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Beazley profits fall by 55% as cat losses & investment yields bite

7th February 2019 - Author: Matt Sheehan

Specialist re/insurer Beazley saw its profits fall by 55% in 2018 following a second consecutive year of heavy catastrophe losses and low investment income.

Beazley logoThe company’s profit before tax was $76.4 million in 2018, down from $168 million in the prior year, having been impacted by $110 million of natural catastrophe losses and a 70% dip in net investment income ($41.1 million in 2018 versus $138.3 million in 2017).

Nevertheless, Beazley increased its gross written premiums by 12% from $2.34 billion to $2.62 billion, and improved its combined ratio from 99% to 98%.

This was primarily due to the positive post-catastrophe rate environment last year, which resulted in Beazley benefiting from an average rate increase of 3% across its portfolio.

Specifically, reinsurance rates increased by 6% in 2018, while property increased by 10%, marine by 3% and specialty lines by 1%. In contrast, rates on renewals in Beazley’s political, accident & contingency division decreased by 1%.

Beazley’s spend on reinsurance remained flat at $366.8 million compared with $365.0 million in 2017, accounting for a slightly lower percentage of gross written premiums (14% versus 16%).

Chief Financial Officer (CFO) Martin Bride explained that the company had bought reinsurance more efficiently in 2018 but had been hurt by a worsening exchange rate between the UK pound and U.S dollar.

Prior year reserve releases were also lower than expected in 2018 ($115.0 million versus $203.9 million in 2017), particularly in terms of the reinsurance segment, which had slim reserve margins following the catastrophe losses in 2017. Beazley said that it was not anticipating large reserve releases in 2019.

On a more positive note, the re/insurer passed the milestone of $1 billion of premiums written in the U.S and maintained an average five-year growth rate of 18% for its business in the region.

“Beazley saw strong growth in 2018 with gross premiums written rising 12%,” said Chief Executive Officer (CEO) Andrew Horton. “Our US business has been growing extremely well and we underwrote more than a billion dollars of premium locally for the first time in the US last year.”

“Although market conditions were challenging, depressing our earnings, we entered 2019 with positive premium rate momentum and higher interest rates that should deliver stronger returns going forward,” he explained.

In November, Beazley estimated that it had sustained losses of $105 million net of reinsurance and reinstatement premiums as a result of U.S Hurricanes Florence and Michael and Japanese Typhoons Jebi and Trami.

These were followed by an estimated $40 million loss from the wildfires in California, which impacted specialty underwriters like Beazley particularly hard.

“We have now seen two years of above average claims for short tail property insurance and reinsurance business, following on from five years of very subdued claims activity,” Horton continued.

“The erosion of premium rates we saw between 2012 and 2016 has, to some extent, been reversed. We hope to build on last year’s price increases during 2019. In particular, numerous competitors have curtailed their property underwriting following heavy losses and this withdrawal of capacity should make recent price rises more sustainable.”

Going forward, Beazley anticipates some moderate tailwinds from firmer pricing for some lines of business and higher interest rates to underpin investment returns, although it remains cautious about the potential of global trade wars and protectionism to hinder profitability.

Growth in the U.S will remain a priority, particularly across specialty liability, property and marine, while growth at Lloyd’s is also expected as the marketplace continues its drive to increase profitability.

Additionally, Beazley expects cyber to account for an increasingly large proportion of its business following the launch of its Cyber & Executive Risk division earlier this week.

“This breadth of opportunity is significant,” said David Roberts, Chairman at Beazley. “Cyber insurance is perhaps too often cited as a growth opportunity for Beazley – not because it is unimportant but because it can eclipse other promising opportunities.”

“The growth of the US business has been broad-based and our plans for growth outside of the US equally rely on a diverse product range,” he added.

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