Interim Management Statement

RNS Number : 3141F

Beazley PLC

21 April 2011

 



Beazley plc Interim management statement for the 3 months ended 31 March 2011

Dublin, 21 April 2011

Overview

·      Resilient performance in difficult market conditions

·      Premiums reduced by 3% to $426m (2010 $438m)

·      Premium rates on renewal business decreased by 1%

·      The net cost of catastrophes in Australia, New Zealand and Japan is estimated to be $154m

·      Annualised investment yield of 0.9%

Andrew Horton, Chief Executive Officer, said: 

"The first quarter of 2011 has seen catastrophe losses in Australia, New Zealand and Japan.  As a result of Beazley's diversified portfolio we nevertheless anticipate achieving a combined ratio for 2011 in the mid ninety percent range, provided we experience no further significant catastrophe events during the remainder of 2011. We had good support from our reinsurers for the annual renewal of our catastrophe reinsurance programmes and on 1 April they were successfully renewed for our property and reinsurance businesses."

	31 March  2011	31 March  2010	% increase/ (decrease)
Gross premiums written ($m)	426	438	(3%)
Investments and cash ($m)	3,969	3,581	11%
Investment return - annualised (%)	0.9%	0.6%	-
Rate decrease	(1%)	(1%)	-

Premiums

The first three months of 2011 saw premiums fall by 3%, when compared with the equivalent period of 2010. This has been driven by reductions across all our divisions with the exception of specialty lines. Premium rates are down by 1% on average across the portfolio which is in line with our expectations.

Below is an extract of our performance to the end of March 2011 by business division:

	Gross premiums written 31 March 2011	Gross premiums written 31 March 2010	% increase / (decrease)	Q1 2011 Rate change
	$m	$m	%	%
Life accident and health	20	28	(29)	(4)
Marine	62	66	(6)	(1)
Political risk and contingency	24	25	(4)	(2)
Property	80	82	(2)	(1)
Reinsurance	78	83	(6)	(3)
Specialty lines	162	154	5	-
OVERALL	426	438	(3)	(1)

Following the recent catastrophes, we are seeing some hardening of premium rates in the affected classes.  In general, trading conditions remain challenging and we do not believe these events alone will be sufficient to turn the overall market.  The 29% decrease in premium in life accident and health is attributable to one coverholder for which there was a downward adjustment to prior years' premium and which has not been renewed.

Following our announcement on 8 April, we have acquired, subject to regulatory approval, two Australian disability insurance Managing General Agents: Australian Income Protection and Blue-GUM Special Risks.  These acquisitions are making an immediate contribution to our premium written via our Lloyd's platform and will significantly add to our already growing Australian business and presence.  This will help us take advantage of opportunities there.   

US operations

During the quarter we announced our withdrawal from admitted commercial property business in the US to focus on surplus lines commercial property business, which accounted for more than 80% of the premiums underwritten by our property division's US underwriters in 2010. We continually review the prospective profitability of all parts of our portfolio seeking to grow the most profitable ones and re- position or even withdraw from those not achieving our targets and we found that despite recruiting an excellent team we could not compete profitably in this line of business. This withdrawal combined with a weaker environment in the wider property market, led to a reduction in locally underwritten premium in the US, decreasing 5% to $86m (2010: $91m).

Claims update

The end of 2010 and start of 2011 have been impacted by a series of natural catastrophes which have caused devastation and significant loss.  Our investment in our claims infrastructure will enable us to work closely with our clients and insureds to ensure claims are handled in an efficient and timely manner and to enable affected communities to start to rebuild.

The cost arising from the heavy rains and flooding in Queensland, Australia is estimated to be approximately $23m.

We currently estimate the cost of the February New Zealand earthquake to be approximately $64m net of reinsurance, based on market losses of between $10bn and $12bn. 

The Japanese earthquake and tsunami on 11 March caused widespread property damage and destruction with a death toll of circa 13,000 and 15,000 people still unaccounted for. The majority of Beazley's exposure is in our reinsurance account; however we also expect some claims to arise in marine, property, and event cancellation in the contingency book. We currently estimate the cost to be in the region of $67m net of reinsurance, based on market losses of between US$20bn and US$30bn.

In order to mitigate the risk of significant foreign exchange volatility arising from these claims we entered into currency hedges in Japanese Yen and New Zealand Dollars.

The overall level of claims is developing in line with our expectations in other areas of our business and we continue to maintain our reserve strength across the portfolio.

Investment performance

Investment income for the three months to 31 March was $8.5m (31 March 2010: $5.0m) equivalent to an annualised return of 0.9% (31 March 2010: 0.6%).

Investment portfolio

Beazley continues with its strategy of holding the majority of its investments in a core portfolio of sovereign fixed income assets, or short duration high quality credit.  This is complemented by a diversified portfolio of capital growth assets. 

As at the end of March our portfolio allocation was as follows: 

		31 March 2011			31 March 2010
		$m	%		$m	%
Cash and cash equivalents	1,118		28		486	14
Government, Agency and Supranational	1,331		33		1,552	44
AAA	823		21		971	27
AA+ to AA-	156		4		151	4
A+ to A-	101		3		82	2
BBB+ to BBB-	18		-		2	-
Core portfolio		3,547	89		3,244	91
Capital growth assets		422	11		337	9
Total		3,969	100		3,581	100

Investment Return

Comparison of return by major asset class:

	31 March 2011	31 March 2011 annualised return		31 March 2010	31 March 2010 annualised return
	$m	%		$m	%
Core portfolio	1.5	0.2		3.6	0.5
Capital growth assets	7.0	6.5		1.4	1.7
Overall return	8.5	0.9		5.0	0.6

The weighted average duration of our core portfolio as at 31 March 2011 was 13 months (31 March 2010: 6 months) and the weighted average yield to maturity of our overall portfolio was 0.8% (31 March 2010: 0.6%).

Capital management

We have maintained our target capital buffer in the first quarter and our $150m letter of credit facility remains undrawn. This positions us well for any opportunities that arise to deploy additional capital in 2011. We do not anticipate making any further share buybacks in the short term. 

ENDS

 For further information, please contact:

Beazley plc

Sian Coope

 [phone]

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 2010, underwrote gross premiums worldwide of $1,741.6 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

 

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