Beazley plc Interim Management Statement

For the 9 months ended 30 September 2011

 

Dublin, 16 November 2011

 

Overview

 

  • Premium rates on renewal business increased by 1%
  • Estimates of the catastrophe losses in the first half of 2011 remain unchanged
  • Full year combined ratio still expected to be below 100%
  • Annualised investment yield of 1.0% 

 

Andrew Horton, Chief Executive Officer, said:

 

‘While 2011 has been a challenging year for the sector due to first half catastrophe losses, our diverse underwriting portfolio has served us well. We continue to make progress in a number of our markets and expect to deliver an underwriting profit in 2011. Although premium rates are still competitive, trading conditions are improving and we are seeing rating increases across a number of lines. The recent launch of our accident and health initiative in the US in September demonstrates our continued desire to search out new opportunities to grow the company profitably in our existing business lines.’

 

 

 

30 Sep
2011

30 Sep
2010

% increase

Gross premiums written ($m)

1,352

1,350

(0%)

 

 

 

 

Investments and cash ($m)

4,031

3,706

4%

Investment return – annualised (%)

1.0%

0.8%

-

 

 

 

 

Rate increase/(decrease)

(1%)

(2%)

-

 

Premiums

 

The first nine months of 2011 saw flat premiums, when compared with the equivalent period of 2010. This was a good performance given the competitive market conditions in 2011. Premium rates on renewals are up by 1% overall which is in line with our expectations.

 

Below is an extract of our performance to the end of September 2011 by business division:

 

 

Gross premiums written

30 Sep

2011

Gross premiums written

30 Sep

2010

% increase / (decrease)

Q3 2011 Rate change

 

 

 

 

 

$m

$m

%

%

 

 

 

 

 

 

 

Life accident and health

66

64

3

1

 

Marine

216

202

7

1

 

Political risk and contingency

78

79

(1)

(2)

 

Property

288

302

(5)

3

 

Reinsurance

182

167

9

3

 

Specialty lines

 

522

536

(3)

-

 

OVERALL

1,352

1,350

-

1

 

 

 

Following the catastrophes in the first quarter, we have seen hardening of premium rates in the reinsurance and property classes.  In general, trading conditions are improving with rates up 1% year on year.  We are also anticipating rating increases following changes in risk modelling in property and reinsurance, with the upgrade to RMS version 11.   

 

Business update

 

We recently submitted our 2012 business plan to Lloyd’s and subject to their approval, we expect premium levels to increase between 5 – 10% in 2012. The main areas of increase are catastrophe exposed businesses following 2011 losses and the move to RMS version 11, a full year writing for the new Australian acquisition and growth in specialty lines and political risks and contingency.

 

Claims update

 

As previously reported, the group was impacted by the catastrophe losses in the first quarter of 2011 in Japan, New Zealand and Australia. Taken together with the US tornadoes in April and May we reported catastrophe losses of $183m in the first half of 2011.  We are pleased to report that this estimate remains unaltered. 

 

The second half of the year has seen loss activity continue with hurricane Irene and the ongoing flooding in Thailand as the most noteworthy natural events. Our combined ratio guidance takes into account the output of our third quarter reserving process, together with an evaluation of these emerging events.

 

Investment performance

 

Investment income for the nine months to 30 September 2011 was $30.1m (30 September 2010: $22.3m) equivalent to an annualised return of 1.0% (30 September 2010: 0.8%).  In the most recent quarter Beazley’s investment income was $7.6m.

 

Investment portfolio

 

Beazley continues with its strategy of holding the majority of its investments in a core portfolio of sovereign fixed income assets, or short duration high quality credit.  This is complemented by a diversified portfolio of capital growth assets. During 2011 we have increased our allocation to credit risk assets to 13%.

 

The core portfolio continues to be conservatively invested.  As far as the eurozone is concerned, Beazley has sovereign holdings issued by France, Germany, the Netherlands and Belgium only. There is also a 3.7% exposure to major eurozone banks, exclusively in Germany and the Netherlands, of which 3.1% is AAA rated and 0.6% is AA rated. 

 

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

 

 

 

30 Sep 2011

 

30 Sep 2010

 

 

 

$m

%

 

$m

%

 

Core portfolio

3,615

89.7

 

3,307

89.2

Capital growth assets

416

10.3

 

399

10.8

Total

  

4,031

100

 

3,706

100

 

 

 

Investment Return

 

Comparison of return by major asset class:

 

 

30 Sep 2011

30 Sep 2011

annualised return

 

30 Sep 2010

30 Sep 2010

annualised return

 

$m

%

 

$m

%

Core portfolio

32.4

1.1

 

15.6

0.6

Capital growth assets

(2.3)

(0.7)

 

6.7

2.2

Overall return

30.1

1.0

 

22.3

0.8

 

During 2011 we have also increased the weighted average duration of the core portfolio, which at 30 September 2011 was 16 months (30 September 2010: 8 months) and the weighted average yield to maturity of our overall portfolio was 0.8% (30 September 2010: 0.6%).

 

 

Capital management

 

Our capital position will enable us to support the 2012 business plan whilst keeping our $225m letter of credit facility undrawn and available to deploy should any opportunities arise. 

 

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