Indicative 2022 IFRS 17 comparatives

Beazley PLC

31 July 2023

 

Indicative 2022 IFRS 17 comparatives

London, 31 July 2023

The numbers contained within this document relating to IFRS 17 are indicative, unaudited and subject to change.

Beazley has released financial information and presentation slides on its website which provide indicative and unaudited comparative information for the six months to 30 June 2022 and the year to 31 December 2022, restated for the adoption of IFRS 17.

Whilst adopting this new accounting standard changes the presentation of financial statements and disclosures going forward, it does not change the underlying economics, the capital position or dividend strategy.

Included below is information on comparison to IFRS 4, and detail on the primary drivers for the differences between the two standards at Beazley. The main changes are due to the introduction of discounting on insurance cashflows and an updated approach to both directly attributable expenses and reserving.

Full year impacts from transition from IFRS 4 to IFRS 17

·      FY 2022 Profit before tax increases by $356m from $191m under IFRS 4 to $547m under IFRS 17

·      FY 2022 Combined ratio reduces by 10 points from 89% under IFRS 4 to 79% under IFRS 17 primarily due to the removal of non-directly attributable expenses and the introduction of discounting of cashflows

·      FY 2022 EPS increases to 60.1p driven by increase in profit under IFRS 17

·      FY 2022 Return on equity increases to 18% under IFRS 17

·      FY 2022 Net asset value per share increases to 360.8p driven by an increase in 2022 profit alongside an increase of $71m in equity on transition to IFRS 17 at 1 January 2022

·      FY 2022 reserve at 86^th percentile confidence level under IFRS 17

Year to 31 December 2022	IFRS 4	IFRS 17
Gross/Insurance written premium ($m)	5,269	5,267
Insurance service result ($m)	402	800
Net insurance and investment result ($m)	222	832
Profit before tax ($m)	191	547
Combined ratio (%)	89%	79%
Earnings per share (p)	21.1	60.1
Return on equity (%)	7%	18%
Net asset value per share (p)	315.6	360.8
Six months to 30 June 2022	IFRS 4	IFRS 17
Gross/Insurance written premium ($m)	2,555	2,541
Insurance service result ($m)	232	581
Net insurance and investment result ($m)	39	528
Profit before tax ($m)	22	362
Combined ratio (%)	87%	70%
Earnings per share (p)	1.7	28.4
Return on equity (%)	1%	10%
Net asset value per share (p)	274.9	313.4

Statement of profit and loss

*IFRS 4 numbers have been remapped using IFRS 4 accounting principles to IFRS 17 captions to aid with comparability

Year to 31 December 2022	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	4,761	4,808
Insurance service expense	(4,302)	(4,069)
Allocation of reinsurance premium	(1,147)	(922)
Amounts recoverable from reinsurers for incurred claims	1,090	983
Insurance service result	402	800
Net investment loss	(180)	(180)
Net insurance finance income	-	212
Net insurance and investment result	222	832
Other income	32	32
Operating expenses	-	(284)
FX loss	(24)	(9)
Finance costs	(39)	(24)
Profit before tax	191	547
Combined ratio	89%	79%

Six months to 30 June 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	2,347	2,330
Insurance service expense	(2,133)	(1,839)
Allocation of reinsurance premium	(541)	(378)
Amounts recoverable from reinsurers for incurred claims	559	468
Insurance service result	232	581
Net investment loss	(193)	(193)
Net insurance finance income	-	140
Net insurance and investment result	39	528
Other income	22	22
Operating expenses	-	(164)
FX loss	(20)	(5)
Finance costs	(19)	(19)
Profit before tax	22	362
Combined ratio	87%	70%

Combined ratio definition

The combined ratio definition has been updated to reflect the new presentation of the profit and loss. Our view is that the combined ratio should be reflective of the insurance service result. As such we have calculated the combined ratio as:

    Insurance service expense - Amounts recoverable from reinsurers for incurred claims

 

                      Insurance revenue - Allocation of reinsurance premium

Discounting

Profit before tax at both 30 June and 31 December 2022 has increased, primarily driven by the impact of discounting. Discounting of cashflows results in the impact of interest rate movements being reflected on both the fair value of investments as well as insurance liabilities.

The discounting impact on insurance liabilities to profit before tax during 2022 was an increase to profit of $179m at 30 June 2022 and $273m at 31 December 2022, primarily driven by the increase in interest rates during the year. The introduction of discounting also had an impact of 4 point reduction on the combined ratio at 30 June 2022 and 3 point reduction at 31 December 2022.

The impact of discount unwind and change in discount rate is recognised outside of the 'insurance service result' line and included within the 'net insurance finance income and expenses' line.

Expenses

IFRS 17 brings in the concept of directly and non-directly attributable expenses and requires all directly attributable expenses to be recognised within the insurance result. Under IFRS 4, we assumed that all expenses were attributable to the insurance result, and therefore the movement to IFRS 17 is expected to be more significant for Beazley than its peers.

This led to a reclassification of $164m in expenses at 30 June and $284m at 31 December 2022, which are now being recognised within operating expenses rather than within the insurance result. This had an impact of 4 points reduction on the combined ratio at 30 June 2022 and 7 points reduction at 31 December 2022.

Reserving

Under IFRS 17 Beazley have chosen to update its reserving methodology and are now using a 'cost of capital' approach when setting the risk adjustment (the additional amount held above a best estimate reserve), to be in line with IFRS 17 principles. Overall, this has led to a lower reserve percentile being held on an IFRS 17 basis compared to IFRS 4.

At 1 January 2022 the IFRS 17 reserve was held at the 84^th percentile, at 30 June 2022 the 85^th percentile and at 31 December 2022 the 86^th percentile. This compares to IFRS 4 equivalents which were towards the top of Beazley's 80^th to 90^th percentile preferred reserve confidence level under IFRS 17.

These differences led to an increase in equity on transition.  This also has an impact on the combined ratio for 2022 as under the cost of capital approach, a larger claims release was seen during the year than under the methodology used under IFRS 4.  These differences vary by segment, and also by first and second half of the year.  More detail on these differences is given below. 

Onerous contracts

If the expected cash outflows exceed inflows over the remaining coverage period for a group of contracts, then this group of contracts is considered to be onerous (i.e. loss making).  A loss component is established and is recognised immediately on the statement of profit & loss under 'insurance service expenses', with the reinsurance recoveries recognised in 'amounts recoverable from reinsurers for incurred claims'.  At 31 December 2022, the loss component recognised in the statement of profit of loss amounted to $9m net of reinsurance.

Segmental

Cyber Risks

Cyber Risks' insurance result is improved compared to IFRS 4, with reserving changes and directly attributable expenses being the main driver. The improvements seen from reserving are more pronounced in the first half of the year, as the best estimates underpinning the IFRS 17 reserves reacted more quickly to the emerging favourable claims experience (especially that arising from the 2021 underwriting year, during 2022) than reserving under IFRS 4.

Year to 31 December 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	1,025	1,008
Insurance service expense	(841)	(752)
Allocation of reinsurance premium	(241)	(196)
Amounts recoverable from reinsurers for incurred claims	218	202
Insurance service result	161	262
Net investment loss	(35)	(35)
Net insurance finance income	-	27
Net insurance and investment result	126	254
Other income	8	8
Operating expenses	-	(63)
FX loss	(5)	(1)
Segment result	129	198
Combined ratio	79%	68%

Six months to 30 June 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	467	428
Insurance service expense	(385)	(296)
Allocation of reinsurance premium	(104)	(91)
Amounts recoverable from reinsurers for incurred claims	118	128
Insurance service result	96	169
Net investment loss	(33)	(33)
Net insurance finance income	-	16
Net insurance and investment result	63	152
Other income	5	5
Operating expenses	-	(26)
FX loss	(4)	-
Segment result	64	131
Combined ratio	74%	50%

Digital

Digital claims result is improved primarily due to the change in expense approach under IFRS 17, and furthermore a greater benefit seen due to positive claims experience coming through on IFRS 17. 

Year to 31 December 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	211	211
Insurance service expense	(179)	(158)
Allocation of reinsurance premium	(32)	(27)
Amounts recoverable from reinsurers for incurred claims	23	26
Insurance service result	23	52
Net investment loss	(9)	(9)
Net insurance finance income	-	4
Net insurance and investment result	14	47
Other income	2	2
Operating expenses	-	(17)
FX loss	(1)	-
Segment result	15	32
Combined ratio	87%	72%

Six months to 30 June 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	102	99
Insurance service expense	(83)	(73)
Allocation of reinsurance premium	(13)	(16)
Amounts recoverable from reinsurers for incurred claims	6	13
Insurance service result	12	23
Net investment loss	(9)	(9)
Net insurance finance income	-	4
Net insurance and investment result	3	18
Other income	1	1
Operating expenses	-	(11)
FX loss	(1)	(2)
Segment result	3	6
Combined ratio	87%	72%

MAP Risks

MAP risks claims result is slightly adverse to that seen under IFRS 4, as the cost of capital approach leads to a lower reserve being held on the opening balance sheet. This benefits equity at 1 January 2022 rather than 2022 IFRS 17 profit. The discounting impact is slightly less than seen at the group, and MAP has a small amount of non-directly attributable expenses.

Year to 31 December 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	1,014	958
Insurance service expense	(927)	(905)
Allocation of reinsurance premium	(288)	(263)
Amounts recoverable from reinsurers for incurred claims	316	313
Insurance service result	115	103
Net investment loss	(20)	(20)
Net insurance finance income	-	27
Net insurance and investment result	95	110
Other income	1	1
Operating expenses	-	(12)
FX loss	(5)	(2)
Segment result	91	97
Combined ratio	84%	85%

Six months to 30 June 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	452	420
Insurance service expense	(547)	(494)
Allocation of reinsurance premium	(136)	(83)
Amounts recoverable from reinsurers for incurred claims	237	162
Insurance service result	6	5
Net investment loss	(22)	(22)
Net insurance finance income	-	17
Net insurance and investment result	(16)	-
Other income	2	2
Operating expenses	-	(25)
FX loss	(3)	(1)
Segment result	(17)	(24)
Combined ratio	98%	99%

Property Risks

Property risks insurance result is improved compared to IFRS 4, primarily driven by the updated expenses approach and some further improvements due to the change in reserving approach.  However, the reserving impact is less than IFRS 4 during the first half of 2022 partly due to a seasonality effect around the speed of run-off of the IFRS 17 risk adjustment.

Year to 31 December 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	829	808
Insurance service expense	(776)	(697)
Allocation of reinsurance premium	(166)	(132)
Amounts recoverable from reinsurers for incurred claims	128	110
Insurance service result	15	89
Net investment loss	(27)	(27)
Net insurance finance income	-	21
Net insurance and investment result	(12)	83
Other income	7	7
Operating expenses	-	(40)
FX loss	(4)	(1)
Segment result	(9)	49
Combined ratio	98%	87%

Six months to 30 June 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	389	392
Insurance service expense	(252)	(277)
Allocation of reinsurance premium	(76)	(46)
Amounts recoverable from reinsurers for incurred claims	10	8
Insurance service result	71	77
Net investment loss	(28)	(28)
Net insurance finance income	-	14
Net insurance and investment result	43	63
Other income	4	4
Operating expenses	-	(31)
FX loss	(3)	-
Segment result	44	36
Combined ratio	77%	78%

Specialty Risks

Specialty Risks insurance result is improved due to this segment being the most impacted by discounting along with the effect of directly attributable expenses being also higher than that seen at group. The reserving differences are smaller at year end 2022 than in the first half of 2022, as the best estimates which underpin the IFRS 17 reserves reacted more quickly to the emerging favourable claims experience (especially that arising from the 2021 underwriting year, during 2022) than reserving under IFRS4.

Year to 31 December 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	1,682	1,823
Insurance service expense	(1,579)	(1,557)
Allocation of reinsurance premium	(420)	(304)
Amounts recoverable from reinsurers for incurred claims	405	332
Insurance service result	88	294
Net investment loss	(89)	(89)
Net insurance finance income	-	133
Net insurance and investment result	(1)	338
Other income	14	14
Operating expenses	-	(152)
FX loss	(9)	(5)
Segment result	4	195
Combined ratio	93%	81%

Six months to 30 June 2022

	IFRS 4 (Remapped*)	IFRS 17
	$m	$m
Insurance revenue	937	991
Insurance service expense	(866)	(699)
Allocation of reinsurance premium	(212)	(142)
Amounts recoverable from reinsurers for incurred claims	188	157
Insurance service result	47	307
Net investment loss	(101)	(101)
Net insurance finance income	-	89
Net insurance and investment result	(54)	295
Other income	10	10
Operating expenses	-	(71)
FX loss	(9)	(2)
Segment result	(53)	232
Combined ratio	94%	64%

Note Beazley will be holding a conference call on Monday 31^st July 2023 at 10am BST

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Note to editors:

Beazley plc (BEZ.L), is the parent company of specialist insurance businesses with operations in Europe, North America, Latin America and Asia. Beazley manages seven Lloyd's syndicates and, in 2022, underwrote IFRS 4 gross premiums worldwide of $5,268.7 million. All Lloyd's syndicates are rated A by A.M. Best. 

Beazley's underwriters in the United States focus on writing a range of specialist insurance products. In the admitted market, coverage is provided by Beazley Insurance Company, Inc., an A.M. Best A rated carrier licensed in all 50 states. In the surplus lines market, coverage is provided by the Beazley syndicates at Lloyd's.

Beazley's European insurance company, Beazley Insurance dac, is regulated by the Central Bank of Ireland and is A rated by A.M. Best and A+ by Fitch.

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

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

 

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