's and in the US; capital fully deployed
· Acquired First State Management Group, increasing US commercial property presence
· Re-domiciled to Ireland
Summary Financial Information
|
|
|
2009 £m |
2008 £m |
|
Movement % |
|
Gross premiums written |
|
1,115.5 |
875.7 |
|
27% |
|
Net premiums written |
|
848.0 |
740.4 |
|
15% |
|
|
|
|
|
|
|
|
Profit before income tax |
|
100.7 |
87.2 |
|
15% |
|
Underlying profit before income tax* |
|
147.3 |
41.0 |
|
259% |
|
|
|
|
|
|
|
|
Claims ratio |
|
55% |
56% |
|
- |
|
Expense ratio |
|
35% |
34% |
|
- |
|
Combined ratio |
|
90% |
90% |
|
- |
|
|
|
|
|
|
|
|
Rate increase/(reduction) |
|
3% |
(6%) |
|
- |
|
Investment return |
|
2.7% |
(1.5%) |
|
- |
* underlying profit comprises profit before income tax after the notional adjustment on foreign exchange on non-monetary items (see detailed explanation in note 2b).
Beazley Chief Executive Officer Andrew Horton said:
"Sustained profitability through changing market conditions has long distinguished Beazley's performance. Our underwriters delivered again in 2009, recording a very strong underwriting result, particularly in our marine and reinsurance accounts"
"We took a number of steps in 2009 to ensure that, as profitable growth opportunities emerge in future, we will be ready to grasp them. In particular, our £150 million rights issue reinforced our underwriting capabilities at Lloyd's and funded the successful acquisition of First State Management Group, a US insurer of commercial property risks."
"In 2010 insurers and reinsurers will be fortunate to experience a repeat of the past year's low incidence of catastrophe losses. Rates for catastrophe exposed business have fallen but remain relatively high. In the specialty lines market, mainly comprising professional indemnity business, we expect rates to rise modestly in 2010, driven by recession-related losses in some areas, low investment income and inflationary threats. Our diverse book of business in this class and strong track record in cycle management enabled us to navigate a challenging market in 2009 and we are well placed to benefit from any rate rises that occur."
For further information, please contact:
Beazley plc Andrew Horton/Martin Bride T: +44 (0)20 7667 0623
Finsbury Guy Lamming T: +44 (0)20 7251 3801
Note to editors:
Beazley plc (BEZ.L), is the parent company of specialist insurance businesses with operations in Europe, the US, Asia and Australia. Beazley manages five Lloyd's syndicates and, in 2009, underwrote gross premiums worldwide of £1,115.5 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 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
Annual statement
Beazley thrived in 2009, ending the year with a pre-tax profit of £100.7m (2008: £87.2m) on gross premiums which rose 27% from 2008 to £1,115.5m. Underlying profits* rose from £41.0m to a record £147.3m*. After accounting for an increase in the value of the US dollar relative to sterling during the year (three quarters of our premium is denominated in dollars), our top line premium growth in constant currency terms was 12.2%. For the fourth year in succession, we achieved a combined ratio of 90%.
The board is pleased to announce a second interim dividend of 4.7p (2008: 4.4p final dividend), bringing the total dividend for the year to 7.0p, an increase of
6% over 2008.
Our strong underlying profits* in 2009 delivered a return on equity of 25% (2008:8%), a testament to the success of our underwriters in identifying new profitable opportunities where these were to be found (most frequently last year in the marine, energy and reinsurance markets), and in resisting the temptation to pursue business where in our view premium rates failed to keep pace with expected claims frequency.
Our investment performance also recovered strongly, returning £56.1m following a loss in 2008. This was accomplished whilst de-risking the investment portfolio (moving a large portion of the portfolio into government bonds and government supported assets) which should give us better protection against a severe market downturn in future.
During 2009 we began to see the benefit of two acquisitions. Momentum Underwriting Management Limited, a London-based underwriting agency which we acquired in 2008, was rebranded as Beazley's accident & life division and underwrote £43.2m in gross premiums. In the US, we acquired First State Management Group Inc (First State), a leading underwriting manager specialising in surplus lines commercial property insurance. Judy Patterson and her highly experienced team at First State now form the core of our surplus lines commercial property team in the US, which underwrote gross premiums of $93.9m in 2009.
Capital raising deployed on market opportunities
We saw an opportunity in 2009 to increase our exposure to catastrophe exposed business at attractive premium rates. Substantial claims from the previous year's hurricanes Ike and Gustav (the former the third most costly hurricane to insurers on record) pushed up premium rates for catastrophe exposed classes of insurance and reinsurance business.
In the spring, we raised £150m of additional capital through a fully underwritten rights issue and placing. $75.0m of the proceeds were used to acquire and capitalise the First State business. The balance was used to increase our underwriting at Lloyd's.
As expected, premium rates increased substantially in the classes of business which we had targeted, with increases of 9% in our reinsurance business, 6% in our commercial property business, and 27% in our energy business. We utilised our new capital by writing an additional £239.8m for the account of our reinsurance, property and marine divisions. Our marine division, which includes energy insurance, in particular had a banner year, with gross premiums up 14% and a combined ratio of 74%. Clive Washbourn, who leads the division, and Paul Dawson, who heads our energy team, enjoy widespread respect as highly experienced lead underwriters among brokers at Lloyd's, the oldest and still the most important marine insurance market in the world.
* underlying profit comprises profit before income tax after the notional adjustment on foreign exchange on non-monetary items (see detailed explanation in note 2b).
Diversification is beneficial to an insurer as long as it is not accompanied by loss of focus or dilution of expertise. We are - and are proud to be - a specialist insurer. Across our business, we hire underwriters who really understand the risks which they are assuming and are as comfortable declining business as they are accepting it.
Specialty lines remains our largest division, accounting for 43% of our gross premiums in 2009. In 2009, Adrian Cox and his team saw attractive growth opportunities in several areas whilst carefully managing the impact of recession on claims frequency in other parts of our book.
Recession planning was fundamental to the strong 92% combined ratio achieved by specialty lines in 2009, but by no means all the lines in this account are exposed to recessionary pressures. A good example is data breach insurance, sometimes known as information security and privacy insurance. Beazley has played a leading role in the development of the data breach insurance, which protects organisations handling personally identifiable information (credit card numbers, social security numbers, health records, etc) from the consequences of loss or theft of that information.
Mike Donovan leads our technology, media and business services team which rode a powerful wave of demand for data breach insurance, helping the team to grow gross premiums by 34% to £60.6m in 2009. We believe we will continue to capture a substantial share of the growing demand for data breach insurance, particularly from healthcare providers and from retailers, largely through our new flagship product, Beazley breach response.
Claims experience
In today's environment, adroit underwriting is not enough to enable an insurer to win and hold onto profitable business. As recession took hold, our clients became ever more value conscious. Fortunately, our claims staff demonstrated the value of the Beazley product when it was needed. For example, companies look to their professional and management liability insurers when they are the target of third party lawsuits. Time and again, our specialty lines claims team were able to show clients the value of having Beazley on their side.
We continue to invest in high calibre claims professionals both in London and in the US. Almost uniquely among major insurers, we have no "claims department": our claims professionals work seamlessly with our underwriters in multi-disciplinary teams. We believe this helps deepen their client understanding and of their knowledge of the intent behind the insurance which our underwriters provide.
Our claims experience in 2009 was as a whole very positive, with a 55% claims ratio (2008: 56%). Across all lines of business we released £67.2m (2008: £72.8m) from prior year claims reserves. While making these claims releases we still maintained our robust reserving approach, holding increased margins over actuarial estimates to prior years. This point is explained further in the financial review.
Specialty lines business is sometimes assumed to be "long tail," meaning that the full extent of claims from a risk will often only become apparent long after the risk has been underwritten. For our business, this is a misnomer. We believe our specialty lines business is "medium tail" with claims having to be notified during the policy period and we normally have clarity on the cost of claims within five years of notification.
Our claims experience was not uniformly favourable in 2009. After a number of years of highly profitable underwriting, our political risks and contingency group (PCG) incurred claims on trade credit risks, particularly those supporting bank letters of credit in emerging markets. In the third quarter of the year we accordingly increased our reserves to cover these and potential future claims. The negative impact on profit of increasing these reserves in 2009 was £33m. We have taken the view that claims may continue at a high level into 2010 and these reserves provide for that eventuality.
Taking a longer view, our political risks and trade credit account has been very profitable for Beazley since its inception in 1998. The business is uncorrelated with our other lines and made particularly valuable contributions to earnings in 2005 and 2008 years in which severe hurricane seasons depressed returns from other short tail lines of business.
Consistent underwriting profitability shows the value of cycle management
The consistency of our underwriting profits through recent years bears witness to the success of our cycle management strategy. Diversification plays an important part in this, but equally important is our underwriters' ability to respond quickly to opportunities and threats as they arise. In making these calls, our underwriters rely on their own experience and that of the company as a whole through previous cycles. They are also supported by rich resources of proprietary and non-proprietary data.
New investment management team
We are an underwriting-focused business and the primary objective of our investment team is to ensure that the success of our underwriters is complemented by a balanced level of investment risk. In 2009, we transferred the management of our investments to a new and highly experienced team led by the founder and CEO of the Falcon Money Management Group, Michael Perotti. Beazley has a minority stake in Falcon, which will focus exclusively on the management of Beazley's investments for its first two years before accepting third party mandates.
The team's focus in the early months of 2009 was on de-risking our portfolio in order to provide confidence that any further turbulence in investment markets would not impact on Beazley's ability to capitalise on hardening insurance markets. Falcon is now working to implement our investment approach of combining a core fixed income portfolio with a moderate allocation to capital growth strategies through alternative investments.
After a disappointing 2008, our investments returned a profit of £56.1m (2008: a loss of £25.8m) equating to a 2.7% return which is a satisfactory result for a portfolio which has a high proportion of sovereign guaranteed securities.
Re-domiciliation to Dublin
In March 2009 we re-domiciled our holding company to Ireland. Having reviewed our options, we concluded that this move was in the best interests of our shareholders. Ireland gives us a strong regulatory environment, has the benefit of being part of the EU, and has a competitive tax regime. Our move resulted in a lower effective tax rate of 12% in 2009 (2008: 26%), a net profit impact of £14m. This rate included a one-off benefit of the re-domiciliation in 2009; our long term effective tax rate is expected to be approximately 18%.
US and other international expansion
Lloyd's remains our preferred place to do business but we recognise the desire and ability of brokers and clients to place some risks, in business lines which we already know and like, in their local markets. In the US in particular, around 85% of the commercial lines insurance market is not accessible from Lloyd's because Lloyd's is not licensed as an admitted insurer in most of the states. It was a desire to access this business which led us to establish a local presence in the US in 2005 - a presence that contributed $370.7m to our gross premiums in 2009, up 38% from 2008. Although strong, this growth rate was lower than we had expected, primarily because premium rate rises on property business slowed in the second half of the year.
We run our Lloyd's and local US business in a way which is designed to minimise channel conflict for the brokers we work with. Our US underwriters and our Lloyd's underwriters are part of cohesive global teams which write risks of different types and sizes in accordance with the preference of brokers and clients. In general, London is a more attractive market for the larger and more complex risks, while the smaller and simpler risks (both admitted and non admitted) are underwritten locally. But London-based brokers, with their strong and well established US connections, also have access to many attractive niche markets for smaller scale risks. For example, to launch our data breach insurance product for US physicians in December we partnered closely with a number of specialist Lloyd's brokers.
Elsewhere in the world, we have established small offices staffed by knowledgeable local underwriters, charged with developing profitable niche business for the account of our Lloyd's syndicates. In continental Europe, our Paris office focuses on small scale professional liability risks, while our Munich office, which opened in October 2008, targets reinsurance business that would not normally find its way to Lloyd's. We are proud to be the first Lloyd's-based insurer to establish a reinsurance office in Munich, the home of Europe's reinsurance industry. Andreas Bergler, a former broker who heads our Munich office, has had a successful first year, writing £4.7m in gross premiums.
Developing broker relationships
Wherever we do business, the quality of our broker relationships is fundamental to our success. These relationships are fostered daily by interaction between our underwriters and the specialist brokers who handle our preferred types of business. We know that these strong personal relationships are valued by our brokers because they ensure swift responses to clients' needs - "Straight Answers" is our marketing tagline in the US.
However, as the scale and complexity of our brokers have grown, we have identified a need for a more coordinated approach to our relationships with many of our most important brokers. We have sought to understand these brokers' business development goals and, within our target markets, position ourselves as the insurer which can most effectively help them achieve their goals. Andrew Beazley has led our broker relations initiative in 2009 with a small team including King Flynn, our head of broker relations in the US, and Chris Branch, our head of broker relations (who also leads our accident and life team) in the UK. Both King and Chris are former brokers.
Future growth opportunities
Looking ahead, we have ambitions to grow both at Lloyd's and in the US. At Lloyd's, we are underweight, relative to our overall scale, in a number of potentially profitable lines. We will never "write for premium," regardless of profitability, but where market conditions are favourable, we will be determined in our efforts to grow our business.
In the US, the world's largest insurance market by far, our future growth will be supported by a distribution strategy that can support a far larger flow of profitable business than we currently handle. Our broker relations initiative will help make this happen but we are also exploring other ways to scale up our distribution. We are aware that face to face contact with our underwriters as decision makers is a major attraction for many brokers in the US, as it has always been in London. Our distribution strategy will reflect this.
We also see growth potential through our Lloyd's syndicates in continental Europe, where demand for focused professional liability insurance expertise is often strong.
Enhancing broker and client service
High-quality underwriting and claims service are central to what Beazley offers, but they cannot be delivered by underwriters and claims staff alone. As the company grows, the infrastructure which supports its growth must adapt and develop. David Marock, who was appointed chief operating officer in the summer of 2008, is responsible for achieving this as well as for our talent management function, ensuring that we recruit the best employees and give them the means to excel.
In 2009, we made two major investments in systems which will enhance our broker and client service. Beazley Pro, our online trading platform for specialty lines in the US, came on stream in November, generating immediate time savings and reducing the potential for errors in policy documentation. Our new claims system, ClaimCenter, will support all phases of claims handling for all Beazley lines of business worldwide. Both Beazley Pro and ClaimCenter were delivered by Philippe Mazas, our chief information officer, and his team on time and on budget.
Risk management
We are proud of our record of twenty four years of unbroken profit. The expertise of our underwriters and the diversity of our portfolio have clearly been important factors in this, and a culture of strong risk management has played a critical role. In 2007 we became the first Lloyd's insurer to be rated as "strong" for enterprise risk management by Standard & Poor's and even now are one of only a handful of insurers and reinsurers so rated.
Board update
In December 2009 Dudley Fishburn, who had been a Beazley plc non-executive director and chairman of the remuneration committee since November 2002, retired from the board. We take this opportunity to thank Dudley for his contribution to the group over the past seven years. He has been succeeded as chairman of the remuneration committee by Andy Pomfret who was first appointed as a non-executive director in November 2002. Andy has been succeeded as chairman of the audit committee by Gordon Hamilton who was first appointed as a non-executive director in September 2006.
George Blunden has been appointed as a non-executive director with effect from 1 January 2010. He will be subject to re-election by shareholders at the company's annual general meeting in 2010. George has been a non-executive director of our managing agency, Beazley Furlonge Limited, since 1993.
As we look back on 2009, the company's employees can take credit for a solid record of achievement in often tumultuous markets. Our business became more diverse, and therefore more stable, with the growth of our non casualty business. The expertise of our underwriters in identifying profitable opportunities was apparent across our portfolio. The attractions of Beazley as a dynamic place to work were once again evident in our low staff turnover throughout the organisation. This is something we will never take for granted, remembering that good employees, like good clients, always have a choice.
Our vision is to become, and to be recognised as, the highest performing specialist insurer. In 2009 we took many steps toward achieving this objective.
Financial review
Income statement
|
|
|
2009 £m |
2008 £m |
|
Movement % |
|
|
|
|
|
|
|
|
Gross premiums written |
|
1,115.5 |
875.7 |
|
27% |
|
Net premiums written |
|
848.0 |
740.4 |
|
15% |
|
|
|
|
|
|
|
|
Net earned premiums |
|
836.7 |
683.1 |
|
23% |
|
|
|
|
|
|
|
|
Net investment income/(loss) |
|
56.1 |
(25.8) |
|
317% |
|
Other income |
|
12.5 |
10.1 |
|
24% |
|
|
|
|
|
|
|
|
Revenue |
|
905.3 |
667.4 |
|
36% |
|
|
|
|
|
|
|
|
Net insurance claims |
|
473.0 |
401.1 |
|
18% |
|
Acquisition and administrative expenses |
|
300.9 |
237.3 |
|
27% |
|
Foreign exchange loss/(gain) |
|
21.9 |
(70.8) |
|
- |
|
|
|
|
|
|
|
|
Expenses |
|
795.8 |
567.6 |
|
40% |
|
|
|
|
|
|
|
|
Finance costs |
|
8.8 |
12.6 |
|
(30%) |
|
|
|
|
|
|
|
|
Profit before income tax |
|
100.7 |
87.2 |
|
15% |
|
|
|
|
|
|
|
|
Underlying profit before income tax* |
|
147.3 |
41.0 |
|
259% |
|
|
|
|
|
|
|
|
Claims ratio |
|
55% |
56% |
|
- |
|
Expense ratio |
|
35% |
34% |
|
- |
|
Combined ratio |
|
90% |
90% |
|
- |
|
|
|
|
|
|
|
|
Rate increase/(reduction) |
|
3% |
(6%) |
|
- |
|
Investment return |
|
2.7% |
(1.5%) |
|
- |
|
|
|
|
|
|
|
* underlying profit comprises profit before income tax after the notional adjustment on foreign exchange on non-monetary items (see detailed explanation in note 2b).
Premiums
Gross premiums written have increased in 2009 by 27% to £1,115.5m. A number of factors have contributed to this increase; primarily the deployment of new capital enabling organic growth at constant currency rates and the impact of the acquisitions of First State and Momentum Underwriting (12%), with the remaining 15% of growth arising as a result of a relatively strong US dollar in 2009. As anticipated, premium rates were up overall by 3% in 2009 driven by increases in our catastrophe exposed accounts following the 2008 hurricane activity.
The balance of our business has continued to evolve providing further diversification by type of business and geographical location. Our accident and life business has made a strong start writing £43.2m and First State, now part of our US commercial property team, wrote $93.9m. In 2009 we also took advantage of the rating environment in a number of catastrophe lines of business such that overall, our short tail lines' premium increased from 54% to 57%. Locally underwritten US business has continued to grow from $269.1m in 2008 to $370.7m in 2009. Beazley's geographic reach has been further extended following the first full year of trading for our Munich and Brisbane offices, alongside the successful establishment of Beazley Re in Dublin. Diversification and maintaining a balanced portfolio of business by risk type, size and source remains an important approach to the continued delivery of consistent underwriting profit.
Premium retention rates
Retention of business from existing brokers and clients is a key feature of Beazley's strategy. It not only enables us to maintain a deep understanding of our clients' businesses and requirements it also provides greater insight into the risks involved in each policy we write, enabling us to price risk most accurately to achieve profit. The table below shows our retention rates by division compared to 2008.
|
Retention rates* |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
Marine |
|
74% |
|
77% |
|
Political and contingency group |
|
63% |
|
61% |
|
Property |
|
78% |
|
70% |
|
Reinsurance |
|
89% |
|
86% |
|
Specialty lines |
|
87% |
|
88% |
|
Overall |
|
81% |
|
80% |
|
* based on premiums due for renewal in each calendar year |
|
|
|
|
Rating environment
Overall rates charged for business we renewed increased by 3% during 2009 (2008: a reduction of 6%). Significant rate increases were achieved by our catastrophe exposed lines of business following the hurricane activity of 2008. This is particularly evident for rates within our energy business (27% increase), catastrophe reinsurance business (8% increase) and commercial property business (9% increase). The benign catastrophe claims environment of 2009 and the increased capacity of reinsurers arising from retained profits is expected to cause a modest reduction in rates for these lines of business in 2010.
Cumulative rate changes since 2001
|
|
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
|
|
% |
% |
% |
% |
% |
% |
% |
% |
% |
|
Marine |
100 |
117 |
128 |
128 |
130 |
140 |
131 |
123 |
132 |
|
PCG |
100 |
120 |
122 |
114 |
107 |
101 |
93 |
87 |
88 |
|
Property |
100 |
127 |
132 |
125 |
124 |
139 |
136 |
128 |
137 |
|
Reinsurance |
100 |
143 |
149 |
148 |
149 |
188 |
195 |
183 |
203 |
|
Specialty Lines |
100 |
137 |
165 |
173 |
175 |
175 |
166 |
155 |
156 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
100 |
131 |
145 |
145 |
146 |
154 |
148 |
139 |
144 |
Our specialty lines division has seen rates reduce overall by 1% in 2009 and has been subject to a number of conflicting market pressures. At the beginning of the year the expectation was that low investment returns and a reduction in available capital along with an active attempt by policyholders to diversify their exposure would create a positive rating environment. However, an aggressive pricing strategy by large US casualty carriers in an attempt to defend their portfolios countered the upward pressure on premium rates. This was coupled with a strong recovery in investment markets to some extent relieving the pressure on underwriting margins. Looking forward we believe there is still significant downside risk within investment markets with interest rates set to remain low in the short term and this, alongside reduced or negative underwriting margins for aggressively priced business by market participants, will lead to a rating improvement in 2010.
Reinsurance purchased
The group increased the amount it spent on reinsurance in 2009 to £267.5m (2008: £135.3m). 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 13.2%
- the inclusion of the First State reinsurance programme (estimated impact £25.6m)
- 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
Looking ahead to 2010 our initial experience based on 1st January renewals is that market conditions have improved slightly, both in terms of moderate rate reductions, and in the terms and conditions available.
Combined ratio
The combined ratio of an insurance company is a common measure of its operating performance and represents the ratio of its total costs (including claims) to total premium income. Consistent delivery of operating performance across the market cycle is clearly a laudable aim for an insurer and Beazley's combined ratio has held steady at 90% for the fourth consecutive financial year. It is worth pointing out that the calculation of the combined ratio for Beazley includes all claims and other costs to the group but excludes foreign exchange effects. We believe this represents the most transparent and useful measure of operating performance as it ensures that all of the costs of being in business are captured, whether directly linked to underwriting activity or not.
Claims
On the whole 2009 has been a relatively benign year for claims. There were no significant catastrophe losses occurring in the year. In keeping with Beazley's reserving philosophy we will not start to release catastrophe margins for the 2009 underwriting year until mid 2010.
The high volumes of claims within liability classes of business that many people predicted would occur as a result of the global recession have not materialised. Initially, 2009 saw claims frequency increase in a small number of specialty classes, notably EPL. Underwriting actions were taken to address this increase and we continue to monitor the impact of recession and the economic downturn on our reserves. Overall, the cost of claims remains within our expectations and this is testament to the diverse nature of Beazley's risk portfolio alongside the dedicated claims management capability within underwriting teams.
Political risk losses
As noted in our 2009 interim report and Q3 interim management statement, the business environment for our political risks team has been challenging. Throughout the course of the year we continued to see an increased number of claims on the political risks portfolio, resulting from exposure to trade finance losses and failed financial institutions in developing economies. The impact on profit of these losses in 2009 has been £33m.
2008 hurricanes
Losses arising from the 2008 US hurricanes developed much as expected in 2009. Of the reserves we established at 31 December 2008 for hurricanes Ike and Gustav we released £1.0m during the year.
Reserve releases
Beazley has a conservative reserving philosophy with initial reserves being set to include prudent margins which may be released consistently over time as and when the uncertainty reduces. Historically these margins have given rise to held reserves within the range 5-10% above the actuarial best estimate.
Reserve monitoring is performed on a quarterly basis and involves a consultative process between the underwriters who take a detailed claim by claim view, and the actuarial team who provide statistical analysis. This process allows early identification of areas where claims reserves may need adjustment. The overall reserve strength has increased moderately due to the prudent position taken on the PCG account.
During 2009 we were able to make the following prior year reserve adjustments across divisions, with the overall net impact being a release to the group
|
|
2009 |
2008 |
|
Marine |
15.9 |
12.8 |
|
Political risks and contingency |
2.2 |
11.6 |
|
Property |
(4.2) |
3.8 |
|
Reinsurance |
16.5 |
16.6 |
|
Specialty lines |
36.8 |
28.0 |
|
|
|
|
|
Total |
67.2 |
72.8 |
|
Releases as a percentage of net earned premium |
8.0% |
10.7% |
Reserve releases increased on specialty lines reflecting the continuing satisfactory development of the significant volumes of business underwritten between 2003-2006. The releases in 2009 came mainly from the 2004 and 2005 underwriting years, which seem, at this stage, to be following the profitable outcomes already experienced in the 2002 and 2003 years. The property account was affected by an adverse development on a large engineering claim and, as we have highlighted, the political risks and contingency releases were lower than previous years' as part of the increased claims provision on our trade credit book impacts prior years.
Expenses
Total expenses, including business acquisition and administrative costs increased to £300.9m from £237.3m in 2008. The breakdown of these costs is shown below:
|
|
2009 |
2008 |
|
|
£m |
£m |
|
|
|
|
|
Brokerage costs |
171.2 |
148.9 |
|
Other acquisition costs |
47.0 |
33.7 |
|
Total acquisition costs |
218.2 |
182.6 |
|
Administrative costs |
82.7 |
54.7 |
|
|
|
|
|
Total costs |
300.9 |
237.3 |
|
|
|
|
Brokerage costs are the premium commissions paid to insurance intermediaries for providing business. As a percentage of net earned premium they are down slightly from 22% to 20%. Brokerage costs are deferred and expensed over the life of the associated premiums in accordance with accounting guidelines.
Other acquisition costs comprise costs that have been identified as being directly related to underwriting activity (eg. underwriters salaries and Lloyd's box rental) These costs are also deferred in line with premium earning patterns. They have increased in 2009 due to the addition of new underwriting teams (First State, accident and life).
Administrative costs comprise primarily IT costs, facilities costs, Lloyd's central costs and other support costs. These increased in 2009 primarily as a result of the increase in staff bonus costs in line with increased profitability, an increase in charges levied by Lloyd's arising from increased premiums, and non-capitalised transaction costs associated with the rights issue, acquisition of First State and re-domiciliation to Ireland.
Investment performance
Following a tumultuous 2008 and a difficult first quarter, global financial markets stabilised and rallied during the subsequent part of 2009, resulting in the group achieving an investment profit for the year of £56.1m, or a return of 2.7%. (2008 loss of £25.8m; (1.5%)).
The Falcon leadership team has worked during 2009 to establish Falcon Money Management Ltd ("Falcon"), an associate firm providing investment management services. Falcon is an FSA authorised investment management firm, comprising 12 highly experienced investment professionals.
Falcon is aiming to enhance our investment returns whilst at the same time minimising risk. Initially, investment management and advisory services will be offered solely to Beazley and only at a later stage to third party institutional investors. Falcon's approach to managing the assets will be to hold the bulk (80-90%), in a core portfolio of sovereign fixed income assets, or very short duration high quality credit. The mean duration of the portfolio is restricted to that of Beazley's insurance liabilities. The balance will be invested in a diversified portfolio of alternative assets. Falcon's benchmark is to deliver an absolute return equal to T-bills plus a margin which depends upon the capital growth asset allocation.
During April 2009, Beazley commenced a de-risking programme to reduce the credit exposure in its portfolios and to increase the share of highly liquid and government-guaranteed investments. Towards the end of the year, we selectively increased our allocation to capital growth strategies, via investments in alternative assets.
At 31 December 2009 the weighted average duration of our core portfolio was 8 months (31 December 2008: 9 months). The weighted average yield to maturity of our overall portfolio was 0.7% (31 December 2008: 3.4%). Our portfolio duration is currently short to protect against a sudden rise in interest rates. As a result, the outlook for next year remains challenging with interest rates close to all time lows.
The table below details the breakdown of our portfolio by asset class:
|
|
31 Dec 2009 |
|
31 Dec 2008 |
|
||
|
|
£m |
% |
|
£m |
% |
|
|
Cash and cash equivalents |
505 |
22.2 |
|
444 |
22.2 |
|
|
Government, Agency and Supranational |
981 |
43.1 |
|
|
|
|
|
AAA |
523 |
23.0 |
|
286 |
14.3 |
|
|
AA+ to AA- |
51 |
2.2 |
|
158 |
7.9 |
|
|
A+ to A- |
45 |
2.0 |
|
314 |
15.8 |
|
|
BBB+ to BBB- |
3 |
0.1 |
|
79 |
4.0 |
|
|
Core portfolio |
2,108 |
92.7 |
|
1,874 |
93.9 |
|
|
|
|
|
|
|
|
|
|
Capital growth assets |
167 |
7.3 |
|
121 |
6.1 |
|
|
Total |
2,274 |
100.0 |
|
1,994 |
100.0 |
|
Comparison of return by major asset class:
|
|
31 Dec 2009 |
31 Dec 2009 |
|
31 Dec 2008 |
31 Dec 2008 |
|
|
£m |
% |
|
£m |
% |
|
Core portfolio |
43.8 |
2.4% |
|
(7.7) |
(0.4%) |
|
Capital growth assets |
12.3 |
7.6% |
|
(18.1) |
(20.8%) |
|
Overall return |
56.1 |
2.7% |
|
(25.8) |
(1.5%) |
FX on non-monetary items
As reported in previous annual and interim reports significant FX volatility arising from the translation of 'non-monetary' items exists under IFRS. This volatility is impossible to hedge, causing significant impact on the headline profit before tax. At the reporting date unearned premiums and deferred acquisition costs (the non-monetary items) are held on the group's balance sheet and will be earned over the life of the policy extending into future reporting periods. Around 90% of the group's premium is non-sterling denominated and the non-monetary items arising on this premium is required to be reflected at historic exchange rates, while the corresponding monetary items associated with the same risks such as cash received and claims reserves held are held at the closing exchange rate.
To the extent that the historic and closing exchange rates differ when applied to these balances, an exchange gain or loss will be reflected in the income statement. This gain or loss will unwind in the subsequent accounting period as the non-monetary balances earn through to the income statement. The net impact of this effect over time is nil, but the income statements of two adjacent accounting periods can be distorted, as reflected by the large swings in foreign exchange gains/ losses in 2008 and 2009. The loss of £46.6m recorded in 2009 is largely due to the unwinding of the £46.2m profit which arose in 2008 when the US dollar strengthened 28% and is not materially impacted by exchange rate movements during 2009.
For this reason the group has, since the introduction of IFRS in 2005, sought to report this effect in as transparent a manner as possible by splitting out the impact on the face of the income statement. The underlying profit excluding the effect of FX on non-monetary items is a better reflection of performance.
Tax
As announced early in 2009, the group has established a new parent company (Beazley plc) and reinsurer (Beazley Re) that are tax resident in the Republic of Ireland. This is expected to reduce the ongoing tax rate incurred by the group to around 18%. The tax rate for 2009 was 12% which is lower than 18% due to the one off re-valuation of deferred tax balances that were previously provided for at the higher UK rate of 28%. For further information on the group's restructuring please refer to note 1 to the financial statements.
Balance sheet management
Summary balance sheet
|
|
|
2009 £m |
2008 £m |
|
Movement % |
|
|
|
|
|
|
|
|
Intangible assets |
|
70.5 |
52.5 |
|
34% |
|
Investments and cash |
|
2,274.3 |
1,994.2 |
|
14% |
|
Insurance receivables |
|
309.3 |
287.8 |
|
7% |
|
Reinsurance assets |
|
718.1 |
538.6 |
|
33% |
|
Other assets |
|
133.4 |
124.4 |
|
7% |
|
Total assets |
|
3,505.6 |
2,997.5 |
|
17% |
|
|
|
|
|
|
|
|
Insurance liabilities |
|
2,499.1 |
2,246.7 |
|
11% |
|
Borrowings |
|
173.1 |
177.5 |
|
(3%) |
|
Other liabilities |
|
214.7 |
160.6 |
|
34% |
|
Total liabilities |
|
2,886.9 |
2,584.8 |
|
12% |
|
|
|
|
|
|
|
|
Net assets |
|
618.6 |
412.7 |
|
50% |
|
|
|
|
|
|
|
|
Net assets per share |
|
119.0p |
122.5p |
|
(3%) |
|
Net tangible assets per share |
|
105.5p |
106.9p |
|
(1%) |
|
Number of shares * |
|
519.6m |
337.0m |
|
- |
|
|
|
|
|
|
|
* excludes shares held in the employees share trust
Net tangible assets per share ended the year only marginally below their start point, improving strongly from the initially dilutive effect of our 9 for 19 rights issue at 86p. This demonstrates the attractiveness of the opportunities through into which the capital raised was deployed.
Intangible assets
Intangible assets consist of goodwill on acquisitions £47.9m, purchased syndicate capacity £6.0m, US admitted licences £5.8m and capitalised expenditure on IT projects £10.8m.
The increase in intangibles in the period is primarily due to the acquisition of First State which gave rise to £13.2m of goodwill, £1.1m on syndicate capacity and £6.9m on IT projects net of amortisation. The expenditure on IT projects primarily relates to new underwriting and claims systems in the US.
Acquisition of First State Management Group
First State was acquired from the Hartford Financial Services Group for total consideration of $34.0m. The transaction was structured in such a way that the total consideration paid was in respect of net assets acquired of $1.4m, pipeline profit in respect of in force policies assumed on completion of the transaction of $5.1m and $27.5m of goodwill. Prior to completion of the transaction it was agreed with third party capital providers on syndicate 623 that they would contribute $7.5m towards the cost of the transaction as syndicate 623 is a beneficiary of the business written by First State. This has been reflected as a reduction to the goodwill balance (giving net goodwill of $20.0m) and the contribution will be collected from third party names in instalments over the five underwriting years 2009 to 2013.
Insurance receivables
Insurance receivables are amounts receivable from brokers in respect of premiums written. The balance at 31 December 2009 was £309.3m, a growth of 7% over 2008. We continue to outsource the collection of our Lloyd's premium broker balances to JMD Specialist Insurance Services Limited, which operates within the Lloyd's market as specialist credit controllers.
Reinsurance assets
Reinsurance assets represent recoveries from reinsurers in respect of incurred claims £556.7m, and the unearned reinsurance premiums reserve £161.4m. The reinsurance receivables from reinsurers are split between recoveries on claims paid or notified of £158.6m and an actuarial estimate of recoveries on claims that have not yet been reported of £398.1m. The group's exposure to reinsurers is managed through:
· Minimising risk through selection of reinsurers who meet strict financial criteria (eg. minimum net assets, minimum 'A' rating by S&P). These criteria vary by type of business (short vs. medium tail).
· Timely calculation and issuance of reinsurance collection notes from our ceded reinsurance team; and
· Regular monitoring of outstanding debtor position by our reinsurance security committee and credit control committees.
We continue to provide against impairment of reinsurance recoveries, and at the end of 2009 we had provided £9.8m (2008: £9.0m) in respect of reinsurance recoveries.
Other assets
The largest items included comprise:
· Deferred acquisition costs of £96.6m
· Deferred tax assets available for use against future taxes payable of £5.5m
· Profit commissions receivable from syndicate 623 of £5.1m
Insurance liabilities
Insurance liabilities of £2,499.1m consist of two main elements being the unearned premium reserve (UPR) and gross insurance claims liabilities.
Our unearned premiums reserve has increased by 19% to £544.5m, resulting from the increase in premiums written during the year. 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 this business is profitable.
Gross insurance claims are made up of claims which have been notified to us but not yet paid and an estimate of claims incurred but not yet reported (IBNR). These are estimated as part of the quarterly reserving process involving the underwriters and group actuary. Gross insurance claims have increased by 9% to £1,954.7m, primarily as a result of the increase in business written.
Borrowings
The group utilises two long term debt facilities:
· In 2006 we raised £150m of lower tier 2 unsecured fixed rate debt that is payable in 2026 and callable in 2016. The initial interest rate payable is 7.25% and the current carrying value of this debt is £161.9m; and
· A US$18m subordinated debt facility raised in 2004. This loan is also unsecured and interest is payable at the US interbank offered rate (LIBOR) plus 3.65%. These subordinated notes are due in 2034 and was callable in 2009.
At the time of the £150m bond issue we entered into a derivative transaction, whereby we matched our investment and currency risk by swapping the sterling fixed rate loan into the equivalent of:
· £108m of floating rate sterling loans; and
· US$80m of floating rate US dollar loans.
These items have been accounted for using hedge accounting for both the floating rate and currency elements of the transaction.
In addition to these borrowings Beazley has a £100m syndicated short-term banking facility, managed through Lloyds Banking Group Plc. The facility is currently unutilised.
Capital structure
Beazley has a number of requirements for capital at a group and subsidiary level. Primarily capital is required to support underwriting at Lloyd's and in the US and is subject to prudential regulation by local regulators (FSA, Lloyd's, Irish Financial Services Regulator, and the US state level supervisors).
Further capital constraints come from rating agencies on a group wide basis and for Beazley Insurance Company Inc. (BICI) and the Lloyd's syndicates on a standalone basis. In both cases we aim to manage our capital to obtain a financial 'A' rating from the rating agencies.
Beazley also holds a level of capital over and above its regulatory requirements and targets a level of surplus capital that would enable it to take advantage of new underwriting opportunities such as the acquisition of insurance companies or managing general agents (MGA's) whose strategic goals are aligned with our own.
The group actively seeks to manage its capital base to target capital levels. Our preferred use of capital is to re-deploy it on opportunities to underwrite profitably. However there may be times in the cycle when the company will generate excess capital and not have the opportunity to deploy it. If such a point were reached the board would consider returning capital to shareholders.
With effect from 1 January 2010 Beazley has taken the decision to match the group's underwriting capital by currency to the principal underlying currencies of its written premiums. This will ensure that the group's capacity to underwrite business would be unaffected by any future movements in exchange rates. To achieve this, the group has increased the US dollar component of its capital base by US$487m since the start of 2010 with an equivalent decrease in the sterling component.
Our funding comes from a mixture of our own equity of £618.6m alongside £150m of tier 2 subordinated debt and $18m subordinated long term debt and an undrawn banking facility of £100m mentioned above. In April 2009, the group raised £151.7m through a 9 for 19 rights issue and placing. This resulted in 183.1m shares being issued at an issue price of 86p. The following table sets out the group's sources and uses of capital:
|
|
2009
|
2008
|
|
|
£m
|
£m
|
|
Sources of funds
|
|
|
|
Shareholders funds
|
618.6
|
412.7
|
|
Tier 2 subordinated debt
|
150.0
|
150.0
|
|
Long term subordinated debt (US$18m)
|
11.2
|
12.5
|
|
|
779.8
|
575.2
|
|
Uses of funds
|
|
|
|
Lloyd’s underwriting
|
492.2
|
360.8
|
|
Capital for US insurance company
|
68.9
|
77.1
|
|
|
561.1
|
437.9
|
|
|
|
|
|
Surplus
|
218.7
|
137.3
|
|
Unavailable surplus
|
(46.1)
|
(18.0)
|
|
Fixed and intangible assets
|
(78.2)
|
(60.6)
|
|
Available surplus
|
94.4
|
58.7
|
Individual capital assessment
The group is required to produce an individual capital assessment (ICA) which sets out the amount of capital that is required to reflect the risks contained within the business. Lloyd's reviews this assessment to ensure that ICAs are consistent across the market.
In order to determine the ICA, we made significant investment in both models and process:
· 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 ICA process is embedded so that the 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.
The ICA has increased from £360.8m to £492.2m reflecting the increase in business Beazley is writing at Lloyd's. Included within this are premiums resulting from the acquisition of First State and Momentum Underwriting Management, increased premium written for our existing line of business, particularly short tail catastrophe exposed lines and the effect of a strengthening of the US dollar since the ICA was previously calculated.
Solvency II
Solvency II is an EU-wide proposal on capital adequacy and risk management for insurers due to come into effect from October 2012. The central elements of Solvency II are:
Pillar 1: Demonstrating adequate financial resources - quantification
Pillar 2: Demonstrating an adequate system of governance - risk assessment
Pillar 3: Public disclosure and regulatory reporting requirements
The Beazley Board has set two guiding principles for Solvency II, namely:
· to develop a framework that can be used to inform management and assist with business decision making; and
· to hold an appropriate and efficient level of capital for the agreed risk appetite through risk identification and mitigation.
At Beazley, the strong risk management framework already embedded throughout the business means that Solvency II is an evolution rather than a new direction.
A working group has been established to lead the implementation of Solvency II at Beazley and the gap analysis and implementation plan have been submitted to the regulators for review. Oversight and governance will be provided on behalf of all of the Beazley Boards by a management group comprising the Group Finance Director, Risk Director and an Underwriting Team Leader. A regular reporting schedule to the Beazley Boards has been established as the Board recognises the importance of the implementation of Solvency II at Beazley.
However, it must be recognised that there is still uncertainty, not least because the full details of Solvency II implementation are yet to be confirmed. Whilst we plan to undertake a significant amount of work on Solvency II related activities during 2010, Beazley is well placed at this stage to ensure a successful implementation.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
Notes |
|
2009 £m |
|
2008 £m |
|
|
|
|
|
|
|
|
Gross premiums written |
2 |
|
1,115.5 |
|
875.7 |
|
Written premiums ceded to reinsurers |
|
|
(267.5) |
|
(135.3) |
|
Net premiums written |
2 |
|
848.0 |
|
740.4 |
|
|
|
|
|
|
|
|
Change in gross provision for unearned premiums |
|
|
(62.1) |
|
(53.4) |
|
Reinsurer's share of change in the provision for unearned premiums |
|
|
50.8 |
|
(3.9) |
|
Change in net provision for unearned premiums |
|
|
(11.3) |
|
(57.3) |
|
Net earned premiums |
2 |
|
836.7 |
|
683.1 |
|
|
|
|
|
|
|
|
Net investment income/(loss) |
3 |
|
56.1 |
|
(25.8) |
|
Other income |
4 |
|
12.5 |
|
10.1 |
|
|
|
|
68.6 |
|
(15.7) |
|
Revenue |
|
|
905.3 |
|
667.4 |
|
|
|
|
|
|
|
|
Insurance claims |
|
|
641.8 |
|
522.1 |
|
Insurance claims recoverable from reinsurers |
|
|
(168.8) |
|
(121.0) |
|
Net insurance claims |
2 |
|
473.0 |
|
401.1 |
|
|
|
|
|
|
|
|
Expenses for the acquisition of insurance contracts |
2 |
|
218.2 |
|
182.6 |
|
Administrative expenses |
|
|
82.7 |
|
54.7 |
|
Foreign exchange loss/(gain) |
2 |
|
21.9 |
|
(70.8) |
|
Operating expenses |
|
|
322.8 |
|
166.5 |
|
Expenses |
2 |
|
795.8 |
|
567.6 |
|
Results of operating activities |
|
|
109.5 |
|
99.8 |
|
|
|
|
|
|
|
|
Finance costs |
7 |
|
(8.8) |
|
(12.6) |
|
|
|
|
|
|
|
|
Profit before income tax |
|
|
100.7 |
|
87.2 |
|
|
|
|
|
|
|
|
Comprises: |
|
|
|
|
|
|
Underlying profit* |
2 |
|
147.3 |
|
41.0 |
|
Notional adjustment on foreign exchange on non-monetary items |
2 |
|
(46.6) |
|
46.2 |
|
|
|
|
|
|
|
|
Income tax expense |
8 |
|
(12.3) |
|
(22.8) |
|
Profit for the year attributable to equity shareholders |
|
|
88.4 |
|
64.4 |
|
|
|
|
|
|
|
|
Earnings per share (pence per share): |
|
|
|
|
|
|
Basic |
9 |
|
18.4 |
|
18.8 |
|
Diluted |
9 |
|
17.8 |
|
18.0 |
|
|
|
|
|
|
|
* underlying profit comprises profit before income tax after the notional adjustment on foreign exchange on non-monetary items (see detailed explanation in note 2b).
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2009
|
Group |
31 December 2009 £m |
|
31 December 2008 £m |
|
|
|
|
|
|
Profit after income tax |
88.4 |
|
64.4 |
|
Other comprehensive income |
|
|
|
|
Change in net investment hedge |
7.6 |
|
(20.1) |
|
Foreign exchange translation differences |
(15.3) |
|
31.7 |
|
Total other comprehensive income |
(7.7) |
|
11.6 |
|
|
|
|
|
|
Total comprehensive income recognised |
80.7 |
|
76.0 |
|
|
|
|
|
STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 31 DECEMBER 2009
|
Company |
31 December 2009 £m |
|
|
|
|
Profit after income tax |
5.7 |
|
Other comprehensive income |
|
|
Foreign exchange translation differences |
- |
|
Total other comprehensive income |
- |
|
|
|
|
Total comprehensive income recognised |
5.7 |
|
|
|
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2009
|
Group |
Notes |
|
Share capital £m |
|
Other reserves £m |
|
Retained earnings £m |
|
Total £m |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2008 |
|
|
18.4 |
|
223.1 |
|
157.1 |
|
398.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income recognised |
|
|
- |
|
11.6 |
|
64.4 |
|
76.0 |
|
Dividends paid |
10 |
|
- |
|
- |
|
(35.4) |
|
(35.4) |
|
Issue of shares |
|
|
0.1 |
|
0.8 |
|
- |
|
0.9 |
|
Equity settled share based payments |
|
|
- |
|
4.6 |
|
- |
|
4.6 |
|
Acquisition of own shares in trust |
|
|
- |
|
(7.1) |
|
- |
|
(7.1) |
|
Purchase of treasury shares |
|
|
- |
|
(24.9) |
|
- |
|
(24.9) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2008 |
|
|
18.5 |
|
208.1 |
|
186.1 |
|
412.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income recognised |
|
|
- |
|
(7.7) |
|
88.4 |
|
80.7 |
|
Dividends paid |
10 |
|
- |
|
- |
|
(26.8) |
|
(26.8) |
|
Issue of shares |
|
|
9.1 |
|
141.6 |
|
- |
|
150.7 |
|
Equity settled share based payments |
|
|
- |
|
5.2 |
|
- |
|
5.2 |
|
Acquisition of own shares in trust |
|
|
- |
|
(3.9) |
|
- |
|
(3.9) |
|
Cancellation of treasury shares |
|
|
(0.9) |
|
0.9 |
|
- |
|
- |
|
Transfer on scheme of arrangement and reverse acquisition |
|
|
- |
|
(358.4) |
|
358.4 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2009 |
|
|
26.7 |
|
(14.2) |
|
606.1 |
|
618.6 |
|
|
|
|
|
|
|
|
|
|
|
STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 31 DECEMBER 2009
|
Company |
Notes |
|
Share capital £m |
|
Other reserves £m |
|
Retained earnings £m |
|
Total £m |
|
|
|
|
|
|
|
|
|
|
|
|
Balance on incorporation at 9 June 2009 |
|
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Transfer on scheme of arrangement and reverse acquisition |
|
|
26.7 |
|
(22.1) |
|
494.4 |
|
499.0 |
|
Total comprehensive income recognised |
|
|
- |
|
- |
|
5.7 |
|
5.7 |
|
Dividends paid |
10 |
|
- |
|
- |
|
(11.9) |
|
(11.9) |
|
Issue of shares |
|
|
- |
|
0.3 |
|
- |
|
0.3 |
|
Equity settled share based payments |
|
|
- |
|
2.8 |
|
- |
|
2.8 |
|
Acquisition of own shares in trust |
|
|
- |
|
(2.6) |
|
- |
|
(2.6) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2009 |
|
|
26.7 |
|
(21.6) |
|
488.2 |
|
493.3 |
BALANCE SHEET
AS AT 31 DECEMBER 2009
|
|
|
2009 |
|
2008 |
||
|
|
|
Group £m |
Company £m |
|
Group £m |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Intangible assets |
|
70.5 |
- |
|
52.5 |
|
|
Plant and equipment |
|
7.7 |
0.3 |
|
8.1 |
|
|
Investment in subsidiaries |
|
- |
491.6 |
|
- |
|
|
Investment in associates |
|
0.9 |
0.9 |
|
- |
|
|
Deferred acquisition costs |
|
96.6 |
- |
|
91.5 |
|
|
Deferred income tax |
|
5.5 |
- |
|
6.8 |
|
|
Financial investments |
|
1,769.1 |
- |
|
1,550.6 |
|
|
Derivative financial instruments |
|
5.8 |
- |
|
2.7 |
|
|
Insurance receivables |
|
309.3 |
- |
|
287.8 |
|
|
Reinsurance assets |
|
718.1 |
- |
|
538.6 |
|
|
Retirement benefit asset |
|
1.0 |
|
|
|
|
|
Other receivables |
|
15.9 |
0.5 |
|
15.3 |
|
|
Cash and cash equivalents |
|
505.2 |
- |
|
443.6 |
|
|
Total assets |
|
3,505.6 |
493.3 |
|
2,997.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
Share capital |
|
26.7 |
26.7 |
|
18.5 |
|
|
Other reserves |
|
(14.2) |
(21.6) |
|
208.1 |
|
|
Retained earnings |
|
606.1 |
488.2 |
|
186.1 |
|
|
Total equity |
|
618.6 |
493.3 |
|
412.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Insurance liabilities |
|
2,499.2 |
- |
|
2,246.7 |
|
|
Borrowings |
|
173.1 |
- |
|
177.5 |
|
|
Other payables |
|
179.7 |
- |
|
115.7 |
|
|
Deferred income tax |
|
21.8 |
- |
|
37.1 |
|
|
Current income tax liabilities |
|
13.2 |
- |
|
7.8 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
2,887.0 |
- |
|
2,584.8 |
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
3,505.6 |
493.3 |
|
2,997.5 |
|
|
|
|
|
|
|
|
|
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
2009 |
|
2008 |
||||
|
|
|
Group £m |
Company £m |
|
Group £m |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities |
|
|
|
|
|
|
|
|
Profit before tax |
|
100.7 |
5.7 |
|
87.2 |
|
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
Amortisation of intangibles |
|
1.4 |
- |
|
3.5 |
|
|
|
Equity settled share based compensation |
|
5.2 |
- |
|
3.4 |
|
|
|
Retranslation of overseas net assets |
|
3.6 |
- |
|
(5.6) |
|
|
|
Net fair value losses/(gains) on financial assets |
|
(6.6) |
- |
|
38.1 |
|
|
|
Depreciation of plant & equipment |
|
3.2 |
- |
|
2.6 |
|
|
|
Transfer of shares to employees |
|
- |
- |
|
1.2 |
|
|
|
Increase in insurance and other liabilities |
|
316.5 |
- |
|
775.4 |
|
|
|
Increase in insurance, reinsurance and other receivables |
|
(201.5) |
(0.5) |
|
(276.4) |
|
|
|
Increase in deferred acquisition costs |
|
(5.0) |
- |
|
(9.5) |
|
|
|
Financial income |
|
(40.6) |
- |
|
(65.1) |
|
|
|
Financial expense |
|
8.8 |
- |
|
12.6 |
|
|
|
Income tax paid |
|
(21.5) |
- |
|
(26.2) |
|
|
|
Contribution to pension fund |
|
(1.0) |
- |
|
(0.9) |
|
|
|
Net cash from operating activities |
|
163.2 |
5.2 |
|
540.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
|
|
|
Purchase of plant and equipment |
|
(3.1) |
(0.3) |
|
(3.5) |
|
|
|
Purchase of syndicate capacity |
|
(1.1) |
- |
|
(0.5) |
|
|
|
Acquisition of subsidiary (net of cash acquired) |
|
(14.8) |
(491.6) |
|
(9.4) |
|
|
|
Purchase of investments |
|
(6,267.5) |
- |
|
(2,873.1) |
|
|
|
Expenditure on software development |
|
(6.9) |
- |
|
(3.3) |
|
|
|
Proceeds from sale of investments |
|
6,055.5 |
- |
|
2,415.7 |
|
|
|
Investment in associate |
|
(0.9) |
(0.9) |
|
- |
|
|
|
Interest and dividends received |
|
40.6 |
- |
|
65.1 |
|
|
|
Net cash used in investing activities |
|
(198.2) |
(492.8) |
|
(409.0) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issue of shares |
|
150.5 |
499.5 |
|
0.8 |
|
|
|
Purchase of treasury shares |
|
- |
- |
|
(24.9) |
|
|
|
Acquisition of own shares in trust |
|
(3.9) |
- |
|
(7.1) |
|
|
|
Interest paid |
|
(8.8) |
- |
|
(12.6) |
|
|
|
Dividends paid |
|
(26.8) |
(11.9) |
|
(35.4) |
|
|
|
Net cash from/(used in) financing activities |
|
111.0 |
487.6 |
|
(79.2) |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
76.0 |
- |
|
52.1 |
|
|
|
Cash and cash equivalents at beginning of year |
|
443.6 |
- |
|
358.3 |
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
(14.4) |
- |
|
33.2 |
|
|
|
Cash and cash equivalents at end of year |
|
505.2 |
- |
|
443.6 |
|
|
NOTES TO THE FINANCIAL STATEMENTS
1. Statement of accounting policies
Beazley plc is a company incorporated in Jersey and domiciled in Ireland. The consolidated financial statements of the group for the year ended 31 December 2009 comprise the parent company and its subsidiaries and the group's interest in associates.
Both the financial statements of the parent company, Beazley plc, and the consolidated financial statements of the group have been prepared and approved by the directors in accordance with IFRSs as adopted by the EU ('Adopted IFRSs').
The following accounting policies apply to both the group and parent company unless otherwise indicated.
These consolidated financial statements have been prepared on the basis of adopted IFRSsin issue that are effective or available for early adoption at 31 December 2009. Based on these adopted IFRSs and interpretations, the directors have applied the accounting policies, as set out below.
The following new and amended standards have been adopted by the group during the period
IFRS 7 'Financial instruments - Disclosures' (amendment) - effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair valuemeasurements by level of fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on earnings per share.
IAS 1 (revised). 'Presentation of financial statements' - effective 1 January 2009. The revised standard requires the group to present in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
The following new standards and interpretations released by the International Accounting Standards Board (IASB) have not been early adopted but are expected to be of relevance to future financial years. None of these are expected to have any significant impact on the future consolidated financial statements of the group:
IFRS 5 (amended) Non-current Assets Held for Sale and Discontinued Operations
IFRS 9 "Financial Instruments" (not yet endorsed)
IAS 24 (revised) "Related Party Disclosures"
IAS 27 (amended) "Consolidated and Separate Financial Statements"
IAS 32 (amended) "Financial Instruments: Presentation - Classification of Rights Issue"
IAS 39 (amended) "Financial Instruments: Recognition and Measurement - Eligible Hedged Items"
Revised IFRS 3 "Business Combinations (2008)" incorporates the following changes that are likely to be relevant to the Group's operations:
· The definition of a business has been broadened, which may result in more acquisitions being treated as business combinations.
· Contingent consideration will be measured at fair value, with subsequent changes in fair value recognised in profit or loss.
· Transaction costs, other than share and debt issue costs, will be expensed as incurred.
· Any pre-existing interest in an acquiree will be measured at fair value, with the related gain or loss recognised in profit or loss.
· Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of an acquiree, on a transaction-by-transaction basis.
Revised IFRS 3, which becomes mandatory for the Group's 2010 consolidated financial statements, will be applied prospectively and therefore there will be no impact on prior periods in the Group's 2010 consolidated financial statements.
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 year period ended 31 December 2009 represent a continuation of the consolidated activities of the Beazley group of companies. The consolidated balance sheet at 31 December 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 group figures for the financial year ended 31 December 2008 are extracted from the statutory accounts of Beazley Group plc for that financial year.
Apart from the new accounting policies referred to above, the accounting policies applied by the group are the same as those applied in the consolidated financial statements of Beazley Group plc for the year ended 31 December 2008. These accounting policies are set out in the group's 2008 annual report.
2 Segmental analysis
a) Reporting segments
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. The operating segments are based upon the different types of insurance risk underwritten by the Group as described below:
Marine
This segment underwrites a broad spectrum of marine classes including hull, energy, cargo & specie and war risks.
Political risks and contingency
This segment underwrites terrorism, political violence, expropriation and credit risks as well as contingency and risks associated with contract frustration.
Property
The property segment underwrites commercial, high-value homeowners and engineering property insurance on a worldwide basis.
Reinsurance
This division specialises in writing property catastrophe, property per risk, aggregate excess of loss and pro-rata business. It also includes our newly acquired accident and life insurance team.
Specialty lines
This segment mainly underwrites professional lines, employment practices liability, specialty liability, directors' and officers' liability and healthcare.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The reporting segments do not cross-sell business between each other. There are no individual policy holders that comprise greater than ten percent of the group's total gross premiums written.
b) Underlying profit
Underlying profits are based on profit before income tax after the notional adjustment for foreign exchange differences on non-monetary items.
Foreign exchange differences on non-monetary items have been separately disclosed as management believe this provides a fairer representation of the operating ratios of the business. Without this notional adjustment the operating divisions results would be distorted by the mismatch arising under IFRSs whereby unearned premium reserve, reinsurers' share of unearned premium reserve and deferred acquisition costs (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 are not allocated to operating segments as these items are determined by entity level factors and do not relate to operating performance.
c) Segment results
|
2009 |
Marine £m |
Political risks and contingency £m |
Property £m |
Reinsurance £m |
Specialty Lines £m |
Total reportable Segments £m |
Unallocated £m |
Total £m |
|
Segment results |
|
|
|
|
|
|
|
|
|
Gross premiums written |
168.8 |
81.3 |
251.2 |
133.8 |
480.4 |
1,115.5 |
- |
1,115.5 |
|
Net premiums written |
145.8 |
62.8 |
180.3 |
115.1 |
344.0 |
848.0 |
- |
848.0 |
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
152.8 |
71.9 |
173.5 |
97.1 |
363.9 |
859.2 |
(22.5) |
836.7 |
|
Net investment income |
5.4 |
2.6 |
6.9 |
4.1 |
37.1 |
56.1 |
- |
56.1 |
|
Other income |
1.5 |
0.7 |
4.0 |
1.1 |
5.2 |
12.5 |
- |
12.5 |
|
Revenue |
159.7 |
75.2 |
184.4 |
102.3 |
406.2 |
927.8 |
(22.5) |
905.3 |
|
|
|
|
|
|
|
|
|
|
|
Net insurance claims |
59.1 |
54.7 |
101.5 |
36.8 |
220.9 |
473.0 |
- |
473.0 |
|
Expenses for the acquisition of insurance contracts |
42.5 |
18.3 |
56.9 |
21.6 |
82.4 |
221.7 |
(3.5) |
218.2 |
|
Administrative expenses |
11.8 |
7.5 |
20.6 |
11.9 |
30.9 |
82.7 |
- |
82.7 |
|
Foreign exchange (gain)/ loss |
(0.9) |
(0.4) |
(1.3) |
(0.7) |
(2.4) |
(5.7) |
27.6 |
21.9 |
|
Expenses |
112.5 |
80.1 |
177.7 |
69.6 |
331.8 |
771.7 |
24.1 |
795.8 |
|
|
|
|
|
|
|
|
|
|
|
Segments result |
47.2 |
(4.9) |
6.7 |
32.7 |
74.4 |
156.1 |
(46.6) |
109.5 |
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
|
|
|
|
(8.8) |
|
(8.8) |
|
Profit before income tax |
|
|
|
|
|
147.3* |
|
100.7 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
(12.3) |
|
Profit after income tax |
|
|
|
|
|
|
|
88.4 |
|
|
|
|
|
|
|
|
|
|
|
Claims ratio |
39% |
76% |
58% |
38% |
61% |
55% |
|
|
|
Expense ratio |
35% |
36% |
45% |
34% |
31% |
35% |
|
|
|
Combined ratio |
74% |
112% |
103% |
72% |
92% |
90% |
|
|
* underlying profit comprises profit before income tax after the notional adjustment on foreign exchange on non-monetary items (see detailed explanation in note 2b).
|
Segment assets and liabilities |
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Segment assets |
519.7 |
426.4 |
564.8 |
301.1 |
1,694.2 |
3,518.2 |
1.2 |
3,505.6 |
||||||
|
Segment liabilities |
(384.3) |
(372.0) |
(488.1) |
(187.2) |
(1,457.2) |
(2,900.8) |
- |
(2,887.0) |
||||||
|
Net assets |
135.4 |
54.4 |
76.7 |
113.9 |
237.0 |
617.4 |
1.2 |
618.6 |
||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Additional information |
|
|
|
|
|
|
|
|
||||||
|
Capital expenditure |
0.8 |
0.7 |
14.9 |
0.7 |
8.6 |
25.7 |
- |
25.7 |
||||||
|
Depreciation |
0.2 |
0.1 |
1.2 |
0.7 |
2.2 |
4.4 |
- |
4.4 |
||||||
|
Net cash flow |
13.1 |
8.2 |
8.2 |
9.3 |
22.9 |
61.6 |
- |
61.6 |
||||||
|
|
|
|
|
|
|
|
|
|
||||||
The unallocated segment assets relate to the foreign exchange adjustment to non-monetary items. This adjustment is not allocated by segment.
|
2008
|
Marine £m |
Political risks 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 (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 |
|
|
|
|
|
|
|
|
|
|
|
Segment result |
18.1 |
21.0 |
(10.7) |
17.9 |
7.3 |
53.6 |
46.2 |
99.8 |
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
|
|
|
|
(12.6) |
|
(12.6) |
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax |
|
|
|
|
|
41.0* |
|
87.2 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
(22.8) |
|
|
|
|
|
|
|
|
|
|
|
Profit after income 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% |
|
|
* underlying profit comprises profit before income tax after the notional adjustment on foreign exchange on non-monetary items. (see detailed explanation in note 2b)
|
Segment assets and liabilities |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Segment assets |
408.5 |
354.3 |
483.4 |
221.5 |
1,495.0 |
2,962.7 |
34.8 |
2,997.5 |
||||||
|
Segment liabilities |
(333.2) |
(309.4) |
(435.6) |
(149.0) |
(1,357.6) |
(2,584.8) |
- |
(2,584.8) |
||||||
|
Net assets |
75.3 |
44.9 |
47.8 |
72.5 |
137.4 |
377.9 |
34.8 |
412.7 |
||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Additional information |
|
|
|
|
|
|
|
|
||||||
|
Capital expenditure |
0.2 |
0.6 |
0.6 |
0.2 |
4.6 |
6.2 |
17.9 |
24.1 |
||||||
|
Depreciation |
0.3 |
0.1 |
1.2 |
0.2 |
2.7 |
4.5 |
0.0 |
4.5 |
||||||
|
Net cash flow |
16.3 |
8.4 |
15.0 |
10.8 |
34.8 |
85.3 |
- |
85.3 |
||||||
d) Geographical segments
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 and US earned premium represents all risks placed at the group's US insurance company, Beazley Insurance Company Inc.
|
|
|
|
2009 £m |
|
2008 £m |
|
Net earned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
UK (Lloyd's) |
|
|
813.3 |
|
664.7 |
|
US (Non-Lloyd's) |
|
|
23.4 |
|
18.4 |
|
|
|
|
836.7 |
|
683.1 |
|
|
|
|
2009 £m |
|
2008 £m |
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
UK (Lloyd's) |
|
|
3,249.4 |
|
2,785.1 |
|
US (Non-Lloyd's) |
|
|
256.2 |
|
212.4 |
|
|
|
|
3,505.6 |
|
2,997.5 |
|
|
|
|
|
|
|
Segment assets are allocated based on where the assets are located.
|
|
|
|
2009 £m |
|
2008 £m |
|
Capital expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
|
UK (Lloyd's) |
|
|
25.7 |
|
24.1 |
|
US (Non-Lloyd's) |
|
|
- |
|
- |
|
|
|
|
25.7 |
|
24.1 |
3 Net investment income
|
|
|
|
2009 £m |
|
2008 £m |
|
|
|
|
|
|
|
|
Investment income at fair value through income statement |
|
|
40.6 |
|
65.1 |
|
|
|
|
|
|
|
|
Realised gains/(losses) on financial investments at fair value through income statement |
|
|
14.8 |
|
(49.5) |
|
|
|
|
|
|
|
|
Net fair value gains/(losses) on financial investments through income statement |
|
|
6.6 |
|
(38.1) |
|
|
|
|
|
|
|
|
Investment management expenses |
|
|
(5.9) |
|
(3.3) |
|
|
|
|
56.1 |
|
(25.8) |
4 Other income
|
|
|
|
2009 £m |
|
2008 £m |
|
|
|
|
|
|
|
|
Profit commissions |
|
|
5.1 |
|
5.0 |
|
Agency fees |
|
|
1.0 |
|
1.0 |
|
Other income |
|
|
6.4 |
|
4.1 |
|
|
|
|
12.5 |
|
10.1 |
5 Operating expenses
|
|
|
|
2009 £m |
|
2008 £m |
|
|
|
|
|
|
|
|
Fees payable to the company's auditor for the audit of the group's annual accounts |
|
|
0.2 |
|
0.2 |
|
Fees payable to the company's auditor and its associates for other services: |
|
|
|
|
|
|
- Audit of the company's subsidiaries |
|
|
0.3 |
|
0.2 |
|
- Tax services |
|
|
- |
|
0.1 |
|
- Fees in respect of rights issue and re-domiciliation to Ireland |
|
|
0.2 |
|
- |
|
- Actuarial services |
|
|
0.1 |
|
0.1 |
|
- Other services |
|
|
0.1 |
|
0.1 |
|
Operating leases |
|
|
4.0 |
|
2.4 |
|
|
|
|
|
|
|
6 Employee benefit expenses
|
|
|
2009 Group £m |
|
2008 Group £m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and salaries |
|
46.5 |
|
34.6 |
|
Short-term incentive payments |
|
22.3 |
|
10.5 |
|
Social security |
|
5.7 |
|
4.4 |
|
Share-based remunerations |
|
5.2 |
|
4.7 |
|
Pension costs |
|
3.8 |
|
3.0 |
|
|
|
83.5 |
|
57.2 |
|
Recharged to syndicate 623 |
|
(8.3) |
|
(7.8) |
|
|
|
75.2 |
|
49.4 |
7 Finance costs
|
|
|
|
2009 £m |
|
2008 £m |
|
|
|
|
|
|
|
|
Interest expense |
|
|
8.8 |
|
12.2 |
|
Arrangement fees |
|
|
- |
|
0.4 |
|
|
|
|
8.8 |
|
12.6 |
|
|
|
|
|
|
|
8 Income tax expense
|
|
|
|
2009 £m |
|
2008 £m |
|
|
Current tax expense |
|
|
|
|
|
|
|
Current year |
|
|
29.1 |
|
20.7 |
|
|
Prior year adjustments |
|
|
(2.2) |
|
(0.7) |
|
|
|
|
|
26.9 |
|
20.0 |
|
|
Deferred tax expense |
|
|
|
|
|
|
|
Origination and reversal of temporary differences |
|
|
(17.2) |
|
3.0 |
|
|
Prior year adjustments |
|
|
2.6 |
|
(0.2) |
|
|
|
|
|
(14.6) |
|
2.8 |
|
|
Income tax expense |
|
|
12.3 |
|
22.8 |
|
|
|
|
|
|
|
|
|
|
Profit before income tax |
|
|
100.7 |
|
87.2 |
|
|
|
|
|
|
|
|
|
|
Tax calculated at Irish rate (2008: UK rate) |
|
|
12.6 |
|
24.9 |
|
|
Rates applied |
|
|
12.5% |
|
28.5% |
|
|
|
|
|
|
|
|
|
|
Effects of: |
|
|
|
|
|
|
|
- Tax rates in foreign jurisdictions |
|
|
4.5 |
|
0.2 |
|
|
- - Retranslation of deferred tax balances on re-domiciliation |
|
|
(7.3) |
|
- |
|
|
- Non-deductible expenses |
|
|
0.3 |
|
1.5 |
|
|
- Tax relief on share based payments - current and future years |
|
|
1.8 |
|
(2.9) |
|
|
- Under/(over) provided in prior years |
|
|
0.4 |
|
(0.9) |
|
|
Tax charge for the period |
|
|
12.3 |
|
22.8 |
|
|
|
|
|
|
|
|
|
The effective tax rate was 12.2% (2008: 26.1%).
9 Earnings per share
|
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
Basic |
|
|
18.4p |
|
18.8p |
|
Diluted |
|
|
17.8p |
|
18.0p |
|
|
|
|
|
|
|
Basic
Basic earnings per share are calculated by dividing profit after tax of £88.4m (2008: £64.4m) by the weighted average number of issued shares during the year of 479.5m (2008: 342.6m). The shares held in the Employee Share Options Plan (ESOP) have been excluded from the calculation, until such time as they vest unconditionally with the employees.
Diluted
Diluted earnings per share are calculated by dividing profit after tax of £88.4m (2008: £64.4m) by the adjusted weighted average number of shares of 497.4m (2008: 358.7m). The adjusted weighted average number of shares assumes conversion of dilutive potential ordinary shares, being shares from the SAYE, retention and deferred share schemes. The shares held in the ESOP have been excluded from the calculation, until such time as they vest unconditionally with the employees.
10 Dividends per share
The second interim dividend of 4.7p (2008: 4.4p final dividend) per ordinary share, will be payable on 30 March 2010 to shareholders registered at 5.00pm on 5 March 2010 in respect of the six months ended 31 December 2009. These financial statements do not provide for the second interim dividend as a liability.
Together with the interim dividend of 2.3p (2008: 2.2p), this gives a total dividend for the year of 7.0p (2008: 6.6p).
11 Insurance liabilities
To illustrate the robustness of our reserves, the loss development tables below provide information about historical claims development by the five segments - marine, political risks 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 and ultimate net claims.
The top part of the table illustrates how the group's estimate of 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 estimate of total claims liabilities as at 31 December 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.
|
Gross ultimate claims |
2002ae |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
|
|
|
|
% |
% |
% |
% |
% |
% |
% |
|
|
Marine |
|
|
|
|
|
|
|
|
|
|
12 months |
|
59.4 |
62.4 |
82.4 |
57.1 |
57.8 |
69.0 |
55.8 |
|
|
24 months |
|
45.1 |
65.2 |
80.0 |
42.8 |
60.0 |
65.2 |
|
|
|
36 months |
|
39.0 |
62.3 |
70.4 |
32.8 |
50.5 |
|
|
|
|
48 months |
|
36.2 |
61.8 |
68.5 |
29.1 |
|
|
|
|
|
60 months |
|
35.8 |
60.7 |
66.2 |
|
|
|
|
|
|
72 months |
|
35.7 |
56.2 |
|
|
|
|
|
|
|
84 months |
|
34.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political risks and contingency |
|
|
|
|
|
|
|
|
|
|
12 months |
|
59.1 |
67.5 |
61.0 |
57.7 |
57.2 |
57.5 |
61.1 |
|
|
24 months |
|
36.3 |
55.5 |
38.1 |
36.2 |
38.7 |
67.9 |
|
|
|
36 months |
|
31.6 |
52.2 |
28.4 |
33.0 |
56.4 |
|
|
|
|
48 months |
|
28.6 |
37.8 |
25.2 |
43.1 |
|
|
|
|
|
60 months |
|
31.0 |
36.8 |
18.1 |
|
|
|
|
|
|
72 months |
|
25.1 |
34.8 |
|
|
|
|
|
|
|
84 months |
|
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
|
|
|
|
|
|
|
|
12 months |
|
50.9 |
65.4 |
87.2 |
58.6 |
58.4 |
71.1 |
54.0 |
|
|
24 months |
|
37.6 |
65.2 |
84.0 |
44.6 |
56.6 |
66.0 |
|
|
|
36 months |
|
34.8 |
65.8 |
82.5 |
43.6 |
54.5 |
|
|
|
|
48 months |
|
34.2 |
63.9 |
87.5 |
51.0 |
|
|
|
|
|
60 months |
|
33.8 |
64.4 |
87.0 |
|
|
|
|
|
|
72 months |
|
33.9 |
63.1 |
|
|
|
|
|
|
|
84 months |
|
35.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
|
|
|
|
12 months |
|
58.6 |
87.5 |
196.1 |
52.4 |
59.6 |
60.0 |
60.7 |
|
|
24 months |
|
34.1 |
81.6 |
187.7 |
25.1 |
26.4 |
51.2 |
|
|
|
36 months |
|
28.4 |
76.4 |
186.2 |
24.8 |
21.9 |
|
|
|
|
48 months |
|
28.6 |
73.9 |
179.1 |
23.2 |
|
|
|
|
|
60 months |
|
25.5 |
72.0 |
175.3 |
|
|
|
|
|
|
72 months |
|
25.5 |
71.0 |
|
|
|
|
|
|
|
84 months |
|
24.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty lines |
|
|
|
|
|
|
|
|
|
|
12 months |
|
72.9 |
72.8 |
72.1 |
72.6 |
72.8 |
72.2 |
72.8 |
|
|
24 months |
|
70.2 |
71.3 |
72.1 |
72.7 |
72.5 |
72.2 |
|
|
|
36 months |
|
68.8 |
67.6 |
69.8 |
72.7 |
72.5 |
|
|
|
|
48 months |
|
60.1 |
64.5 |
66.5 |
72.7 |
|
|
|
|
|
60 months |
|
53.3 |
59.5 |
62.9 |
|
|
|
|
|
|
72 months |
|
52.4 |
58.4 |
|
|
|
|
|
|
|
84 months |
|
50.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
12 months |
|
63.0 |
69.5 |
90.5 |
63.0 |
63.5 |
68.7 |
63.2 |
|
|
24 months |
|
52.6 |
69.1 |
87.7 |
53.2 |
59.2 |
67.7 |
|
|
|
36 months |
|
49.4 |
66.4 |
84.1 |
50.8 |
58.1 |
|
|
|
|
48 months |
|
44.9 |
63.5 |
82.5 |
52.5 |
|
|
|
|
|
60 months |
|
41.5 |
61.0 |
79.6 |
|
|
|
|
|
|
72 months |
|
40.9 |
59.2 |
|
|
|
|
|
|
|
84 months |
|
40.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ultimate losses(£m) |
1,212.9 |
301.2 |
510.9 |
755.5 |
565.0 |
681.2 |
786.3 |
875.3 |
5,688.3 |
|
Less paid claims (£m) |
(1.025.3) |
(222.8) |
(378.5) |
(547.6) |
(240.5) |
(268.3) |
(154.0) |
(26.0) |
(2,863.0) |
|
Less unearned portion of ultimate losses (£m) |
- |
- |
- |
- |
- |
(9.7) |
(64.1) |
(384.4) |
(458.2) |
|
Gross claims liabilities (100% level) (£m) |
187.6 |
78.4 |
132.4 |
207.9 |
324.5 |
403.2 |
568.2 |
464.9 |
2,367.1 |
|
Less unaligned share (£m) |
(35.6) |
(14.9) |
(25.2) |
(39.5) |
(61.7) |
(75.1) |
(101.5) |
(58.9) |
(412.4) |
|
Gross claims liabilities, group share |
152.0 |
63.5 |
107.2 |
168.4 |
262.8 |
328.1 |
466.7 |
406.0 |
1,954.7 |
|
Net ultimate claims |
2002ae |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
|
|
|
|
% |
% |
% |
% |
% |
% |
% |
|
|
Marine |
|
|
|
|
|
|
|
|
|
|
12 months |
|
55.4 |
58.1 |
55.5 |
54.0 |
55.0 |
61.3 |
54.4 |
|
|
24 months |
|
44.8 |
53.1 |
48.8 |
42.1 |
56.3 |
57.2 |
|
|
|
36 months |
|
40.1 |
48.6 |
42.6 |
32.9 |
49.4 |
|
|
|
|
48 months |
|
39.1 |
47.8 |
39.5 |
31.4 |
|
|
|
|
|
60 months |
|
39.0 |
46.6 |
39.0 |
|
|
|
|
|
|
72 months |
|
39.2 |
44.3 |
|
|
|
|
|
|
|
84 months |
|
38.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political risks and contingency |
|
|
|
|
|
|
|
|
|
|
12 months |
|
56.7 |
64.1 |
63.4 |
56.2 |
55.4 |
55.9 |
58.8 |
|
|
24 months |
|
37.4 |
58.0 |
46.5 |
40.3 |
39.1 |
75.6 |
|
|
|
36 months |
|
34.8 |
53.9 |
35.9 |
37.4 |
55.1 |
|
|
|
|
48 months |
|
32.9 |
40.7 |
30.3 |
46.9 |
|
|
|
|
|
60 months |
|
35.0 |
40.3 |
24.1 |
|
|
|
|
|
|
72 months |
|
27.2 |
35.8 |
|
|
|
|
|
|
|
84 months |
|
25.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
|
|
|
|
|
|
|
|
12 months |
|
48.7 |
59.7 |
64.9 |
61.3 |
61.1 |
67.3 |
53.7 |
|
|
24 months |
|
41.6 |
60.9 |
62.1 |
49.3 |
59.7 |
67.3 |
|
|
|
36 months |
|
39.2 |
60.3 |
58.4 |
47.8 |
58.9 |
|
|
|
|
48 months |
|
38.6 |
58.6 |
61.2 |
51.5 |
|
|
|
|
|
60 months |
|
38.2 |
58.4 |
61.8 |
|
|
|
|
|
|
72 months |
|
38.2 |
57.5 |
|
|
|
|
|
|
|
84 months |
|
39.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
|
|
|
|
12 months |
|
60.2 |
88.5 |
152.9 |
54.3 |
55.2 |
67.1 |
55.4 |
|
|
24 months |
|
39.3 |
85.5 |
131.8 |
36.7 |
30.5 |
56.7 |
|
|
|
36 months |
|
33.8 |
82.2 |
127.4 |
34.7 |
25.2 |
|
|
|
|
48 months |
|
34.5 |
76.1 |
117.5 |
32.4 |
|
|
|
|
|
60 months |
|
31.6 |
72.9 |
111.3 |
|
|
|
|
|
|
72 months |
|
31.6 |
71.3 |
|
|
|
|
|
|
|
84 months |
|
30.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty lines |
|
|
|
|
|
|
|
|
|
|
12 months |
|
68.7 |
69.8 |
69.3 |
68.6 |
69.7 |
70.2 |
69.9 |
|
|
24 months |
|
67.3 |
68.5 |
69.3 |
68.7 |
68.8 |
70.2 |
|
|
|
36 months |
|
66.0 |
65.8 |
67.5 |
68.6 |
68.8 |
|
|
|
|
48 months |
|
57.9 |
62.2 |
64.0 |
68.6 |
|
|
|
|
|
60 months |
|
52.8 |
57.0 |
58.9 |
|
|
|
|
|
|
72 months |
|
50.9 |
53.7 |
|
|
|
|
|
|
|
84 months |
|
49.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
12 months |
|
60.1 |
65.8 |
73.1 |
62.1 |
63.0 |
66.3 |
61.1 |
|
|
24 months |
|
53.0 |
65.3 |
68.7 |
54.4 |
59.2 |
66.9 |
|
|
|
36 months |
|
50.5 |
62.7 |
65.0 |
51.8 |
58.7 |
|
|
|
|
48 months |
|
46.4 |
59.3 |
62.3 |
52.4 |
|
|
|
|
|
60 months |
|
43.8 |
56.4 |
59.1 |
|
|
|
|
|
|
72 months |
|
42.7 |
53.9 |
|
|
|
|
|
|
|
84 months |
|
41.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ultimate losses(£m) |
635.3 |
254.5 |
380.1 |
439.6 |
441.3 |
582.8 |
642.0 |
662.9 |
4,038.5 |
|
Less paid claims net of reinsurance (£m) |
(568.8) |
(192.3) |
(282.6) |
(283.3) |
(204.9) |
(241.7) |
(142.3) |
(20.3) |
(1,936.2) |
|
Less unearned portion of ultimate losses (£m) |
- |
- |
- |
- |
- |
(12.8) |
(46.1) |
(339.7) |
(398.6) |
|
Net claims liabilities (100% level) (£m) |
66.5 |
62.2 |
97.5 |
156.3 |
236.4 |
328.3 |
453.6 |
302.9 |
1,703.7 |
|
Less unaligned share (£m) |
(12.6) |
(11.8) |
(18.5) |
(29.7) |
(44.6) |
(60.9) |
(83.5) |
(44.1) |
(305.7) |
|
Net claims liabilities, group share (£m) |
53.9 |
50.4 |
79.0 |
126.6 |
191.8 |
267.4 |
370.1 |
258.8 |
1,398.0 |
Analysis of movements in loss development tables
We have updated our loss development tables to show the ultimate loss ratios as at 31 December 2009 for each underwriting year.
Generally, the claims experience has been less than an average year, particularly given the low incidence of natural catastrophes and the relatively stable claims frequency on our specialty lines classes.
Following a review of the hurricane claims, we have partially released reserves held on hurricanes Katrina and Ike. This illustrates our reserving philosophy of establishing cautious initial reserves with reductions over time as the uncertainty reduces. The level of paid claims for the 2004, 2005 and 2008 hurricanes has now reached 96%, 93% and 50% of the updated estimate of ultimate claims costs respectively.
Marine
All years have exhibited a stable or reducing trend. This team continues to report profitable loss ratios on all underwriting years despite the significant impact that the 2005 and 2008 hurricanes had on the energy market.
Political risks and contingency
As highlighted during this year, the ultimate claims on the 2006, 2007 and 2008 underwriting years have increased as a result of the deterioration in the claims environment of our political class, particularly from trade credit related contracts. Nevertheless, the claim estimates announced in our third quarter 2009 interim management statement have remained robust through the fourth quarter. We continue to monitor claim frequency on a calendar month basis as an early indicator for future development.
Property
The late development on the 2003 underwriting year, albeit of relatively low quantum, has arisen from an unexpected court ruling on our homeowners account.
The increase in ultimate claims on the 2006 underwriting year arose on our engineering class from a fire at a desulphurisation plant. It has taken some time to gain access to the site in order to establish an appropriate reserve.
The reduction in gross ultimate loss ratio on the 2008 underwriting year without a corresponding net reduction has arisen from premium movements rather than changes to the claims. Whilst the gross premium has increased, increases to reinsurance premiums has resulted in a relatively unchanged net premium.
Reading across the top row of the loss development table, we note that the initial ultimate loss ratio for the 2009 underwriting year is less than that initially established for prior catastrophe-free years. This has arisen because the introduction of First State has improved the portfolio level ultimate loss ratio.
Reinsurance
All years have continued to reduce. The reserves for hurricanes Katrina and Ike have been reassessed and reduced during 2009. For hurricane Katrina this is a continuation of the release made in 2008 and for hurricane Ike this is the first release from the cautious estimates initially established.
The accident & life business is included in this team on the 2009 underwriting year. Whilst it is too early to make any releases, the claims development to date has been in line with or better than that experienced historically by the team.
Specialty lines
The trend of consistent releases across underwriting years has continued.
The improvement of the 2004 underwriting year has continued and the gap to the 2003 underwriting year has closed slightly. We have mentioned in previous commentaries that the differential between 2004 and 2003
was partially caused by the timing of the reduction in uncertainty on 2004 which we expected to unwind over time.
We continue to take a more conservative view on the 2006 underwriting year by not releasing reserves at 31 December 2009. However, the incurred claims development continues to track prior underwriting years.
The 2007 underwriting year has seen early incurred development from a small number of large losses. We have observed that the development of this underwriting year has stabilised during 2009 as the development has been more in line with prior underwriting years during this period. Despite this stabilisation we have continued to maintain our initial loss ratios.
The early claims experience of the 2008 and 2009 underwriting years continues to be in line with the 2006 & prior underwriting years.
Claim releases
The table below analyses our net claims between current year claims and adjustments to prior year net claims reserves. These have been broken down by department and period. |
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Underwriting year |
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12 Status of financial information
The financial information set out above does not constitute the Company's statutory accounts for the year ended 2008 or 2009, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985 for 2008 and under Section 111 (2) Company (Jersey) Law 1991 for 2009.
Glossary of terms
Admitted carrier
An insurance company licensed by a particular US state, monitored by the state for financial stability, covered by the state's guaranty fund, and subject to the state's regulations for licensed insurance companies. 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 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. The calculation is performed excluding the impact of foreign exchange on non-monetary items.
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.
The calculation is performed excluding the impact of foreign exchange on non-monetary items.
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 owned by the group. For calculating diluted earnings per share the number of shares and profit or loss for the year is adjusted for 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, 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.
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, 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.
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.
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.
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 sidecar
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 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.
Retrocessional reinsurance
The reinsurance of the reinsurance account. It serves to 'lay-off' risk.
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.
Sidecar syndicate
Specialty reinsurance company designed to provide additional capacity to a specific insurance company. They operate by purchasing a portion or all of a group of insurance policies, typically cat exposures. They 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.
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.
Surplus lines insurer
An insurer that underwrites surplus lines insurance in the USA. Lloyd's underwriters are surplus lines insurers in all jurisdictions of the USA except Kentucky and the US Virgin Islands.
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.
This information is provided by RNS
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