Beazley delivers best half year combined ratio since 2015, but investment returns plummet

Re/insurer Beazley has reported a pre-tax gain of $22.3m for H1 2022, compared with a gain of $167.3m in the first half of 2021.

Gross premiums written increased by 26% to $2,554.9m, from $2,035.3m in the same period last year. The combined ratio of 87% was its best half-year CR since 2015, and was 7pp down from the 94% recorded in H1 2021.

A rate increase of 18% on renewal portfolio was recorded, a slight slowdown from the increase of 20% achieved in the same period last year, but still equal to a 40% over the two periods.

Prior year reserve releases fell a fraction to $92.6m, from $95.7m in the same period last year.

However, investments were hammered, with a net investment loss of $193.0m being recorded (minus 5.0% annualized), compared with a gain of $83.6m in H1 2021.

$m Period ended 30 June 2022 Period ended 30 June 2021 % movement
Gross premiums written 2,554.9 2,035.3 26%
Net premiums written 1,795.9 1,442.1 25%
Profit before tax 22.3 167.3 (87%)

CEO Adrian Cox said that “we have maintained the momentum of the second half of 2021 with gross premiums increasing by 26% alongside better than expected claims experience. A challenging investment environment has impacted profit; however I’m delighted that we have achieved our best combined ratio at a half year since 2015.”

Cox said that Beazley continued to manage actively for inflation and recession. Its estimate for the war in Ukraine remained unchanged. “Given the positive experience in the first half of this year we are in a position to update our combined ratio guidance to high 80s for 2022 assuming average claims experience for the second half of the year.”

During the past six months Beazley has streamlined its underwriting structure, launched Lloyd’s first dedicated ESG syndicate and realigned its digital business to be managed under one segment.

For Ukraine Beazley said that it had to date experienced a small number of claims notified. The relevant exposures are within the Political Violence, Trade Credit, Aviation and Marine books. Beazley’s review of potential liabilities was predicated on the current scope of the conflict; it did not contemplate further escalation. Beazley’s estimate of incurred losses within these classes was currently $50m net of reinsurance, which was unchanged from its initial estimate.

The $50m 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”, said Beazley, adding that it had also not included potential second order impacts, on products such as D&O, within this estimate.

Beazley noted that the conflict had 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. To ease the financial burden on staff in June this year we made a one-off payment of up to £3,000 (or equivalent currency) to eligible team members.”

The underwriting team structure was changed in March. Four new underwriting divisions have been created:

  • Cyber Risks, headed by Paul Bantick,
  • MAP Risks, under the leadership of Tim Turner,
  • Property Risks led by Richard Montminy, and
  • Specialty Risks, led by Bethany Greenwood.

Beazley has also established a new Digital division under the leadership of Ian Fantozzi. This consolidates into one segment all the digital business written across Beazley .

Marine, Accident and Political (MAP) Risks

The MAP Risks team has taken the brunt of Beazley’s Ukraine exposure, with marine, aviation and political risk all being impacted by the conflict. As a result the division recorded a combined ratio of 98% for the first half of 2022 (2021: 86%). Due to losses on the investment portfolio the division registered a loss before tax of $17.3m (2021: profit of $55.6m). Remedial action has been taken to mitigate the loss potential and the impact of sanctions, but Beazley said that its focus had been on supporting its clients with exposures in the region to work through this significant shift in geopolitics.

MAP Risks has a mature product set, where Beazley leads approximately 60% of the business it underwrites, with the vast majority placed at Lloyd’s.

The following table shows the cumulative rate changes (%) since 2017 by business division.

  2017 2018 2019 2020 2021 2022HY
Cyber Risks 100% 98% 99% 106% 200% 342%
Digital 100% 95% 98% 98% 107% 124%
MAP Risks 100% 101% 107% 119% 129% 136%
Property Risks 100% 109% 119% 135% 149% 162%
Specialty Risks 100% 102% 111% 136% 152% 158%
All divisions 100% 103% 109% 126% 156% 184%

Beazley’s platform strategy comprises three core tenets – the North America platform, European platform and the wholesale platforms. These represent 33%, 7% and 60% of our 2022 half year premium respectively.

The wholesale platforms in London, Singapore and Miami continued to perform well. “In the domestic markets we see substantial opportunities for growth, where we are at different development stages of building significant domestic platforms in the two largest North America and Europe”, said Beazley.

The investment loss of $193.0m, or 2.5%, reflected “very unusual market conditions”, said Beazley, noting that short-dated US Treasury yields rose by 2.25 percentage points in this period, increasing at the fastest rate for more than 40 years. “This movement generated significant mark to market losses on the fixed income securities which form the largest element of our investments. Widening credit spreads on our corporate debt holdings added to fixed income losses. Equities also suffered and global indices had lost more than 20% of their value by the end of this volatile period.”

Beazley made a number of adjustments to our portfolio to reduce losses during the first half of 2022. Fixed income duration was maintained significantly below usual levels for much of the period, inflation-protected fixed income holdings were increased and equity exposures were reduced to be less than 1% of Beazley’s investments. “Each of these actions helped to improve our return, while our hedge fund portfolio has performed well in this difficult period”, the insurer said.

Looking ahead, Beazley said that “as we reflect on the first half of 2022, no one can be in any doubt that we are in the middle of an uncertain and complex risk environment, where unpredictability is a dominant feature”.