Beazley PLC Trading statement for 3 months ended 31 March 20 (4177K)

TIDMBEZ

RNS Number : 4177K

Beazley PLC

22 April 2020

Press

Release

Beazley plc trading statement for the three months ended 31 March 2020

London, 22 April 2020

Overview

   --      Gross premiums written increased by 13% to $840m (2019: $743m) 
   --      Premium rates on renewal business increased by 8% 
   --      Investment loss of 1% year to date 
   --      Early estimate of losses resulting from Covid-19 of $170m net of reinsurance 

Andrew Horton, Chief Executive Officer, said:

"The events seen in the first quarter of 2020 have been unprecedented. Covid-19 has touched every corner of the globe and the impact of this pandemic is still being assessed. In mid-March we successfully moved to remote working arrangements for all our employees and from an operational perspective there has been no material disruption to our business. We continue to monitor closely all developments relating to the coronavirus outbreak and our priorities remain the wellbeing of our colleagues and delivering an excellent service to our clients."

 
                       31 March   31 March   % increase 
                           2020       2019 
--------------------  ---------  ---------  ----------- 
 Gross premiums 
  written ($m)              840        743           13 
 
 Investments and 
  cash ($m)               5,774      5,095           13 
 
 Year to date 
  investment return        (1%)         2% 
 
 Rate increase               8%         3% 
--------------------  ---------  ---------  ----------- 
 

Premiums

Gross premiums written for the three months ended 31 March 2020 increased by 13% year on year to $840m.

From 1 January 2020, our market facilities business has been split out of specialty lines to form a new division. This new division saw premiums increase by $17m as we begin to gain traction for writing this type of business.

Three of our divisions each saw strong growth of 23%. Our marine division and specialty lines division had good performances from both our rest of world and US platforms, while growth in our cyber & executive risk division was driven by the executive risk team.

Our political, accident and contingency division saw growth of 6%, with growth within our personal accident direct business.

Our catastrophe exposed divisions, property and reinsurance, saw premium decreases of 11% and 15% respectively. Our property division experienced a particularly strong Q1 2019 which has impacted year on year growth. However, our full year expectation remains for overall growth in the property portfolio.

Rate changes in the market were particularly encouraging with an average rate increase of 8% and with three divisions achieving double digit increases.

Our performance to the end of March 2020 by business division is:

 
                                   Gross premiums written   Gross premiums written   % increase/   Q1 2020 Rate change 
                                                                                      (decrease) 
                                            31 March 2020            31 March 2019 
                                                       $m                       $m             %                     % 
--------------------------------  -----------------------  -----------------------  ------------  -------------------- 
 
 Cyber and executive risk                             195                      159            23                    12 
 Marine                                               100                       81            23                    16 
 Market facilities*                                    31                       14           121                     9 
 Political, accident & 
  contingency                                          91                       86             6                     - 
 Property                                              91                      102          (11)                    11 
 Reinsurance                                           88                      103          (15)                     6 
 Specialty lines                                      244                      198            23                     6 
--------------------------------  -----------------------  -----------------------  ------------  -------------------- 
 OVERALL                                              840                      743            13                     8 
--------------------------------  -----------------------  -----------------------  ------------  -------------------- 
 

*From 1 January 2020, our market facilities business has been split out of specialty lines to form a new division. The 2019 gross premiums written have been split to allow comparability with the 2020 figures.

Investments

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

 
                                             31 March 2020                  31 December 2019 
                                     Assets       Allocation         Assets         Allocation 
                                         $m                %             $m                  % 
------------------------------  -----------  ---------------  -------------  ----------------- 
 Cash and cash 
  equivalents                           342              5.9            279                4.8 
 Sovereign, quasi-sovereign 
  and supranational                   2,216             38.4          1,871               32.0 
 
      Corporate debt 
        *    Investment grade         2,605             45.1          2,698               46.1 
 
        *    High yield                   5              0.1            236                4.0 
 
        *    Syndicate loan               8              0.1              8                0.1 
 Derivative financial 
  instruments                            17              0.3             25                0.4 
------------------------------  -----------  ---------------  -------------  ----------------- 
 Core portfolio                       5,193             89.9          5,117               87.4 
------------------------------  -----------  ---------------  -------------  ----------------- 
 Equity linked 
  funds                                  52              0.9            164                2.8 
 Hedge funds                            325              5.6            354                6.1 
 Illiquid credit 
  assets                                204              3.6            217                3.7 
------------------------------  -----------  ---------------  -------------  ----------------- 
 Overall portfolio                    5,774            100.0          5,852              100.0 
------------------------------  -----------  ---------------  -------------  ----------------- 
 

The year to date investment loss to 31 March 2020 was $55m, or (1%) (31 March 2019: investment gain of $98m or 2%). We generally hold around 85% of assets in our fixed income portfolio, and the remaining in capital growth assets which include equities, hedge funds, illiquid credit and absolute return portfolios. The investment team take management actions according to prevailing market conditions within certain parameters, and further actions with the approval of the investment committee. We have seen a great deal of volatility in markets during 2020, and uncertainty continues as Covid-19 persists. During the first quarter of 2020 we reduced our exposure to a number of capital growth assets, and temporarily lengthened the duration of our fixed income investments in order to reduce the impact of the market volatility.

The weighted average duration of our fixed income portfolio was 2.0 years at 31 March 2020 (31 March 2019: 1.9 years). The yield on our core portfolio as at 31 March 2020 was 1.6% (31 December 2019: 2.1%). The average credit rating of this portfolio at 31 March 2020 was 'A+' (31 March 2019: 'A') following the sale of nearly all sub-investment grade credit exposures during the first quarter, with proceeds reinvested in US Treasury securities.

Company update

Operations

On 17 March the company moved from an office based environment to a remote, working from home environment. Over the past few years Beazley has been focussed on flexible working where technology is available anywhere and our people can also work anywhere with flexibility around hours. This has stood the company in good stead as we switched to remote working. Our people are doing well and the infrastructure for remote working is performing well, and the business is fully operational.

Business

Business is being done. Our aim is to support our brokers and clients as much as possible in these challenging times - this has included extending credit terms for the payment of premiums. The global pandemic and expected subsequent recession has led us to review all the classes of business we underwrite. Some will be affected more than others. We have been communicating with our brokers any changes to our risk appetite based on our expectations for the future. There are different opportunities and potential threats emerging as we continue to underwrite in 2020, and at this stage it is difficult to determine the overall impact of these on the growth of our well-balanced book.

Claims

We have been reviewing each area of our underwriting portfolio to identify those classes that we believe will be impacted by Covid-19 claims. We estimate the total claims from Covid-19 on first party business to be $170m net of reinsurance.

We discussed at the full year results that we write a contingency book of event cancellation and that, within a defined risk appetite, we provided communicable disease cover. This is covered by specific reinsurances designed for this type of exposure. The book has had a number of claims but the frequency of new notifications has been decreasing since the end of March.

Our expectation is that the cost of Covid-19 across the political, accident and contingency division, which includes event cancellation, personal accident and accident and health, is around $70m net of reinsurance.

The property team has also had a number of claims, mostly related to business interruption and mostly from US domiciled companies. The majority of our business is written on an ISO form which does not extend cover for Covid-19 but we do provide such protection on some bespoke policies and our aim is to respond quickly to these claims.

Based on analysis to date across our marine, property and reinsurance divisions we estimate our Covid-19 claims to be around $100m net of reinsurance.

It is too early to say what the quantum of claims within our liability classes will be as these will emerge as the impact of the pandemic is fully realised over the next one to two years. We have taken a number of underwriting actions, including the changes to our risk appetite approach mentioned above, which should reduce this impact.

Capital

When we announced our full year results on 6 February we reported that we had surplus capital of 19% of our Lloyd's economic capital requirement ($1,828m) after the payment of our second interim dividend. We also had an unutilised letter of credit facility of $225m.

We have taken two actions since the end of 2019 to augment our capital. First, we have drawn down $140m of our letter of credit facility to continue to support growth as well as maintain our capital strength during this period of uncertainty. Additionally, from 1 April we are ceding about 10% of specialty lines and executive risk (not cyber), two of our fastest growing businesses, to reinsurance partners. This is estimated to reduce our capital requirements by around $50m.

Executive leadership

We are delighted to announce that Bethany Greenwood has been appointed as our new head of cyber and executive risk. Bethany will be taking over from Mike Donovan and will join the executive committee. Bethany joined as head of executive risk in September 2019 and has quickly established herself as a leader with the skills needed for the future of the team.

Outlook

Our focus is on supporting our clients in these very challenging times amid ongoing uncertainty. We have strong, diversified businesses in the US and Lloyd's and a growing presence internationally. This combination should stand us in good stead as opportunities arise.

END

For further information, please contact:

Beazley plc

Sally Lake

[phone]

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 six Lloyd's syndicates and, in 2019, underwrote gross premiums worldwide of $3,003.9 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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April 22, 2020 02:00 ET (06:00 GMT)