Interim Management Statement

RNS Number : 1586C

Beazley PLC

09 November 2009

 



Press 

Release

Beazley plc Interim management statement for the 9 months ended 30th September 2009

Overview

Beazley are pleased to announce a good trading performance in the first nine months of 2009, reflecting the strengths of our diversified portfolio. We are on track to achieve a 90% combined ratio. Underwriting conditions have been favourable with rate increases averaging 4% across the portfolio. Written premiums have grown by 45% over the equivalent period in 2008. Rate increases have been most significant in catastrophe exposed lines. Competition remains intense in some casualty lines; however we continue to exercise effective pricing discipline. We have also seen favourable claims developments in our specialty lines, marine and reinsurance businesses where we have been able to continue to make substantial reserve releases. These have been offset by an increased number of claims on the political risk and contingency portfolio resulting from the economic downturn. 

We are pleased to report a continued profit in our investment portfolio. We have also successfully lowered the risk of our invested assets by moving a large proportion of the portfolio into government securities and government guaranteed bonds. 

	30 Sep 2009	30 Sep 2008	% increase
Gross premiums written (£m)	861.9	595.4	45
Investments and cash (£m)	2,236	1,705	31
Investment return (% YTD) - annualised	2.8%	(1.1)%
Rate increase / (decrease)	4%	(7)%

Premiums

Below is an extract of our performance to the end of September 2009 by business division:

	Gross premiums written  9 months to 30 Sep 2009	Gross premiums written 9 months to 30 Sep 2008	% increase / (decrease)	Q3 2009 Rate change
	£m	£m	%	%
Marine	134.7	104.3	29	10
Political risk and contingency	64.2	47.1	36	(1)
Property	196.6	128.2	53	7
Reinsurance	122.2	62.6	95	9
Specialty lines	344.2	253.2	36	(1)
OVERALL	861.9	595.4	45	4

Gross premiums written in the first nine months of 2009 were £861.9m, 45% higher than 2008 at the same stage. As highlighted in our interim statement, this increase was driven by the effect of acquisitions, organic growth and the devaluation of sterling against the US dollar. The strengthening of the US dollar since the third quarter of 2008 has led to a significant growth in our sterling reported premium figure. The group writes around 75% of its business in US dollars. At like for like exchange rates the increase would be 18%.

The group has successfully integrated two businesses since the start of 2009 - First State Management Group ("First State"), which underwrites surplus lines commercial property business in the US, and Momentum Underwriting, a London based business focusing on accident and life insurance business. First State contributed $75.9m in the first 9 months of 2009; £34.7m has been written by our new accident and life team.  

Our catastrophe lines of business, in particular reinsurance, US commercial property and offshore energy, saw large rate increases in the first nine months of 2009 - averaging 9%, 10% and 31% respectively. Other areas of our business saw rates flat year on year, leading to an average rate increase across the portfolio of 4%. In our largest business, specialty lines, rates have fallen slightly, by 1%, in 2009. 

US operations

The business we underwrote locally in the US totalled $274.9m in the nine months to 30 September 2009 (2008: $199.0m), an increase of 38%. Our US admitted insurance company, Beazley Insurance Company Inc (BICI), underwrote $128.8m, and our US surplus lines businesses contributed $146.1m, of which $75.9m was commercial property business underwritten following the successful acquisition of First State. Year on year premium growth has been particularly strong for our Technology, Media and Business Services (TMB) professional liability account, which has grown by 39% to $41.5m for the first nine months of the year. 

Claims update

Our catastrophe accounts such as reinsurance, property and energy have witnessed a largely benign period. However, consistent with our reserving philosophy, we will not start to release catastrophe margins from the 2009 underwriting year until next year. On the older underwriting years the marine, specialty lines and reinsurance portfolios continue to demonstrate strong reserve releases. However, our political risks and contingency team has seen an increase in large notifications in recent months. 

Specialty lines claims experience continues to be positive. We continue to monitor the impact of recession and the economic downturn on our reserves. Initially, 2009 saw claims frequency increase in a small number of specialty classes, notably employment practices liability and underwriting actions were taken to address this. Overall, claims frequency on the specialty lines account remains within our expectations.  

As noted in our half year report, the business environment for our political risks team has been challenging. We have continued to see an increased number of notifications on the political risks portfolio. The impact on profit of these losses is estimated to be approximately £33m. In keeping with Beazley's conservative reserving philosophy, initial reserves have been set to include a prudent margin which may be released over time as the uncertainty reduces. The reserves have been established by considering a review of exposures, a bottom up claim by claim analysis and our internal actuarial teams' statistical top-down review. We have taken a view that the high claims frequency we have observed recently may continue into 2010 and have factored this into our reserving estimate.

Investment performance

Investment income for the nine months to 30 September was £44.5m or an annualised return of 2.8%, compared with a year-to-date loss of £13m over the same period in 2008.  

Investment Portfolio

Following the restructuring of the portfolio earlier in the year, we have moderately increased the allocation to growth assets, as shown in the asset breakdown below.  

We have categorised our portfolio into a 'core portfolio' of government bonds, cash and money market investments, and our holdings in high quality short duration corporate credit.

Our capital growth assets are held in a balanced portfolio of alternative investments which is allocated across a number of different managers. The combined portfolio is structured around an absolute return strategy and aims to achieve a risk managed return of T-Bills + 100 to 150bp per year.

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

		30 Sep 2009			31 Dec 2008
		£m	%		£m	%
Cash and cash equivalents	532		28.0%		664	33.3%
Government, Agency and Supranational	944		42.2%		508	25.5%
AAA	520		19.5%		246	12.3%
AA+ to AA-	44		1.6%		136	6.8%
A+ to A-	56		2.5%		269	13.5%
BBB+ to BBB-	3		0.1%		68	3.4%
Core portfolio		2,099	93.9%		1,891	94.8%
Capital growth assets		137	6.1%		103	5.2%
Total		2,236	100.0%		1,994	100.0%

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 0.8% (31 December 2008: 3.4%)

Investment Return

Comparison of return by major asset class:

	30 Sep 2009	30 Sep 2009  annualised return		31 Dec 2008	31 Dec 2008  annualised return
	£m	%		£m	%
Core portfolio	36.2	2.4%		(7.7)	(0.4%)
Capital growth assets	8.3	8.9%		(18.1)	(20.8%)
Overall return	44.5	2.8%		(25.8)	(1.5%)

Redomiciliation to Ireland

We previously announced that the group had redomiciled to Ireland and changed our corporate structure by putting in place a new parent company, Beazley plc, incorporated in Jersey. This will have the benefit of providing the group with a European base, from which we can develop our European insurance operations; it has also lowered the group's effective tax rate from 1 January 2009 to 19% (compared to an effective tax rate of 28% for the same period in 2008). 

Andrew Horton, Chief Executive Officer, said:  

"2009 has been a year of growth for Beazley at a time of improving premium rates. We have successfully deployed capital raised at the start of the year, supporting a 45% increase in our premiums written to the end of September. The global economic crisis has continued to impact our business lines particularly in the political risk account, however our recession planning has proved robust and we are well placed to capitalise on growth opportunities." 

ENDS

For further information, please contact:

Beazley plc

Andrew Horton

Martin Bride

T: [phone]

Finsbury

Don Hunter/Peter Russell

T: [phone]

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