BEZ Beazley Plc

Interim results statement

 

Overview

Beazley achieved a record interim profit before tax of $728.9m for the first half of 2024 (30 June 2023: $366.4m). This included an insurance service result of  $558.0m (30 June 2023: $342.2m), resulting in a discounted combined ratio of 77% (30 June 2023: 84%) and an undiscounted combined ratio of 81% (30 June 2023: 88%). Our investment team achieved a strong investment result of $251.7m (30 June 2023: $143.9m) or 4.8% annualised (30 June 2023: 3.0%). Insurance written premiums growth across our business continued at 7%. Our annualised return on equity was 28% (30 June 2023: 18%).

Seizing the opportunity for specialty insurance

Beazley's performance in the first half of the year is a testament to the hard work and determination of our employees.

At 7%, growth is maintaining its positive trajectory, driven by our agile and disciplined approach to underwriting. As expected, the upwards rating environment, or hard market, of recent years is moderating and our clear priority is maintaining rate adequacy, whilst continuing with active cycle management to benefit from market opportunities and a change in risk reward ratios.

 

Achieving growth of 7% against a backdrop of a flat rating environment in total at the half year demonstrates how our robust approach to underwriting has delivered across Beazley.

 

Demand from brokers and businesses for specialty underwriting is strong, be that in the Excess & Surplus (E&S) market in the US, across our expanding European footprint or in the specialist classes we underwrite via Lloyd's.

 

On 19 July the world experienced its worst ever systems outage. I am proud of the response of all our teams to support clients during this incident, particularly those in Claims, Cyber Risks and at Beazley Security. We have long prepared for an incident of this nature and as a result I am pleased to confirm this event had no impact on our view of the outlook for the remainder of 2024. Our approach to cyber has been tested and proved resilient and we remain committed to a stable and sustainable rating environment.

 

We are proud that our approach to specialty underwriting was recognised at the prestigious British Insurance Awards, in July, where we were named Specialist Insurance Company of the Year 2024.

 

Highlights of the half year

In January 2024, our onshore US E&S carrier began underwriting and we have seen strong interest from our US broker partners, particularly where their clients are located away from the coasts or have a strong preference for locally based cover.

 

Beazley Security officially launched at the end of June 2024, with the integration of our in-house Cyber Services team and our wholly owned cyber security company Lodestone.

 

Our experience of managing thousands of cyber incidents shows that organisations with integrated risk management services are better able to pre-empt, respond and adapt to cyber threats. We believe our ability to keep clients one step ahead of the cyber threat aids the client's experience and enhances our underwriting potential.

 

At the start of the year, we announced the launch of our first 144a Cyber Catastrophe bond. At $140m it was nearly twice the size of the cover we achieved in 2023, via the market's first ever cyber catastrophe bond, and in May 2024, the bond more than doubled to $300m. Both of these have been a great success and we will continue to look at opportunities in a similar vein in the future.

 

We were also the first company to launch a property catastrophe bond on the Lloyd's London Bridge platform at the start of the year. This is also the first time that Beazley has sponsored its own property catastrophe bond.

 

These developments are testament to the outstanding work of our team in managing and modelling cyber risk so that we have a specialist investor base eager to invest. Together we are creating a vibrant cyber reinsurance market which will benefit the development of the whole cyber insurance industry.

 

In June 2024 we were pleased that these efforts to innovate in the catastrophe bond arena were recognised by winning (Re)Insurer Sponsor of the Year at the Insurance Insider ILS awards.

 

Access to risk

We continue to believe in the importance of being located where our clients and brokers are based and developing product solutions to the risk landscape they face.

 

Our three platforms are split into Wholesale (Lloyd's) 52%, North America 40% and Europe 8% at the half year. We continue the build out in Europe, with the appointment of Country Managers in France, Spain and the UK.

 

Changes to management

I want to welcome two new senior colleagues to Beazley, Carolyn Johnson, who joined the Board (and is Chair of our US holding company) in March and Barbara Plucnar Jensen who joined the Board as Chief Financial Officer in May. This is the first set of results I have worked on with Barbara and I am pleased to have such an experienced and capable colleague to lead our finance function.

 

Underwriting performance

 

Cyber Risks

The first half of the year saw attractive opportunities across international markets, where our strong underwriting discipline combined with ongoing rate adequacy was a significant driver of the 7% growth we saw in the division, although we are now seeing increased competition in this segment. In the US, the rating environment is now stabilising after rate reductions in the very competitive conditions of 2023. This reflects the ongoing maturing of the cyber insurance market, which sees increasing price stability, better cyber resilience and awareness of the threat amongst businesses leading to strong demand for both cyber security services and insurance.

 

Across our book we continue to see no material shift in ransomware claims despite the increased frequency in activity and we believe our integrated Full Spectrum Cyber offering is supporting our clients to build greater cyber resilience. We are also investing in our Cyber Risks management team with the appointment of new leads in North America and Europe.

 

Digital Risks

Our small business distribution division saw growth of 14%, mainly driven by specialty in Europe. The ongoing investment we are making into technology is supporting the digitisation of our underwriting processes as well as the distribution of specialty insurance solutions, to the small business segment which is the backbone of economies around the world.

 

Marine, Accident and Political ("MAP") Risks

We are seeing a positive rating environment as demand for our specialist insurance remains strong in the ongoing uncertain geopolitical environment. The division experienced a reduction to premium of 3% in 2024 (2023: decrease of 5%) driven by our planned platform changes within the Group in 2023 and 2024.

 

The value of our products has been clearly demonstrated in recent months. The tragic events in relation to the Middle East and the Baltimore Bridge incident in March show how a well functioning marketplace, like the Lloyd's marine community, in which we are a leader, can act to ensure that claims are effectively processed and new cover quickly put in place, allowing business and trade to continue.

 

Property Risks

The first half of 2024 saw continued strong growth in our property business, at 25% (2023: 65%), albeit, as we expected, at a more moderate pace than the year before. We are seeing competitors that stepped back last year re-enter the market, but we have not yet seen a dramatic influx of capacity as the fundamental challenges of climate change, rising property valuations and inflation, together with the potential for an active hurricane season, temper competition.

 

By building relationships with brokers and clients for the long-term, particularly in the US E&S market with our onshore carrier, we are gaining positive feedback and developing brand loyalty for our consistent and disciplined approach to specialty property underwriting.

 

Specialty Risks

Growth in our niches remains strong, focused on demand led areas such as Environmental Liability and Programs, or Safeguard, which supports institutions to mitigate and recover from the impacts of a safeguarding incident.

 

We continue to be cautious and exercise robust cycle management in the Directors & Officers (D&O) segment, although we may finally be seeing some nascent signs of plateauing of rates in D&O. Nevertheless we remain absolutely focused on ensuring rate adequacy after the challenging rating landscape of the last two and half years.

 

During the year, the terms of one of our major reinsurance contracts for the division were adjusted and we accrued for both additional premiums and a reduction of recoveries in the first six months contributing to an expense on the amount recoverable from reinsurers.

 

Reserving

Beazley has a consistent reserving philosophy, with initial reserves being set to include a risk adjustment that may be released over time as and when any uncertainty reduces. We maintain a preferred confidence level range of between the 80th and 90th percentile. This metric gives an indication about where the reserves sit compared to the best estimate and the capital requirement.

 

As at 30 June 2024, our reserve confidence level was at the 88th percentile (30 June 2023: 89th percentile, 31 December 2023: 85th percentile), which is towards the upper end of our preferred confidence level range.

 

Insurance written premiums/ Net insurance written premiums

 

	6 months ended 30 June 2024		6 months ended 30 June 2023
	Insurance written premiums	Net insurance written premiums	Insurance written premiums	Net insurance written premiums
	$m	$m	$m	$m
Cyber Risks	577.8	454.3	541.4	426.2
Digital	126.8	111.9	110.8	97.2
MAP Risks	506.9	435.3	522.4	429.2
Property Risks	1,008.4	784.8	805.2	643.0
Specialty Risks	903.4	800.2	941.3	754.0
Total	3,123.3	2,586.5	2,921.1	2,349.6

 

 

Cumulative rate change

 

	2019	2020	2021	2022	2023	2024HY
Cyber Risks	-%	8%	103%	185%	170%	153%
Digital	-%	-%	9%	31%	32%	29%
MAP Risks	-%	12%	22%	27%	35%	37%
Property Risks	-%	14%	27%	40%	72%	77%
Specialty Risks	-%	20%	34%	36%	35%	36%
All divisions	-%	15%	43%	62%	84%	85%

 

Investments

Our investment team enjoyed an excellent six monthly performance, delivering a strong return of $251.7m, or 2.4% in the first half of 2024 (30 June 2023: $143.9m, or 1.5%). The higher yield environment which began to benefit our returns last year remains in place and continues to support improved investment returns. However, risk-free yields have risen further this year, as expectations for lower interest rates were deferred, and this has generated some mark to market losses in the short-term. As a result, the overall return on our fixed income investments in the first half of 2024 is lower than yields would imply, at 1.8%. We reduced the duration of our fixed income investments at the beginning of the year, to 1.6 years, to help us manage asset/liability interest rate risks, and this helped protect our fixed income return in the period. Our capital growth investments have performed strongly, producing a return of 6.7%, led by our equity investments, which returned more than 14% in this period. We added to our equity, credit and hedge fund exposures during the first half and these changes have had a positive impact on our overall investment return. Looking ahead, the current yield of our fixed income investments, at 5.0%, provides an encouraging outlook for returns, although macro-economic risks remain elevated.

 

Investment performance

	30 June 2024	30 June 2024	30 June 2023	30 June 2023
	$m	%	$m	%
Cash and cash equivalents	945.6	8.9	964.3	10.0
Fixed and floating rate debt securities
- Government	4,166.6	39.0	4,724.1	49.0
- Corporate bonds
- Investment grade	3,589.9	33.6	2,500.9	25.9
- High yield	632.4	5.9	362.7	3.8
Syndicate loans	28.8	0.3	33.2	0.3
Derivative financial assets	9.6	0.1	6.8	0.1
Core portfolio	9,372.9	87.8	8,592.0	89.1
Equity funds	432.2	4.1	251.2	2.6
Hedge funds	645.2	6.1	564.5	5.8
Illiquid credit assets	212.6	2.0	236.4	2.5
Capital growth assets	1,290.0	12.2	1,052.1	10.9
Investment portfolio total	10,662.9	100.0	9,644.1	100.0

 

	30 June 2024	30 June 2024 annualised return	30 June 2023	30 June 2023 annualised return
	$m	%	$m	%
Core portfolio	171.9	3.6	100.7	2.5
Capital growth assets	79.8	13.4	43.2	9.1
Overall return	251.7	4.8	143.9	3.0

 

Expenses

The expense ratio, which under IFRS 17 includes only expenses directly attributed to insurance activities, decreased to 32% for the first half of the year (30 June 2023: 35%). For the first six months of the year, non-directly attributable expenses of $160.4m (30 June 2023: $137.6m) fall outside the insurance result. Total expenses for the first six months of the year were $918.0m (30 June 2023: $863.6m).

 

We continue to focus on our total expense base and are pleased that net insurance revenue growth has outpaced total expense growth showing our commitment to growing profitably.

 

Interest rate sensitivity

The Group has conducted a sensitivity analysis of its financial assets (specifically debt and fixed income holdings) and its (re)insurance contract liabilities (being the net of reinsurance contract assets and insurance contract liabilities) to estimate the immediate impact of the movement in interest rates on profit after tax / equity for the period:

 

 

	Financial assets
	30 June 2024	31 December 2023
	$m	$m
Shift in yield (basis points)
150 basis point increase	(161.1)	(190.6)
100 basis point increase	(107.4)	(127.1)
50 basis point increase	(53.7)	(63.5)
50 basis point decrease	53.7	63.5
100 basis point decrease	107.4	127.1
150 basis point decrease	161.1	190.6

 

	(Re)insurance contract liabilities
	30 June 2024	31 December 2023
	$m	$m
Shift in yield (basis points)
150 basis point increase	118.6	114.3
100 basis point increase	80.0	77.1
50 basis point increase	40.5	39.1
50 basis point decrease	(41.5)	(40.0)
100 basis point decrease	(84.0)	(81.0)
150 basis point decrease	(127.6)	(123.0)

 

Capital

We have a number of requirements for capital at a Group and subsidiary level. Capital is required to support underwriting at Lloyd's, within the US and through our European insurance company and is subject to prudential regulation by local regulators (PRA, Lloyd's, CBI, and the US state level supervisors). Further capital requirements come from rating agencies who provide ratings for BICI, BAIC, BESI and BIdac. Beazley aims to manage its capital and leverage levels to obtain the ratings necessary to trade with its preferred client base.

 

The amount of surplus capital held is considered on an ongoing basis. We aim to maintain a Group Solvency II ratio in excess of 170% of Solvency Capital Requirement ("SCR"). A number of additional factors are considered including the opportunities to deploy capital by investing in sustainable profits which hit our ROE target of 15% cross cycle in a way that helps build a balanced and diversified business. We also contemplate peak risks to equity, including natural catastrophe and cyber risks, which are reflected in our capital sensitivities, when deciding on the level of capital to hold.

 

As at 31 December 2023, our Solvency II coverage ratio post-dividend and share buyback was 219%. We estimate our 30 June 2024 Solvency II ratio to be at 245% (including total estimated amount of the share buyback announced in March 2024). As at 30 June, we have bought back £137m worth of shares through the share buyback. We generally expect half year Solvency II ratios to be higher than those at the end of the year, due to the end of year ratios including a projection for the following year's growth.

 

The half year ratio is a result of good underwriting performance and a strong return on investments driving significant own funds generation, while capital requirements are aligned with 2023 year end and represent the current year business plan. 

 

 

	30 June 2024 Estimate	31 December  2023 Actual
	$m	$m
Eligible Tier-1 capital after foreseeable distributions	4,503.4	3,980.9
Eligible Tier-2 capital - subordinated debt	539.6	520.8
Total Solvency II Eligible own funds	5,043.0	4,501.7
Capital requirement	2,058.2	2,058.2
Group Solvency II ratio	245%	219%

 

In the second half of the year, our capital requirements will be recalculated to reflect the growth expected in the business during 2025 as well as own fund generation in the period. When considered together, these factors are expected to increase our capital requirements, which will result in a decreased Solvency II ratio at 31 December 2024 when compared to 30 June 2024.

 

Scenario sensitivity analysis

The table below shows the impact on the Group's estimated Solvency II ratio in the event of the following scenarios as at 30 June 2024.

 

 

	Impact on solvency II ratio
Cyber 1-in-250 scenario	(31)%
Nat Cat 1-in-250 combined scenario	(26)%
50 bps decrease in interest rates	(10)%

 

Outlook

Using integrated insurance and risk management expertise that delivers solutions to the technology, geopolitical and climate threats that businesses face, is how Beazley adds value and builds resilience for its clients. As we progress through 2024, we believe this makes us increasingly relevant to our brokers and clients and is driving significant opportunities for us and you, our investors.

 

We remain confident in the ability of our multi-platform distribution capabilities, combined with our robust approach to cycle management, to continue to deliver sustainable and strong results.

 

We see opportunities in the remainder of the year and are on track to deliver on our high single digit growth guidance. We are also pleased to improve our undiscounted combined ratio guidance for the full year to around 80%.

 

Adrian Cox

Chief Executive Officer