Interim Results

RNS Number : 8034P

Beazley PLC

23 July 2010

Beazley Announces Interim Results

Beazley plc results for the six months ended 30 June 2010

Dublin, 23 July 2010

Financial highlights

· Profit before tax of $115.5m (2009: $30.1m)

· Profit before income tax and earnings per share includes an exceptional foreign exchange gain of $33.7m

· Gross written premiums up 5% to $940.6m; net written premiums up 21% to $621.1m

· Rates on renewal business down by 2% across the portfolio

· Combined ratio of 89% (2009: 90%)

· Annualised investment return of 0.5% (2009: 2.9%)

· Reserve releases from prior years of $65.9m (2009: $53.6m).

· Interim dividend of 2.4p (2009: 2.3p)

· $12.0m returned to shareholders through share buybacks in the first half

	6 months ended 30 June 2010	6 months ended 30 June 2009	% increase
Gross written premiums ($m)	940.6	894.6	5%
Net earned premiums ($m)	678.2	538.1	26%
Profit before income tax ($m)	115.5	30.1

Earnings per share (cents)	18.8c	7.3c
Net assets per share (cents)	192.7c	177.7c	8%
Net tangible assets per share (cents)	171.1c	157.5c	9%

Earnings per share (pence)	12.6p	4.9p
Net assets per share (pence)	128.4p	107.7p	19%
Net tangible assets per share (pence)	114.1p	95.5p	19%

Dividend per share (pence)	2.4p	2.3p	4%

Andrew Horton, Chief Executive Officer, said:

"Beazley delivered a strong result for the first half of the year - a period marked by a series of catastrophe losses and continued intense competition in many lines of business. Current competitive market conditions are likely to continue. Investment yields remain low, which should place upward pressure on premium rates, but capacity in all but a few lines is plentiful.

"At Beazley, we will respond to this softening market as we have done in the past, concentrating on business that remains profitable and being prepared to reduce our book where this is not the case. We have a strong business that is in good shape for this challenging environment."

For further information, please contact:

Beazley plc                                Finsbury
Martin Bride                               Guy Lamming
Tel: +353 (0) 1854 4700             Tel: +44 (020) 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

Interim results statement

Beazley delivered a strong result for the first half of the year, recording a pretax profit of $115.5m. Our performance was particularly impressive in a period marked by a series of catastrophe losses and continued intense competition in many lines of business.

Gross written premiums rose by 5% from the same period last year, driven in large measure by the growth in our reinsurance and specialty lines divisions. Overall we achieved a combined ratio of 89% in an environment largely characterised by flat or declining premium rates. Premium rates fell slightly, by an average of 2%, across our portfolio.

The dangers of the world we live in were abundantly reflected in the insurance industry's experiences during the first half of 2010, such as the explosion and blowout on the Deepwater Horizon oil rig in the Gulf of Mexico followed windstorm Xynthia in Europe and a major earthquake in Chile. Our original loss estimates for the Chilean earthquake (between $55m and $75m, based on a market-wide loss of $5bn to $8bn) and Deepwater Horizon rig (approximately $6m) remain unchanged and Xynthia was not a significant loss event for Beazley.

Beazley's reserving approach to catastrophe exposed classes showed its worth in the early months of this year. We do not release reserves from our catastrophe exposed accounts until premiums are substantially earned. This ensured that reserves from the 2009 underwriting year remain available to our property insurance and reinsurance underwriters to help meet claims arising from the Chilean earthquake. More generally our reserving continues to prove robust, enabling us to release $65.9m in prior year reserves in the first half. The group has maintained its surplus in net claims reserves over actuarial best estimate at around 7.3%, which is within our target range.

Conservatism characterises our investment strategy at a time of continuing instability in financial markets. Our focus is on capital preservation and ensuring that the profits earned by our underwriters are not eroded by losses from high risk investments. Our investments produced an annualised return of 0.5% in the first half of this year (2009: 2.9%). We have no sovereign bond exposures to Greece, Portugal, Spain or Ireland.

In January 2010, we matched our capital base to the principal underlying currencies of our written premiums. The US dollar component of our capital funds increased accordingly by $491m with an equivalent decrease in the sterling component. This change resulted in a one-off foreign exchange gain of $33.7m for the first half of the year, due to the strengthening of the dollar against sterling during the first quarter.

In April 2010, we announced a change to our reporting currency to US dollars, reflecting the growth of our dollar denominated premiums and the fact that the capital supporting the business is largely held in dollars. We believe that this change will give investors and other stakeholders a clearer understanding of the group's performance over time. Accounting in dollars will significantly reduce the future volatility of Beazley's reported earnings due to foreign exchange movements - and in particular due to foreign exchange on non-monetary items. This adjustment resulted in a difference of $74.7m between the 2009 pretax and underlying profits, as set out in note 3.

Cumulative rate changes since 2001 (%)

	2001	2002	2003	2004	2005	2006	2007	2008	2009	HY 2010
Marine	100%	117%	128%	127%	130%	140%	131%	123%	131%	125%
Political and contingency	100%	120%	122%	114%	107%	101%	93%	88%	88%	86%
Property	100%	128%	133%	126%	124%	140%	137%	128%	135%	131%
Reinsurance	100%	144%	150%	149%	150%	192%	200%	188%	203%	201%
Specialty lines	100%	138%	166%	175%	177%	177%	168%	158%	157%	155%
Total	100%	132%	146%	146%	147%	156%	149%	140%	144%	141%

Rates on our renewal business reduced by 2% in the first six months of 2010 (2009: up 5%).

A significant contribution to our profits in the first half came once again from our marine division, in spite of the tragic events surrounding the Deepwater Horizon explosion. The office we opened in Oslo in January to access local energy business got off to a very positive start. More broadly, our marine underwriters continued to see profitable business, notwithstanding the pressures on global trade.

Specialty Lines, our largest division, faced a challenging market, with competition intensifying in many of our core lines, including directors & officers insurance and professional liability for lawyers, architects and engineers, and technology companies. As in the past, our underwriters were well served by a tried and tested approach to cycle management, flexing our portfolio to concentrate on the more profitable classes and reducing the less profitable, while focusing on careful risk selection and the adjustment of terms and conditions to meet our profitability objectives. The rate reduction across our Specialty Lines portfolio was a modest 1%. Our new data breach solution, Beazley Breach Response, has been selling briskly.

Property insurance, which accounted for 22% of our gross written premiums, saw rates decline on average by 3%. The team of highly experienced underwriters and claims professionals who joined us in the US through the First State acquisition are now fully integrated into our US property team under the name Beazley E&S Property. Our London-based construction and engineering team, which insures some of the largest projects in the world, continued to see weak demand for cover due to the sluggish global economy but in the US our builders risk team began to access a sizeable new market.

For our reinsurance team, the Chile earthquake loss is expected to be contained within existing reserves. Despite some downward movement in risk adjusted pricing due to insurer recapitalisation and model changes, we believe that margins, especially on US business, remain robust. The special purpose syndicate we established at the end of 2009, supported by third party capital, is having its desired effect of enabling us to increase our share of existing underwriting portfolios. By the end of June it had written $13.8m.

Our political risks and contingency team saw claims frequency fall, following an abnormal number of large loss notifications on trade credit risks in 2009. The contingency team, which focuses mainly on event cancellation insurance, recruited new underwriters in London and Australia. Beazley Access, our web-based trading platform for contingency risks, is bringing us access to smaller business than we would normally see at the box at Lloyd's.

Investment performance

Investment income for the first six months was $8.5m or an annualised return of 0.5%, compared with $40.5m (annualised 2.9%) over the same period in 2009.

Beazley continues with its strategy of holding a large core portfolio (80-90% of the total) of principally sovereign bonds. This will be complemented by a portfolio of capital growth assets (10-20%). This strategy is aiming to produce good returns with below average volatility with the sovereign bonds performing well in periods of under performance by risk assets.

Investment conditions remain challenging this year with equity and credit markets exhibiting a high degree of volatility and interest rates at near record low levels. We have maintained our strategy of limiting risk on the investment portfolio. The core portfolio of cash and fixed income securities amounted to 90.2% of our overall portfolio. They are concentrated in short term high quality securities. The capital growth assets remain allocated to a well diversified selection of alternative strategies and managers.

The breakdown of our investment portfolio at 30 June 2010 was:

	30 June 2010	30 June 2010	31 December 2009	31 December 2009
	$m	%	$m	%
Cash and cash equivalents	894.1	24.5	813.4	22.2
Government, Agency and Supranational	1,515.5	41.5	1,577.9	43.2
AAA	670.8	18.4	842.1	23.0
AA+ to AA-	145.4	4.0	82.3	2.2
A+ to A-	67.6	1.8	72.4	2.0
BBB+ to BBB-	0.2	0.0	4.8	0.1
Core portfolio	3,293.6	90.2	3,392.9	92.7
Capital growth assets	358.2	9.8	268.8	7.3
Total	3,651.8	100.0	3,661.7	100.0

The weighted average duration of our overall portfolio is 7 months (31 December 2009: 8 months). The weighted average yield to maturity of our overall portfolio is 0.7% (31 December 2009: 0.7%)

Investment Return

Analyses of returns on major asset classes are set out below:

	30 June 2010	30 June 2010 annualised return	30 June 2009	30 June 2009 annualised return
	$m	%	$m	%
Core portfolio	8.8	0.6	30.5	2.4
Capital growth assets	(0.3)	(0.1)	10.0	11.4
Overall return	8.5	0.5	40.5	2.9

Strategy

Our strategy for profitable growth has three principal areas of focus: optimal capital allocation; building and maintaining the skills that are essential to the success of a specialist insurer; and ensuring that our operations are scalable to provide high quality client and broker service as we continue to grow.

Capital allocation

Capital allocation is driven by our cycle management strategy, which has delivered 24 years of unbroken profitability for Beazley. We allocate capital carefully to ensure that it is deployed only where we can see opportunities to make adequate returns across the cycle. As the market becomes tougher, these skills and disciplines become more important.

We also closely monitor the overall levels of capital we hold, maintaining sufficient amounts to enable us to take advantage of underwriting opportunities as they arise. In the first half of 2010, we returned $12.0m to investors through share buybacks and we will continue to return funds to investors as the underwriting environment warrants.

Solvency II, the new solvency regime for all EU insurers and reinsurers that is due to come into effect in 2012, generates some additional uncertainty over the amount of capital that a diversified insurance and reinsurance group such as Beazley should maintain. We continue to monitor carefully our surplus capital position in the light of the need to maintain flexibility to respond to market opportunities and to the potential demands of Solvency II. We will plan to maintain surplus capital of at least 20% of our Lloyd's underwriting requirements while Solvency II uncertainties persist. Backed up by our banking facility and our continued robust profitability, we have access to substantial additional underwriting resources if necessary.

The table below highlights the group's available surplus capital position at the half year. The surplus, excluding the available banking facility of £100m, has increased to $195.7m from $152.0m.

	2010 HY	2009 FY
	$m	$m
Sources of funds
Shareholders' funds	996.0	995.9
Tier 2 subordinated debt	225.0	241.5
Long-term subordinated debt	18.0	18.0
	1,239.0	1,255.4
Uses of funds
Lloyd's underwriting	719.0	738.0
US insurance company	110.9	110.9

	829.9	848.9

Surplus	409.1	406.5
Unavailable surplus *	(91.1)	(128.6)
Fixed and intangible assets	(122.3)	(125.9)
	195.7	152.0

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

Investing in skills

Our growth strategy is simply stated. We invest in business lines that we understand and that offer opportunities for skilled underwriters and experienced claims professionals to add value in the eyes of clients and brokers.

Some of these growth opportunities derive from making expertise that we have developed in London available in other locations. Thus we began underwriting construction and engineering risks in Singapore in 2006 and in the US this year, in both cases targeting local business that we would not expect to see in London.

Other opportunities arise from the development of lines of business with which we are familiar but which have not in the past been significant revenue and profit streams. For example, John McNally, who joined our management liability team in London late last year, is focusing on building our book of M&A transaction-related insurance, principally for private equity investors who want to minimise contingent liabilities and facilitate exits. There is evidence that investors are more risk averse than was historically the case, meaning that a larger proportion of transactions is likely to be insured. As M&A activity picks up, this risk aversion should stimulate additional demand for cover.

Finally, we have been developing our environmental risk capabilities in the US, where John Beauchamp's team now offers a range of products to engineering, consulting, project management, and contracting and remediation firms. The expertise of John and his team is relevant to many of our A&E (architects and engineers) clients as well as to our property clients.

Broker and client service

Maintaining high quality service during periods of rapid growth is a challenge for all companies and insurers are no exception. Beazley has grown significantly during the past five years. While current market conditions do not favour broad based premium growth, we are determined to be ready to scale up our operations when more favourable conditions return.

In our 2009 annual report we described the investments in systems that we had made to enhance our underwriting and claims service and accommodate future growth. But systems are not the whole picture and the way we manage and coordinate our relationships with brokers is at least as important to the future profitable growth of our business. To this end, we were delighted to announce in early June that Dan Jones is to take charge of Beazley's strategic broker relations program. Dan, who has stood down as a non executive director on the Beazley plc board and joined the company's executive committee, will focus on deepening relationships with key business producers around the world.

Strong, well managed broker relationships are critical to the growth and profitability of our business. As our broker relationships have grown more numerous and more complex, the task of managing them effectively has also grown. With experience that includes a series of senior executive roles at Marsh, Dan is well equipped to help us address the changing needs and expectations of the brokers upon whom we rely for business.

Board changes

In addition to Dan Jones' move into an executive role within Beazley, we were delighted in June to gain access to the experience and judgment of Rolf Tolle, who has joined the board of Beazley Furlonge Ltd, our Lloyd's managing agency. The high reputation that the Lloyd's market enjoys today around the world is in no small measure due to the discipline and judgment that Rolf brought to the job of Lloyd's first franchise performance director. Rolf retired as Lloyd's franchise performance director in December and his underwriting experience and deep knowledge of the global insurance market will be invaluable to us.

Dividend

The board has declared it will pay an increased first interim dividend of 2.4p (2009: 2.3p). This will be paid on 3 September 2010 to shareholders on the register at 5.00pm on 6 August 2010.

Outlook

Currently, with capacity in all our lines of business plentiful, we see little prospect of a broad-based reversal of recent price declines for commercial lines insurance in spite of investment yields which remain low and should place upward pressure on premium rates.

At Beazley, we will respond to this softening market in a disciplined manner, as we have done in the past, concentrating on business that remains profitable and being prepared to reduce our book where this is not the case. We have a strong business that is in good shape for this challenging environment.

Income Statement

For the period ended 30 June 2010

	Note	6 months ended 30 June 2010 $m	6 months ended 30 June 2009 $m	Year to 31 December 2009 $m

Gross premiums written	2	940.6	894.6	1,751.3
Written premiums ceded to reinsurers		(315.9)	(382.3)	(420.0)
Net premiums written	2	624.7	512.3	1,331.3

Change in gross provision for unearned premiums		(63.5)	(202.4)	(97.5)
Reinsurer's share of change in the provision for unearned premiums		117.0	228.2	79.8
Change in net provision for unearned premiums		53.5	25.8	(17.7)
Net earned premiums	2	678.2	538.1	1,313.6

Net investment income	4	8.5	40.5	88.1
Other income	5	14.9	9.6	19.6
		23.4	50.1	107.7
Revenue	2	701.6	588.2	1,421.3

Insurance claims		454.0	424.5	1,007.6
Insurance claims recovered from reinsurers		(76.8)	(110.3)	(265.0)
Net insurance claims	2,8	377.2	314.2	742.6

Expenses for the acquisition of insurance contracts		173.3	137.0	342.6
Administrative expenses		56.5	56.0	129.8
Foreign exchange (gain)/ loss	3	(27.6)	44.4	34.4
Operating expenses		202.2	237.4	506.8
Expenses	2	579.4	551.6	1,249.4

Results of operating activities		122.2	36.6	171.9

Finance costs		(6.7)	(6.5)	(13.8)

Profit before income tax		115.5	30.1	158.1

Income tax	9	(17.6)	1.1	(19.3)

Profit after income tax		97.9	31.2	138.8

Earnings per share (cents per share):
Basic	6	18.8	7.3	28.9
Diluted	6	18.1	7.1	27.9

Statement of comprehensive income

For the period ended 30 June 2010

	30 June 2010 $m	30 June 2009 $m	31 December 2009 $m

Profit after income tax	97.9	31.2	138.8
Other comprehensive income
Change in net investment hedge	(5.4)	10.1	11.9
Foreign exchange translation differences	10.1	(24.0)	(24.0)
Reversal of exceptional foreign exchange gain (*)	(33.7)
Foreign exchange difference arising on change in presentational currency (*)	(22.0)	113.1	92.8
Total other comprehensive income	(51.0)	99.2	80.7

Total comprehensive income recognised	46.9	130.4	219.5

Statement of changes in equity

For the period ended 30 June 2010

	Share Capital $m	Other Reserves $m	Retained Earnings $m	Total $m

Balance as at 1 January 2009	35.9	206.2	352.2	594.3

Total comprehensive income recognised	-	99.2	31.2	130.4
Dividends paid	-	-	(21.8)	(21.8)
Issue of shares	13.5	207.1	-	220.6
Equity settled share-based payments	-	3.6	-	3.6
Acquisition of own shares held in trust	-	(2.3)	-	(2.3)
Cancellation of treasury shares	(1.5)	1.5	-	-
Transfer on scheme of arrangement and reverse acquisition		(571.5)	571.5	-

Balance as at 30 June 2009	47.9	56.2	933.1	924.8
Total comprehensive income recognised	-	(18.5)	107.6	89.1
Dividends paid	-	-	(19.5)	(19.5)
Issue of shares	-	1.0	-	1.0
Equity settled share-based payments	-	4.5	-	4.5
Acquisition of own shares held in trust	-	(4.0)	-	(4.0)

Balance as at 31 December 2009	47.9	(73.2)	1,021.2	995.9

Total comprehensive income recognised	-	(51.0)	97.9	46.9
Dividends paid	-	-	(38.1)	(38.1)
Issue of shares	0.1	-	-	0.1
Equity settled share-based payments	-	(3.1)	-	(3.1)
Transfer out of own shares held in trust to employees	-	6.3	-	6.3
Purchase of treasury shares	-	(12.0)	-	(12.0)

Balance as at 30 June 2010	48.0	(133.0)	1,081.0	996.0

See note 3

Statement of financial position

As at 30 June 2010

	30 June 2010 $m	30 June 2009 $m	31 December 2009 $m

Assets
Intangible assets	111.3	104.9	113.5
Plant and equipment	11.0	11.4	12.4
Investments in associates	1.3	-	1.4
Deferred acquisition costs	176.6	161.9	155.5
Deferred income tax	10.0	8.9	8.9
Financial investments	2,757.7	2,586.0	2,848.3
Derivative financial instruments	-	7.6	9.3
Insurance receivables	636.4	554.4	498.0
Reinsurance assets	1,216.8	1,133.2	1,156.1
Retirement benefit asset	3.0	-	1.6
Other receivables	27.0	51.4	25.6
Cash and cash equivalents	894.1	868.4	813.4

Total assets	5,845.2	5,488.1	5,644.0


Equity
Share capital	48.0	47.9	47.9
Reserves	(133.0)	(56.2)	(73.2)
Retained earnings	1,081.0	933.1	1,021.2
Total equity	996.0	924.8	995.9


Liabilities
Insurance liabilities	4,121.5	3,820.6	4,023.7
Borrowings	270.9	282.3	278.7
Deferred income tax	40.6	25.4	35.1
Current income tax liabilities	26.4	33.2	21.3
Creditors	389.8	401.8	289.3
Total liabilities	4,849.2	4,563.3	4,648.1


Total equity and liabilities	5,845.2	5,488.1	5,644.0

Statement of cash flows

For the period ended 30 June 2010

	6 months ended 30 June 2010 $m	6 months ended 30 June 2009 $m	Year to 31 December 2009 $m
Cash flow from operating activities

Profit before income tax	115.5	30.1	158.1
Adjustments for non-cash items:
Amortisation of intangibles	0.9	1.1	2.2
Depreciation of plant and equipment	2.2	2.3	4.9
Equity settled share based compensation	3.2	2.7	8.2
Retranslation of overseas net assets	3.3	5.9	5.8
Net fair value losses/(gains) on financial investments	4.3	(5.1)	(10.4)
Increase in insurance and other liabilities	208.1	342.0	509.5
Increase in insurance, reinsurance and other receivables	(201.9)	(348.2)	(324.4)
Increase in deferred acquisition costs	(21.1)	(10.9)	(8.1)
Financial income	(28.1)	(46.8)	(63.6)
Financial expense	6.7	6.5	13.8
Income tax paid	(14.6)	(30.0)	(34.6)
Contribution to pension fund	(1.5)	-	(1.4)

Net cash from operating activities	77.0	(50.4)	260.0

Cash flow from investing activities
Purchase of plant and equipment	(0.5)	(0.5)	(5.0)
Purchase of syndicate capacity	-	-	(1.8)
Purchase of subsidiary (net of cash acquired)	-	(19.2)	(21.2)
Expenditure on software development	(2.3)	(3.3)	(11.1)
Purchase of investments	(1,805.9)	(10,513.6)	(10,090.7)
Proceeds from sale of investments	1,892.2	10,491.7	9,749.4
Investment in associate	-	-	(1.5)
Interest and dividends received	28.1	46.8	63.7

Net cash used in investing activities	111.6	1.9	(318.2)

Cash flow from financing activities
Proceeds from issue of shares	0.1	220.6	221.6
Purchase of treasury shares	(12.0)	-	-
Acquisition of own shares in trust	-	(2.3)	(6.3)
Interest paid	(6.7)	(6.5)	(13.8)
Dividends paid	(38.1)	(21.8)	(41.3)

Net cash used in financing activities	(56.7)	190.0	160.2

Net increase in cash and cash equivalents	131.9	141.5	102.0
Cash and cash equivalents at beginning of period	813.4	638.8	638.8
Effect of exchange rate changes on cash and cash equivalents	(51.2)	88.1	72.6

Cash and cash equivalents at end of period	894.1	868.4	813.4

Notes to the financial statements

For the period ended 30 June 2010

1. Statement of accounting policies

Beazley plc is a group incorporated in Jersey and domiciled in the Republic of Ireland. The interim financial statements of the group for the six months ended 30 June 2010 comprise the parent company and its subsidiaries and the group's interest in associates.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The accounting policies applied by the group in these consolidated interim financial statements are the same as those applied by the group in its consolidated financial statements as at and for the year ended 31 December 2009 except for the change in presentation currency as detailed below. They have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU . Our full accounting policies are set out in the group's 2009 annual report. There have been no amendments to accounting policies as a result of new standards or interpretations that have become effective during 2010.

Change in presentation currency

From 1 January 2010 the group has changed its presentation currency to US dollars. Comparative information has been restated in US dollars in accordance with the guidance defined in IAS 21.

The 2009 interim and full year income statements and associated notes have been retranslated from Pounds Sterling to US Dollars using the procedures outlined below:

· Assets and liabilities were translated into US Dollars at closing rates of exchange. Trading results were translated into US Dollars at average rates of exchange. Differences resulting from the retranslation on the opening net assets and the results for the year have been taken to reserves;

· The cumulative translation reserve was set to nil at 1 January 2005 (i.e. the transition date to IFRS). Share capital, share premiums and other reserves were translated at historic rates prevailing at the dates of transactions; and

· All exchange rates used were extracted from the group's underlying financial records.

Change in functional currency

IAS 21 (foreign currency translations) describes functional currency as 'the currency of the primary economic environment in which entity operates'. Taking into consideration all the changes listed. Beazley plc has concluded that its functional currency has changed to US dollars:

· The group's regulatory capital is primarily held in US dollars. On 5 January 2010 the group aligned its underwriting capital to US dollars. Consequently our funds at Lloyd's consisted of $491m and £152m, reflecting the currency mix of our underlying business in 2010.

· The group has increased the scale of its US operation. The group acquired Omaha Property and Casualty Inc. in 2005 which was renamed Beazley Insurance Company Inc., this entity is licensed to write insurance business in all 50 US states. The US managing general agent, Beazley USA Services Inc., was established at the same time and over the past 5 years has grown from a staff of 7 individuals in 2005 to 302 employees in 2010. The number of office locations in the US has increased from 2 in 2005 to 11 in 2010.

· The group has increased its locally written premiums in US dollars from $269.1m in 2008 to $370.7m in 2009. This increase was largely driven by the acquisition of First State Management Inc., on 1 April 2009, which contributed $93.9m of premium in 2009.

· A proportionate increase over time in the relative amount of US dollar premiums written. US dollar premiums are then invested in US dollar denominated assets. In 2005, the group wrote 70% of its premiums in US dollars, this has grown to 76% in 2009 partly attributable to the expansion of our locally underwritten US business.

· A majority of costs are incurred in US dollars (i.e. claims, brokerage and operating expenses). In line with the point explained above on premium growth in US dollars, associated acquisition costs and claims are largely incurred in US dollars.

· The group has grown its US dollar asset base. The group's exposure to US dollars has grown considerably since 2004, where around 40% of the group's total assets were US dollar denominated, this has grown to around 80% at the end of 2009.

Following the events listed above, the group's board determined that the functional currencies of its principal operating entities had permanently changed to US dollars, effective 1 April 2010. In accordance with IAS 21 this change has been accounted for prospectively from this date. Foreign exchange volatility is expected to be significantly reduced following the transition as the group's currency exposures are more closely matched to its functional currency.

The financial information included in this document does not comprise statutory accounts within the meaning of Companies (Jersery) Law 1991. The comparative figures for the financial year ended 31 December 2009 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the Jersey Financial Services Commission. The report of the auditors was unqualified.

2. Segmental analysis

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

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

30 June 2010
	Marine $m	Political risks and contingency $m	Property $m	Reinsurance $m	Specialty lines $m	Total reportable segments	Unallocated* $m	Total $m

Gross premiums written	149.1	55.3	202.5	180.5	353.2	940.6	-	940.6
Net premiums written	123.4	45.4	109.6	136.6	209.7	624.7	-	624.7

Net earned premiums	114.0	47.8	138.3	88.9	300.3	689.3	(11.1)	678.2
Net investment income	0.8	0.4	1.1	1.0	5.2	8.5	-	8.5
Other income	2.5	1.0	5.4	2.1	3.9	14.9	-	14.9
Revenue	117.3	49.2	144.8	92.0	309.4	712.7	(11.1)	701.6

Net insurance claims	44.7	21.6	71.8	50.6	188.5	377.2	-	377.2
Expenses for the acquisition of insurance contracts	29.9	11.2	49.3	20.4	70.5	181.3	(8.0)	173.3
Administrative expenses	7.7	4.1	12.6	10.5	21.6	56.5	-	56.5
Non recurring foreign exchange gain*	-	-	-	-	-	-	(33.7)	(33.7)
Foreign exchange (gain)/loss*	(0.1)	-	(0.2)	(0.2)	(0.3)	(0.8)	6.9	6.1
Expenses	82.2	36.9	133.5	81.3	280.3	614.2	(34.8)	579.4

Segments result	35.1	12.3	11.3	10.7	29.1	98.5	23.7	122.2

Finance costs								(6.7)

Profit before income tax								115.5

Income tax expense								(17.6)

Profit after income tax								97.9

Claims ratio	39%	45%	52%	57%	63%	55%
Expense ratio	33%	32%	44%	35%	30%	34%
Combined ratio	72%	77%	96%	92%	93%	89%

*see note 3

30 June 2009
	Marine $m	Political risks and contingency $m	Property $m	Reinsurance $m	Specialty lines $m	Total reportable segments	Unallocated $m	Total $m

Gross premiums written	155.6	72.0	198.3	145.5	323.2	894.6	-	894.6
Net premiums written	123.2	51.6	74.0	114.6	148.9	512.3	-	512.3

Net earned premiums	108.3	51.6	106.8	62.4	256.6	585.7	(47.6)	538.1
Net investment income	4.3	2.0	5.7	2.9	25.6	40.5	-	40.5
Other income	1.0	0.5	2.4	2.2	3.5	9.6		9.6
Revenue	113.6	54.1	114.9	67.5	285.7	635.8	(47.6)	588.2

Net insurance claims	46.8	27.8	58.5	23.1	158.0	314.2	-	314.2
Expenses for the acquisition of insurance contracts	29.6	12.9	36.2	13.4	60.4	152.5	(15.5)	137.0
Administrative expenses	7.8	5.4	12.6	9.8	20.4	56.0	-	56.0
Foreign exchange loss	0.3	0.2	0.3	0.3	0.7	1.8	42.6	44.4
Expenses	84.5	46.3	107.6	46.6	239.5	524.5	27.1	551.6

Segments result	29.1	7.8	7.3	20.9	46.2	111.3	(74.7)	36.6

Finance costs								(6.5)

Profit before income tax								30.1

Income tax credit								1.1

Profit after income tax								31.2

Claims ratio	43%	54%	55%	37%	62%	54%
Expense ratio	34%	35%	46%	37%	32%	36%
Combined ratio	77%	89%	101%	74%	94%	90%

31 December 2009
	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	265.0	127.6	394.4	210.1	754.2	1,751.3	-	1,751.3
Net premiums written	228.9	98.6	283.1	180.7	540.0	1,331.3	-	1,331.3

Net earned premiums	239.9	112.9	272.4	152.4	571.3	1,348.9	(35.3)	1,313.6
Net investment income	8.5	4.1	10.8	6.4	58.3	88.1	-	88.1
Other income	2.4	1.1	6.3	1.7	8.1	19.6	-	19.6
Revenue	250.8	118.1	289.5	160.5	637.7	1,456.6	(35.3)	1,421.3

Net insurance claims	92.8	85.9	159.4	57.8	346.7	742.6	-	742.6
Expenses for the acquisition of insurance contracts	66.7	28.7	89.3	33.9	129.5	348.1	(5.5)	342.6
Administrative expenses	18.5	11.8	32.3	18.7	48.5	129.8	-	129.8
Foreign exchange (gain)/ loss	(1.4)	(0.6)	(2.0)	(1.1)	(3.8)	(8.9)	43.3	34.4
Expenses	176.6	125.8	279.0	109.3	520.9	1,211.6	37.8	1,249.4

Segments result	74.2	(7.7)	10.5	51.2	116.8	245.0	(73.1)	171.9

Finance costs								(13.8)

Profit before income tax								158.1

Income tax expense								(19.3)

Profit after income tax								138.8

Claims ratio	39%	76%	58%	38%	61%	55%
Expense ratio	35%	36%	45%	34%	31%	35%
Combined ratio	74%	112%	103%	72%	92%	90%

3. Foreign exchange

The following note is presented to explain the impact of foreign exchange differences on the group's reported results to the period ended 30 June 2010. During 2010 the group changed both the functional and presentation currencies of its underlying principal operating entities. Please refer to note 1 for further details.

The foreign exchange components in the income statement for the period ended 30 June 2010, comprise:

1. A $33.7m non-recurring gain arising in the first quarter 2010. In January 2010, the group more closely matched its capital base through the sale of sterling and the purchase of US $491m. The foreign exchange gain arose as a result of the US dollar strengthening against sterling in the first quarter, in entities that for the first quarter had a sterling functional currency. This gain should be viewed as one-off as it arose as part of the transition in matching our capital to its underlying US dollar exposures. With a functional currency of the US dollar going forward these currency fluctuations are not likely to recur. In the segmental analysis this gain has not been allocated to reportable segments and is included in the unallocated column. The gain is reversed in the statement of comprehensive income as part of the change in functional currency.

2. A $0.8m foreign exchange gain arising in the second quarter. This relates to non-US dollar hedged items in the groups' statement of financial position. This gain, as it relates to trading activity, has been allocated to the reportable segments.

3. A loss of $10.0m in respect of foreign exchange adjustments on non-monetary items in the second quarter. Of this loss, $3.1m is reported through net earned premiums and acquisition costs with the remaining $6.9m reported as fx loss. All foreign exchange differences on non-monetary items have been left unallocated. This has been separately disclosed as it provides a more transparent representation of the loss ratios, which would otherwise be distorted by the mismatch arising under IFRSs caused by unearned premium reserve, reinsurers share of unearned premium reserve and DAC being treated as non-monetary items while claims reserves are treated as monetary items.

4. The foreign exchange gain of $27.6m shown on the face of the income statement comprises: a gain of $33.7m arising from the change in functional currency, a gain of $0.8m arising in the second quarter and a loss of $6.9m in respect of foreign exchange on non-monetary items.

The foreign exchange movements recognised in other comprehensive income in the period ended 30 June 2010 include a foreign exchange loss on transition of $22.0m. This arises from the movement in the US dollar to sterling exchange rate between 1 January 2010 and 31 March 2010 being the end of the period prior to the change in functional currency of certain of the group's operating entities. In Beazley's case, the opening statement of financial position was translated at a US dollar to sterling exchange rate of 1.61, whilst the rate on the date of transition was 1.52.

4. Net investment return

	6 months ended 30 June 2010 $m	6 months ended 30 June 2009 $m	Year to 31 December 2009 $m

Investment income at fair value through income statement	28.1	46.8	63.8

Realised (losses)/gains on financial investments at fair value through income statement	(10.8)	(6.0)	23.2

Net fair value (losses)/gains on financial investments through income statement	(4.3)	5.1	10.4

Investment management expenses	(4.5)	(5.4)	(9.3)
	8.5	40.5	88.1

5. Other income

	6 months ended 30 June 2010 $m	6 months ended 30 June 2009 $m	Year to 31 December 2009 $m

Profit commissions	5.0	2.6	8.0
Agency fees	0.9	0.6	1.6
Other income	9.0	6.4	10.0

	14.9	9.6	19.6

6. Earnings per share

	6 months ended 30 June 2010	6 months ended 30 June 2009	Year to 31 December 2009

Basic (cents)	18.8	7.3	28.9
Diluted (cents)	18.1	7.1	27.9

Basic (pence)		12.6		4.9	18.4
Diluted (pence)		12.0		4.7	17.8

Basic

Basic earnings per share is calculated by dividing profit after income tax of $97.9m (2009: $31.2m) by the weighted average number of issued shares during the period of 519.6m (2009: 425.8m). The shares held in the ESOP have been excluded from the calculation until such time as they vest unconditionally with the employees.

Diluted

Diluted earnings per share is calculated by dividing profit after income tax of $97.9m (2009: $31.2m) by the adjusted weighted average number of shares of 541.8m (2009: 440.1m). The adjusted weighted average number of shares assumes conversion of all dilutive potential ordinary shares, being share options. The shares held in the ESOP have been excluded from the calculation until such time as they vest unconditionally with the employees.

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

7. Dividends

A first interim dividend of 2.4pence/3.6cents (2009: 2.3pence/3.8cents) per ordinary share is payable on 3 September 2010 to shareholders registered on 6 August 2010 in respect of the six months to 30 June 2010. These financial statements do not provide for the dividends as a liability.

8. Insurance claims

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 ratio and ultimate net claims ratio.

The top part of the table illustrates how the group's estimated claims ratio for each underwriting year has changed at successive year-ends. The bottom half of the table reconciles the gross and net claims to the amount appearing in the statement of financial position.

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 excesses or deficiencies of the past on current claims liabilities. The group believes that the estimates of total claims liabilities as at 30 June 2010 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	2010
		%	%	%	%	%	%	%	%
Marine
12 months		59.1	62.3	82.6	57.0	58.0	69.0	55.9	-
24 months		45.1	65.6	80.4	42.4	60.0	65.3	-	-
36 months		39.0	62.4	70.8	32.6	50.5	-	-	-
48 months		36.2	61.9	68.9	28.9	-	-	-	-
60 months		35.8	60.7	66.6	-	-	-	-	-
72 months		35.7	56.2	-	-	-	-	-	-
84 months		34.9	-	-	-	-	-	-	-
Position at 30 June 2010		34.9	56.2	65.4	29.0	49.3	62.0	53.4	-

Political risks and contingency
12 months		59.1	67.2	60.9	57.6	57.2	57.5	61.1	-
24 months		36.2	55.6	38.1	36.2	38.6	68.1	-	-
36 months		31.6	52.3	28.4	32.7	56.3	-	-	-
48 months		28.7	38.1	25.0	43.2	-	-	-	-
60 months		31.2	37.1	17.9	-	-	-	-	-
72 months		25.3	28.3	-	-	-	-	-	-
84 months		24.4	-	-	-	-	-	-	-
Position at 30 June 2010		21.9	27.8	18.4	37.9	55.8	72.0	61.2	-

Property
12 months		50.9	65.6	87.9	58.4	58.3	70.9	54.2	-
24 months		37.4	65.2	84.5	44.0	56.4	66.7	-	-
36 months		34.6	65.9	83.1	42.9	53.9	-	-	-
48 months		34.0	64.0	88.1	50.1	-	-	-	-
60 months		33.7	64.5	87.6	-	-	-	-	-
72 months		33.7	63.2	-	-	-	-	-	-
84 months		34.8	-	-	-	-	-	-	-
Position at 30 June 2010		35.1	63.2	86.5	51.2	53.5	65.0	54.1	-

Reinsurance
12 months		58.7	88.1	198.0	52.4	59.6	59.9	60.7	-
24 months		34.3	82.4	189.9	25.3	26.1	51.9	-	-
36 months		28.5	77.0	187.8	24.9	21.6	-	-	-
48 months		28.7	74.6	181.0	23.3	-	-	-	-
60 months		25.6	72.6	177.1	-	-	-	-	-
72 months		25.6	71.6	-	-	-	-	-	-
84 months		24.5	-	-	-	-	-	-	-
Position at 30 June 2010		23.7	71.6	176.9	23.1	21.3	45.6	51.5	-

Specialty lines
12 months		73.0	72.1	72.0	72.6	72.8	72.0	73.0	-
24 months		70.1	71.3	72.0	72.7	72.4	72.0	-	-
36 months		68.9	67.6	69.7	72.7	72.4	-	-	-
48 months		60.0	64.4	66.3	72.7	-	-	-	-
60 months		53.2	59.4	62.8	-	-	-	-	-
72 months		52.3	58.3	-	-	-	-	-	-
84 months		50.5	-	-	-	-	-	-	-
Position at 30 June 2010		48.8	57.1	59.1	71.0	72.3	71.9	72.7	-

Total
12 months		63.0	69.2	90.8	62.9	63.5	68.7	63.7	-
24 months		52.6	69.3	88.1	53.0	59.1	67.7	-	-
36 months		49.5	66.5	84.4	50.7	58.1	-	-	-
48 months		44.8	63.6	82.8	52.4	-	-	-	-
60 months		41.5	61.0	80.0	-	-	-	-	-
72 months		40.8	59.0	-	-	-	-	-	-
84 months		40.0	-	-	-	-	-	-	-
Position at 30 June 2010		39.2	58.4	78.0	51.5	57.8	66.9	62.0	-


Total ultimate losses($m)	1,873.7	461.1	795.6	1,162.8	871.0	1,066.7	1,233.0	1,228.2	1,258.7	9.950.8
Less paid claims ($m)	(1,618.1)	(351.1)	(604.8)	(869.0)	(401.8)	(471.8)	(400.3)	(180.1)	(35.4)	(4,932.4)
Less unearned portion of ultimate losses ($m)	-	-	-	-	-	-	(38.5)	(95.2)	(966.3)	(1,100.0)
Gross claims liabilities (100% level) ($m)	255.6	110.0	190.8	293.8	469.2	594.9	794.2	952.9	257.0	3,918.4
Less unaligned share ($m)	(48.6)	(20.9)	(36.2)	(55.8)	(87.4)	(110.7)	(141.5)	(171.8)	(43.0)	(715.9)
Gross claims liabilities, group share ($m)	207.0	89.1	154.6	238.0	381.8	484.2	652.7	781.1	214.0	3,202.5

Net ultimate claims	2002ae	2003	2004	2005	2006	2007	2008	2009	2010
		%	%	%	%	%	%	%	%
Marine
12 months		55.3	58.0	55.4	53.9	55.1	61.3	54.4	-
24 months		44.9	53.2	48.9	41.9	56.3	57.1	-	-
36 months		40.3	48.6	42.8	32.7	49.3	-	-	-
48 months		39.1	47.7	39.6	31.3	-	-	-	-
60 months		39.0	46.6	39.1	-	-	-	-	-
72 months		39.1	44.2	-	-	-	-	-	-
84 months		38.0	-	-	-	-	-	-	-
Position at 30 June 2010		38.0	44.2	38.9	31.3	47.8	53.6	52.3	-

Political risks and contingency
12 months		56.7	63.9	63.4	56.1	55.4	55.9	59.1	-
24 months		37.4	58.3	46.5	40.4	39.3	76.0	-	-
36 months		34.8	54.0	35.9	37.2	55.1	-	-	-
48 months		33.0	41.0	30.2	47.1	-	-	-	-
60 months		35.2	40.6	24.0	-	-	-	-	-
72 months		27.4	27.9	-	-	-	-	-	-
84 months		25.8	-	-	-	-	-	-	-
Position at 30 June 2010		23.1	27.1	23.9	41.5	54.0	76.0	59.1	-

Property
12 months		48.6	59.7	65.0	61.1	61.0	67.1	55.7	-
24 months		41.4	60.7	61.9	48.6	59.4	67.1	-	-
36 months		39.0	60.2	58.3	47.0	58.6	-	-	-
48 months		38.3	58.5	61.0	50.7	-	-	-	-
60 months		38.0	58.2	61.6	-	-	-	-	-
72 months		38.0	57.7	-	-	-	-	-	-
84 months		39.5	-	-	-	-	-	-	-
Position at 30 June 2010		39.8	57.7	61.0	51.6	58.4	65.4	55.0	-

Reinsurance
12 months		60.1	88.7	152.6	54.3	55.2	67.5	55.4	-
24 months		39.6	86.2	133.6	37.0	30.2	57.7	-	-
36 months		33.9	82.8	128.5	34.8	25.0	-	-	-
48 months		34.6	76.6	118.8	32.4	-	-	-	-
60 months		31.7	73.3	112.5	-	-	-	-	-
72 months		31.7	71.7	-	-	-	-	-	-
84 months		30.3	-	-	-	-	-	-	-
Position at 30 June 2010		29.4	71.7	112.1	32.2	24.7	50.5	52.9	-

Specialty lines
12 months		68.6	69.0	69.2	68.6	69.7	70.1	69.8	-
24 months		67.2	68.5	69.2	68.6	68.8	70.1	-	-
36 months		66.0	65.7	67.4	68.5	68.8	-	-	-
48 months		57.7	62.1	63.8	67.4	-	-	-	-
60 months		52.7	56.9	58.8	-	-	-	-	-
72 months		50.7	53.5	-	-	-	-	-	-
84 months		48.9	-	-	-	-	-	-	-
Position at 30 June 2010		48.0	53.0	56.4	65.6	65.8	70.1	69.8	-

Total
12 months		60.0	65.4	73.0	62.0	63.0	66.3	61.7	-
24 months		53.0	65.3	68.8	54.1	59.2	66.7	-	-
36 months		50.5	62.7	65.0	51.6	58.6	-	-	-
48 months		46.3	59.3	62.3	52.2	-	-	-	-
60 months		43.8	56.3	59.2	-	-	-	-	-
72 months		42.6	53.4	-	-	-	-	-	-
84 months		41.8	-	-	-	-	-	-	-
Position at 30 June 2010		41.3	53.1	57.9	51.2	57.9	65.3	61.1	-


Total ultimate losses($m)	942.2	392.6	592.3	676.5	680.4	909.8	1,000.8	954.0	990.1	7,138.7
Less paid claims ($m)	(855.2)	(294.2)	(450.6	(454.0)	(339.9)	(422.9)	(335.8)	(141.5)	(21.3)	(3,315.4)
Less unearned portion of ultimate losses ($m)	-	-	-	-	-	-	(29.3)	(138.2)	(783.7)	(951.3)
Net claims liabilities (100% level) ($m)	87.0	98.4	141.7	222.5	340.5	486.9	635.7	674.3	185.1	2,872.1
Less unaligned share ($m)	(16.5)	(18.7)	(26.9)	(42.3)	(64.3)	(90.2)	(116.7)	(122.8)	(32.0)	(530.4)
Net claims liabilities, group share ($m)	70.5	79.7	114.8	180.2	276.2	396.7	519.0	551.5	153.1	2,341.7

Analysis of movements in loss development tables

We have updated our loss development tables to show the interim ultimate loss ratios as at 30 June 2010 for each underwriting year. As such, care should be taken when comparing these half year movements to the full year movements shown within the body of each table.

The reserves established for the 2004, 2005 and 2008 hurricanes continue to remain sufficient and the level of paid claims has now reached 98%, 95% and 63% of the estimated ultimate claims costs respectively.

The Chilean earthquake of February 2010 affected the Property and Reinsurance classes of business. This loss is still at an early stage of development due to the time taken to get to the affected areas and for damage to buildings to become apparent. Considering the few claims notifications made to date we are comfortable that the reserves held for this event are appropriate.

Marine

Most years have exhibited a stable or reducing trend.

Political risks and contingency

Following the increase in claims on the political class last year as a consequence of the credit crisis, the claims experience has stabilised. As there have been no new significant notifications since the fourth quarter of 2009 we are comfortable that the overall current level of reserves remains appropriate.

Property

There has been one exceptional movement on a 2006 underwriting year claim. All other years have exhibited a stable or reducing trend.

Reinsurance

All years have continued to reduce. In particular the reserves for hurricanes Ike and Gustav have been reassessed and reduced.

Specialty lines

The trend of consistent releases across underwriting years has continued.

The table below analyses our net insurance claims between current year claims and adjustments to prior year net claims reserves. These have been broken down by department and period.

6 months ended 30 June 2010	Marine $m	Political risks and contingency $m	Property $m	Reinsurance $m	Specialty lines $m	Total $m

Current year	59.6	28.5	76.9	66.7	211.5	443.2
Prior year
- 2007 and earlier	(5.1)	(6.9)	3.1	(4.1)	(22.9)	(35.9)
- 2008 year of account	(7.1)	-	(7.0)	(8.5)	-	(22.6)
- 2009 year of account	(2.8)	-	(1.3)	(3.4)	-	(7.5)
	(15.0)	(6.9)	(5.2)	(16.0)	(22.8)	(65.9)

Net insurance claims	44.6	21.6	71.7	50.7	188.6	377.2

6 months ended 30 June 2009	Marine $m	Political risks and contingency $m	Property $m	Reinsurance $m	Specialty lines $m	Total $m

Current year	59.1	26.9	61.3	31.7	188.8	367.8
Prior year
- 2006 and earlier	(7.2)	(5.3)	(3.0)	(8.6)	(30.8)	(54.9)
- 2007 year of account	(6.3)	3.5	(2.1)	-	-	(4.9)
- 2008 year of account	1.2	2.7	2.3	-	-	6.2
	(12.3)	0.9	(2.8)	(8.6)	(30.8)	(53.6)

Net insurance claims	46.8	27.8	58.5	23.1	158.0	314.2

Year to 31 December 2009	Marine $m	Political risks and contingency $m	Property $m	Reinsurance $m	Specialty lines $m	Total $m

Current year	117.8	89.3	152.8	83.7	404.5	848.1
Prior year
- 2005 and earlier	(11.0)	(7.2)	9.1	(11.3)	(57.8)	(78.2)
- 2006 year of account	(13.8)	6.0	(2.5)	(4.9)	-	(15.2)
- 2007 year of account	(0.2)	(2.2)	-	(9.7)	-	(12.1)
	(25.0)	(3.4)	6.6	(25.9)	(57.8)	(105.5)

Net insurance claims	92.8	85.9	159.4	57.8	346.7	742.6

9. Income tax expense

	6 months ended 30 June 2010 $m	6 months ended 30 June 2009 $m	Year to 31 December 2009 $m
Current income tax expense
Current year	37.3	29.7	45.7
Prior year adjustments	(25.5)	-	(3.5)
	11.8	29.7	42.2
Deferred income tax expense
Origination and reversal of temporary differences	(19.7)	(30.8)	(27.0)
Prior year adjustments	25.5	-	4.1
	5.8	(30.8)	(22.9)
Income tax expense	17.6	(1.1)	19.3

Profit before income tax	115.5	30.1	158.1

Tax calculated at UK/ Irish tax rates	14.4	8.8	19.8

Effects of:
- Tax rates in foreign jurisdictions	3.2	(12.6)	7.1
- Retranslation of deferred tax balances on redomiciliation	-	-	(11.5)
- Non-deductible expenses	-	2.7	0.5
- Tax relief on share based payments - current and future years	-	-	2.8
- Under provided in prior years	-	-	0.6
Tax for the period	17.6	(1.1)	19.3

Following changes in tax guidance we have made a prior year adjustment switching a $25.5m tax asset from deferred tax to current tax.

Responsibility statement of the directors in respect of the interim report

We confirm that to the best of our knowledge:

• the set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

• the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Martin Bride

Finance Director

23 July 2010

Independent review report to Beazley plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises the income statement, statement of comprehensive income, statement of changes in equity, statement of financial position, the statement of cash flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

KPMG Audit Plc

Chartered Accountants

8 Salisbury Square

London

EC4Y 8BB

23 July 2010

Admitted carrier

An insurance company authorised to do business in the US. An agreement is entered into which stipulates the terms and conditions under which a business must conduct within a state in the US.

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 statement of financial position strength, operating performance and business profile. Beazley plc obtained an A rating, as did Beazley Insurance Company, Inc.

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.

Capital Growth

A portfolio of alternative or hedge fund assets constructed to provide exposure to a wide range of asset classes and investment strategies. The majority of assets in the portfolio are funds with a specific sector focus and investment strategy. The objective for the portfolio is to deliver returns significantly above risk free rates on average.

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.

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.

Core Portfolio

The majority of Beazley's assets are invested in sovereign, sovereign guaranteed and supra-national fixed income securities or in very high quality short duration corporate bonds.

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 and cents, 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, such as 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.

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 and cents 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 statement of financial position 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 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.

Special purpose syndicate

Syndicate, supported by third party capital, designed to provide additional capacity to another syndicate. They operate by purchasing a portion or all of a group of insurance policies, typically catastrophe 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.

Stamp capacity

The volume of business measured in gross written premiums net of acquisition costs underwritten by the group through its managed syndicates at Lloyd's of London.

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.

Contacts

Registered office

22 Grenville Street

St Helier

Jersey JE4 8PX

Registered Number

102680

Auditors

KPMG Audit Plc

8 Salisbury Square
London EC4Y 8BB

Beazley plc

2 Northwood Avenue