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Through the turmoil of 2020, our core elements of resilience, consistency, and responsibility have enabled us to keep our promises to our people, partners and customers – flexing and moving quickly to deliver products and services in a volatile climate, while offering the security and peace of mind to focus on the future and not dwell on the past.
In a most challenging year, our resilience as individuals, communities and organisations has been thoroughly tested. Issues no less fundamental than our health, the economy and jobs, social injustice and our planet have consumed daily life. Life has become simultaneously more complex and simple as restrictions on where we can go and who we can see have made us think more carefully about our every action. Enforced isolation from loved ones as part of a collective effort not seen before has highlighted our individual responsibilities within a global response.
As organisations, how we tackle global issues whether collectively or unilaterally has never mattered more. The health crisis has highlighted the need for greater responsiveness and responsibility by those with power to make some difference, ahead of the pursuit of short-term advantage.
As an insurer, we play a vital role in anticipating change and managing its consequences on behalf of our customers. Our value is in delivering risk management and risk transfer solutions that help customers to thrive even in adversity. In helping customers to manage risks that threaten to derail at both a global and local level, insurance plays a valuable role in society, enriching the lives of all. We need to be strong at our core to play our part.
Through the turmoil of 2020, Beazley’s core elements of resilience, consistency and responsibility have enabled us to keep our promises to our people, partners and customers – flexing and moving quickly to deliver products and services in a volatile climate, while offering the security and peace of mind to focus on the future and not dwell on the past.
We are always looking for ways to deliver a better and faster service by harnessing technology to support our highly experienced team. In this very challenging year, making sure our team had the resources to maintain, even improve, service delivery for customers while operating remotely has been a priority. Clear communication has been key to providing reassurance and to understanding with regards to the often unique situations customers find themselves in, as well as to the swift resolution of claims. Our claims specialists have been quick to explain clearly the basis of a decision and to engage with customers with open minds where the picture is less clear.
Even throughout 2020, our global claims team has delivered against an ambitious multi-year strategy to digitise our claims processes, with the aim of providing consistent endto -end claims service for brokers and customers, harnessing data to improve claims outcomes, and leveraging artificial intelligence and machine learning technologies to speed up decisions and payments. Our team’s efforts in evaluating claims fairly and paying promptly throughout this crisis and the resolve to continue improving on our delivery are what consistently differentiate our claims service in the market.
to a new market. The team takes a data-led approach to assessing market opportunities and shaping Beazley’s response. It works with peers across the industry to push forward sustainable industry responses to the challenges of the day.
From product development to our increasingly flexible working practices, it’s not just what we deliver, but how, that has a uniquely Beazley approach. Innovation is in our DNA and everyone has a role to play in driving us to do things differently and better. This plays to the natural inquisitiveness of the people we hire and is why innovation is not the domain of one team.
In recent years we have applied robotics to improve efficiency in claims workflow and underwriting portfolio management for small risks by automating cumbersome processes so colleagues can focus on more complex tasks. In the London market we have been fast adopters and supporters of electronic placement of risks and the efficiency it brings, and we now place 80% of all of our risks in London in this way. We are using digital technology to capture and analyse data within portfolios to improve exposure management, partnering with insurtechs and the Lloyd’s Lab as well as developing solutions entirely in-house. To develop and apply digital solutions to improve customer outcomes requires a variety of skills and experience. This is reflected in the recruitment of data scientists and technology specialists into our teams and in providing digital upskilling opportunities to colleagues across the business.
As a company, we have always tried out new technology and processes in an agile, controlled way to challenge ourselves to do better for brokers and customers.
• We predominantly transact business through brokers and work with selected managing general agencies and managing general underwriters to improve distribution in specialist niches
Our platforms We operate through three principal platforms – Beazley Insurance Company, Inc., Beazley Insurance dac and Beazley Underwriting Limited – which gives us global reach. Each platform is focused on a different market and offers different opportunities. Our US and European insurance companies complement our Lloyd’s business and ensure we can offer coverage across a wider distribution network.
Underpinned by a robust, consistent strategy Our strategy is designed to achieve our vision to become, and be recognised as, the highest performing specialist insurer. • Prudent capital allocation to achieve a well diversified portfolio resilient to shocks in any individual line of business
• The creation of an environment in which talented individuals with entrepreneurial spirit can build a successful business
• Leadership survey scored the highest it has been to date, moving to 5.35 out of a possible 6
Find out more in the Chief Executive’s statement on pages 10 to 14
As challenging as this year has been, the events have been the catalyst for improvements to how we work and trade.
Beazley delivered strong premium growth in 2020, with premiums rising 19% to $3,563.8m (2019: $3,003.9m) in a market that saw rates respond sharply to heightened claims activity in many lines of business. However, the pre-tax loss of $50.4m (2019: Profit $267.7m), driven by a combined ratio that deteriorated to 109% (2019: 100%), is disappointing.
Shareholders’ support for our growth strategy and the benefit of the capital raised in May means we are well placed to capture the opportunities ahead of us. Beazley enters 2021 on a firm footing to deliver long-term growth across a diversified portfolio and your board is determined to resume delivery of consistent, market-leading returns.
As an insurer we must manage our exposure to multiple, interconnected risks, including the actual and future effects of climate change. Beazley actively manages its carbon footprint and participates with industry to reduce our impact and support a lower carbon economy. In 2020 the board increased its focus on both the risks and opportunities arising from climate change and worked with management to refine and develop our Environmental, Social and Governance (ESG) strategy. Further details are contained later in this report.
In line with our board composition strategy we have sought to bolster the diversity of our board as well as seeking to ensure the board has access to the relevant skills and experience to support and challenge management as they execute our growth strategy. We are pleased to have appointed Pierre-Olivier Desaulle to the board, and are seeking to appoint an additional director with experience of US markets.
We have come through a very hard year for everyone and we look forward to the prospect of a return to some form of normality, while harnessing the best of the innovation and fresh thinking that has come out of this period. The insurance market has responded to the heightened risk and claims environment by increasing rate, and tightening conditions across most of the lines we participate in. These market movements, combined with Beazley’s strong underwriting discipline and rigorous focus on capital allocation and returns, mean the company is well placed to take advantage of the market opportunities ahead. Given the financial result combined with the continued uncertainty surrounding COVID-19, the board decided not to declare a dividend at the end of 2020. The board remain fully committed to a progressive dividend strategy, and are focused on profitability and returning to paying dividends in 2021. 2021 begins on a trajectory of further strong sustainable growth and we are well placed to deliver the financial returns that have been synonymous with Beazley over the years.
The board has established the company’s purpose as follows: To provide innovative risk transfer solutions and deliver excellent claims service to our clients by creating a sustainable business for the benefit of all our stakeholders.
Some of the ways in which we achieved our purpose in 2020 were through the launch of several new products, one of them being a Virtual Care product, as COVID-19 accelerated the shift to digital health and wellness provision.
There are further details of what we did to deliver an excellent claims service for our clients in the claims section on pages 28 and 29 of the report. In terms of being a sustainable business, our focus has been on optimising our portfolio and concentrating our efforts on growth in good areas, where the claims and expense ratios would provide sufficient return on capital to drive value for all of our stakeholders.
Beazley achieved a third year of double-digit premium growth in 2020, with rate rises driving gross premiums written up 19% to $3,563.8m (2019: $3,003.9m). Loss before income tax of $50.4m (2019: Profit $267.7m) was softened by a strong investment return. Our combined ratio of 109% (2019: 100%) was heavily impacted by the volume of COVID-19 related claims in this unprecedented year.
The resilience of our business is a testament to the expertise of our people and a long-term strategic underwriting approach.
We are accustomed to a pace that continues to accelerate – reflective of a more technologically driven joined-up world – designing insurance solutions that flex and respond to evolving risk.
However we are still in the midst of the pandemic and its full impact will not be felt for some time. The unprecedented challenge has taught us valuable lessons, from how we operate to the need to review the stress testing of our realistic disaster scenarios.
Business performance At Beazley we felt the impact of pandemic-related losses, reporting an estimated $340m in first-party claims net of reinsurance in 2020, largely driven by our exposure to cancelled events, and to have ultimately yielded a financial loss has been disappointing.
Yet this masks some real success and I am proud of the strength of the company and of the resilience of our people and their unwavering commitment to serve clients and support our business.
We entered 2020 on a strong foundation having taken action on underperforming areas of the book and invested in infrastructure. These measures to build a more efficient and agile organisation strengthened our core resilience and enabled us to make significant progress throughout the year. We continued to attract talented individuals, launch new products, expand our global footprint and make significant changes to how we work as a business. In March, we acted quickly to ensure we were well resourced to respond to the impact of the pandemic and we continued paying claims well and efficiently whilst finding new ways to support partners through these troubled times. Our commitment to delivering on our promise to customers and to acting as a responsible, consistent partner has not wavered and we look forward to returning to profit in 2021 and delivering our most ambitious growth plan in more than a decade.
Faster, Smarter Underwriting: Using new technology and data & analytics to improve the efficiency and the quality of our complex risk underwriting and claims settlement continues. In 2020 we focused on ‘smarter’ underwriting and deploying enhanced analytics tools to inform pricing decisions and manage loss ratios. Going forward we will further harness data & analytics including triage tools, to improve workflow efficiency whilst continuing to leverage new and improved data sources, data science & analytics, augmentation & machine learning and automation to drive a better result.
Closer to the Client: Through a more client-centric approach we aim to improve customer experience. Client relationship officers have been appointed to liaise with key clients to share insights whilst providing a clear point of contact and open channels to decision makers. Investment continues in our customer relationship management system to enhance data capture and we continue to develop risk management services to assist clients in building greater organisational resilience.
London market: Overseen by the London market committee, it aims to obtain value for partners and to enhance ways the London market can generate access to business and capital more efficiently. In addition, the group continues to support our Global Skills for the Future programme whilst participating in and supporting the shared objectives of the Future At Lloyd’s programme to ensure we continue to identify and nurture the skills we need for the future.
To support renewed growth opportunities, and in response to COVID-19 losses we strengthened our capital position by raising $292.6m of new equity from shareholders in May and extended our debt facility from $225m to $450m. We also added additional reinsurance during the year to support our position in terms of growth opportunities and managing COVID-19 losses. Throughout the year we continued to optimise our capital position and our surplus capital remains within our target range at year end. In December, we set up a captive insurance company to more efficiently manage our capital requirements and support the growth of our US operation.
Our investment strategy has remained cautious, in response to renewed market weakness and elevated economic uncertainty. After actively reducing investment risk as markets fell during the first quarter, we added risk as markets recovered, achieving a return of 3%, exceeding our original expectations, notwithstanding the volatile conditions.
In the US, premium growth was 23%, getting us closer to our US near-term target of $2bn. Growth was strongest across our Specialty Lines, Cyber & Executive Risk (CyEx) and Property books. We continued to launch new products including standalone liability cover for social media influencers and online publishers. We welcomed a Product Recall underwriting team midyear who demonstrated the art of the possible by launching our new offering entirely remotely.
Beazley Virtual Care, a pioneering product that insures a multitude of risks facing organisations in the digital health space, came into its own in 2020 as many more healthcare providers moved to treat patients remotely. Already available in the US and UK, Virtual Care was launched in Singapore, Hong Kong, Canada, Spain, Chile and Colombia in 2020 and we also continued to expand our healthcare footprint by rolling out our more established medical malpractice and life sciences cover to more territories.
London market We underwrite the majority of our Marine and Reinsurance risks as well as a significant portion of our Property business in London. Whilst we continue to build our footprint globally we continue to play a very active role in ensuring Lloyd’s remains a competitive and thriving insurance hub. Progress comes more quickly where we work cohesively and we continue to support the Future at Lloyd’s programme and particularly the strides made in driving efficiency in claims and electronic trading. London’s ability to implement necessary change depends on the market’s willingness to adapt and a healthy culture that fosters dynamism and a shared purpose. Along with Lloyd’s, we are looking at how we can harness the best of both the remote and the real-world trading environments, building on the advances towards greater digital trading and slicker processes achieved during lockdown.
Our people are what drives us forward and we continued to promote and hire talented individuals to our global teams. Bethany Greenwood, head of our Cyber & Executive Risk division joined the group’s executive committee in June 2020 taking over from Mike Donovan. We have also created new roles that are key to our growth as a company. Among them, Chris Illman joined us as Sustainability Officer to work with the wider leadership team on developing our Environmental, Social and Governance (ESG) strategy. Further information can be found within the responsible business section of this report, as well as our standalone responsible business report. Our new underwriting incubation hub, led by George Beattie, is collaborating across the business to turn our fledgling ideas into our successful products and solutions of tomorrow.
There are now 168 people at Beazley who never stepped foot inside our offices in 2020 due to COVID-19 restrictions. Meeting up in person will be the real incentive to getting back in the office when circumstances allow it. However, we will not be returning to pre-pandemic ‘business as usual’. Rather, we are looking forward to seeing how our new blended approach to working will evolve over time and how the wider market adapts. The new working practices we introduced in September make us a more flexible, productive and attractive place to work. The incredible resilience of our people during 2020, supported by prior years of investment in our IT systems and tools, has shown we are entirely capable of delivering consistently high service remotely to our brokers and clients.
Lessons learnt There have been many opportunities to learn lessons in how to prepare for and respond to a significant crisis in the future. Even in the midst of a fast-moving situation, we are reminded of the critical importance of maintaining strong internal and external communication to manage both expectations and the clarity of our response. A review of our realistic disaster scenarios is also underway, looking at their ongoing efficacy and ability to respond to new information or to an event that escalates beyond the initial assumptions built into the stress test.
Outlook The year demonstrated the importance of flexibility and the need for a clear and consistent strategy. The strength of our diversified business and significant growth in many classes in 2020 is a testament to the expertise of our people and a long-term strategic underwriting approach. We anticipate the favourable rating environment will continue throughout 2021 and we will continue to pursue growth in areas where we can deliver consistent value for brokers and clients while managing our claims and expenses.
Given ongoing uncertainty due to COVID-19 and the recession, how certain are you of returning to profit in 2021?
One of the things the pandemic did was really shine a light on the positive impact we can make on the climate crisis as individuals, communities, industries and nations. Very quickly after the initial lockdown, photos were posted around the world of the improvement a lack of travel was having on the natural world. I think the demonstration of such marked recovery from all across the globe kept climate change very much on the agenda in 2020 and provided muchneeded impetus for action. Within the insurance industry climate change has never been so topical or in the spotlight, and across the market discussions and debates are had in every boardroom and meeting space about the impact, society’s response, and immediate plans to contribute to a better world. Beazley’s ability to move forward at pace will be shaped by the appointment of our Sustainability Officer, Chris Illman. Chris is working across the business to ensure a sharp focus on the challenges of climate change including threats – in terms of determining increased losses and the impact on our business, and opportunities for the development of new products and services that protect against the potential impact of climate change. Naturally we are also interested in our own direct impact as a company on the world around us, which is why we as a management team are committed to harnessing the positive effects of the last year to drive real, sustained change for the future, including a commitment to maintaining significantly lower levels of travel going forward. We also support Lloyd’s recently published ESG strategy, and we look forward to working with them to deliver their sustainability targets.
What actions has Beazley taken to improve inclusion and diversity outcomes?
APUA, based in Hong Kong, forms a strategic partnership with Beazley Furlonge
Beazley began life in 1986 Since then we have grown steadily in terms of the risks we cover, the clients we serve and our geographic reach, and today Beazley is a mature insurance business with a well-diversified portfolio. We have weathered some of the toughest times the Lloyd’s market has seen in more than three centuries.
Beazley plc becomes the new holding company for the group, incorporated in England & Wales and tax-resident in the United Kingdom
Our premium growth exceeded plan to reach $3,563.8m, giving us a strong platform for growth in the future.
Our underwriting approach Beazley has a history of building longterm partnerships with brokers and customers founded on mutual respect and trust. Throughout this period of upheaval our teams have demonstrated commitment to working with partners and doing the right thing through our consistent underwriting strategy and transparent, timely communication over cover and claims. Feedback over the past 12 months suggests that our partners and clients have appreciated how we have handled the crisis. We incurred $1,958.3m in claims in 2020, of which 17% was driven by COVID-19 and the impact on the economy, leading us to make an underwriting loss of $239.3m. Whilst our overall result was disappointing, our premium growth in the year has exceeded plan to reach $3,563.8m, giving us a strong platform for growth in the future.
Data focus While the crisis has in many ways made trading more complex, and we have missed the ease of face-to-face interactions, it has also been a driver of innovation. In the last 12 months there has been a revolution in the adoption of digital technologies to transact business. Our underwriters increasingly incorporate data and analytics and modelling information into building a clearer overview of risk exposure. It is our responsibility to keep in step with this transformation to ensure we offer relevant risk mitigation and transfer solutions.
In support of ongoing innovation, we formed a new incubation underwriting team specifically focused on developing ideas to manage new and emerging risks. This team both supports underwriters in evolving existing products and nurtures entirely new concepts, including underwriting new products in their infancy in order to drive focus and de-risk main business lines.
Few could have predicted the first pandemic in a century and its cataclysmic effect on the global economy. However, the economic downturn was exacerbated, not created, by the pandemic. Our recession planning began in 2018 and hence we have achieved targeted growth in lines of business where higher losses and changes in appetite among more exposed carriers contributed to a return to a more fair and favourable rating environment. The pandemic accelerated the hardening market across recessionprone lines. However, it has been more than a decade since the last hard market and therefore, for many underwriters, this is a new experience requiring a different skill set and approach. We have been investing in building our underwriting talent, in training, and in the products and platforms that enable us to trade more effectively with brokers and better serve clients. Feedback from brokers has been overwhelmingly positive regarding the service and clarity that our underwriters have been delivering. This is hugely important to us as we strive to demonstrate our commitment to building long-term partnerships and to deliver a consistent, sustainable strategy. We wish to be able to capitalise fully on the opportunities that a strong market presents, one of which is to grow the business at a faster pace than usual and for that accelerated growth to provide the base for Beazley for the next 5-10 years. In this situation, it is useful to have a number of capital levers available and we have therefore bought a contingent quota share reinsurance of our Specialty Lines and CyEx divisions which allows us to trigger unilaterally up to $200m of ceded premium.
Cyber & Executive Risk (CyEx) under a new leadership structure led by Bethany Greenwood, grew premiums by 24% to $1,020.1m, amid the long-awaited hard market. Profitability was impacted by losses in employment practices liability (EPL) and the rise in ransomware, producing a combined ratio of 101%.
Now in its second full year as a standalone division, CyEx brings together Beazley’s executive risks (US D&O, EPL, and Crime insurance) with global M&A and Cyber and Technology underwriting. In a year of contrasts across the division, Executive Risk experienced its sharpest rate rises to date even as competition remained steady, with rates expected to hold strong into 2021. This came after more than a decade of market inertia in which premiums failed to keep pace with higher litigation costs, settlement amounts, jury payouts and increased claims aligned to high-profile social justice movements. Following several years in planning for the D&O market turn, rates grew by 53%, enabling us to grow while remaining highly selective and diversified in our appetite.
Crime, to a much lower extent, followed the D&O market up while M&A also saw rates rise following a slow start to the year when acquisition deals dried up in the first lockdown. Our EPL book has been the most heavily remediated area, where exposure to ongoing social inflation has meant increased frequency and higher claims costs.
By contrast cyber rates began to harden in the second half of the year with over 20% rate increases in the fourth quarter. The past year has seen significant changes to the cyber market landscape, with reductions in capacity, underwriting restrictions, tightening of terms and conditions, and rate change. The biggest influence has been a significant rise in frequency and severity of ransomware claims, which our team had been anticipating and adjusting for in our underwriting. We continue to focus on a tailored approach for each client, which reduces loss frequency and improves profitability. Our approach includes scanning clients during the policy lifecycle for vulnerabilities to help identify risks and threats; offering advice to help proactively correct vulnerabilities; and increasing rate to fully reflect the risk. Our goal remains to improve overall risk management of our clients by raising the standards to better detect, prevent and respond to these events. As a leading insurer, we have access to data, expertise and insight that we are applying to support clients and brokers as best we can.
Hardening rates in Marine have been a longtime coming and have been assisted by Lloyd’s action to correct underperforming classes and a subsequent contraction of the market.
As most of the book is placed through Lloyd’s, Marine has seen some benefit from the improved trading environment. Action has also been taken to remediate selected areas of the account, resulting in Beazley exiting the UK Marine portfolio in January 2020.
Beazley Smart Tracker aims to deliver lower acquisition costs and fees, and greater efficiency for the follow market. Its future success hinges on ongoing appetite for market facilities and consortia to follow in the market, which have both grown in number in 2020. We anticipate and hope the influx of thirdparty capital will continue to fuel more similarly styled follow-only syndicates, which will only help to drive greater efficiency within the London market.
Our underwriting and claims teams have been working tirelessly with clients and brokers to pay claims quickly and to ensure coverage meets the needs of policyholders in the new hybrid world we are entering. The development of our Transmission Failure product for virtual events is an excellent example of our team acting to respond to the changing environment to create solutions that address future risks.
Growth in our Political Risk product was also dampened due to COVID-19, reflecting a slowdown in activities within the financial services industry as major projects ground to a halt. While this book and its performance are correlated with global economic cycles, there were no significant losses in a relatively benign claims environment, while rates strengthened in response to more competitive market conditions.
Premium grew across the terrorism portfolio, where there were a number of new underwriting opportunities globally. Growth was in part driven by more property exclusions put in place, contributing to an increase in appetite for standalone cover. Rates remained flat following a number of years of declining rates. Our Deadly Weapons Protection (DWP) product continued to grow in the US and also internationally. In the second half we developed a new joint US distribution strategy for DWP and Safeguard, a specialist product that provides cover and prevention services to reduce incidents of abuse, given insureds are typically in similar sectors.
Growth in Accident & Health was positive throughout the year with the main growth coming from the insurance portfolio. Life business, which largely sells group life policies through employers, had an increase in claims due to COVID-19, which were managed promptly and paid quickly.
The overall property market has continued to see a second year of rate increases in 2020, following soft market conditions going back at least five years. During this time the global Property team has been diligently remediating the book through tighter risk selection to better diversify the portfolio and reduce loss frequency.
The Jewellery, Fine Art & Specie (JFAS) sector remains fairly competitive, with rate increases lagging the overall property market. While largely a London market book for Beazley, in 2020 we began underwriting in Asia via the Lloyd’s China platform and in November launched a new Fine Art & Jewellers’ block offering in France targeting mainland Europe.
The actions taken throughout 2020 let us head into 2021 with confidence in achieving targeted growth opportunities and highly selective underwriting.
Reinsurance was slower to experience increased premium than the primary market, but low-level rate increases materialised at the start of the year in areas of the property treaty book directly impacted by natural catastrophes in prior years. Market hardening across the book began in earnest at the mid-year point in response to concern around under-pricing and the potential impact of COVID-19 overlaying a number of years of significant weather-related losses, notably Hurricane Irma in 2017 and Typhoon Jebi in 2018. Although wildfires continued to burn in 2020, the division was less impacted having re-underwritten exposed areas of the book using improved modelling around secondary perils. Wind continued to prove the greater driver of claims, this year, in the form of Hurricane Laura and Mid-west Derecho.
This is the second full year of reporting since the launch of CyEx as a separate division and the first in which Market Facilities has been a standalone business line, both having started life within Specialty Lines.
Specialty Lines began the year in a relatively flat market, having prepared a portfolio and pricing strategy to grow the book in a disciplined manner with an active recession plan in place. As the economic impact of COVID-19 became more apparent from March, the division took rapid steps to manage exposure and re-underwrite exposed lines where necessary. Faced with a pandemic combined with ongoing social inflation, poor historical results and the prospect of a deeper than anticipated recession, the markets almost unanimously reacted by adjusting pricing, triggering a market reset that is expected to continue throughout 2021.
This market turn has also coincided with the significant planned expansion of our book in Europe, Asia, Canada and Latin America across international financial lines, management liability and healthcare, as well as small digital business via our myBeazley platform. Throughout the year the division launched more than 50 international products in over ten countries and in many different languages, as part of a long-term strategy of hiring regionally based underwriters and building a diversified footprint, to complement our Lloyd’s operation.
The Architects & Engineers, professional liability book remains very competitive in a crowded marketplace; however, we are hopeful of change in the future as this sector begins to feel the impact of recession-related claims.
Specialty Treaty, which tends to reinsure other specialist insurers, has grown profitably in a steadily improving rating environment. The rollout and expansion of the myBeazley platform has also proved successful in digitally delivering our specialist products to SME clients across a large global footprint, with this business proving profitable and less volatile despite the harsh economic conditions facing many smaller businesses.
Looking into 2021 we expect consistent growth against our plan and we anticipate further product expansion internationally as well as the continued roll-out of our Global Programmes capabilities.
Bethany Greenwood Head of Cyber & Executive Risk Executive Sponsor of the Race at Work Charter $m $m
Gross premiums written 337.4 306.4 Net premiums written 309.4 222.1 Results from operating activities 45.0 8.4 Claims ratio 54% 57% Expense ratio 36% 50% Combined ratio 90% 107% Rate change 16% 11%
Gross premiums written 133.4 60.5 Net premiums written 37.3 22.3 Results from operating activities (0.9) (1.2) Claims ratio 30% 36% Expense ratio 76% 78% Combined ratio 106% 114% Rate change 19% 3%
Market Facilities was split out of the Specialty Lines division to form a separate division from 1 January 2020. It underwrites entire portfolios of business with the aim of offering a low-cost mechanism for placing follow business within the Lloyd’s market. The expense ratio for this business is expected to reduce as we grow and gain economies of scale.
We have protected clients ranging from Fortune 1000 companies to homeowners through 27 years of natural and man-made catastrophes. We underwrite this business through five platforms: London, the US, Canada, Latin America and Singapore, with a business focus on commercial property risks, valuable assets and select homeowners’ business.
Gross premiums written 000.0 000.0 Net premiums written 000.0 000.0 Results from operating activities 00.0 00.0 Claims ratio 00% 00% Expense ratio 00% 00% Combined ratio 00% 00% Rate change 00% 0%
Gross premiums written 273.0 272.7 Net premiums written 227.1 245.8 Results from operating activities (223.7) 41.2 Claims ratio 166% 47% Expense ratio 46% 42% Combined ratio 212% 89% Rate change 4% –
In addition to traditional lines such as contract frustration, expropriation and credit, we insure a growing number of businesses against terrorism and political violence. Our Personal Accident product covers a number of niche classes and we have a growing account of US supplemental health business providing tailored benefit solutions to a wide range of employers.
Gross premiums written 194.5 206.0 Net premiums written 126.9 123.0 Results from operating activities 7.4 (48.2) Claims ratio 70% 118% Expense ratio 35% 36% Combined ratio 105% 154% Rate change 13% 5%
The Reinsurance team specialises in writing worldwide property catastrophe, per risk, aggregate excess of loss, pro-rata business and casualty clash. Approximately 80% of our top clients have reinsured with us for 20 years or more.
James Eaton Head of Specialty Lines Executive Sponsor for Canada $m $m
But nowhere more than in the area of claims delivery does the potent combination of a highly skilled workforce supported by transformative technology and data demonstrate how both talent and technology are critical to our industry’s ability to manage uncertainty and serve clients into the future.
All hands on deck From March 2020 when COVID-19 became a truly global event Beazley experienced a volume of claims not seen before. Our claims team across the globe shares a wide range of specialist skills and industry knowledge and are accustomed to handling highly complex claims, from weather-related events to medical malpractice claims to environmental damage. The pandemic is one of the rare events to touch almost every line of insurable risk and therefore required an all-encompassing crisis response.
The main event The pandemic has led to claims across all short-tail businesses. Our largest volume of claims by some distance came from the cancellation of many of the largest sporting, festival and conference events in the world, insured within our Political, Accident & Contingency portfolio. From March to November, we received well over 1,000 notifications for cancelled events, compared to a yearly average of 350.
Beazley has long been a major insurer within the hospitality and events industry and therefore our claims specialists could offer significant extra support to policyholders beyond ensuring claims were paid well and without unnecessary delay.
We engaged policyholders in early, practical discussions – often before the event had been cancelled – to help reduce the financial impact by managing commitments to the many suppliers involved in large-scale events – from transportation companies to performers. Strong relationships with clients and specialist brokers helped us work collectively to identify alternative options to cancellations, such as holding events behind closed doors, as was the case with some sports tournaments, or virtually. The claims team was also able to use this experience to collaborate with contingency underwriters on the launch of a new Transmission Failure product covering the organisers of virtual events, which we envisage will become a more prominent element of the events calendar post pandemic.
Striving towards a digital claims experience in the speciality market is not a simple task, and requires a crossfunctional team of claims, data science, and technology experts to build on our evolving capabilities. Although 2020 has been a very challenging year, we have laid a great foundation by strengthening our data integrity and extending our access to data with the inclusion of Lloyd’s Electronic Claims File (ECF) writeback. This has helped us improve our response times to the market and enrich our data warehouse by capturing market data and documents.
As the past 12 months have clearly demonstrated high demand and uncertainty only emphasises the importance of delivering a standout service through targeted investment in the right technology that enables us to provide empathetic, expert human responses for our clients.
Nowhere is this more important within our industry than in how we respond to clients in their hour of need and how we perform in a true crisis. We look forward to supporting our clients as we look towards a more stable future, and to working with the industry to drive positive change.
In some US states, the pause in jury trials during lockdown has enabled defence teams to try to resolve cases more efficiently and to reach more reasonable settlements with claimants. We are increasingly using virtual mediations and direct negotiations to settle claims and, where a reasonable settlement is not achievable, we look to ensure the time made available by pandemic court delays is used strategically to control claims costs.
Several projects to enable this have been underway over the last 12 months, including a critical multi-year digital transformation programme to digitise our claims processes. The primary objective is to provide a straightforward end-to-end claims engagement with our insureds and brokers, by harnessing claims data to improve outcomes and leveraging artificial intelligence (AI) and machine learning technologies to improve our speed in making claims decisions and payments.
Introduction At Beazley, we want to use our expertise, influence and passion as a force for good in our local communities and the wider world. We believe it is both good business sense and the right thing to do.
The global pandemic this year, and our resultant move to virtual working, has had a big impact on the way that we have been able to deliver on our ambitions. However it has also served to underline the importance to us all as individuals of the societies and communities in which we live, the public services on which we rely, and the natural world that gives us so much in terms of resources and wellbeing.
Inclusion & diversity We commit to recruiting, retaining and developing people with diverse backgrounds and experiences to thrive at all levels of our business, in a truly inclusive environment that fully supports and celebrates differences.
Responsible underwriting compliance We are committed to ensuring our business is conducted in an ethical and honest manner. This ensures we do the right thing for our stakeholders.
• Have a global footprint, helping nearly 40,000 people living in off-grid communities in East Africa, South Asia and Central America.
• Are a relatively young organisation (established in 2007), and therefore, our donations and efforts will make a real difference to them. This means we can directly see the impact we are making in communities around the world.
We always aim to support our charity partners by doing more than making financial donations. We want to ensure we have a long-lasting positive impact on our communities around the world. We achieve this in two ways: by charity committee-led activities and by employee led activities. Our global contribution in 2020 was over $89,000.
Supporting our colleagues Supporting our charity partner Renewable World is important to us. However it is equally important for us to support our colleagues. We want to enable our employees to support charities close to their own hearts, which is why we offer to match funding up to $750 for individual and $5,000 for group fundraising, as well as charity leave. This year a number of colleagues achieved the following: • Adam Parr swam across the Solent for Aspire, a charity which supports people with spinal injuries.
• Andrew Horton walked 10,000 steps every day for 30 days to raise funds for Alzheimer’s Society.
We also recognise COVID-19 has had a big impact on the charity sector with billions lost in potential donations. As a result, we also launched a one-off opportunity where colleagues could apply for $1,000 donation to a charity close to their hearts.
David Broughton running a marathon as part of the 2.6 Challenge
Brian Chadwick taking part in the 2.6 Challenge on roller blades
Chicago Our Chicago office has partnered with 826CHI, a non-profit organisation in Chicago dedicated to supporting students ages 6 to 18 with their creative and expository writing skills and to helping teachers inspire their students to write. In 2020, we sponsored their annual fundraising gala, Eat Your Words.
Philadelphia The Philadelphia office did a scavenger hunt, a trivia night and sweepstakes to raise funds and awareness for the Leukaemia and Lymphoma Society. Through this they are working on bringing the Leukaemia and Lymphoma Society on board as their community partner.
Scope 3 3,337.84 tCO2e Scope 3 emissions in 2020 reduced due to a reduction in business travel as a result of COVID-19 restrictions.
Office operations The impact of COVID-19 on our operations can be seen in the reduction across all offices in running costs due to COVID-19. We have decreased deliveries, general rubbish, air travel, hotel stays and paper usage. Air travel is our highest source of emissions.
At the beginning of 2020, the focus within our offices was on removing single-use plastics where we can, such as shifting to glass milk bottles, as well as improving our recycling facilities. We also worked with our supply chain to reduce emissions and pollutants by providing locally sourced products in our offices. This has included sourcing alternative energy providers in our Paris office and providing biscuits and tea bags that are produced without palm oil and are environmentally friendly.
Energy consumption initiatives The large reduction in emissions in 2020 has been a result of the travel restrictions caused by COVID-19. The energy savings as a result of the delivery of new IT equipment to colleagues in 2020 is not reflected in the overall energy consumption data. It is expected the benefit of this roll out will be reflected in our emissions in 2021, as well as other energy initiatives we have planned.
Wellbeing We have ensured the provision of home equipment for all staff whilst working at home during COVID-19, and have provided advice and guidance for homeworking through our intranet, personal contact and messaging platforms.
Our Marketplace workstream is all about using insurance as a force for good, giving our clients and insureds good reasons to do the right thing, and improving their risk and business profiles by helping them to manage risks and adapt to sustainability challenges.
The Senior Management Function regulatory responsibility is split between executive committee members: Beazley’s Chief Underwriting Officer, Adrian Cox, and Chief Risk Officer, Andrew Pryde. The board and executive committee are supported by various roles and committees across the business. The creation of a dedicated sustainability role within the business has also helped support to the business, and will ensure that sustainability and climate change thinking become embedded in our, business as usual, approach.
Increased focus on environmental, social and governance metrics In 2020 we also began to see an increased focus on environmental, social and governance metrics (ESG) metrics by our stakeholders, with many using the outputs from ESG indices to inform decision-making. We believe an increased focus on ESG metrics is an important part of being a responsible business and we have worked hard to improve our ESG ratings across a number of different ESG data providers. This led to an increased number of submissions to indices in 2020, which in turn has provided valuable insight to help us develop our sustainability strategy. This approach will continue in 2021.
Likewise, we are starting to develop our understanding of ESG metrics from an underwriting perspective, in order to determine the value they bring to informing underwriting decisions.
Inclusion We are very proud of our inclusive culture, where people can be themselves. Nothing demonstrates this more than the fact that we have four active and well-supported diversity-related employee networks: • Beazley SHE, supporting women both at Beazley and within the wider industry; • The mental wellbeing network, including our mental health first aiders, working to ensure employees have the tools and support available to optimise mental health; • RACE@Beazley focusing on race, ethnicity and cultural inclusion; and
All networks played a pivotal role in supporting their members and the wider organisation during 2020, the most challenging of years.
RACE@Beazley was unable to proceed with the office-based events that were planned to launch the network in March, as everyone moved to remote working. Instead the network has engaged our global employee population online by bringing people together in intimate ‘getting to know each other’ sessions.
The senseless death of George Floyd rightly brought matters of racial inequality to the front of everyone’s mind. It became more important than ever that, as an organisation, we provided a welcoming environment where everyone can feel safe and respected. PROUD@ Beazley, our LGBT+ employee network, took the decision to use the annual Pride celebration in June to support RACE@ Beazley and highlight human rights and racism. More than 300 employees joined this virtual event to offer support and hear from a speaking line-up of Beazley people and external guests.
Diversity targets Women made up 28% of our senior management population in 2017. That proportion is now 36%. However, we have further to go and have re-set our target to have at least 45% female employees in our senior leadership team by the end of 2023. Our ultimate aim is a 50/50 gender split overall however, we have committed to at least 45% female representation, recognising that there may be a small swing in either direction at any one time.
We have also been supporting each department individually, analysing their diversity data and agreeing bespoke, measurable actions as a result. We recognise that each department has unique considerations when it comes to inclusion and diversity.
For example, our information technology team are aiming to increasing gender representation and have signed the Tech Talent Charter to publicly state their commitment. Our underwriting and claims operations teams in the UK are focusing on increasing the ethnic diversity of their entry-level future hires as this acts as a talent pool for our underwriting departments. Training will shortly begin for the hiring managers.
We have new partnerships in place to enable us to reach our targets. This includes an alliance with ICAN, the Insurance Cultural Awareness Network, aimed at raising awareness within the industry. In terms of entry and mid-level recruitment, we aim to attract a wider diversity of applicants through our partnerships, advertising and thoughtleadership work with Bright Networks and with the Black Young Professionals Network.
Our framework consists of systems and controls, including: • Risk assessments; • Policies to ensure we comply with regulations; • Staff training and awareness; • Compliance monitoring; and • Compliance reporting.
Senior management oversight Beazley’s executive management has ultimate responsibility for the success of our compliance framework and there is top-down commitment to ensuring good conduct and regulatory compliance across the group. Effective oversight of the framework is achieved by analysing our transactional data and monitoring business operations.
We work closely with our business partners to ensure our approach to financial and trade sanctions is reflected in our business relationships, achieved through extensive due diligence and communication of our expectations.
The exchange of gifts and hospitality is closely monitored to ensure that business decisions are free from improper influence. Where there is a risk of potential impropriety staff are able to make use of various avenues for reporting instances of attempted bribery, corruption or conflicts of interest.
We conduct compulsory annual antibribery and corruption training for all staff, our new starters also receive classroom-based training.
The following policies govern our management of data: • information security strategy; • information security policy; • information security risk assessment and management policy; and • global privacy policy and privacy notice.
We are committed to upholding the rights of data subjects, informing them of the information we collect and process, and ensuring that we only collect what is required to deliver our services.
In all, our information security and privacy programme is built around a framework of prepare, protect, detect, respond and recover. This enables us to take precautions, act decisively and protect the interests of our data subjects. There have been no cases of a data breach that has had a material impact on our clients or our business, nor one that has necessitated any need to report the matter to our clients or any of our regulators.
Whistleblowing In line with our values, we actively promote a culture that encourages staff to speak up and escalate concerns. In support of this, we operate a whistleblowing policy and process that allows for anonymous reporting of concerns.
Such reports are treated with the utmost confidentiality and in accordance with all applicable legal and regulatory requirements. Annual reports are made to relevant Beazley boards on the effectiveness and operation of our whistleblowing procedures. Over the past 12 months there have been no whistleblowing cases.
The directors confirm that they have discharged their duty under s172 of the Companies Act 2006 by acting in a way that they considered, in good faith, to be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so had regard, amongst other matters, to the matters set out in s172 (1) (a) to (f) of the Companies Act 2006.
During the year, non-executive directors and senior management have conducted ‘virtual tours’ of Beazley’s offices around the globe to meet with and understand the views of our colleagues.
Bob Stuchbery is the Non-Executive Director nominated by the board to bring the views of the workforce to the boardroom. During 2020, he continued to chair the ‘Sounding Board’, which was established in 2019 as part of enhancements made to employee engagement mechanisms.
How we engage with our customers Throughout the COVID-19 pandemic, there has been a strong focus on pro-actively supporting clients during these times of ongoing uncertainty, including increased efforts to settle outstanding claims quickly. Our claims service has one of the most visible interactions with our customers, when they have experienced a loss and we aim to pay valid claims without any unnecessary delay. We responded to our clients’ needs through the launch of several new products including a virtual care product to meet the new demands following a shift to digital health and wellness provision and a transmission failure product to cover the organisers of virtual events. When we saw an increase in the frequency and severity of malicious ransomware attacks we began to scan our clients who have cyber coverage for vulnerabilities in order to reduce the threats to our clients and the potential for losses to them and the company. Through our Closer to the Client core strategic initiative, we continue to focus on better understanding the needs of our clients: one of the key goals of the initiative being to ensure that Beazley focusses even more on client needs. Work has been done to collate and share insights from client interactions. Client relationship officers have been appointed to liaise with key clients, providing a clear point of contact and open channels to decision makers within Beazley. The board receives regular reports on the progress of the workstreams underpinning the strategic initiative.
Communities The responsible business committee coordinates the company’s activities to support both our local and global communities, some of which are done through formal community partnerships. Further information on the company’s responsible business strategy and how the company aims to provide support for our communities and the environment is set out in the responsible business report on page 30.
Responding to employee feedback Since April 2020, the company launched frequent pulse surveys, to provide a picture of how the workforce was feeling and to learn how the company could provide additional support. Several examples of the company acting on employee feedback received in these surveys are: allowing greater flexibility on working hours, the introduction of wellbeing days for all employees during the pandemic, and carry-over of annual leave entitlement. An all employee virtual session was held to explain how the yearend compensation processes would be impacted by the company’s results.
Health and well-being 24/7 support for anyone regarding their mental wellbeing and medical support has been adjusted for employees to provide additional remote access to doctors/other healthcare professionals.
The board considers that they have acted in good faith and in a way most likely to promote the success of the company for the benefit of its stakeholders as a whole.
Premiums Gross premiums written have increased by 19% in 2020 to $3,563.8m (2019: $3,003.9m). Rates on renewal business on average increased by 15% across the portfolio (2019: increased by 6%) with our Market Facilities and Cyber & Executive Risk divisions seeing the largest movement. During the year, we have been adding exposure in a number of areas and taking underwriting remediation action on certain areas of business. The charts overleaf highlight how we achieve diversification by product mix.
Sally Lake Group Finance Director Executive Sponsor of the Women in Finance Charter
Gross premiums written 3,563.8 3,003.9 19% Net premiums written 2,917.0 2,503.5 17%
Net earned premiums 2,693.4 2,347.0 15% Net investment income 188.1 263.7 (29%)
Finance costs (40.2) (27.7) (Loss)/profit before tax (50.4) 267.7 Income tax credit/(expense) 4.3 (33.6) (Loss)/profit after tax (46.1) 234.1
Claims ratio 73% 62% Expense ratio 36% 38% Combined ratio 109% 100% Rate increase 15% 6% Investment return 3.0% 4.8%
The group is of the view that some of the above metrics constitute alternative performance measures (APMs). Further information on our APMs can be found in the key performance indicators on page 5 and in the glossary on page 205.
Releases as a percentage of net earned premium 10.2% 10.9% 5.5% 0.4% 3.5% 6.1%
Acquisition costs and administrative expenses Business acquisition costs and administrative expenses increased during 2020 to $974.4m from $889.7m in 2019. The breakdown of these costs is shown to the right.
Foreign exchange The majority of Beazley’s business is transacted in US dollars, which is the currency we have reported in since 2010 and the currency in which we hold the company’s net assets. Changes in the US dollar exchange rate with sterling, the Canadian dollar and the euro do have an impact as we receive premiums in those currencies and a material number of our staff receive their salary in sterling. Beazley’s foreign exchange gain taken through the statement of profit or loss in 2020 was $11.2m (2019: $1.1m).
Brokerage costs 628.4 533.8 Other acquisition costs 110.5 111.6 Total acquisition costs 738.9 645.4 Administrative expenses 235.5 244.3 Total acquisition costs and administrative expenses 974.4 889.7
Notwithstanding the dramatic financial market volatility as COVID-19 emerged in the first part of the year, the subsequent recovery in investment performance has arguably been more remarkable. Fiscal intervention from governments, monetary support from central banks and the promise of an extended period of low interest rates have combined to generate strong positive sentiment from investors through the last three quarters of the year, despite the continuing impact of COVID-19 on the global economy. Global equities rallied by more than 45% in this period, while credit spreads on investment grade securities reversed all of their earlier widening and ended the year lower than they began.
Comparison of return by major asset class: We added to our equity and credit exposures as these asset classes recovered from March and this has helped our investment return. However, our exposures to risk assets in 2020 have generally been below the levels we would normally maintain, reflecting our view that investment risk has remained elevated throughout this unusual year. As a result, our 2020 investment return is lower than could have been achieved by a more aggressive strategy, but the volatility of our return during the year has also been reduced.
Looking ahead, available yields on the high credit quality debt securities in which we primarily invest are now very low (two-year US Treasury notes yield less than 0.2%), highlighting the modest level of returns we expect to be achievable in the near term. More volatile asset classes may offer better returns, but uncertainty about the global economic outlook remains elevated, increasing the risk of further volatility in these securities. We continue to develop our investment strategy to balance the search for return against the need to effectively control risk.
The group has been monitoring the potential impact of the diverted profits tax (DPT) following the enactment of new legislation in April 2015 and has been of the view that no liability arises. Since 2015 the group has been exchanging correspondence with the UK’s tax authority (HMRC) in relation to DPT applicability with respect to the intra-group transactions. These correspondence exchanges with HMRC have now reached a conclusion with no assessment to DPT being raised.
Financial assets at fair value and cash and cash equivalents 6,671.5 5,851.3 14%
Net assets per share (cents) 299.0c 309.6c (3%) Net tangible assets per share (cents) 278.0c 286.3c (3%)
The group’s exposure to reinsurers is managed through: • minimising risk through selection of reinsurers who meet strict financial criteria (e.g. minimum net assets, minimum ‘A’ rating by S&P). These criteria vary by type of business (short vs medium tail). The chart below shows the profile of these assets (based on their S&P rating) at the end of 2020; • timely calculation and issuance of reinsurance collection notes from our ceded reinsurance team; and
Insurance receivables Insurance receivables are amounts receivable from brokers in respect of premiums written. The balance at 31 December 2020 was $1,467.9m (2019: $1,048.0m). The amount of estimated future premium that remains in insurance receivables relating to years of account that are more than three years developed at 31 December 2020 is $13.7m (2019: $11.5m).
A syndicated short term banking facility led by Lloyds Banking Group plc provides potential borrowings up to $450m, up from $225m at the start of the year. Under the facility $393.8m may be drawn as letters of credit to support underwriting at Lloyd’s, and up to $225m may be advanced as cash under a revolving facility. The cost of the facility is based on a commitment fee of 0.4725% per annum and any amounts drawn are charged at a margin of 1.35% per annum.
Further capital requirements come from rating agencies who provide ratings for Beazley Insurance Company, Inc and Beazley Insurance dac. We aim to manage our capital levels to obtain the ratings necessary to trade with our preferred client base.
The following table sets out the group’s capital requirement selected for our internal measure of the group’s capital surplus position: $m $m
Lloyd’s economic capital requirement (ECR) 2,116.5 1,828.4 Capital for US insurance companies 246.3 203.9 $m $m
Our funding comes from a mixture of our own equity alongside $547.1m ($550.0m gross of capitalised borrowing costs) of tier 2 subordinated debt. We also have a banking facility of $450m (31 December 2019: $225m) of which, $225m has been drawn down and placed as a letter of credit at Lloyd’s to support our Funds at Lloyd’s (FAL).
The final Lloyd’s economic capital requirement (ECR) at year end 2020, as confirmed by Lloyd’s, reflects the business we expect to write through to the end of 2021 as per our business plan. Furthermore, rather than taking a one year view of this business, it assumes that all risks run to ultimate. Finally, Lloyds apply a 35% uplift to this number. These three factors make the ECR requirement considerably more onerous than the standard Solvency II measure which considers a one year time horizon and contains no uplift.
In addition to the surplus above, we have two further capital levers which may be called upon. Firstly, the remaining undrawn banking facility of $225m may be utilised and is not included within the capital stack used in the capital surplus calculation. We have also purchased additional contingent reinsurance of our Specialty Lines and CyEx lines of business.
Following changes to intragroup reinsurance during 2017 with the introduction of the US BEAT tax, and the continued successful growth of the US operations, we have seen a significant growth in capital requirements within Beazley Insurance Company, Inc (BICI) in recent years. During 2020 we set up a US captive insurer to continue to ensure capital efficiency is maintained within the group.
Beazley Insurance dac also issued tier 2 debt in September 2019 and maintained its ‘A+’ rating.
Bank of Ireland for Beazley Insurance dac and Beazley plc. During 2020 the fourth annual solvency financial condition report (SFCR) of Beazley plc was published.
• the internal model process is embedded so that teams can see the direct and objective link between underwriting decisions and the capital allocated to that team. This gives a consistent and comprehensive picture of the risk/ reward profile of the business and allows teams to focus on strategies that improve return on capital.
* Syndicate 5623 is supported by both Beazley capital and third party capital.
IFRS 17 The implementation of IFRS 17: Insurance contracts is currently scheduled for accounting periods commencing on or after 1 January 2023. Applying this standard is a major undertaking and so the company has established a multi-disciplinary project group to oversee this activity.
The project has made good progress during 2020 and Beazley’s preparations for IFRS 17 are on schedule.
Group structure The group operates across Lloyd’s, Europe, Asia, Canada and the US through a variety of legal entities and structures. The main entities within the legal entity structure are as follows: • Beazley plc – group holding company and investment vehicle, quoted on the London Stock Exchange; • Beazley Ireland Holdings plc – intermediate holding company; • Beazley Underwriting Limited – corporate member at Lloyd’s writing business through syndicates 2623, 3622 and 3623; • Beazley Furlonge Limited – managing agency for the six syndicates managed by the group (623, 2623, 3622, 3623, 6107, and 5623); • Beazley Insurance dac – insurance company based in Ireland that accepts non-life reinsurance premiums ceded by the corporate member Beazley Underwriting Limited, and also writes business directly from Europe; • Syndicate 2623 – corporate body regulated by Lloyd’s through which the group underwrites its general insurance business excluding accident, life and facilities. Business is written in parallel with syndicate 623; • Syndicate 623 – corporate body regulated by Lloyd’s which has its capital supplied by third party names; • Syndicate 6107 – special purpose syndicate writing reinsurance business, and from 2017 cyber, on behalf of third party names; • Syndicate 3622 – corporate body regulated by Lloyd’s through which the group underwrites its life insurance and reinsurance business; • Syndicate 3623 – corporate body regulated by Lloyd’s through which the group underwrites its personal accident, BICI reinsurance business and, from 2018, Market Facilities business; • Syndicate 5623 – special purpose syndicate writing Market Facilities ceded from syndicate 3623; • Beazley America Insurance Company, Inc. (BAIC) – insurance company regulated in the US. In the process of obtaining licenses to write insurance business in all 50 states; • Beazley Insurance Company, Inc. (BICI) – insurance company regulated in the US. Licensed to write insurance business in all 50 states; • Beazley USA Services, Inc. (BUSA) – managing general agent based in Farmington, Connecticut. Underwrites business on behalf of Beazley syndicates, 2623 and 623, BICI and BAIC; and
By leveraging the skills of our in-house teams, we were quickly able to develop and launch an app for our Londonbased employees to pre-book time in the office when lockdown eased. This app ensured we could adhere to social distancing requirements, use the data to understand more about colleagues’ choices in relation to working in the office, and support the government’s Track and Trace programme to reduce COVID-19 transmissions. It was interesting to note that at the peak point of people returning to the office in September some 10% of our employees chose to come in to work on any one day.
Our focus on connectivity extended to our development of Beazley Booking, an online system enabling London market brokers to share documents and make virtual appointments with underwriters. The aim was to improve accessibility and efficiency for our brokers during remote working, and we have seen high take-up as well as a similar model being adopted by Lloyd’s.
This period of remote working has served as a reminder of just how important it is that brokers can easily and intuitively interact with us. Therefore our focus this year has somewhat shifted from roll-out of new technologies or platforms to ensuring increasing adoption. We have been developing different platforms and means to interact with partners most effectively and, to better understand their usage and customer journey, our technology team now meets with brokers alongside underwriters to capture real-time data that is then fed back to the infrastructure team, who use it to make ongoing refinements and enhancements to our systems. This process has proved successful and adoption and usage of our trading platforms has significantly increased. With the myBeazley broker e-trading platform now active on three continents, continuing to provide an easy way for brokers to access specialist cover for their SME clients is essential and evolution of our systems is important to keep pace with the change around us.
This year has gone far from how it was planned for all of us, with much suffering and economic hardship as a result of the pandemic. However, the 12 months have shown how important it is that our core operating platform is resilient and responsive to the changing environment to ensure we can consistently deliver for our clients. This means having deep expertise, data and technology to give us a clear view of our operational risk, and a platform that enables our people to deliver the best they can. We come out of 2020 as a smarter, more data-led organisation and we continue to invest in and develop this approach to ensure we are a resilient partner ready for what 2021 and beyond may have in store.
As a result of this preparation, Beazley remained very much open for business.
Beazley has also been developing its operational resilience capabilities more broadly to ensure its business services can endure both high stress and significant change. The operational resilience committee has facilitated the ability for all areas of the business to withstand emerging challenges, including those created by the COVID-19 pandemic. Specific to COVID-19, the business continuity management team continues to work tirelessly to oversee Beazley’s response, from the initial transition to remote working through to the reopening of Beazley’s offices in accordance with local guidelines.
The team’s crucial work underpins our ability to deliver for our customers. In addition, there has been an increased focus on information and cyber security, protecting ourselves and our clients against data breaches and operational disruptions, given the move to widespread remote working and the general increase in external cyber incidents.
Learning Although the pandemic is not yet behind us, Beazley has begun to review what lessons we can take away from the experience to date. This activity highlighted a weakness in the assumptions underpinning our pandemic realistic disaster scenario. As such, the Chief Underwriting Officer, with support and challenge from risk management, has reviewed the complete suite of realistic disaster scenarios to check that the base cases remain appropriate and to stress test the key assumptions of each scenario to understand vulnerabilities in the assumptions. Whilst there are no fundamental changes required, it has created an opportunity for enhanced fine-tuning of the insurance portfolio within the 2021 business plan.
The current risk management framework was implemented in 2010. In 2020, Beazley commissioned an external review of the risk management framework to ensure applicability in today’s world. Whilst the review highlighted a number of strengths in the framework, it also provided opportunities for enhancement. These changes will be implemented over the course of 2021 to ensure the risk management framework drives value through enhanced resilience whilst continuing to support Beazley in navigating the next 10 years.
From an investment portfolio perspective, the potential impact on the valuations of our portfolio under the three climatic scenarios are: Investment portfolio
Conclusion My latest report to the board has confirmed that the control environment has not identified any significant failings or weaknesses in key processes and that Beazley plc is operating within risk appetite as at 31 December 2020.
It would seem that change is our new normal. I look forward to reporting on how we have navigated this new environment next year.
transferred from members to Lloyd’s Insurance company S.A. under a Part VII transfer.
Climate change During 2020, Beazley recruited a Sustainability Officer to support Beazley with the assessment of the financial impact of climate change and to undertake risk assessments on our products. These assessments identify how products need to evolve as we transition to a lower carbon environment. A review of 13 products has been completed and the remainder will be performed in 2021, in accordance with the requirements of the Task Force on ClimateRelated Financial Disclosures (TCFD).
• Scenario B – A long-term orderly transition scenario that is broadly in line with the Paris Agreement. This involves maximum temperature increase being kept well below 2 degrees Celsius (relative to preindustrial levels) with the economy transitioning in the next three decades to achieve carbon neutrality by 2050 and greenhouse-gas neutrality in the decades thereafter.
• Scenario C – A scenario with failed future improvements in climate policy, resulting in a temperature increase in excess of 4 degrees Celsius (relative to pre-industrial levels) by 2100 and assuming no transition and a continuation of current policy trends.
Risk management Risk oversight – Challenge that risks are being identified – Assess the risk mitigation strateg y – Monitor that controls are operating effectively – Reports to committees and board on risk and control issues with risk management opinions
Clear roles, responsibilities and accountabilities are in place for the management of risks and controls, and all employees are aware of the role they play in all aspects of the risk management process, from identifying sources of risk to playing their part in the control environment. The impact of each risk is recorded in the risk register on a 1:10 likelihood of that risk manifesting in the next 12 months. A risk owner has been assigned responsibility for each risk, and it is the responsibility of that individual to periodically assess the impact of the risk and to ensure appropriate risk mitigation procedures are in place. External factors facing the business and the internal controls in place are routinely reassessed and changes made when necessary.
On an annual basis, the board agrees the risk appetite for each risk event and this is documented in the risk management framework document. The residual financial impact is managed in a number of ways, including: • mitigating the impact of the risk through the application of controls; • transferring or sharing risk through outsourcing and purchasing insurance and reinsurance; and
In addition, the following risk management principles have been adopted: • there is a culture of risk awareness, in which risks are identified, assessed, challenged and managed; • risk management is a part of the wider governance environment in which challenge is sought and welcomed; • risk mitigation techniques employed are fit for purpose and proportionate to the business; • risk management is a core capability for all employees; • risk management is embedded in day-to-day activities; • risk management processes are robust and supported by verifiable management information; and
Risk management framework Beazley takes an enterprise-wide approach to managing risk, following the group’s risk management framework. The framework establishes our approach to identifying, measuring, mitigating and monitoring the group’s key risks. Beazley has adopted the ‘three lines of defence’ framework. Across the business, there are two defined risk-related roles: risk owner and control reporter. Each risk event is owned by the risk owner, who is a senior member of staff. Risk owners, with support and challenge provided by the risk management team, perform a risk assessment twice a year, including an assessment of heightened and emerging risks.
In summary, the board identifies risk, assesses risk and sets risk appetite. The business then implements a control environment which describes how the business should operate to stay within risk appetite. The risk management review and challenges these assessments and reports to the board on how well the business is operating, using a risk management report.
Viability statement The directors have completed an assessment of the viability of the group over a three-year period. A period of three future years has been selected to be short enough to be reasonably assessable but long enough to reflect Beazley’s risk profile of a portfolio of diversified short- tailed and mediumtailed insurance liabilities. This threeyear period also aligns with the length of time over which business underwritten at Lloyd’s, being the majority of our insurance business, is managed prior to its reinsurance to close. The board has performed an annual risk assessment and the key risks to the group in the future are summarised on pages 60 to 62.
The risks and associated capital requirements have been brought together into a five-year plan, although the uncertainties in years 4 and 5 of the plan mean the board focuses on the first three years for assessing viability. The main assumption is that the current market conditions will prevail, over which the outcomes of the board’s strategic initiatives are overlaid. These include reserve allowances for the COVID-19 pandemic. In addition, the board has reviewed the sensitivity of key assumptions and has performed scenario testing to understand the impact on cash flows of Beazley’s three key aggregation risks of (1) a significant natural catastrophe, (2) a significant cyber-aggregation event and (3) an extreme casualty soft cycle. Each stress scenario chosen is very large, equivalent to an event that is only expected to occur once every 200 years. In the base case and the first two stress scenarios, the group has sufficient existing resources. In the third stress scenario, an extreme casualty soft cycle, all existing sources of capital would be fully utilised and additional capital could be raised to strengthen the capital position and to take advantage of the subsequent market conditions. In the event that Beazley is unable to obtain additional financing, the subsequent year’s business plan would be reduced to a level supportable by the available capital.
The directors have concluded, based on this review, that there is a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the threeyear period of assessment.
Insurance risk Given the nature of Beazley’s business, the key risks that impact financial performance arise from insurance activities. The main insurance risks can be summarised in the following categories: • Market cycle risk: The risk of systematic mispricing of the mediumtailed Specialty Lines and Cyber and Executive risk business, which could arise due to a change in the US tort environment, changes to the supply and demand of capital, and companies using incomplete data to make decisions. This risk would affect multiple classes within the Specialty Lines division across a number of underwriting years. The group uses a range of techniques to mitigate this risk including sophisticated pricing tools, analysis of macro trends, analysis of claim frequency and the expertise of our experienced underwriters and claims managers.
• Natural catastrophe risk: The risk of one or more large events caused by nature affecting a number of policies and therefore giving rise to multiple losses. Given Beazley’s risk profile, such an event could be a hurricane, major windstorm, earthquake or wildfires. This risk is monitored using exposure management techniques to ensure that the risk and reward are appropriate and that the exposure is not overly concentrated in one area.
• Non-natural catastrophe risk: This risk is similar to natural catastrophe risk except that multiple losses arise from one event caused by mankind. Given Beazley’s risk profile, examples include a coordinated cyber-attack, global pandemic, losses linked to an economic crisis, an act of terrorism, an act of war or a political event. This risk is monitored using exposure management techniques to ensure that the risk and reward are appropriate and that the exposure is not overly concentrated in one area.
• Environment: There is a risk that the chosen strategy cannot be executed because of the environmental conditions within which Beazley operates, thereby delaying the timing of the strategy.
• Senior management performance: There is a risk that senior management could be overstretched or could fail to perform, which would have a detrimental impact on the group’s performance. The performance of the senior management team is monitored by the Chief Executive and talent management team and overseen by the nomination committee.
• Reputation: Although reputational risk is a consequential risk, i.e. it emerges upon the occurrence of another risk manifesting, it has the potential to have a significant impact on an organisation. Beazley expects its staff to act honourably by doing the right thing.
• Flight: There is a risk that Beazley could be unable to deliver its strategy due to the loss of key personnel. Beazley has controls in place to identify and monitor this risk, for example through succession planning.
Under the environment risk heading, the board identifies and analyses emerging and strategic risk on an annual basis for discussion at the board strategy day in May.
• Regulatory and legal risk: This is the risk that Beazley might fail to operate in line with the relevant regulatory framework in the territories where it does business. Of the eight risk categories, the board has the lowest tolerance for this risk. This risk is monitored by the risk and regulatory committee.
Financial crime risk The group also considered anti-bribery and corruption risk across all risk categories. We are committed to ensuring that all business is conducted in an ethical and honest manner, and that we are not involved in any illicit activity as defined under the UK Bribery Act and US Foreign Corrupt Practices Act. This risk includes the risk of bribery and corruption we are exposed to and manifests itself in the susceptibility to unethical or dishonest influences whereby illicit payments and/or inducements are either made or received.
Such activity has severe reputational, regulatory and legal consequences, including fines and penalties.
As part of the underwriting process, we work with our insureds to understand the risks facing their organisations, including applicable climate-related risks and to tailor insurance coverages to mitigate the associated financial risks.
• Reserve risk: This is the risk that established reserves are not sufficient to reflect the ultimate impact climate change may have on paid losses. This includes unanticipated liability risk losses arising from our clients facing litigation if they are held to be responsible for contributing to
Risk management continued climate change, or for failing to act properly to respond to the various impacts of climate change. With support from our group actuarial team, claims teams and other members of management the group establishes financial provisions for our ultimate claims liabilities. The group maintains a consistent approach to reserving to help mitigate the uncertainty within the reserves estimation process.
• External event risk: This is the risk that the physical impact of climate-related events has a material impact on our own people, processes and systems, leading to increased operating costs or the inability to deliver uninterrupted client service. The group has business continuity plans in place to minimise the risk of an interrupted client service in the event of a disaster.
• Credit risk: As a result of material natural catastrophe events, there is a risk that our reinsurance counterparties are unable to pay reinsurance balances due to Beazley. If the frequency or severity of these events is increased due to climate change this could cause a corresponding increase in credit risk. An important consideration when placing our reinsurance programme is evaluation of our counterparty risk. Every potential reinsurer is evaluated through a detailed benchmarking, which considers financial strength ratings, capital metrics, performance metrics and other considerations.
• Strategic risk: This is the risk that our strategy fails to effectively consider climate change, resulting in our business planning not adapting fast enough to respond to changes in wider claims trends. This would create a transition risk that our underwriting portfolio might not keep pace with the changes, being heavily exposed to declining industries and failing to capitalise on the opportunities. Our emerging risks analysis and business planning process seek to mitigate this risk through horizon scanning for our longer-tail book, while we are able to be more flexible in responding to events impacting our short-tail exposures.
Directors’ responsibilities The statement of directors’ responsibilities in respect of the annual report and financial statements is set out on page 115.
Results and dividends The consolidated loss before taxation for the year ended 31 December 2020 amounted to $50.4m (2019: Profit $267.7m).
After reviewing the group’s budgets and medium-term plans, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts.
In accordance with provision C.2.2 of the UK Corporate Governance Code, the directors have assessed the viability of the group. The viability statement, which supports the going concern basis mentioned above, is included in the risk management section on page 59.
Directors’ interests The directors’ interests in shares of the company, for those directors in office at the end of the year, including any interests of a connected person (as defined in the Disclosure and Transparency Rules of the UK’s Financial Conduct Authority), can be found in the directors’ remuneration report on pages 94 to 114.
Corporate, social and environmental responsibility The company’s corporate, social and environmental activities are set out on pages 30 to 39. During 2020 Beazley and employees donated and raised over $342,000 to charities, details of which can be found in the responsible business report on pages 31 to 33.
Substantial shareholdings As at 4 February 2021, the board had been notified of, or was otherwise aware of, the following shareholdings of 3% or more of the company’s issued ordinary share capital: Number of ordinary shares
Recent developments and post balance sheet events Recent developments and postbalance sheet events are given in note 34 to the financial statements on page 204.
We also email all employees a weekly newsletter, and provide the opportunity for colleagues to join presentations every other week to hear about a specific team/project/topic. Our CEO provides a bulletin featuring a general business update and what has been the most recent key focus of the executive committee, together with updates on the financial and economic factors affecting Beazley that month (when relevant).
Every other year all employees are encouraged to take part in a survey which measures the way our people feel about the business, its vision and its aspirations. Our executive team host regular face-to-face sessions with employees in which they have the opportunity to ask questions and
In relation to performance relating to reward, our employees’ annual bonus relates to the performance of the company as well as their own performance. Colleagues in the UK, the US, Ireland, Canada, France, Germany, Spain and Singapore are able to join our Save As You Earn scheme, and a longterm incentive share plan is offered to senior employees.
Inclusion & diversity Information concerning inclusion and diversity can be found in the responsible business section on pages 36 and 37 and in the statement on corporate governance on page 77.
Authority to purchase own shares On 25 March 2020 shareholders approved an authority, which will expire on 25 June 2021 or, if earlier, at the conclusion of the 2021 Annual General Meeting (AGM), for the company to repurchase up to a maximum of 52,974,406 ordinary shares (representing approximately 10% of the company’s issued ordinary share capital).
Significant agreements – change of control Details of an agreement to which the company is party that alters on change of control of the company following a takeover bid are as follows.
Furthermore, the facility agreement includes a covenant that no group obligor (other than a wholly owned subsidiary) will, without prior consent of the banks, amalgamate, merge (within the meaning of generally accepted accounting principles in the UK), consolidate or combine by scheme of arrangement or otherwise with any other corporation or person. If this covenant should be breached without prior consent, then the facility agent may: (a) require the group obligors to repay outstanding revolving advances made to them together with accrued interest; (b) ensure that the liabilities under letters of credit are reduced to zero or otherwise secured by providing cash collateral in an amount equal to the maximum actual and contingent liabilities under such letters of credit; (c) declare that any unutilised portion of the facility is cancelled; and (d) give a notice of non-extension to Lloyd’s in respect of any letter of credit.
Annual general meeting The AGM of the company will be held on 26 March 2021 at 14.30. Due to ongoing restrictions this will be an online only event this year. Details of how to join the meeting remotely will be provided in the AGM notice and on the Investor Relations page of our website. The notice of the AGM details the business to be put to shareholders.
Carbon emissions Our Green House Gas (GHG) emissions were 4,217.22 tonnes carbon dioxide equivalent (tCO2e) in 2020. This equates to a 70% reduction when compared to 2019. This sizeable reduction is a reflection of the COVID-19 travel restrictions reducing Beazley’s business travel. It should be noted that year on year reductions going forward will be based on 2019 as the baseline year, as this is a truer reflection of emissions from our business activities. Beazley operates from offices which form part of a wider commercial development. This means that our operational control over our office differs by location. The scope of our carbon emissions cover office locations where Beazley pays our utility bills independent of any service charge. It does not include any serviced office suites we operate from. This reporting has expanded from previous years where we only focused on our top 3 European offices and our top 4 North America offices. All shared offices and serviced office suites are excluded from the scope of Beazley’s GHG reporting. We expect emissions to be reported from these locations by our landlords. Our 2020 reporting covers 88% of Full Time Equivalent (FTE) staff. The same parameters apply for the reporting of Transmission and Distribution losses within our Scope 3 inventory.
Our Scope 3 emissions also cover our global operations from all offices, with the exception of those in Canada. This is an expansion from previous years and include all aspects of travel i.e. air, rail, taxis, car hire and hotels. This data is collated by our travel partners.
Target for 2021 Beazley has set the target to reduce normalised CO2 emissions by 30% in 2021. This is against a baseline year of 2019. This target does not allow for the offsetting of these emissions through recognised schemes.
Streamlined Energy and Carbon Reporting The following data is set out to demonstrate compliance with the Streamlined Energy and Carbon Reporting (SECR) requirements set out by HM UK Government in the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Methodology The scope of this reporting differs from the carbon emissions reported in the previous section, in such that it only covers UK based operations. Global comparisons for overall energy consumption is also provided for reference.
Data has been collated from a number of sources. For all travel including car hire, hotels, rail, air and taxi data has been provided from our booking agent partners, or through invoices on our accountancy system. Energy data and company car details have been sourced from utility bills and lease agreements, respectively.
Beazley’s overall corporate Green House Gas (GHG) emissions for 2020 are detailed in the table below, with data from previous years provided for comparison: Carbon emissions tCO2e
Normalised for Full Time Equivalent (FTE) of staff, performance is as follows: Carbon emissions tCO2e/FTE
Calculation clarifications Greenhouse gas emissions are calculated and presented in accordance with HM UK Government Department for Environment, Food and Rural affairs (DEFRA) Environmental Reporting Guidelines, using the UK Government’s GHG Conversion Factors for Company Reporting where possible. GHG emissions are, where possible, calculated using the HM UK Government Department of Business, Energy and Industrial Strategy (BEIS) conversion factors for kilograms of CO2 equivalent (kgCO2e) the sum of carbon dioxide, methane and nitrous oxide emission factors. The exceptions to this are emissions associated with: • Refrigerants (Scope 1 emissions), which are reported as carbon dioxide equivalent (CO2e) emissions; • Dublin office electricity use which is based on information reported by the Sustainable Energy Authority of Ireland (SEAI) and reported as tonnes of CO2 (tCO2) only. Scope 3 Transmission & Distribution (T&D) European emissions are based on DEFRA reporting metrics in the absence of T&D conversions factors.
• US Office electricity (Scope 2) and T&D losses (Scope 3) have been calculated using regional emission factors provided by the US Environmental Protection Agency (EPA); • Scope 3 emissions from US Business travel, as well as global car rental have all been calculated using US EPA emission factors. Hire car travel has been assumed as 100 miles per day of hire, using a worst case emission factor for passenger vehicle; • Emissions from company cars (Scope 1) are calculated based on their maximum mileage enabled under the deals of their lease.
Car hire Car hire for business use has been estimated, as data is unavailable to assess the mileage travelled as part of the rental period. Calculations have been based on an assumption that the user would travel 100 miles per day as part of the rental. The make, model and fuel type of the car is also unknown, therefore, a worst case approach to estimating energy consumption has been used, with all fuel types considered to be diesel, with an average fuel consumption of 7.2 litres of gasoline per 100km travelled (Lge/100km) as stated by the International Energy Agency (IEA) or 11.59Lge/100 miles. This gives a fuel factor conversion rate from litres to kilowatt hour (kWh) as 10.9.
Energy for heating, cooling and small power There was no gas use within Beazley operations in 2020.
We were able to procure energy from certified renewable sources for the following locations in 2020: Office location Energy consumption (kWh)
Energy plans In 2020, energy savings in the offices Beazley operate from were to be realised through a number of projects. This included the upgrading of IT equipment, the commencement of the relocation of IT servers to dedicated data centres, and the relocation of our London office.
We delivered the roll out of new IT equipment, however, the impact of COVID-19 has resulted in delays to the relocation of the servers and the move to our new London Office. The increased energy efficiency as a result of these relocations will help drive energy savings in 2021. Although out of scope for SECR, it should be noted that further energy savings will be achieved through reducing our business travel, using online alternatives to undertake many of our business meetings.
Auditor EY LLP has indicated its willingness to continue in office. Accordingly a resolution to reappoint EY LLP as the auditor of the company will be proposed at the 2021 AGM.
C P Oldridge Company Secretary Plantation Place South 60 Great Tower Street London EC3R 5AD
72 Board of directors 76 Investor relations 77 Statement of corporate governance 92 Letter from the Chair of our remuneration committee 94 Directors‘ remuneration report 115 Statement of directors’ responsibilities 116 Independent auditor’s report
In accordance with the group’s policy on director independence and rotation, Sir Andrew Likierman and John Sauerland, both non-executive directors will retire at the conclusion of the Annual General Meeting on 26 March 2021, Sir Andrew having served for six years and John having served on the board for five years. Christine LaSala will succeed Andrew as a chair of the remuneration committee. The board is immensely grateful to both Andrew and John for their substantial contributions to the company during their tenure.
The board will be continuing its search for an individual with US expertise and it remains committed to increasing its ethnic diversity; this will be a specific consideration in its future appointments.
Further details of the actions taken this year to improve the board’s performance can be found in the corporate governance section of the report on page 81. The 2020 board and committee effectiveness reviews were carried out by way of internal questionnaires. The specific actions that the board will be taking are: to ensure that there is appropriate momentum to the company’s approach to climate change; taking a holistic view of strategy; continuing its work to enhance the information it receives and its discussion; and continuing group development and training, as well as individual development programmes. We will be agreeing a specific action plan that will be taken forward in 2021 and will report on the progress in implementing the recommendations made in the 2021 annual report. The 2021 board evaluation will be externally facilitated.
Company culture The company has an open culture and there is regular communication with the workforce. In light of the global pandemic, 2020 proved to be a year when our strong culture was more important than ever. A report on culture is provided to the board on an annual basis but it is also referred to during other board discussions. A number of information sources are used to gauge the company’s culture and these include: the employee engagement and leadership surveys, turnover statistics, whistleblowing data and grievances raised, feedback from leavers, reports from internal audit and customer complaints. The board also measures culture through its interaction with senior management and the workforce. This year, a number of these interactions have continued via virtual engagement and the board has received feedback on these. A component cornerstone of our culture is empowering our people to find the best way to deliver results for the business, without confining them to a ‘one size fits all’ mentality. Beazley’s values – professionalism, integrity, effectiveness and dynamic – support Beazley’s culture.
Governance The company continues to be committed to the highest standards of governance and I am pleased to confirm that the company has complied with the principles and provisions that are set out in the 2018 UK Corporate Governance Code throughout the year ended 31 December 2020. Details of the activities of the board and its committees are also set out on pages 77 to 91.
The board transitioned seamlessly to virtual meetings in March 2020, and added in additional board calls to ensure that directors were kept informed in a rapidly changing environment. The board has also spent some time reflecting on the lessons learned from 2020 in order to ensure that we are well-placed to oversee the group’s business in 2021.
All directors expect to attend this year’s AGM, which will again provide an opportunity for all shareholders to hear more about our performance and to ask questions of the board.
An effective board of directors made up of diverse and experienced members.
The remuneration committee ensures that remuneration arrangements support the strategic aims of the business and enable the recruitment, motivation and retention of senior executives while complying with the requirements of the regulatory and governance bodies, satisfying the expectation of shareholders and remaining consistent with the expectations of the wider employee population.
Board of directors Audit and risk committee The audit and risk committee is chaired by John Reizenstein.
Executive committee The executive committee is chaired by Andrew Horton and acts under delegated authority from the board.
Appointed: 23 May 2019 Experience: A Fellow of the Institute of Actuaries since 2004. Sally joined Beazley in 2006 initially working with the Specialty Lines division, the largest underwriting division, for six years. This gave her a breadth of exposure to many aspects of the business at Beazley, especially focusing on claims analytics and reserving. In 2012 Sally became reserving manager and then group actuary in 2014. As Group Actuary Sally covered both pricing and reserving, as well as capital model validation. She became Group Finance Director in May 2019. Prior to joining Beazley, Sally held financial positions within Lane Clark & Peacock where she qualified as an actuary and PwC where she gained experience in pensions. Committee: Executive committee Skills: reserving and actuarial pricing, capital model validation, leadership and people management, inclusion and diversity.
Appointed: 6 December 2010* Experience: Adrian began his career at Gen Re in 1993 writing short tail facultative reinsurance before moving to the treaty department in 1997, where he wrote both short and long tail business specialising in financial lines. He joined Specialty Lines at Beazley in 2001 where he performed a variety of roles including Underwriting Manager, building the long tail treaty account, managing the private enterprise teams and the large risk teams before taking responsibility for Specialty Lines in 2008. He took on the role of Chief Underwriting Officer in January 2019. Adrian was appointed to the boards of Beazley Furlonge Limited in 2008 and Beazley plc in 2011. Committee: Executive committee Skills: insurance, management, international business development and governance.
Appointed: 1 July 2016 Experience: Christine is the Senior Independent Director. Based in New York, she retired as Chair of Willis Towers Watson North America. She has over 40 years of management, client leadership and financial experience in the insurance industry including work as an underwriter and 27 years as an insurance broker, leading the large businesses and working with corporate and public institution clients. Christine’s experience includes board and leadership roles at Johnson & Higgins and Marsh and 10 years as CEO of the WTC Captive. Committees: Audit and risk committee, nomination committee and remuneration committee Skills: insurance, distribution, strategy, risk management, client leadership, regulatory, governance and talent and leadership development.
Appointed: 5 May 2016 Experience: John is Chief Financial Officer of the Progressive Corporation, a US based insurance holding company. Prior to his current role, he was Progressive’s personal lines group president for eight years, responsible for the company’s primary business unit with $17bn in revenues. During his tenure as personal lines group president, he led the introduction of many innovations such as Name Your Price® and Snapshot®, the industry-leading pay-as-you-drive offering. He also oversaw significant growth of the company’s direct marketing efforts and consumer-facing web and mobile technology. Committee: Remuneration committee Skills: finance, pricing, marketing and distribution.
Appointed: 10 April 2019 Experience: John joined Beazley in April 2019 as chair of the audit and risk committee. He has more than 30 years’ experience in financial services, most recently as Chief Financial Officer of Direct Line Insurance Group plc, from which he retired in 2018. Prior to that he held senior positions in insurance and banking at Co-operative Financial Services and in investment banking at Goldman Sachs and UBS. He is a member of the Takeover Panel, Chair of Farm Africa and a trustee of Nightingale Hammerson. Committees: Audit and risk committee (chair), nomination committee Skills: finance, strategy, leadership, investment, and mergers & acquisitions.
Appointed: 25 March 2015* Experience: Andrew is professor of management practice at the London Business School having served as Dean from 2009-2017. His career has spanned the public and private sectors as well as academic life, including 10 years as head of the UK Government Accountancy Service and president of the Chartered Institute of Management Accountants. Previous nonexecutive posts have included Chairmanship of the National Audit Office, the Economist’s Bookshop Group and market research firm MORI. Nonexecutive directorships have included the Bank of England, Barclays Bank and currently include Times Newspapers Holdings Ltd and Monument Corporation Ltd. Committee: Remuneration committee (chair), nomination committee Skills: accountancy, financial services and governance.
Appointed: 11 August 2016 Experience: Bob was previously the president of international operations of The Hanover Group until he retired from the Group in May 2016. He brings extensive Lloyd’s experience, having been Chief Executive Officer of Chaucer until 2015 and having held numerous management roles at the company for over 25 years, and a deep knowledge of the Lloyd’s market and distribution and operational strategies. In addition to the plc board, Bob is also a Non-Executive Director to the board of Beazley Furlonge Ltd, the group’s Lloyd’s managing agency, where he chairs the risk committee. Bob served as a member of the London Market Group and was Deputy Chairman of the Lloyd’s Market Association board. He is currently a Liveryman and court member of The Worshipful Company of Insurers. Committee: Audit and risk committee Skills: insurance, risk management and strategy.
Appointed: 1 January 2021 Experience: Pierre-Olivier has over 25 years of experience as an international insurance executive, with a focus on products and distribution innovation. He joined the Beazley plc board in January 2021 and has been a NonExecutive Director of Beazley Insurance dac since 2017, where he chairs the risk and compliance committee. He served as Chief Executive Officer of Hiscox Europe until 2017 and has held a number of other executive roles within the (re)insurance industry including strategic planning, operations and systems director at Marsh. With a background in strategy consulting, having been at Strategic Planning Associates (now Oliver Wyman), he transitioned to insurance helping Marsh with the integration of the leading French broker. He is currently the Chief Insurance Officer of the InsurTech startup, Setoo. Skills: insurance, reinsurance, strategy, operations, distribution.
Financial calendar 26 March 2021 Annual general meeting 23 July 2021 First interim dividend announcement for the six months ended 30 June 2021
Compliance with Code provisions The board confirms that the company and the group have complied with the provisions set out in the 2018 version of the Financial Reporting Council’s UK Corporate Governance Code (the Code) throughout the year ended 31 December 2020.
The board considers that the annual report and accounts, taken as a whole, are fair, balanced understandable; and that they provide the information necessary for shareholders to assess the company’s performance, business model and strategy. The company’s auditors have reviewed the company’s compliance to the extent required by the UK listing rules for review by auditors of UK listed companies.
Members Adrian Cox Beth Diamond James Eaton Ian Fantozzi Bethany Greenwood Patrick Hartigan Sally Lake Lou Ann Layton Richard Montminy Andrew Pryde Jerry Sullivan Christian Tolle Tim Turner Pippa Vowles
Key responsibilities The chair leads the board, managing constructive dialogue between executive and non-executive directors. He is responsible for ensuring that the board discharges its duties effectively.
The board The board has a schedule of matters reserved for its decision. This includes inter alia: strategic matters; statutory matters intended to generate and preserve value over the longer term; acquisitions and disposals; approval of financial statements and dividends; appointments and terminations of directors, officers and auditors; and appointments of committees and setting of their terms of reference. It is responsible for: reviewing group performance against budgets; approving material contracts; determining authority levels within which management is required to operate; reviewing the group’s annual forecasts; and approving the group’s corporate business plans, including capital adequacy and the Own Risk and Solvency Assessment (ORSA). The board is responsible for determining the nature and extent of the principal risks it is willing to take in pursuing its strategic objectives. To this end, the board is responsible for the capital strategy, including the group’s Solvency II internal model.
The board consists of a non-executive chair, David Roberts, together with eight independent non-executive directors, of whom Christine LaSala is the senior independent non-executive director, and three executive directors, of whom Andrew Horton is Chief Executive Officer. The non-executive directors, who have been appointed for specified terms, are considered by the board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement.
In accordance with the Code, the board has recommended that all directors should submit themselves for election or re-election on an annual basis and as such all directors will stand for election or re-election at the forthcoming AGM.
In addition to its regularly scheduled meetings, the board met on an additional twelve occasions throughout the year with nearly full attendance. In total, there were 19 board meetings throughout 2020.
Adrian P Cox 7 7 – – – – – –
3 Catherine Woods was unable to attend the board and the audit and risk, nomination and remuneration committee meetings in September 2020 due to a longstanding scheduling clash.
Board discussions during the year At each scheduled meeting the board receives reports from the chief executive officer and group finance director on the performance and results of the group and also receives reports from the chief underwriting officer and the chief risk officer and any board committees following their meetings. In addition the board receives updates from the group operating functions on major projects and corporate governance matters.
To enable the board to function effectively and directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters. Directors have access to an electronic information repository to support their activities. During 2020, the board continued to support the maintenance and development of Beazley’s information security programme to address changing and emerging cyber security threats. Director training included: operational resiliency, reserving, financial reporting, the internal capital model and drivers of performance for an insurance company. The terms and conditions of appointment for all the non-executive directors set out the expected time commitment and they agree that they have sufficient time to provide what is expected of them.
Board performance evaluation Under the UK Corporate Governance Code, the board is required to undertake formal and rigorous evaluation of its own performance and that of its committees and individual directors and this should be externally facilitated every three years. The board and its committees consider their effectiveness regularly. An internal review was conducted in 2020 and an assessment will be externally facilitated in 2021 (the last external review was conducted in 2018).
The 2020 board and committee effectiveness reviews were carried out by way of internal questionnaires. The specific actions that the board will be taking are: to give further momentum to the company’s approach to climate change; widening the company’s approach to strategy accordingly; improvements to the quality of board information in the light of feedback; enhancing the training programme for the board as a whole and for individuals. In addition to the effectiveness review, the board spent some time considering what lessons it had learned from 2020 to ensure it was well-placed to effectively oversee the delivery of the 2021 business plan.
Inclusion & diversity The committee believe having a diverse and inclusive workplace will support our vision for growth and outperforming the market. The committee continually review our approach to diversity and our aim is to have nurtured diverse employees across the business who are given the tools and opportunities to progress their career within Beazley. Further details are included in the report from the nomination committee.
Audit and internal control EY were first appointed as the external auditor for the 2019 accounting year and were subsequently appointed as auditor for the 2020 accounting year following shareholder approval at the 2020 AGM.
The board therefore confirms that it has, during 2020, reviewed the effectiveness of the group’s risk management and internal controls (including financial, operational and compliance controls), which have been in place throughout the year under review and continue to operate up to the date of approval of the annual report and accounts.
Shareholder engagement The company places great importance on communication with shareholders. The annual report and accounts and the interim report are available from www.beazley.com and, where elected or on request, will be mailed to shareholders and to stakeholders who have an interest in the group’s performance. The company responds to individual letters from shareholders and maintains a separate investor relations centre within the existing www.beazley.com website, as a repository for all investor relations matters. In 2020, Beazley appointed its first Head of Investor Relations.
The role of the committee is to assist the board of directors in fulfilling its oversight duties for the financial reporting process, the system of internal control, the audit process and the company’s process for monitoring compliance with laws and regulations and the Code of Conduct. This role is unchanged from previous years and in order to perform this role effectively the committee works with management and key stakeholders to ensure that the risk and control framework within Beazley remains robust and appropriate for the group
The audit and risk committee is required to meet at least quarterly, with meetings scheduled at appropriate intervals in the reporting and audit cycle. Additional meetings are held as required. In 2020 there were a total of nine meetings in the year compared to six meetings in 2019.
The impact of COVID-19 and the broader risk environment have been key agenda items in 2020.
As part of the appointments process the nomination committee reviewed the membership of the committee during the year. Taken as a whole, the committee has an appropriate balance of skills specific to the industry within which the group operates, including recent and relevant financial experience, as required by the UK Corporate Governance Code. Details of the members’ relevant financial experience are given in their biographies under ‘board of directors’ on pages 74 and 75. All committee members are independent non-executives.
The committee also monitors the integrity of the group’s Solvency II reporting and financial statements. The committee receives reports annually for review and recommendation to the board.
Specific committee responsibilities are set out below: Audit and financial reporting a) Financial and narrative reporting • monitor the integrity of the company’s financial statements and any other formal announcements relating to the company’s financial performance; • review the annual report before submission to, and approval by, the board, and before clearance by the external auditors. This covers critical accounting policies, significant financial reporting judgements, the going concern assumption, compliance with accounting standards and other requirements under applicable law and regulations and governance codes applicable to the financial statements; • advise the board on whether, taken as a whole, the annual report is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s performance, business model and strategy; and
• review the Solvency and Financial Condition Report and Regular Supervisory Report as required.
d) Actuaries • recommend to the board the appointment and termination of any firm of consulting actuaries used for the provision of Syndicate Actuarial Opinions (SAO) and/or review of insurance reserving; and
• review the remit of the risk management function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively.
Principal activities The principal activities undertaken by the committee in discharging its responsibilities in 2020 are described below: a) Significant financial statement reporting issues The significant financial statement reporting issues, along with the significant matters and accounting judgements that the committee considered during the year under review, are set out below: i) Valuation of insurance liabilities As further explained in note 1 to the financial statements, the group’s policy is to hold sufficient provisions, including those to cover claims which have been incurred but not reported (IBNR) to meet all liabilities as they fall due. The reserving for these claims represents the most critical estimate in the group’s financial statements. In 2020, we observed the impact of COVID-19 on the world economy, lockdowns across the world, and the knock-on impact particularly on our contingency business due to event cancellations. We note the ongoing uncertainty around the timing of resumption to a form of normality in respect of the impact of COVID-19 on the global economy and the potential for recessionary effects on corporates will result in increased volatility and greater estimation challenges in respect of insurance claims.
We have also seen a rise in cyber and liability claims in recent years particularly in respect of ransomware. While there remains uncertainty around the timing of resumption to a form of normality and the final cost of these events to the company, the committee notes that Beazley continues to adopt a prudent approach where uncertainty exists as to the final cost of settlement.
The audit and risk committee receives regular reports from both the internal group actuary and the external audit team (including the SAO), as the output of independent projections are reviewed at key reporting quarters. In the latter part of the year, the group actuary has reported on the results of the third quarter reserving process, which the committee considers to be a key control as this process provides a level of informed independent challenge for the reserve position. To support the year end view, the committee has received a detailed paper in support of the level of margin held within technical reserves in the group’s statement of financial position. Management confirmed that they remain satisfied that the outstanding claims reserves included in the financial statements provide an appropriate margin over projected ultimate claims costs to allow for the risks and uncertainties within the portfolio, and the committee was satisfied that there were no errors or inconsistencies that were material in the context of the financial statements as a whole.
iii) Valuation of financial assets at fair value The board is responsible for setting the investment strategy, defining the risk appetite and overseeing the internal and outsourced providers via the chief investment officer. As the group’s business model is to predominantly issue insurance contracts, the group has taken the option to defer the effective date of IFRS 9 until January 2023, as per the amendment to IFRS 4. As such the group continues to report its financial assets at fair value.
vii) Tax The committee continues to monitor the evolving tax environment and in particular considered management’s approach to Diverted Profits Tax in the UK and base erosion anti-avoidance tax provisions (the ‘BEAT’) in the US. The committee is of the view that the approach taken by management, as outlined in note 9 to the financial statements, is reasonable.
b) Risk management and compliance i) Risk management To assist the board, the committee, supported by the risk committees of the subsidiary boards, receives and reviews reports from the risk management function focusing on the following areas: • risk appetite: the committee has monitored the actual risk profile against risk appetite throughout 2020 and can confirm that Beazley plc has been operating within risk appetite as at 31 December 2020. The committee has also reviewed the proposed 2021 risk appetite; • risk assessment: the committee has performed a review of the group’s risk profile to assess its coverage of the universe of risk and that major underlying risks are visible and are being monitored; • risk profiles: the committee has reviewed a number of risk profiles, which are focused risk assessments of specific topics. In 2020, the committee received an assessment of the impact that COVID-19 has had on Beazley’s risk register and the mitigation in place. In addition, the CRO provided an opinion on the update to COVID-19 first-party claims costs. Other risk profiles have included a review of the cyber underwriting risk aimed at ensuring our suite of realistic disaster scenarios remain appropriate. There was also a product review of Beazley benefits, operational risk profiles covering payroll, sanctions, recovery & resolution and exposure management, an assessment of Beazley’s reputational risk and an update confirming Beazley’s preparedness for Brexit; • emerging risk: the committee supported the identification of strategic and emerging risks which were discussed at the board meeting in May 2020 and have been subsequently monitored and reported in the quarterly Own Risk and Solvency Assessment (ORSA); • oversight of the control environment: the committee has received a quarterly risk management report which provides commentary on the status of the control environment. This includes entries from the risk incidents log. This is supplemented by an annual Chief Risk Officer (CRO) opinion on the performance of the enterprise risk management framework; • reverse stress testing: the committee has received the results of the reverse stress testing exercise, which explores what would have to happen for the group to be unviable and has been able to provide assurance to the board that this work has been performed with the appropriate level of depth and expertise; • heightened risk: the committee consider the heightened risk register quarterly. A risk is considered heightened if the likelihood or the impact of occurrence was higher than usual; • oversight of the internal model: the committee and the risk committees of the subsidiary boards have reviewed regular reports associated with the internal model. These have included a standing report on internal model output, and a validation report featuring both internal and independent validation and themed reviews, for example, on the approach used to aggregate risk in individual entities which consolidate up to the group level. These assessments have supported the boards’ use of the internal model; and
• quarterly ORSA: the committee has received a quarterly ORSA report and has reviewed it as part of the quality assurance process before commending it to the board.
During the year an externally facilitated review of the group’s risk framework was commissioned to receive input on best practice across the industry. The committee agreed with management on actions arising from the review.
• reviewed and approved the implementation of agreed actions arising from the external quality assessment finalised in 2019.
During 2020, the committee: • monitored the implementation of the 2020 compliance plan; • reviewed and approved the 2021 annual compliance plan, including the compliance monitoring programme; • reviewed changes in the regulatory environment applicable to Beazley; • received updates on relationships with key group regulators, and oversight of regulatory requests; • provided oversight to regulatory responses to corporate developments; • reviewed updates from the money laundering reporting officer on the adequacy and effectiveness of the company’s anti-money laundering systems and controls; • provided oversight of the progress of the business in addressing identified enhancements to compliance requirements; • approved the group policies and controls in respect of anti-bribery and corruption and anti-fraud; • received updates on the structure and effectiveness of the company’s compliance function; • received updates on the framework, training and policy put in place regarding whistleblowing; • received observations on risk culture as part of the various risk reports presented; and
The effectiveness of the audit is assessed through discussion throughout the year, taking into account considerations such as: • reviewing the quality and scope of the audit planning and its responsiveness to changes in the business; • monitoring of the auditor’s independence; and
The committee took note of recommendations from EY following the conclusion of their first year as auditors. In 2020 the FRC conducted an Audit Quality Review of EY’s 2019 audit of Beazley. There were no significant points raised in this review.
The committee reviews the terms of such proposed services to ensure they have been robustly justified. The committee receives a report from the external auditors three times a year setting out all non-audit services undertaken, so that it can monitor the types of services being provided, and the fees incurred for that work.
In the year the audit fees and audit related services for 2020 were $3.4m (2019: $1.9m). Fees for non-audit and assurance services include work related to the accounts and regulatory reporting of the syndicates managed by Beazley, work which would commonly be carried out by the external auditor. None of the non-audit services provided are considered by the audit and risk committee to affect the auditor’s independence or objectivity.
Competition and Markets Authority Order 2014 statement of compliance The committee confirms that during 2020 the group complied with the mandatory audit processes and audit committee responsibilities provisions of the Competition and Markets Authority Statutory Audit Services Order 2014 as presented in this report.
• recommend, if appropriate,all directors for re-election by shareholders under the annual re-election provisions of the UK Corporate Governance Code.
can compete effectively in the marketplace. The terms of reference are available to download from the company’s website.
Responsibilities of the committee The committee’s main responsibilities are to, inter alia: • regularly review the structure, size and composition (including the skills, knowledge, experience and diversity) required by the board compared to its current and projected position; • give full consideration to succession planning for executive and nonexecutive directors and in particular for the key roles of chair and chief executive, senior executives and any other member of the senior management that it is relevant to consider whilst considering a diverse pipeline of talent; • ensure the directors have the required skills and competencies; The nomination committee is chaired by David Roberts, and currently also comprises Christine LaSala, Sir Andrew Likierman, Catherine Woods and John Reizenstein.
The nomination committee meets at least twice annually and at such other times during the year as are necessary to discharge its duties. In 2020, there were four scheduled meetings, reflecting the workload of the committee during the year. Only members of the committee have the right to attend meetings; however, other individuals, such as the chief executive and external advisers, may be invited to attend for all or part of any meeting.
The committee has agreed the establishment of goals for gender diversity for both the board and the broader organisation. The representation of females on the board currently stands at four or 36%. The committee reviewed progress against the group’s 2020 goals for there being a minimum of 35% female senior managers within the organisation by 2020 and 33% female board members at group level by 2021, both of which were met. The board has taken the opportunity to review targets across the company, with the specific aim of achieving a minimum of 45% female representation at the senior manager level by 2023. The committee is seeking a candidate from an ethnic minority background to fill the next vacant board position in line with the recommendations from the Parker Review committee ,The committee will be reviewing broader targets for the group’s race and ethnicity strategy early in 2021.
The 2020 board effectiveness review was carried out internally and the board will agree an action plan from this review, early in 2021. A report on the plan and actions taken will be included in the 2021 annual report. An external review of the board’s effectiveness is due to be carried out in 2021.
In addition to the formal board evaluation, the board chair met with each individual director during the year to discuss their contribution to the board. The senior independent director met with the chair to discuss his performance.
• consider and approve proposals for individuals to be included in the Senior Managers and Certification Regime and holders of other regulatory roles across the group.
Sir Andrew Likierman 25 March 2015 5/5 Christine LaSala 21 March 2019 5/5 John Sauerland 11 May 2016 5/5 Catherine Woods 1 October 2018 4/5 Nicola Hodson 25 September 2020 1/1
• considered what changes would be proposed to the remuneration policy in 2020 and consulted with over twenty of our largest shareholders and three proxy advisory agencies.
Key activities in 2020 During 2020 the committee: • reviewed the key aspects of the remuneration policy, and oversaw its implementation and application (including the implementation of the post-employment shareholding policy); • considered the impact of COVID-19 on remuneration decisions; • considered the aggregate remuneration approach to the wider workforce; • satisfied itself that the current remuneration structure is appropriate to attract and retain talented people; Statement of corporate governance Remuneration committee
Business performance and response to COVID-19 Since the publication of our 2019 annual report and accounts the outbreak of COVID-19 has had an unprecedented impact on the insurance industry, our clients, our colleagues and on Beazley itself. The pandemic has highlighted the need for our business to be agile and responsive and I am proud of how our colleagues have responded to the challenges presented.
The committee is aware of evolving shareholder views that a fall in share price should be taken into account when determining LTIP award levels. We have carefully considered the performance of Beazley over recent years as well as the long-term nature of the LTIP awards which measure performance, in-part, over five financial years. In addition, the vesting of awards is based on growth in net asset value per share (NAVps), one of Beazley’s key performance indicators. The committee considers the LTIP NAVps growth targets to be very stretching, particularly taking into account that growth must be over a sustained three and five year period.
The committee has therefore decided to maintain LTIP awards at the normal levels of 200% of salary for the CEO and 150% of salary for the other executive directors. However the committee will review outcomes at the end of the performance period and we retain discretion to adjust the vesting level if it is not considered to be appropriate or if we identify that executives have benefitted unduly from the current share price.
Consideration of the wider workforce The welfare of our colleagues has been a key priority for the board since the outbreak of COVID-19. We have encouraged colleagues to work flexibly to help manage workloads and to take time off when they need to, providing extra wellness days to everyone. During the year our network of Beazley mental health first aiders was expanded to ensure all colleagues can get support during a stressful time. The changes to how people are able to perform their roles has also meant that we have had to be flexible and innovative in how we engage with the workforce. There has been an increased focus on communicating with colleagues and their wellbeing, this has been accompanied by a 16% increase to our employee engagement score.
Over the past year, Beazley has increased our fundraising efforts, including participation in the 2.6 Challenge initiative, raising money for its global charity partner Renewable World.
Shareholders The committee continues to welcome the views of our shareholders. We were pleased to see strong levels of support for our remuneration arrangements at the 2020 AGM.
Remuneration policy Last year during the review of our directors’ remuneration policy in 2019 the remuneration committee took into account a wide range of factors including guidance from institutional shareholders, the requirements of Solvency II and the provisions of the UK Corporate Governance Code. The main aim of Beazley’s remuneration policy is to ensure that management and staff are remunerated fairly and in such a manner as to facilitate the recruitment, retention and motivation of suitably qualified personnel. The committee considers that the policy supports our strategy and promotes the long-term success of Beazley.
Clarity Remuneration arrangements should be transparent and promote effective engagement with shareholders and the workforce
At Beazley performance-related remuneration is an essential motivation to management and staff and is structured to ensure that executives’ interests are aligned with those of our shareholders. We operate a bonus structure that is based on group profitability and long term performance. A portion of this bonus is generally deferred into shares for three years. A key principle is that the committee exercises its judgement in determining individual awards. We have expanded our disclosure to provide shareholders with further clarity on the way in which we determine annual bonuses.
We believe reward at Beazley is appropriately balanced in light of risk considerations. The committee receives an annual report from the chief risk officer on remuneration policy to ensure that it is consistent with, and promotes, effective risk management. Our framework has a number of features which align remuneration out-turns with risk, including a five year time horizon on the LTIP, deferral of bonus into shares and personal shareholding requirements which, from 2020, extend post departure. Further details of the link between risk and remuneration are set out on page 106.
Page 104 of our 2019 Annual Report provides four illustrations of the application of our remuneration policy including the key elements of remuneration: base salary, pension, benefits and incentives. Payments at Beazley are directly aligned to the group’s performance and the graph set out on page 99 demonstrates how historic annual bonus out-turns have reflected profit and ROE performance.
■ Share price at grant ■ Vesting price £368.5 2016 award 2018 award
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
Element Overview of policy Implementation and outcomes during 2020 Implementation for 2021
Base salary Salaries are set at a level to appropriately recognise responsibilities and to be broadly market competitive. Any salary increases will generally reflect our standard approach to all-employee salary increases across the group.
The executive directors received salary increases of 2.5% to 2.9%, below the average for the wider workforce. Salaries for 2021 will be as follows: • D A Horton: £507,500 • A P Cox: £400,000 • S M Lake: £360,000
Benefits To provide market levels of benefits. Benefits include private medical insurance, travel insurance, and company car or monthly car allowance.
Discretionary annual bonus determined by reference to both financial and individual performance. A portion is generally deferred into shares for three years dependent on level of bonus.
Vesting of LTIP awards is dependent on net asset value per share (NAVps) performance against the risk-free rate of return. 50% of awards are subject to performance over three years and 50% over five years.
The first tranche of the 2018 LTIP award vested at 0% of maximum following three year NAVps performance of 6.3% p.a. The second tranche of the 2016 LTIP award vested at 13.2% of maximum following five year NAVps performance of 9.6%p.a. In 2020, executive directors received the usual grant levels, subject to the usual NAVps performance condition: • D A Horton: 200% • A P Cox: 150% • S Lake: 150%
The symbol ▪ by a heading indicates that the information in that section has been audited. This part of the report, the annual remuneration report, sets out the remuneration out-turns for 2020 (and how these relate to our performance in the year) and details of the operation of our policy for 2021.
awards were granted were 354.10p for the 2016 award and 553.33p for the 2018 award. The 2020 LTI figures shown include share appreciation of £2,384 for D Andrew Horton, £1342 for Adrian P Cox and £465 for Sally M Lake in relation to the 2016 award.
3 Sally M Lake was appointed to the board on 23 May 2019. The figures in the table in respect of 2019 reflect the period from her appointment to the board. On appointment Sally’s pension contribution rate was unchanged from her previous role at 12.5% of salary, in-line with the wider workforce..
Catherine M Woods7 2020 94,638 1 Other than for the chair, fees include fees paid for chair of the audit and risk and remuneration committees, and for the role of senior independent director, as well as fees, where relevant, for membership of the subsidiary boards of Beazley Furlonge Limited (BFL) and Beazley Insurance dac, the chair of the BFL risk committee and Beazley Insurance Company, Inc. (BICI).
5 Bob Stuchbery started to receive fees for his membership on Audit & Risk and non-executive director for Employee Voice from 1 Jan 2020.
6 John Reizenstein joined the plc board on 10 April 2019 and became chair of the audit committee on 31 May 2019. The figure in the table above represents his fees from these dates.
Pension ▪ Beazley operates a defined contribution scheme arranged through Fidelity.
The operation of an annual bonus pool approach reflects Beazley’s commitment to encourage teamwork at every level, which, culturally, is one of its key strengths. A broad senior management team, beyond executive directors, participate in the bonus pool, reinforcing the company’s collegiate culture.
Once the annual bonus pool has been calculated the committee determines individual allocations taking into consideration corporate/strategic achievements and individual achievements. The bonus is discretionary and, rather than adopting a prescriptive formulaic framework, the committee considers wider factors in its deliberations at the end of the year: for example quality of profit and risk considerations.
In determining awards, the committee will not necessarily award the bonus pool in aggregate (i.e. the sum of the bonus awards may be less than the bonus pool).
Annual bonus out-turn for 2020 The process for determining 2020 bonuses is described below, including full details of the ROE targets underpinning our bonus approach along with the guideline levels which are used by the committee in its determination for each executive director.
Annual bonus pool calculation At the beginning of the financial year, the risk-free return (RFR) was set at 1.5% taking into account the yield on US treasuries of two to five year maturities. This resulted in the following ROE hurdles and guideline bonus awards: ROE performance hurdles Threshold Maximum
Guideline/illustrative bonus award as % of maximum 0% 12.5% 37.5% 75% 100%
ROE for 2020 was (2.5%) and the overall bonus pool (in which executive directors as well as other senior employees participate) was calculated based on this.
When considering the annual bonus pool outcome is considered by the Committee taking into account the outcome of the group’s ROE/profit. The framework is used by the committee as a broad guideline rather than being formulaic and applies to a broader group of executives than board directors. A key principle of the process is that the committee exercises its judgement in determining individual awards taking into account the corporate/strategic objectives, individual’s contribution and performance. In particular, there may be a diverse spread of returns earned across the various divisions within the business which will be reflected in bonus out-turns achieved. The table therefore provides full retrospective disclosure of all the group financial targets and corporate/strategic performance which the committee considers when determining the annual bonuses.
When determining annual bonuses an assessment against the expectation for each element is made with reference to the following grading system: Expectation achieved or exceeded = Reasonable outcome against expectation
Capital performance Continue to be within our target range for surplus above the Lloyd’s economic capital requirement
• All employees able to work remotely within 24 hours of global lockdown. • Operationally ensured the business ran without interruption. • Productivity metrics achieved or increased.
• Paid claims quickly and efficiently, with our claims service recognised by several awards from brokers.
• Launched the Beazley Citizen campaign with employees volunteering to help other teams at key times through the year, for example our claims team, to ensure the business delivered.
• Established a London Market Management Committee responsible for our London talent strategy.
• Canadian and European businesses grew at around 30% and 40% per annum. • Launched a range of products to support international growth, from fine art and jewellers in mainland Europe to virtual care in Asia.
• Employee engagement increased by 16% during COVID-19 from 70% last year to 86% this year.
• Manage and strengthen the balance sheet to ensure business has appropriate level of capital for current operations and future growth.
• Manage underwriting, claims and investment policy to protect the business from current and future risks whilst delivering high levels of service to clients and brokers.
• Proactive stance on settling claims resulted in positive client and broker feedback.
• Very high engagement during significant uncertainty and pressure. Employee engagement increased by 16% during COVID-19 from 70% last year to 86% this year.
• Deliver 2020 business plan 2020 KPIs. • Premium growth, rate change and expense targets met. =
• Execute revised risk appetite framework and revise Risk Disaster Scenario’s following Contingency event.
• Enhance our underwriting innovation. • Further roll-out of the Virtual Care product and Virtual Events product launched. =
• Delivered increase in LOC and a Capital raise of $292.6m. =
• Reduce expenses in 2020 and evolve the expense approach for the future.
• Expenses as a % of net earned premium, reduced from 38% to 36%.
• Ensure focus on agreed elements of Women in Finance Charter.
Annual bonus awards outcomes for 2020 Within the framework of the annual bonus, in respect of individual performance and achievements, awards are dependent on a profit pool and minimum level of ROE performance. Despite the strong progress made by the executive directors during the year the remuneration committee decided that no bonuses should be awarded to executive directors for 2020.
A portion of bonus may also be deferred under the investment in underwriting plan, and this capital can be lost if underwriting performance is poor. No such deferral was made in 2020 (see investment in underwriting section on page 105 for further details).
Annual bonus awards for 2021 The annual bonus for 2021 will operate within a similar framework as set out above, awards are dependent on a profit pool and minimum level of ROE performance and take into account individual performance and achievements.
The key features of the plan are as follows: • 50% of the award is measured after three years and 50% after five years; • awards are in the form of nil-cost options with a 10-year term; • participants are expected to build a shareholding in Beazley equal to their annual award level. For example executive directors have a shareholding requirement of 200% of salary. Participants have three years to build this shareholding. LTIP awards may be forfeited if shareholding requirements are not met; and
These results demonstrate the framework of the LTIP scheme, in particular our KPI of using net asset value per share, is completely aligned to shareholder interest by producing an outcome that is reflective of our business result over a long term performance.
LTIP awards for 2020 ▪ During 2020 LTIP awards with a face value equal to 200% of salary for the CEO and 150% of salary were granted to executive directors. The awards were as shown in the table below.
To date over 300 employees of the group have committed to put at risk £15.5m of bonuses to the underwriting results of syndicate 623. Of the total at risk, £11.7m has already been deferred from the bonuses awarded.
The executive directors who participated in the 2017 year of account have had their capital funding reduced as a result of a loss incurred on the 2017 year of account. Sally Lake first year of participation was the 2019 year of account and is working towards the funding requirement.
Malus and clawback Recovery provisions (malus and clawback) have applied to incentives for a number of years. Further detail on the recovery provisions, including the circumstances and timeframe for which they can be applied are set out in the remuneration policy.
We believe reward at Beazley is appropriately balanced in light of risk considerations, particularly taking into account the following features: Features aligned with risk considerations
Share deferral A portion of bonus is normally deferred into shares for three years. These deferred shares, together with shares awarded under the LTIP, mean that a significant portion of total remuneration is delivered in the form of shares deferred for a period of years.
Shareholding requirements Executive directors are expected to build up and maintain a shareholding of 200% of salary. LTIP awards may be forfeited if shareholding requirements are not met. From 2020 executive directors are expected to maintain a shareholding post-departure.
Investment in underwriting Management and underwriters may defer part of their bonuses into the Beazley staff underwriting plan, providing alignment with capital providers. Capital commitments can be lost if underwriting performance is poor.
Under the profit related bonus plan payments are aligned with the timing of profits achieved on the account. For long tail accounts this may be in excess of six years. If the account deteriorates then payouts are ‘clawed back’ through adjustments to future payments. Since 2012 profit related pay plans may be at risk of forfeiture or reduction if, in the opinion of the remuneration committee, there has been a serious regulatory breach by the underwriter concerned, including in relation to the group’s policy on conduct risk.
Following the annual review no change to the chair or non-executive director fees were made for 2021. Details of the non-executive directors’ fees payable for plc board responsibilities are set out below: 2020 fee 2021 fee
No non-executive director participates in the group’s incentive arrangements or pension plan.
The objective of the plan is to align the interests of the group and the individual through aligning an underwriter’s reward to the long term profitability of their portfolio. Underwriters who have significant influence over a portfolio may be offered awards under the plan. There is no automatic eligibility. Profit related pay is awarded irrespective of the results of the group. Awards are capped.
This bonus is awarded as cash and is based upon a fixed proportion of profit achieved on the relevant underwriting account as measured at three years and later. Any movements in prior years are reflected in future year payments as the account develops after three years. For long-tail accounts the class is still relatively immature at the three-year stage and therefore payments will be modest. Underwriters may receive further payouts in years four, five and six (and even later) as the account matures. Therefore each year they could be receiving payouts in relation to multiple underwriting years.
If the account deteriorates as it develops any payouts are ‘clawed back’ through reductions in future profit related pay bonuses. From 2012 onwards any new profit related pay plans may be at risk of forfeiture or reduction if, in the opinion of the remuneration committee, there has been a serious regulatory breach by the underwriter concerned, including in relation to the group’s policy on conduct risk. The remuneration committee also have oversight for all materials risk takers who participate in the profit related pay plan.
UK SAYE The company operates an HMRC-approved SAYE scheme for the benefit of UK-based employees. The scheme offers a three-year savings contract period with options being offered at a 20% discount to the share price on grant. Monthly contributions are made through a payroll deduction on behalf of participating employees. The UK SAYE scheme has been extended to eligible employees in Singapore, Ireland, Canada, France, Germany and Spain. The Irish SAYE scheme has been approved by the Irish Revenue.
Sir J Andrew Likierman 2.7% n/a n/a Christine LaSala2 40.0% n/a n/a David L Roberts 2.5% n/a n/a John P Sauerland 9.8% n/a n/a Robert A Stuchbery 16.6% n/a n/a Catherine M Woods 18.1% n/a n/a A John Reizenstein3 2.5% n/a n/a Nicola Hodson3 2.5% n/a n/a
Note: Salary and bonus are compared against all employees of the group. Benefits (excluding season ticket due to COVID-19) and pension are compared against all UK employees, reflecting the group’s policy that benefits are provided by reference to local market levels. 1 Sally M Lake was appointed to the board on 23 May 2019. To enable a meaningful comparison the figures in the table above have been calculated on a full-year equivalent basis. On appointment, her pension contribution rate was unchanged from her previous role at 12.5% of salary, in-line with the wider workforce. The increase in benefits shown in the table above is a result of the additional pension received on her higher salary for the new role.
2 In addition to Audit and Risk and Remuneration Committee membership, Christine LaSala also joined the BFL board. 3 Appointed to the board during 2019. To enable a meaningful comparison the figures in the table above have been calculated on an a full-year equivalent basis.
Statement of directors’ shareholdings and share interests ▪ LTIP participants are expected to build a shareholding in Beazley equal to their annual award level. The executive directors have a shareholding requirement of 200% of salary.
Christine LaSala 53,085 – – – – – Sir J Andrew Likierman 23,000 – – – – – David L Roberts 82,137 – – – – – John P Sauerland 30,000 – – – – – Robert A Stuchbery 88,073 – – – – – Catherine M Woods 42,698 – – – – – A John Reizenstein 11,904 – – – – – Nicola Hodson – – – – – –
CEO pay versus performance The following graph sets out Beazley’s 10 year total shareholder return performance to 31 December 2020, compared with the FTSE All Share and FTSE 350 Non-Life Insurance indices. These indices were chosen as comparators as they comprise companies listed on the same exchange and, in the case of the Non-Life Insurance index, the same sector as Beazley.
The following table provides salary and total remuneration information in respect of the employees at each quartile. Financial year Element of pay 25th percentile employee Median employee 75th percentile employee
Note: Salary and bonus are compared against all employees of the UK group.
The pay ratios for 2020 have reduced considerably compared to 2019. The main driver for this is the reduction in the CEO’s single figure attributable to the fall in variable remuneration with no bonus payable in respect of 2020, the second tranche of the 2016 LTIP vesting at 13.2% of maximum and the first tranche of the 2018 LTIP lapsing in full. This reflects that a higher proportion of the CEO’s remuneration is variable and subject to performance. Therefore the remuneration committee believes that the pay ratio for 2020 is suitably aligned to performance and consistent with the pay, reward and progression polices for the Beazley’s UK workforce.
LTIP 2016 – 3/5 year Awards were made on 9 February 2016 at a mid-market share price of 354.1p. Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with straight-line pro-rated vesting between these points. Awards expire in February 2026.
LTIP 2018 – 3/5 year Awards were made on 13 February 2018 at a mid-market share price of 553.33p. Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with straight-line pro-rated vesting between these points. Awards expire in February 2028.
Remuneration committee The committee consists of only non-executive directors and during the year the members were Sir Andrew Likierman (chair), John Sauerland, Catherine Woods, Nicola Hodson and Christine LaSala. The board views each of the committee members as independent.
The committee considers the individual remuneration packages of the chief executive, executive directors and executive committee members. It also has oversight of the salary and bonus awards of individuals outside the executive committee who either directly report to executive committee members or who have basic salaries over £200,000, as well as the overall bonus pool and total incentives paid by the group. The terms of reference of the committee are available on the company’s website. The committee met six times during the year. Further information on the key activities of the committee for 2020 can be found within the statement of corporate governance on page 94.
Deloitte LLP was appointed by the committee. Deloitte LLP is a member of the remuneration consultants’ Group and as such voluntarily operates under a code of conduct in relation to executive remuneration consulting in the UK. The committee agrees each year the protocols under which Deloitte LLP provides advice, to support independence. The committee is satisfied that the advice received from Deloitte LLP has been objective and independent.
Annual general meeting At the forthcoming annual general meeting to be held on 26 March 2021, an advisory resolution will be proposed to approve this annual remuneration report
The directors are responsible for preparing the annual report and the group financial statements in accordance with applicable United Kingdom law and regulations.
Opinion In our opinion; • Beazley plc’s consolidated financial statements and parent company financial statements (the ‘Financial Statements’) give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2020 and of the Group’s loss for the year then ended; • the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union; • the parent company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and
We have audited the financial statements of Beazley plc and its subsidiaries (collectively ‘the Group’) and the parent company financial statements which comprise: Group Parent company
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and parent company’s ability to continue to adopt the going concern basis of accounting involved an assessment of the reasonableness of the Group’s going concern assessment. The going concern assessment period used by Beazley was 12 months from the date of the approval of the financial statements. We assessed the appropriateness of the approach and model used by management when performing their going concern assessment. With support from our actuarial team and valuation specialists, we assessed and independently stressed the assumptions used by Beazley to develop their plan. This included an assessment of the potential additional losses that could arise from COVID-19. In addition to underwriting performance, we determined a key driver of stable profitability for Beazley plc is investment return. We assessed how Beazley had altered their investment strategy in light of COVID-19, and the impact this would have over the Group’s solvency and liquidity position if lockdown restrictions were to continue throughout 2021 coupled with a 1 in 200 natural catastrophe event occurring in 2021 taking into consideration mitigating actions by management to reduce risk exposure, e.g. reducing their exposure to several capital growth assets and lengthening the duration of fixed income investments. Additionally we reviewed and challenged the results of management’s stress testing, to assess the reasonableness of economic assumptions in light of the impact of COVID-19 in terms of their impact on the Group’s solvency and liquidity position.
Audit scope • We performed an audit of the complete financial information of two components ((Syndicate 2623 and Beazley Insurance Company Inc (‘BICI’)), and audit procedures on specific balances for a further components(Syndicate 3623, Beazley Insurance DAC (‘BIDAC’), Beazley Furlonge Limited, Beazley Management Limited and Beazley Services USA Inc) and other audit procedures on group wide processes.
• The components where we performed full or specific audit procedures accounted for 97% of Loss before income tax, 97% Gross Written Premium and 98% Total assets.
Key audit matters • Valuation of gross Insurance claims Liabilities and reinsurer’s share of IBNR – Actuarial assumptions used in estimating gross IBNR and reinsurer’s share of IBNR, and – Data • Measurement of estimated premium income • Valuation of level 3 financial investments • Impact of COVID-19
Materiality • Overall Group materiality of $11m (2019: $11m) which represents 5% of pre-tax profits on a 5 year average adjusted for COVID-19 losses. (2019: 5% of pre-tax profits on a 5 year average)
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, we identified 32 legal entities within the group. Of the 32 legal entities within the Group we selected seven entities covering entities within UK, Ireland and US which represent the material business units within the Group. Two full scope entities (Syndicate 2623 and Beazley Insurance Company Inc. (‘BICI’)) and five specific scope entities (Syndicate 3623, Beazley Services USA Inc., Beazley Insurance DAC (‘BIDAC’), Beazley Furlonge Limited and Beazley Management Limited). Our work on specific scope components covers areas such as financial liabilities, pension scheme, premiums, expenses and reinsurance on outstanding claims. Furthermore, for group-wide processes we performed specific audit procedures over accounts which consist of Incurred But Not Reported reserves (‘IBNR’), Taxation, Cash and cash equivalents, Share based payments, Right of use assets, Lease liabilities, Financial assets, Plant and equipment and Intangible assets.
Syndicate 2623 Full EY Primary Team BICI Full EY Component Team Syndicate 3623 Specific EY Primary Team Beazley Services USA Inc Specific EY Component Team BIDAC Specific EY Primary Team Beazley Furlonge Limited Specific EY Primary Team Beazley Management Limited Specific EY Primary Team
Of the seven components selected, we performed an audit of the complete financial information of two components (“full scope components”) which were selected based on their size and risk characteristics. For the remaining five components (“specific scope components”), we performed audit procedures on specific accounts within those components that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile. For group-wide processes we performed specific audit procedures over accounts which consist of IBNR, Taxation, Cash and cash equivalents, Share based payments, Right of use assets, Lease liabilities, Financial assets, Plant and equipment and Intangible assets.
Of the remaining 25 legal entities that together represent 3% (2019: 3%) of the Group’s Loss before Income Tax, none are individually greater than 1% (2019: 3%) of the Group’s Loss before Income Tax. For these components, we performed other procedures, including analytical review, testing of significant balances, review of consolidation journals and intercompany eliminations to respond to any potential risks of material misstatement to the Group financial statements.
To obtain sufficient audit evidence to conclude on the appropriateness of actuarial assumptions, we engaged our actuaries as part of our audit team and performed the following procedures: • Obtained an understanding and tested the design and operating effectiveness of key controls over management’s process in respect of the valuation of gross IBNR and reinsurer’s share of IBNR including the setting and updating of actuarial assumptions and the reinsurance netting down process to calculate the reinsurer’s share of IBNR from the gross IBNR.
• Assessed the reserving methodology on a gross basis and net of reinsurer’s share of IBNR. This has also involved challenging Group’s reserving methodology with industry practice.
• Performed independent re-projections of IBNR applying our own assumptions, across all classes of business for attritional claims on a net and gross basis and compared these to the management’s results as at 31 December 2020.
• Compared premium rates increases against industry benchmarks and held discussions with underwriting and actuarial teams to understand any variances seen. Additionally, we reviewed evidence of renewals to verify the cause of rate increases which included determining the reasonableness of the factors used to convert price changes to rate increases.
Data The valuation of insurance liabilities depends on complete and accurate data used since they are used to form expectations about future claims.
To obtain sufficient audit evidence to assess the integrity of premium, paid and outstanding claims to determine the gross reserves as well as the reinsurance program used as an input to the netting down process of the gross reserves to obtain the reinsurer’s share of IBNR, we performed the following procedures: • Obtained an understanding of the process and tested the design and operating effectiveness of key controls over management’s data collection, extraction and validation process.
• For a sample of paid and outstanding claims we corroborated to underlying supporting evidence. For paid claims this included authorisation requests and bank statements. For a sample of outstanding claims we held discussions with claims handlers to further understand the background of the claims. We also obtained supporting evidence including claims handler reports performed by third party handlers to corroborate the year end balances.
Measurement of estimated premium within Gross Written Premium income (Gross Written Premium $3,563.8m, PY comparative $3,003.9m) Refer to the Audit and Risk Committee Report (pages 83 to 88); and Accounting policies (pages 138 and 139). For certain contracts, premium is initially recognised based on estimates of ultimate premium. This occurs where pricing is based on variables which are not known with certainty at the point of binding the policy. Subsequent adjustments to those estimates arise as updated information relating to those pricing variables becomes available and are recorded in the period in which they are determined. These estimates are judgemental and therefore could result in misstatements of revenue recognised in the financial statements.
Our procedures included: • Obtaining an understanding of the process and tested the design effectiveness of key controls, including the monitoring.
• Performing independent re-projections of ultimate premium per underwriting year for the 2019 and prior underwriting years, applying our own assumptions and comparing these to the group’s booked ultimate premium on a class of business including distribution channel basis. Where there were significant variances we challenged management’s assumptions used for bias and consistency in approach from prior year.
Risk Our response to the risk Key observations communicated to the Audit and Risk Committee
Impact of COVID-19 on the group’s viability and loss reserves including the adequacy of the unexpired risk reserve. Refer to the Viability statement (page 59); Accounting policies (page 141); and Note 24 of the Consolidated Financial Statements (page 185). The COVID-19 pandemic and measures taken in response will have a significant economic impact across the world, but as of the date of our audit report, the precise extent of that impact remains uncertain. This uncertainty had an impact on our risk assessment and, as a result, on our audit of the financial statements. We considered a number of potential risks that could have been heightened by the pandemic. This included the earning of premium where we assessed the impact of suspension periods and cancellations, which were found to have had an immaterial impact to the group’s earned premium for the year. Similarly, we did not identify material specific COVID-19 related risks around valuation of intangibles, reinsurance assets and financial instruments. The risks which had the greatest impact on our audit procedures are outlined below: • Group’s prospects and viability – Given the potential emergence of claims and the broader economic uncertainty resulting in a downturn in investment performance and potential issues with liquidity, there is an increased risk that the going concern assumption is incorrectly applied. There is also a risk that the group viability has not been appropriately considered and adequately disclosed within the annual report and accounts.
• Understatement of Loss reserves and the need and adequacy of an unexpired risk reserve – There is a risk that the impact of COVID-19 on key judgements within susceptible reserving classes of business and the extent of losses have not been appropriately reflected in booked reserves on those classes which have been significantly impacted by COVID-19 e.g. Property, Marine, Political, accident and contingency classes of business, both on a gross and net of reinsurance basis as at the balance sheet date. Furthermore, there is risk that management have not adequately recognised an unexpired risk reserve on those impacted classes, especially on contingency business where future losses are anticipated.
• Operational impact of remote working – Due to the significant amount of time personnel have been working remotely during the financial year, this results in a risk that operational controls are not applied consistently across the different departments of the group.
Group’s prospects and Viability: We obtained the forecast used by management in assessing the Group’s viability for the three-year period to 31 December 2023 and the Group’s going concern assessment period for the 12 months following the approval of the financial statements. With support from our EY actuarial team and valuation specialists we assessed the assumptions used to develop Beazley’s forecasts, including ultimate exposure to COVID-19 losses and impact COVID has on the stability of the group’s investment return. We reviewed the results of management’s stress testing and assess the reasonableness of economic assumptions in light of the impact of COVID-19 on the Group’s solvency and liquidity position. We separately considered and assessed the reasonableness of director’s disclosure of the Group’s prospects and viability for the three-year period to December 2023 in accordance with Provision 31 of the UK Corporate Governance Code 2018 and assessed the adequacy of disclosures in respects of the impact of COVID-19 within the financial statements. Understatement of Loss reserves and the need and adequacy of an unexpired risk reserve – To address the risk of COVID-19 exposure on reserves, our EY actuarial team performed a benchmarking exercise to assess the adequacy of reserves held on classes of business which are impacted significantly by COVID-19 losses, such as business interruption and event cancellation. Additionally we considered the adequacy of the unexpired risk provision ($82.5m) held by Beazley by challenging expected losses on unearned premium specifically on contingency lines where future cancellations are known. Operational impact of remote working – Assessed the group’s entity-level and financial controls as well as the consistency of the group’s operations and processes throughout the year despite the remote working across the organisation.
Based on the results of the procedure performed we concluded as follows: Group’s prospects and Viability: The directors have an appropriate basis on which to conclude that there is no material uncertainty relating to going concern. We have reviewed the disclosures relating to going concern and determined that they are appropriate. Loss reserves – We determined that the actuarial assumptions used by management as a whole which include COVID-19 losses are reasonable. In addition management’s recognition and valuation of an unexpired risk reserve of business was reasonable with appropriate disclosures being made. Operational impact of remote working – our audit procedures did not identify any material control deficiencies arising as a result of working remotely.
Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.
Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of $0.5m (2019: $0.5m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
Other information The other information comprises the information included in the Annual Report set out on pages 1 to 208 , other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
• We understood how Beazley plc is complying with these legal and regulatory frameworks by making enquiries of management, internal audit and those responsible for legal and compliance matters. We also reviewed correspondence between the Company and regulatory bodies, reviewed minutes of the Executive Committee, Risk and Regulatory Committee and attended the Audit and Risk Committees and gained an understanding of the Group’s approach to governance demonstrated by the Board’s approval of the Group’s governance framework.
• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by considering the controls that the Group has established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud. We also considered areas of significant judgement, including complex transactions, performance targets, external pressures and the impact these have on the control environment and their potential to influence management to manage earnings or influence the perceptions of investors and stakeholders. Where this risk was considered to be higher, within the valuation of insurance liabilities and the reinsurer’s share of IBNR estimated premium income we performed audit procedures to address the identified fraud risk as detailed in the respective key audit matters above. Additionally we considered the impact of COVID-19 and the impact this has on the group, as detailed within the KAM above, this included an assessment of the consistency of operations and controls in place within the group as they transitioned to operating remotely for a significant proportion of 2020, we made enquiries with management via the use of video conferencing and performed analytical review procedures to assess for unusual movements throughout the year. These procedures to address the risk identified, also incorporated unpredictability into the nature, timing and/or extent of our testing, challenging assumptions and judgements made by management within their forward looking information (i.e. five year plan) and their significant estimates. Additionally, we tested year-end adjustments i.e. early close topside adjustments and manual journals, to provide reasonable assurance that the financial statements were free from fraud or error. Additionally we tested year-end adjustments i.e. early close topside adjustments and manual journals, to provide reasonable assurance that the financial statements were free from fraud or error.
• The Group operates in the insurance industry which is a highly regulated environment. As such the Senior Statutory Auditor considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence and capabilities, which included the use of specialists where appropriate.
• The period of total uninterrupted engagement including previous renewals and reappointments is two years. • The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain independent of the Group and the parent company in conducting the audit. • The audit opinion is consistent with the additional report to the Audit and Risk committee
Notes: 1 The maintenance and integrity of the Beazley plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
129 Consolidated statement of profit or loss 130 Statements of comprehensive income 131 Statements of changes in equity 133 Statements of financial position 134 Statements of cash flows 135 Notes to the financial statements 205 Glossary www.beazley.com
Insurance claims 2,589.3 1,842.5 Insurance claims recoverable from reinsurers (631.0) (390.0)
Items that may be reclassified subsequently to profit or loss: Foreign exchange translation differences 2.8 1.8 Total other comprehensive income 0.3 8.0 Total comprehensive (loss)/income recognised (45.8) 242.1
Company Profit for the year attributable to equity shareholders 47.9 75.7 Total comprehensive income recognised 47.9 75.7
Statement of comprehensive income for the year ended 31 December 2020
Companies Act 2006, section 612 was available, and thus no share premium was recognised. As the redemption of the cash box entity’s shares was in the form of cash, the transaction was treated as qualifying consideration and the premium is therefore considered to be immediately distributable and can be recognised within retained earnings. The funds raised are net of issuance costs.
Statement of changes in equity for the year ended 31 December 2020
Total comprehensive income recognised – – – – – 75.7 75.7
Equity settled share based payments 22 – – – – 4.7 – 4.7 Acquisition of own shares in trust 22 – – – – (13.8) – (13.8) Transfer of shares to employees 22 – – – – (4.8) 4.1 (0.7)
Total comprehensive income recognised – – – – – 47.9 47.9
Current income tax asset 27.9 1.9 – 1.1 Cash and cash equivalents 20 309.5 0.9 278.5 – Total assets 10,587.7 995.3 8,873.7 725.7
Total equity and liabilities 10,587.7 995.3 8,873.7 725.7 No income statement is presented for the parent company as permitted by Section 408 of the Companies Act 2006. The profit after tax of the parent company for the period was $47.9m (2019: $75.7m).
Net increase/(decrease) in cash and cash equivalents 42.7 (1.4) (68.6) (1.8) Cash and cash equivalents at beginning of year 278.5 – 336.3 2.4 Effect of exchange rate changes on cash and cash equivalents (11.7) 2.3 10.8 (0.6) Cash and cash equivalents at end of year 20 309.5 0.9 278.5 –
In the current year, the group have applied amendments to IFRS issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2020. The new effective amendments are: • IFRS 3: Amendment: Definition of a business (IASB effective date: 1 January 2020); • IAS 1 and IAS 8: Amendment: Definition of Material (IASB effective date: 1 January 2020); • IFRS 9, IFRS 7 and IAS 39: Amendment: Interest Rate Benchmark Reform (IASB effective date: 1 January 2020); • Amendments to References to the Conceptual Framework in IFRS Standards (IASB effective date: 1 January 2020); • Interest Rate Benchmark Reform (IBOR) – Phase 1 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective date: 1 January 2020); and • IFRS 16: COVID-19-Related Rent concessions (2020).
(IASB effective date: optional).1 1 Have not been endorsed by EU.
1 Statement of accounting policies continued Of the upcoming accounting standard changes that we are aware of, we anticipate that IFRS 17 and IFRS 9 will have the most material impact on the financial statements’ presentation and disclosures. The accounting developments and implementation timelines of IFRS 17 and IFRS 9 are being closely monitored and the impacts of the standards themselves are being assessed and prepared for. A brief overview of each of these standards is provided below: • IFRS 17 will fundamentally change the way insurance contracts are accounted for and reported. Revenue will no longer be equal to premiums written but instead reflect a change in the contract liability on which consideration is expected. On initial assessment the major change will be on the presentation of the statement of profit or loss, with premium and claims figures being replaced with insurance contract revenue, insurance service expense and insurance finance income and expense. It is currently unknown what impact the new requirements will have on the group’s profit and financial position, but it is expected that the timing of profit recognition will be altered. During 2020, the group continued to undertake a number of tasks in preparation for IFRS 17. These tasks included: • Concluding on writing and presenting technical papers to governance committees of how the standard will be applied; • Building upon data requirements documented in 2019 to land and conform the majority of gross data that can be consumed for IFRS 17 purposes, as well as documenting the requirements for the landing and conforming of reinsurance data; • Developing an internal calculation engine/user interface as a means of testing a vendor solution or to use as an alternative solution; and • Outlining the requirements and plan of a target operating model/operational readiness framework within affected teams as well as outlining the impacts and plan to resolve impacts for the wider stakeholders of the group.
1 Statement of accounting policies continued Basis of presentation The group financial statements are prepared using the historical cost convention, with the exception of financial assets and derivative financial instruments which are stated at their fair value. All amounts presented are in US dollars and millions, unless stated otherwise.
In accordance with the requirements of IAS 1 the financial statements’ assets and liabilities have been presented in order of liquidity which provides information that is more reliable and relevant for a financial institution.
The capital raised from the share issuance in May 2020 ($292.6m), while predominantly held to better position the business for future growth opportunities, also provides additional strength to the statement of financial position in light of the continued uncertainty from COVID-19.
In assessing the group’s going concern position as at 31 December 2020, the directors have considered a number of factors, including the current statement of financial position, the group’s strategic and financial plan, taking account of possible changes in trading performance and funding retention, and stress testing and scenario analysis. The assessment concluded that, for the foreseeable future, the group has sufficient capital and liquidity for the next 12 months. As at its most recent regulatory submission, the group’s capital ratios and its total capital resources are comfortably in excess of regulatory solvency requirements and internal stress testing indicates the group can withstand severe economic and competitive stresses.
As a result of the assessment, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future and therefore believe that the group is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.
Part VII transfer On 30 December 2020, the group transferred all relevant policies (and related liabilities) underwritten by the group’s syndicates to Lloyd’s Insurance Company S.A. (‘Lloyd’s Brussels’), in accordance with Part VII of the Financial Services and Markets Act 2000. On the same date, the group entered into a 100% Quota Share Reinsurance Agreement whereby Lloyd’s Brussels reinsured all risks on the same policies back to the group. The purpose of these transactions were to ensure these policies could be serviced after Brexit on the 31 December 2020.
a) Estimates Estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
1 Statement of accounting policies continued Due to the nature of the Lloyd’s business and the settlement patterns of the underlying business it is also not uncommon for some contracts to take a number of years to finalise and settle, and as such remain a receivable on the balance sheet remains. The amount of estimated future premium that remains in insurance receivables relating to years of account that are more than three years developed at 31 December 2020 is $13.7m (2019: $11.5m).
Goodwill Another estimate used by Beazley is based on the key assumptions underlying the recoverable amounts used in assessing the impairment of goodwill. The key assumptions used in the preparation of future cash flows are: premium growth rates, claims experience, discount rates, retention rates and expected future market conditions as per note 12.
b) Judgements Information about areas of judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in this statement of accounting policies and also specifically in the following notes: • note 1a: accounting treatment for the group’s interest in managed syndicates
The group has used the acquisition method of accounting for business combinations arising on the purchase of subsidiaries. Under this method, the cost of acquisition is measured as the fair value of assets given, shares issued or liabilities undertaken at the date of acquisition directly attributable to the acquisition. The excess of the cost of an acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary acquired is recorded as goodwill.
Certain group subsidiaries underwrite as corporate members of Lloyd’s on syndicates managed by Beazley Furlonge Limited.
Deferred acquisition costs (DAC) Acquisition costs comprise brokerage, premium levy and staff-related costs (excluding performance related pay) of the underwriters acquiring new business and renewing existing contracts. The proportion of acquisition costs in respect of unearned premiums is deferred at the reporting date and recognised in later periods when the related premiums are earned.
The IBNR amount is based on estimates calculated using widely accepted actuarial techniques which are reviewed quarterly by the group actuary and annually by Beazley’s independent syndicate reporting actuary. The techniques generally use projections, based on past experience of the development of claims over time, to form a view on the likely ultimate claims to be experienced.
Liability adequacy testing At each reporting date, liability adequacy tests are performed to ensure the adequacy of the claims liabilities net of DAC and unearned premium reserves. In performing these tests, current best estimates of future contractual cash flows, claims handling and administration expenses, and investment income from the assets backing such liabilities are used. Management have determined that the unprecedented impact COVID-19 has had on certain areas of the group’s underwriting portfolio has been the specific event/trigger to initiate the assessment for an unexpired risk reserve (‘URR’) recognition. This assessment has been made at a level more granular than segment to reflect the different risk characteristics, including duration, of the related COVID-19 exposures.
Management have assessed the Property, Treaty, Marine and PAC segments – all of which have been impacted by COVID-19. Contingency business written through the PAC division was identified as the only class of business within these divisions that required a URR consideration as a result of COVID-19. The contingency book which insures against event cancellation has expected future claims on events taking place in the first half of calendar year 2021, which exceed the unearned premium on these policies.
1 Statement of accounting policies continued Ceded reinsurance These are contracts entered into by the group with reinsurers under which the group is compensated for losses on contracts issued by the group that meet the definition of an insurance contract. Insurance contracts entered into by the group under which the contract holder is another insurer (inwards reinsurance) are included within insurance contracts.
Plant and equipment All plant and equipment is recorded at cost less accumulated depreciation and any impairment losses. Depreciation is calculated using the straight-line method to allocate the cost of the assets to their residual values over their estimated useful lives as follows: Fixtures and fittings Three to ten years Computer equipment Three years
Goodwill has an indefinite life and is annually tested for impairment. Goodwill is allocated to each cash-generating unit (CGU, being the group’s operating segments) for the purpose of impairment testing. Goodwill is impaired when the net carrying amount of the relevant CGU exceeds its recoverable amount, being its value in use. Value in use is defined as the present value of the future cash flows expected to be derived from the CGU.
1 Statement of accounting policies continued c) Licences Licences have an indefinite useful life and are initially recorded at fair value. Licenses are allocated to each CGU for the purpose of impairment testing. Licences are annually tested for impairment and provision is made for any impairment when the recoverable amount, being the higher of its value in use and fair value, is less than the carrying value.
b) Financial assets at fair value through profit or loss Except for derivative financial instruments and other financial assets listed in policies (c), (f) and (g) below, all financial assets are designated as fair value through the statement of profit or loss upon initial recognition because they are managed and their performance is evaluated on a fair value basis. Information about these financial assets is provided internally on a fair value basis to the group’s key management. The group’s investment strategy is to invest and evaluate their performance with reference to their fair values.
e) Hedge funds, equity funds and illiquid credit assets The group invests in a number of hedge funds, equity funds and illiquid credit assets for which there are no available quoted market prices. The valuation of these assets is based on fair value techniques as described above. The fair value of our hedge fund and illiquid asset portfolio is calculated by reference to the underlying net asset values (NAVs) of each of the individual funds. Consideration is also given to adjusting such NAV valuations for any restriction applied to distributions, the existence of side pocket provisions and the timing of the latest available valuations. At certain times, we will have uncalled unfunded commitments in relation to our illiquid credit assets. These uncalled unfunded commitments are actively monitored by the group and are disclosed in the notes 2 and 16 to the financial statements. The additional investment into our illiquid credit asset portfolio is recognised on the date that this funding is provided by the group.
1 Statement of accounting policies continued g) Other receivables Other receivables categorised as loans and receivables are carried at amortised cost less any impairment losses.
Leases a) Right of use assets The group recognises right of use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, recognised right of use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right of use assets are subject to impairment.
d) The determanation of a lease term with renewal options within lease contracts The group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
1 Statement of accounting policies continued Income taxes Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised respectively in other comprehensive income or directly in equity.
Lloyd’s has also defined its own specific set of RDS events for which all syndicates with relevant exposures must report. Of these the three largest, net of reinsurance, events which could have impacted Beazley in 2019 and 2020 are: † 2020
San Francisco quake (2019: $78.0bn) 727.9 222.8 Los Angeles quake (2019: $78.0bn) 748.2 218.8 US Northeast windstorm (2019: $78.0bn) 554.6 205.3 1 Probable market loss.
The group also has exposure to man-made claim aggregations, such as those arising from terrorism and data breach events. Beazley chooses to underwrite data breach insurance within the CyEx and Specialty Lines division using our team of specialist underwriters, claims managers and data breach services managers. Other than for data breach, Beazley’s preference is to exclude cyber exposure where possible.
Beazley also reports on cyber exposure to Lloyd’s using the three largest internal realistic disaster scenarios and three prescribed scenarios which include both data breach and property damage related cyber exposure. Given Beazley’s risk profile, the quantum from the internal data breach scenarios is larger than any of the cyber property damage related scenarios. To manage underwriting exposures, the group has developed limits of authority and business plans which are binding upon all staff authorised to underwrite and are specific to underwriters, classes of business and industry. In 2020, the maximum line that any one underwriter could commit the managed syndicates to was † $150m. In most cases, maximum lines for classes of business were much lower than this.
2 Risk management continued These authority limits are enforced through a comprehensive sign-off process for underwriting transactions including dual sign-off for all line underwriters and peer review for all risks exceeding individual underwriters’ authority limits. Exception reports are also run regularly to monitor compliance.
Binding authority contracts A proportion of the group’s insurance risks are transacted by third parties under delegated underwriting authorities. Each third party is thoroughly vetted by our coverholder approval group before it can bind risks, and is subject to monitoring to maintain underwriting quality and confirm ongoing compliance with contractual guidelines.
Market Facilities 4% – – 4% Political, Accident & Contingency 7% 1% – 8%
Market Facilities 2% – – 2% Political, Accident & Contingency 8% 1% – 9%
1 From 1 January 2020, the Market Facilities division has been split from Specialty Lines. The prior year comparative has been re-presented to allow comparison.