Beazley posts strong premium growth on back of ‘buoyant’ rating environment

Beazley reported strong gross written premium growth of 26% to $2.5bn in the first half of this year supported by a “buoyant” rating environment, with average premium rate change of 18% across the business compared with 20% in the first half of 2021.

The global specialty carrier reported its best first half combined ratio of 87% since 2015 as claims were lower than expected. This compares with 94% at this point last year.

Beazley’s numbers were also boosted by a significant prior year reserve release of $92.6m as the company stressed its reserve surplus still stands above actuarial estimates at 5.9%, down from 6.6% at the half year stage in 2021.

The group’s profits were, however, hammered by a net investment loss of $193m compared with a gain of $83.6m last year. This meant that profit before tax for H1 was $22.3m, down from $167.3m in H1 last year. The annualised return on equity was a mere 1% for the first six months, compared with 15% at this stage last year.

London market specialty players such as Beazley are generally more exposed to the war in Ukraine than most carriers as they tend to focus on exposed lines such as political violence, trade credit, aviation and marine. Beazley said it has been watching developments closely and currently sees no reason to upgrade its initial estimate of potential claims of $50m from the conflict.

“We have had to date a small number of claims notified,” said CEO Adrian Cox. “We have reviewed all areas of our underwriting portfolio to identify those classes that we believe may be directly impacted by the conflict. The relevant exposures are within our political violence, trade credit, aviation and marine books. Our review was predicated on the current scope of the conflict, and therefore does not contemplate further escalation. Our estimate of incurred losses within these classes is $50m net of reinsurance, which is unchanged from our initial estimate,” he continued.

These estimates do not, however, include potential claims from stranded aircraft in Russia or secondary claims such as D&O, explained Cox.

“The number above does not allow for potential claims for aircraft stranded in Russia as no losses have been incurred. Whilst the environment remains complex and the outcome uncertain, were we to include these potential exposures our combined ratio guidance would remain unchanged. We have also not included potential second order impacts, on products such as D&O, within this estimate,” he said.

The massive investment loss that wrecked profits is directly attributable to the war in Ukraine, said Cox. “The war, which has fuelled an unusual combination of excess demand and supply constraints, impacted the financial markets, leading to an unusual trading environment. As a result of this the group has registered an investment loss of $193m or 5% annualised,” he said.

Cox hinted strongly that the combined impact of the war in Ukraine and inflation will bolster insurers’ resolve in coming renewals. But he said that Beazley is also aware of the impact on customers when pricing.

“The conflict has accelerated the inflationary pressures already in place due to the pandemic. As an insurance business we have been focused on this issue for some time, carefully monitoring the twin risks of rising social and financial inflation, baking the potential impact into our underwriting strategy and our reserving and capital to price for and accrue appropriately for this exposure. However, we also remain conscious of the impact these issues are causing our clients and wider society alike and are particularly focused on careful management of rising prices,” he said.

Beazley has positioned itself as a leading player in the cyber specialty insurance market and reported big growth in this critical area on the back of strong price rises.

The group said that its cyber risks operation had “taken advantage” of the favourable rating environment and evaporating market capacity in the first half of 2022, almost doubling its premium to $472.7m from $267.1m in the first half of 2021. This delivered a profit before tax of $64.8m for cyber business against $22.1m in the first half of last year, and a combined ratio of 74%, down from 96%.

“Whilst many others fled the market in the face of ransomware, Beazley has stood firm, committed to investing in cyber and building clients’ resilience through the development of our cyber ecosystem. This multistrand ecosystem encompasses threat intelligence from government agencies and specialists, data and analytics and incident response services and its positive impact on the frequency and scale of attacks is playing out in our results,” said Cox.

“We are pleased with the improvements we achieved in ransomware frequency since we launched our new cyber underwriting ecosystem in October 2020. The latest data shows frequency reductions since Q4 2020 of 30% per policy, and 70% when premium rate changes are also allowed for,” he added.

Like most London market players, Beazley traditionally generates a large portion of its business from the US. But it has invested recently in expanding its European footprint. This investment will continue, said Cox.

“In Europe, the business is at an earlier stage of development, however, we strongly believe that having more direct access to risk which provides us with a more diverse portfolio and less volatile results is an investment worth making. This platform strength is complemented by a product set focused on markets such as technology, healthcare, environmental, political risks, events and cyber, that have key attributes we covet such as specialism, long term demand growth and where we have pricing power,” he said.

“By investing over time in strengthening our position from both a platform and product perspective we believe we have ensured we are primed for growth and are confident in our ability to achieve it,” added Cox.