Beazley predicts margin declines after sharp rate falls in 2016

Specialist insurer Beazley has warned of margin declines when claims return to more normal levels after it revealed in its 2016 results that premium rates for most large risk business continued falling sharply last year.

Beazley reported profit before tax of $293.2 million for 2016 compared to $284 million in the previous year.

Its gross written premiums increased by 6 percent to $2.2 billion over the period. The combined ratio deteriorated to 89 percent from 87 percent in 2015.

“Against a background of continued sharply falling premium rates for most large risk business, Beazley delivered a very strong performance in 2016,” said chairman Dennis Holt. The results were achieved through “skilled underwriting and careful rebalancing of our diversified risk portfolio,” he noted.

Holt said that while Brexit has been a source of concern and considerable uncertainty to many businesses in the City of London, for Beazley the concern is less acute. The share of Beazley’s business generated within mainland Europe is lower than 5 percent.

In addition, the insurer had already planned to develop its presence in Dublin to access more business in continental Europe. In November 2016, Beazley had filed an application with the Central Bank of Ireland to obtain approval for Beazley Re dac to become a European insurance company.

CEO Andrew Horton expects London to continue playing a key role in the provision of tailored cover for large and complex risks, including in Europe, notwithstanding uncertainty caused by Britain's referendum decision to exit the European Union in June.

Holt noted that for many insurers, the ripple effects of political uncertainty and weak investment returns on performance have been masked by a low incidence of catastrophe claims that has continued largely unbroken since 2011. Premium rates have naturally fallen to reflect this, most sharply in the energy market. However, it is in the nature of large risk, catastrophe exposed business that rates can fall a long way and insurers can still make money if claims are subdued.

Horton predicted “margin declines when (and it is a matter of when, not if) claims return to more normal levels.”

Horton believes that Beazley’s underwriting discipline it maintained for short tail, catastrophe exposed business should cushion the impact of major claims when they occur.

Holt said that despite the challenges the industry faces, there are many areas of opportunity for Beazley. Specialty lines, the company's largest division, continued to grow strongly, generating gross premiums of $1.16 billion in 2016, up 14 percent compared to the previous year, he noted. This business “was buoyed by the relatively attractive premium rates for small scale risks that our mature US operations are now well equipped to handle.”

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