Strategic report 01 Highlights 02 At our core… 05 Key performance indicators 06 Our business model 08 Statement of the Chair 10 Chief Executive’s statement 14 Q&A with the Chief Executive 16 At our core... consistent growth for 34 years 18 Chief Underwriting Officer’s report 24 Performance by division 28 Claims 30 Responsible business 40 Section 172 statement 44 Financial review 44 Group performance 49 Balance sheet management 51 Capital structure 53 Operational update 56 Risk management 63 Directors’ report
Governance 70 Letter from our Chair 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
Financial statements 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
Loss before tax for the financial year $50.4m (2019: Profit $267.7m)
There is much to be proud of in our teams’ efforts to improve our performance and service, such as the following examples of our core elements in practice.
Our focus on our customers remains a constant. From the beginning of the pandemic when we were all getting used to living under restrictions, our claims team took the proactive approach of working with our clients to settle open claims with the objective of helping clients to focus on the future and freeing up balance sheets, all while managing unprecedented levels of contingency claims due to COVID-19.
With courts temporarily closed due to lockdown resulting in a significant slowdown in legal action activity, we focused our time and resource on working proactively with clients to resolve open claims through negotiation, with the explicit aim of reaching settlements as swiftly and efficiently as possible, to the mutual satisfaction of all involved. By doing this we were able to free up a combination of time, resource and money – reducing the overall cost for clients – whilst freeing up our claims specialists to concentrate on servicing the high levels of pandemic-related claims as they came in.
Beazley has striven to deliver products and services that respond to the changing risk environment and challenge accepted norms, enabling us to deliver the protection and peace of mind our clients need.
It’s not just what we deliver, but how we deliver it, that has a uniquely Beazley approach.
The disruption of the last 12 months has further demonstrated the importance of investing in innovation. For this reason, we launched our Incubation Underwriting team, which looks to nurture new concepts and identify opportunities to help close the protection gap. The team’s role involves discovering and developing breakthrough products and underwriting them post launch to de-risk and accelerate their development before they are picked up and run with by the right team of underwriters.
By working in concert with Beazley underwriters, the team also supports the efforts of the wider business in evolving existing products, launching new services, reviewing elements of cover and redesigning them to appeal
Behind the products and services we provide to our customers are consistently high operational standards; expert, driven people; and a willingness to do things differently.
While we deeply value the interactions we have with brokers and clients and look forward to the opportunity to meet again face to face, what has been achieved remotely through robust digital channels has been game-changing. We have been making the transition to a more flexible working model through investment in IT equipment and systems to enable our people to work effectively and securely, anywhere, over the past two years. Faced with no choice but to work remotely, our model has been well tested and more digital platforms have been made available, supported by highly skilled IT and security teams, to ensure a seamless transition to home working and to support colleagues as much as possible.
The current health crisis has been a reminder that disruption can come at any time and also has been a catalyst for change. Although the role of digital technology in the insurance market has not always been obvious from the outside, the reality has been more nuanced and evolution has been significant even if not always smooth. Changes brought about in 2020 to how the insurance industry operates, as for so many other sectors, have accelerated the application of data and technology to better deliver for customers.
• We operate through specific insurance hubs rather than seeking a local presence in every country in which we do business
For staff We employ talented people and invest accordingly in expanding their skills and helping them build rewarding careers. We regularly measure the impact by asking for feedback on working at Beazley and leadership across the business.
For customers Nearly all business at Beazley comes through brokers. We monitor broker and client perceptions of our service in a variety of ways, including through detailed broker surveys. The number of brokers participating continues to increase, reflecting strong engagement.
(8.0)c Net assets per share 299.0c TSR since 1 January 2011 18.7% pa
Being bold We enjoy the freedom and encouragement to confidently question the status quo and push the edges. We dare to be different and explore bold possibilities to create more innovative, fair and satisfying outcomes for everyone.
Striving for better Good is a start, but we go all-out for better. We actively champion and support each other to be the best we can be. A driven community of individuals relentlessly pushing the needle and creating value. We pride ourselves on always going above and beyond.
Doing the right thing Acting with integrity in a straightforward, decent way is instinctive. Open and honest with others, we show respect and empathy however challenging the situation. Doing the right thing makes for a fair-minded, rewarding environment and makes work and life better for all.
Underpinning our results as evidenced by all of these metrics has been our consistent underwriting performance, reflected in our five year combined ratio: • 2020, a year of severe COVID-19 claims: 109%
Our business model is reviewed and reconfirmed annually as part of our business planning process, with a focus on ensuring that we continue to create value across our entire stakeholder base.
The spread of COVID-19 has triggered a deep global recession and widened existing wealth and health divisions, having a more extensive effect on society than one could have imagined. It has tested the insurance industry and our role in protecting society against risk and unforeseen events. It has also demonstrated the need for collaboration across the industry and government to deliver solutions that protect populations from the biggest threats of our time, from pandemics to natural catastrophe, and from climate change to cyber-attack and terrorism.
The global pandemic impacted a number of lines of business, most notably our contingency book where we quickly settled claims arising from cancelled or postponed events. The global events and hospitality sector has been a very
successful area for Beazley for many years and we are working closely with clients to provide financial support and flexibility around coverage ahead of its return to full strength in more normal times. In total our booked first-party losses related to COVID-19 have reached $340m. We took action when we saw that COVID-19 was likely to impact the economy, and this strategy, allied with our underwriting action over the previous year in anticipation of a future recession, will mitigate the impact in our longer tail liability classes, where claims are expected to materialise from 2021 onwards.
The challenging events of the past 12 months have been the catalyst for improvements to how we work and trade. The pandemic has brought about lasting and positive change. As a board, our responsibility lies in protecting the financial health of our business and ensuring we have the right people, investment, and risk appetite to deliver on our promises. We depend on our motivated and engaged people supported by Beazley’s strong culture, to continue growing and developing as a business. In the last 12 months we have focused extensively on the physical and mental wellbeing of our people. The resilience of colleagues and the positive attitude of management to understanding people’s unique circumstances has shown the company at its best. We have made further progress in broadening the diversity of our workforce, with good progress against our current targets. However, we all recognise we have more to do and as such the board has agreed a set of new stretching targets for the business.
At the forefront of our purpose is creating a sustainable business for employees, who are key stakeholders. The company has taken a number of steps to support them throughout this challenging year and they have successfully continued to keep the business growing.
As insurers our role is to be ready for unforeseen events and to expect and manage change.
Yet despite the volume of information, data and predictive analytics at our fingertips, we didn’t foresee the events of this year. As individuals and organisations, we have all been hit hard by the global pandemic, which has disrupted normal ways of life and doing business. In responding to this crisis, insurance has been one of the levers to help with economic and social recovery alongside government, community action and individual acts of care. We have paid claims quickly and efficiently and adapted to deliver insurance solutions that protect customers as they navigate the challenges of operating between the virtual and real worlds.
Reflecting on 2020 We began the year on a strong footing prepped to respond to the improved rating environment and having remediated underperforming areas of our book. We took further rating and underwriting action in March to respond to the economic effects of the pandemic, particularly in recession-exposed lines, as rates began to increase more sharply in almost every class of business.
Data: Continuing to enhance our existing data-led approach by improving the quality of our data and then ensuring its consistent application in our decision making. An all-employee data academy launching in 2021 will deliver online and in-person training to develop skills, build confidence and drive cultural change. The team leading this initiative will continue to oversee ongoing investment in data & analytics and actuarial modelling tools to improve efficiency and insight across the business.
Another major issue for the insurance industry this year has been the rise of ransomware to become the biggest cyber risk currently facing organisations. In over a decade of managing tens of thousands of incidents on behalf of clients, we have consistently combined risk transfer and risk prevention to reduce the likelihood of an attack and to manage down the impact. As the forms of attack become more severe and complex, we need the clearest possible view of the routes that bad actors take and where the weaknesses are that they can target. We have therefore increased our investment in data and analytics to help build a clearer picture of clients’ cyber security vulnerabilities and to improve their risk rating, enabling us to make more informed decisions on our exposure and rates, whilst offering clients the ability to identify their vulnerabilities and mitigate their risks.
Growth and opportunity The return of rating discipline has been welcome after a prolonged soft rating environment, enabling us to continue strong growth in core markets and deliver against our long-term strategy to grow in a targeted way across Asia, Europe and Latin America.
The improved ratings, responsive underwriting and rollout of innovative products has driven significant growth outside the US, particularly in financial lines, healthcare and cyber. In Asia Pacific we launched our etrading broker portal myBeazley, providing access to specialist digital products for smaller businesses through an efficient digital platform. In France we launched fine art and jewellers’ block to support our strategy of growing in mainland Europe, where we see opportunities for our specialist insurance offering to add value to clients.
Our people Maintaining a culture of openness and transparency as we grow does not happen on its own. We are fortunate we have many people across the company dedicated to keeping us connected with one another. The challenges of this year meant we focused many more resources on supporting the health and wellbeing of our employees. Additional wellbeing days were introduced, mental health first aiders were trained to provide confidential support, and a free app was made available that provides access to support and counselling when needed. Like most organisations we have further to go in building a more diverse workplace. Good data holds the key to driving meaningful change. Having met our original target of 36% female representation in our senior team by 2020, we have set a new target of at least 45% female representation by 2023. We are building a similar strategy to improve ethnic diversity within teams and aim to announce our targets in regards to this during the course of 2021.
Claims One of the clearest demonstrations of collaboration and resilience in 2020 has been in the work of our claims team, led by Beth Diamond, to maintain service levels throughout the peak of the crisis. In the moment of truth for our clients, colleagues adopted an all-hands-ondeck approach to support claims service delivery. People across the business who had spare capacity volunteered to support claims in administrative or support roles to ease pressure on our claims specialists. The slowdown of the court system due to social distancing allowed some opportunity to settle a number of outstanding claims.
Despite the harsh effects of the pandemic and a deep global recession, we are optimistic that the positive market change of the last 12 months and the resilience that we have demonstrated puts us on a strong financial and operational footing to support our clients and to grow profitably in 2021. We expect to deliver a low-90s combined ratio for 2021 assuming average claims experience.
Do you have sufficient capital to take advantage of the opportunities that deliver greater shareholder value while ensuring you still pay claims?
Why did you get your initial COVID-19 estimate of loss so wrong? Based on the fact you had to revise your loss estimate, how confident are you that it won’t deteriorate further?
Our initial loss estimate was based on the assumption shared by many that lockdown would come to an end in late summer meaning that both conferences and sporting events would start again in September. We estimated our event cancellation loss on this basis, assuming around six months of events being cancelled or postponed. By the end of August we could see the situation was deteriorating in most countries, with most events being cancelled for the foreseeable future. It was clear the uncertainty would continue until at least the spring of 2021 and, therefore, we took action and doubled our loss estimate. This estimate will only be revised again if events continue to be cancelled in the second half of 2021. We estimated this potential deterioration to be a further $50m net of reinsurance. After the end of 2021 we have very little exposure for further deterioration.
Beazley’s strong track record of profitability has been achieved over the years through hard work, business acumen and a consistent underwriting approach. This year, the world was caught off guard – no one foresaw the global pandemic or envisaged the impact it would have. We are in the risk-taking business, which means we can end up with unexpected losses at times, and this is one of those times. Even through the turmoil of this year many of our business classes performed well, and in 2021 we expect to see the third year of rate increases across many lines of business. While we haven’t seen an escalation in social inflation over the past year, this is still something we are keeping a keen eye on. The growth in 2020 should give us good earnings potential in 2021 and beyond. I personally am looking forward to a return to profitability.
Our expectations are high and we expect to see growth across the majority of our geographies. Rates continue to rise at Lloyd’s, offering us the opportunity to capitalise on a hardening market. In the US, market conditions are favourable and given the size of the specialty market within which we operate there is plenty of room for growth. Over the past five years we have been growing at an average rate of around 17% per annum. Our near-term target is to increase the premiums in that business to $2bn, a 56% increase on where we stand today. Our Canadian and European businesses continued to grow at around 30% and 40% respectively per annum and we expect further good growth in those businesses. Our smaller businesses writing into Latin America from Miami, and Singapore, are also anticipating good growth opportunities.
This does not mean that all lines of businesses will grow in all geographies because we continue to be cautious about more recession-prone businesses. Across many of our lines we have seen capacity withdraw and related rate increases, and in many places we are a relatively small player in a large market. The outlook however is positive.
Are you concerned that action on climate change has been side-lined due to the health and economic crises?
Beazley acquires Omaha P&C and renames it Beazley Insurance Company, Inc. (BICI)
Beazley plc becomes the new holding company for the group, incorporated in Jersey and tax-resident in Ireland
Expansion of Australian accident & health business through acquisition of two MGAs
Beazley remains profitable in worst year ever for insured natural catastrophe losses
US local written premium reaches $1bn; overall gross premiums written grow 12% during 2018
Beazley Virtual Care rolled out to new territories 10th anniversary of managing special purpose syndicate 6107
Beazley achieved premium growth of 19% against a challenging claims environment driven by COVID-19 losses which hit our contingency book particularly hard. The combined ratio was 109%.
Never before has our role in society been so tested. How we responded as a market, as companies and indeed individuals was firmly under the spotlight and rightly scrutinised. As an organisation we have weathered this crisis well. We adapted to the new environment and, above all, our people and culture have ensured that we remained true to our core: taking responsibility for the needs of clients and partners, building resilience and delivering a consistent strategy in the face of adversity. Whilst we did not foresee a global pandemic, the optimisation of our portfolios that started in 2018 and 2019 in preparation for harsher economic conditions gave us a solid head start in responding to this crisis. Our swift action and core culture have enabled us to flex and adapt quickly to the new environment and continue to support our partners with confidence and consistency.
Cancelled events were the main driver of our COVID-related losses, when the hospitality and events industries were shut by the enforced lockdown. Since March we have worked closely with clients and brokers to manage through the uncertainty by offering flexibility in our coverage, premium pauses and/ or returns where rescheduled events have had to be cancelled or postponed, in order to support the viability of their businesses.
Recession exposure We took swift action in March to re-underwrite certain parts of the business that would be exposed to COVID-19 and its subsequent impacts. Although liability claims are yet to manifest across the industry, our central assumption is that they will, and we have made provisions for them on our balance sheet. Where we were previously deliberately underweight in Directors’ & Officers’ (D&O) and Property we have been able to execute our growth plan to take a larger market share. In a period of elevated corporate risk, we are able to underwrite and appropriately price for it, allowing us to actively grow scale and relevance in this space.
This year, despite the uncertainty, we were able to launch innovative products including Transmission Failure for virtual events. We rolled out our healthcare product for digital health providers, Virtual Care, to a further six countries – both examples of products designed to respond to the changing needs of clients that came into their own under lockdown. Increasingly we are meeting customers’ appetite for solutions that offer more than risk transfer by designing products that incorporate service propositions to mitigate and manage risk as well.
This uncertain climate is no time to shy away from investing in innovative ways to improve on what we deliver and how; hence the ongoing development of our digital strategy. Our Faster, Smarter Underwriting strategic initiative is driving teams across the business to apply data and analytics to risk selection and management. The aims of our strategic initiative are four-fold: to maximise underwriting performance by providing additional sources of data and management information dashboards; to extract more value from our existing data; to better leverage our investments in technology to help in areas such as workflow; and to transform our underwriting of complex risks. We have seen the benefits of this within our cyber book by using tools to scan client cyber security for weaknesses, in gaining clearer behavioural insights about individuals and boards to manage our D&O exposures, and through more advanced modelling of secondary perils such as wildfire or hail within our Property book.
For smaller risks we are rolling out our etrading platform to more territories, while ensuring these platforms are robust and intuitive for brokers to use without losing the specialist underwriting advantage that Beazley is known for. At the larger end, our Smart Tracker business has achieved growth to $133.4m gross written premium. Designed to reduce underwriting costs in the Lloyd’s market by making the follow-market work more efficiently, the tracker is now working with 30 facilities alongside some newer similarly styled syndicates within the market.
■ Cyber & Executive Risk ■ Marine ■ Political, Accident & Contingency
Rate hardening has been particularly strong across the aviation and cargo portfolios, with average rate rises of 30% and 18% respectively. Both had previously activated strong cycle management plans and have weathered turbulence over the past two years, which has seen a number of peers reducing capacity or withdrawing from the market altogether.
The exception to the growth across the portfolio has been in the energy book where reduced global oil prices and a benign claims environment in the upstream account meant rate increases were subdued.
In its first year as a standalone division outside Specialty Lines, Market Facilities, led by Will Roscoe, has reported gross premiums written of $133.4m, more than doubling over 2019.
The Beazley Smart Tracker launched in 2018 as the London market’s first followonly special purpose syndicate. It tracks the market with the same underwriting, reserving and pricing approach as one would find within the main Beazley syndicates. Backed by Beazley and third-party capital, the model has shown resilience in the hardening market environment, with investors oversubscribing to back the syndicate during this year’s round of funding. This inspires confidence in the model as a diversification opportunity in the new trading environment as well as the old, attracting a range of investors from Lloyd’s Names and hedge funds through to larger pension funds and traditional reinsurers.
As the net premium increased by more than 60% compared to last year, the division reduced it claims ratio to 30% (2019: 36%) and its expense ratio to 76% (2019: 78%). Lloyd’s has approved growth for Beazley Smart Tracker to $200m in 2021, and the expense ratio is expected to reduce further through scale.
Political, Accident & Contingency (PAC) had a challenging year as the division hardest hit by COVID-19, due to the high number of cancelled events insured within the Contingency book. However other parts of the business performed well, benefiting from positive prior year movements. PAC reported premium of $273.0m and a combined ratio of 212%.
The Property division reported a combined ratio of 120%, reflecting claims due to COVID-19, which masked corrective actions taken throughout 2019 and early 2020 to improve performance, while premiums grew by 10% to $470.5m.
The division began the year on a strong footing, having significantly improved the management of attritional losses and catastrophe-exposed areas of the book. It remained focused on delivering profit over top-line growth through consistent underwriting, supported by improved rating tools and data capture across the portfolio as well as a sharp focus on reviewing wordings to ensure policies provide clarity and certainty to clients. We continue to invest in tools to better understand and underwrite our risk exposures, while also continuing to optimise our natural catastrophe perils using a data-led analytical approach to managing these exposures. We were pleased to continue to welcome new talent to the team over the course of the year, including additional underwriting expertise and one of the sector’s most highly regarded wordings specialists.
Continued enhancements and diligence in our risk analysis and selection have addressed and reduced exposure to attritional loss, including water losses, which remain a growing issue across the industry. In addition an innovative approach to mitigating risk in the small property book through wind and earthquake buy-down products has helped us continue to grow in a highly competitive technology-driven market segment.
High frequency of medium-range natural catastrophe activity impacted profitability in the Reinsurance division; however, the portfolio benefited from more substantial rate rises during the mid-year renewals contributing to premiums of $194.5m on a combined ratio of 105%.
A new dynamic in the market saw the Reinsurance division refocus on core property catastrophe business and reduce exposure to niche areas including miscellaneous treaty and also crop, which is the area of the portfolio most exposed to climate change risk.
We are reserved prudently to manage the effects of COVID-19 on the secondary property market and we continue to observe legal decisions regarding the primary market to ensure we respond quickly to the impact on the reinsurance market.
The division wrote $1,134.9m of premiums and reported a profit of $151.6m achieving a combined ratio of 94%, in a year of much-needed rate hardening following several years of soft market conditions and heightened claims volatility.
We were also delighted to welcome a team of product recall specialists who launched our US offering virtually, providing strong cross-sell and growth opportunities in 2021.
Specialty Lines has continued to pursue consistent underwriting and careful risk selection in lines of heightened risk, mindful of the long development nature of both COVID-19 and recession-related losses. To date, we have seen few claims arising from either event; however, we have strengthened reserves in exposed classes in anticipation of such claims starting to materialise in the future. The performance of the lawyers professional liability book continues to improve with increased pricing and limit management, while the economic downturn has slowed growth in Environmental Liability although this remains one of our most profitable areas.
Rate adjustment in both Healthcare Management Liability and Hospital Medical Malpractice Liability came later in the year; although we anticipate that these will continue to strengthen in 2021.
Gross premiums written 1,020.1 823.0 Net premiums written 864.6 712.2 Results from operating activities 54.8 126.6 Claims ratio 71% 61% Expense ratio 30% 32% Combined ratio 101% 93% Rate change 18% 5%
Our Cyber & Executive risk division provides cyber and management liability cover for our clients. Products range from our flagship cyber product, Beazley Breach Response (BBR), through to crime insurance, public directors’ and officers’ (D&O) insurance and mergers and acquisitions (M&A) insurance.
We help insure over 20% of the world’s ocean-going tonnage and are the pre-eminent leader of voyage and tow business in the London market. The Aviation team provides cover for airlines and general aviation clients globally, ranging from start-up operations through to large commercial fleets. We have extensive experience insuring a wide variety of cargoes including project cargo, fine art and specie.
Strong growth across majority of divisions, with five divisions achieving growth in double digits.
Richard Montminy Head of Property Executive Sponsor of the Responsible Business Committee $m $m
Gross premiums written 470.5 428.7 Net premiums written 389.9 365.6 Results from operating activities (44.4) 43.3 Claims ratio 81% 57% Expense ratio 39% 40% Combined ratio 120% 97% Rate change 15% 11%
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.
Christian Tolle Head of Political, Accident & Contingency Chair of the European Management Committee $m $m
Patrick Hartigan Head of Reinsurance Chair of the Asia Pacific Management Committee $m $m
Gross premiums written 1.134.9 906.6 Net premiums written 961.8 812.5 Results from operating activities 151.6 125.3 Claims ratio 57% 62% Expense ratio 37% 37% Combined ratio 94% 99% Rate change 15% 6%
The Specialty Lines division writes a diverse book of specialty liability business including professional liability, healthcare, life sciences, environmental liability and international financial lines. Included in the team is our casualty reinsurance business, which focuses on reinsuring other specialists in classes such as surety and professional liability and also distributing Beazley products via our reinsured partners.
It is a long-held view within the industry that insurance is a peoplebased business, where strong partnerships and a keen understanding of the human impact of losses are at the heart of decision-making.
Yet in today’s digital environment where data is increasingly central to how we manage and predict risk, this commitment to the importance of the human touch has come to be seen by some as holding back the tide of muchneeded transformation.
How we respond to clients in their hour of need has never been more important.
We pivoted to work cross-team in a way we have not done before, so that the more experienced claims managers could be deployed to handle complex issues while others could focus on speed of processing of more straightforward claims. Through a voluntary initiative termed Beazley Citizen colleagues from other departments dedicated their extra capacity to supporting our claims team by undertaking support or administrative tasks, which helped our specialists focus on the policyholders and ensured our service did not suffer under pressure.
Social inflation In the midst of this pandemic, the cost of claims has continued to come under intense pressure from the impact of social inflation fuelled by rising jury awards and settlements, particularly in the US. Most of these claims arise in professional liability classes impacting healthcare, architects and engineers (A&E), and legal clients, where $10m+ verdicts are becoming more commonplace. Throughout the year, our teams have continued to work closely with clients and defence counsels to minimise excessive settlements and resolve claims on favourable terms early.
Technology We are mindful in claims of the importance of moving at pace and with consideration of the particular circumstances that clients are grappling with, which are often far more complex than the financial impact of a loss. This has become more important than ever in 2020, emphasising the need for claims specialists to be supported by robust and flexible platforms that enable them to go further.
The team is currently developing an AI proof of concept to model claims and quickly match them with the right claims specialist from receipt of notice, identifying claims for heightened conversations, and focusing our claims experts on the most volatile matters. We have also implemented a new system to improve efficiency in managing legal costs, as well as new technology to establish efficient and quick processing of defence costs, eliminating multiple manual and repetitive approval steps.
Emma Whiteacre Chair of the Responsible Business Committee Country Risk Analyst
Responsible business at Beazley has six focus areas: Charity Our global partnership, fundraising and match funding.
Community How we interact with the people and places in our local area.
Environmental, Social and Governance (ESG) matters are important to Beazley and add value to our business. Our interactions with charities, the community, our environment, the wider market place and our colleagues all play an important part of acting as a responsible business.
Renewable World During 2019 Beazley employees voted for our next corporate charity partner to have an environment-related connection. In January 2020 we launched our two-year global partnership with Renewable World.
Renewable World is a charity which tackles poverty using renewable energy. They support the provision of affordable renewable energy services to improve incomes, health and education in the developing world. Their mission is to lead in devolving and deploying effective ways of bringing renewable energy at scale to poor communities, as well as educating and empowering them to achieve sustainable and resilient livelihoods.
We chose them as a Global Charity Partner because they: • Have both an environmental and a humanitarian aspect – helping those in extremely low-income communities by providing them with lasting renewable energy and resources.
Some of our highlights include: 2.6 Challenge In April, colleagues participated by picking an activity of choice based on the numbers 2.6 or 26 – this could be anything from running for 2.6 miles to juggling for 26 minutes. We saw incredible engagement from teams and individuals across the business: from running 2.6 miles or spinning around in a circle 26 times to cycling 26 miles, our colleagues undertook a variety of fun and unique activities. This event raised over $14,000.
• Reuse for Renewable World Challenge – colleagues were encouraged to craft using items at home.
• Double your Donation Challenge – as COVID-19 had disrupted funds for our charity partner, we pledged to double donations.
Ready Steady Cook Our final charity initiative of the year was titled ‘Ready Steady Cook’. Colleagues all over the world were encouraged to submit dishes and drinks for a chance to win prizes. We partnered with Renewable World to judge the entries and narrowed 40 dishes down to four winners. All of the entries have been incorporated into a Beazley cookbook to help raise further funds.
Our vision is to use our expertise, influence and passion as a force for good in our local and global communities all over the world. We work with local organisations, near and far, to deliver support to our communities where they need it the most. COVID-19 has had a huge impact on our communities including both socially and economically and manifesting in many ways. We focused on ways to support our communities as they needed our help more than ever. Colleagues volunteered their time to support their local communities from shopping for vulnerable neighbours, to calling the elderly, dropping off medical supplies to hospitals and sewing face masks. We also encouraged colleagues to use their charity leave and get involved.
• Our Philadelphia office organised a series of events including a virtual scavenger hunt for the Leukaemia & Lymphoma Society.
• Our Birmingham office wore pink for Breast Cancer Support and hosted a virtual coffee morning for Macmillan Cancer Support.
• David Broughton ran the virtual London Marathon to raise funds for Boudicca Breast Cancer Appeal.
• The US account services team held a pumpkin carving contest and raffle to raise funds for Feeding America.
Beazley’s response to large-scale disasters In addition to our charity partnerships, in 2020, we donated $12,500 to the relief efforts of large-scale disasters including the Beirut explosion, the Mauritius oil spill and the communities impacted by Hurricane Laura. We also donated $30,000 to the Red Cross to support COVID-19 programs.
Tanya Devereux collecting rubbish in her community during Make a Difference week
Our formal community partnerships London In London, we continued our partnership with the East London Business Alliance (ELBA) and Tower Hamlets Education Business Partnership (THEBP), working with them on various community projects, particularly through our Make a Difference (MAD) campaign. Due to lockdown, our traditional long-term activities were halted. Instead we worked with THEBP to trial virtual opportunities such as the Writing Partners programme (a professional pen-pal scheme) and virtual mentoring.
Birmingham Our Birmingham colleagues have focused on community organisations local to them, on an individual basis and through virtual events.
Farmington Our Farmington office has continued their partnership with Camp Courant. They had over 27 participants in the Camp Courant 5k race and participated in the backpack programme. They also raised funds for a local food shelter with a pumpkin carving contest.
Make a Difference This year we had an all-virtual Make a Difference campaign. By working with our local community partners and conducting our own research, we sourced a number of online opportunities for all employees. We encouraged colleagues to volunteer a minimum of an hour of their time on activities varying from phone calls with the elderly, to transcribing historical documents and tracking wildlife in South Sudan. From our feedback survey, Beazley colleagues volunteered over 350 hours, the equivalent of 50 working days.
tCO2e/employee/year 2.91 tCO2e/FTE When normalised per Full Time Equivalent (FTE) of staff, a 70% reduction in overall emissions occurred in 2020, when compared to 2019, reflecting the impact of the pandemic on business travel.
The Environmental Working Group was created in 2019 to lead environmental initiatives across our offices and increase environmental awareness. The environmental impact of our people, our places of work and our business processes is important to us. Through the commercial management team and Environmental Working Group (EWG) we are influencing corporate decisionmaking, increasing the environmental awareness of employees and helping them to make more environmentallyconscious choices. This includes: • Providing information to develop company knowledge and to influence decision-making; • Providing information to increase individuals’ knowledge and influence their choices; • Finding ways to make environmental initiatives feel relevant to individuals via facts, comparisons and peer comparisons; and
Lockdown did cause a halt to some planned initiatives in 2020. Instead, the EWG launched a virtual information campaign to engage with employees and encourage them to reduce their carbon footprint at home. This was done in a series of intranet and Weekly News articles supplemented a session on sustainability within the ‘How We are Doing Live week’.
During Charity and Community Week, the group supported the Reuse for Renewable World Challenge. This was a competition where employees were encouraged to create something useful using everyday items at home. The winning entries included a door made from an old table and handcrafted soaps made from food ingredients.
22 Bishopsgate There was a delay in the completion of our new London office at 22 Bishopsgate. This office space was selected due to its sustainable design, and achieves two recognised standards. Firstly it has been awarded a BREEAM ‘Excellent’ rating for its sustainable construction and operation. Secondly it is the largest development in London to be certified against the leading international WELL methodology, which promotes improving the health and wellbeing of its occupants. The office move will also help us further reduce carbon emissions associated with our office space.
Climate change impacts on insurers may be three-fold: physical – the disruptive impacts of more frequent or severe extreme weather events; transitional – the business impact of the decarbonisation process, which may entail extensive policy, legal, technology and market changes; and litigational – the risks that parties who have suffered loss or damage from climate change seek to recover losses from those they believe responsible. Climate change, therefore, is not only a source of risk, but also of great opportunity for Beazley.
Beazley wishes to encourage and support the transition to a decarbonised economy, and a key early step will be the development and publication of our first sustainability strategy. This strategy will be released in spring 2021 and will set out our aims and ambitions across a number of ESG-related issues, and will support the ESG strategy published by Lloyds in December 2020.
Task Force on Climate-related Financial Disclosures In 2020, we continued our alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and will further develop these in 2021 and beyond. Leadership shown by both the board and executive committee towards climate change is central to our approach, with a number of detailed discussions on the subject held across the year. One example of this is that in 2020, the board approved an enhancement to the underwriting process requiring that it should include a specific environmental assessment, to ensure that Beazley is providing insurance to customers who are mindful of their climate responsibilities.
Our strategy has not changed since the pandemic began, however we have naturally changed our approach to engaging employees as we continued to work remotely. Our steering group meetings have gone virtual, we have focused on creating online communities, and rather than in-person events we have continued to raise awareness through internal articles and webinars.
Beazley SHE hosted virtual yoga throughout the first lockdown as well as a session on resilience.
Our mental health wellbeing network was in its infancy earlier in the year, but grew in importance hugely as a result of the challenges that 2020 brought. Throughout the year, a number of our employees volunteered to be mental health first aiders and we now have 32 individuals trained globally who are available to colleagues in need of support. Additionally, the network launched Thrive, a mental wellbeing app for our people, designed to help them proactively manage their mental health.
While our gender diversity focus continues, we recognised that the momentum in this area was such that we could expand our focus to other areas of diversity. During 2020 a significant piece of work was undertaken to ensure we had data in place relating to the ethnicity and racial background of our employees. This was the first time we had been able to review and analyse such data with a view to determining an appropriate target. Aligned with our gender target timeframe, we will be announcing our target to increase the representation of people of colour at Beazley during 2021. We will be aiming to ensure Beazley’s employee population is representative of the areas within which we operate.
We know a number of people sometimes worry about saying the wrong thing, particularly when it comes to race and ethnicity. To overcome this, we have focused on raising people’s comfort in discussing inclusion and diversity through ‘race fluency’ workshops with our senior management as a starting point. We will continue to do more on this in 2021.
Through continued training, data analysis and reporting, we are confident we have a strong foundation in place to enable us to reach our goals.
Responsible underwriting guides our behaviours, informs our decisions, and enables us to do the right thing. We believe in doing business in a manner that observes applicable law and regulation and pays due regard to the interests of our stakeholders. To ensure that we consistently meet this standard we operate a group-wide compliance framework designed to measure risk exposure, govern decision-making and monitor performance.
Anti-bribery and corruption A strong belief in ethical business practices underpins our relationships with our customers and business partners. To keep us connected to this core value, we operate within strict guidelines that govern the payment of commissions, the exchange of gifts and entertainment, and all circumstances capable of leading to a conflict of interest. In particular, we maintain the following policies and procedures which ensure compliance with anti-bribery laws in the jurisdictions in which we operate: • anti-bribery policy; • gifts and hospitality record and approval process; • conflicts of interest policy; • customer conduct protocol; • broker services protocol; • acquisition cost protocol; and • anti-fraud policy.
In addition to our policies, our approach to anti-bribery and corruption includes staff training and an annual risk assessment. This assessment analyses our business for exposure to high-risk jurisdictions, our distribution channels and the classes of business we write.
Anti-money laundering We have no appetite for Beazley being used as a vehicle for financial crime. Our controls include monitoring transactions and ascertaining the identity of our counterparties. Instances of suspicious activity are acted on in accordance with
the Beazley financial crime policy, which reflects the requirements of money laundering and tax legislation in the jurisdictions in which we operate. Staff are trained to refrain from entering into suspicious transactions and to report all such activity to the compliance team so that any necessary notifications can be made to external agencies.
Conduct We pride ourselves on how well we can meet the needs of our customers; conduct is therefore a core aspect of our business. It permeates our culture and informs how we design, market and service our products. We ensure the application of good conduct principles by: • promoting a top-down culture that places the customer centre stage; • ensuring rigorous assessment, design and review of our products; • clearly and fairly marketing all products and services; • insisting on transparent commission and remuneration structures; • maintaining oversight of delegated authorities and other distribution channels; • operating a fair and responsive claims and complaints handling process; and
The standards we require of our staff are set out in the Beazley Customer Conduct Protocol. The protocol is supplemented with periodic conduct-related training.
Data security We have a robust approach to information security and privacy comprising organisational, human and technical controls designed to safeguard data and the rights of data subjects.
These policies are well embedded in our business processes and staff are trained annually to apply principles of information security in their day-to-day work. To ensure consistent compliance with data requirements, we undertake frequent security testing and annual data security/privacy audits. Our governance structure enables the information security and privacy function to escalate and report data-related matters without restraint, thereby ensuring senior management oversight of data risk management at all times.
We observe the legal and regulatory requirements of the various jurisdictions within which we operate and have a global privacy policy aligned to European, North American, Canadian and Singaporean privacy requirements.
How we engage with our people We recognise that our people are fundamental to the long-term success of the company and we have various engagement mechanisms in place. We believe it is imperative to attract, engage and develop a diverse, high performing workforce to enable Beazley to achieve its strategic objectives. Open dialogue with our employees has been at the core of Beazley’s culture since the company was formed. We hold regular all-employee meetings which sometimes include Q&A with senior management.
Historically we have conducted allemployee surveys every other year that measure employee engagement. We conducted the survey in 2019 and had an overall employee engagement score of 70%. During 2020, we conducted an all-employee survey on ways of working and included the questions on engagement and the overall employment engagement score increased to 86%. Employee insights are also gathered through a number of employee networks which all have sponsorship from the company’s senior leadership team. In addition to this, we have conducted monthly ‘employee pulse surveys’ since April 2020.
The COVID-19 case study explains how we have specifically engaged with our employees throughout the pandemic and responded to their feedback.
How we engage with our investors The support and engagement of our shareholders and investors is essential to the future success of our business. To further strengthen our engagement with investors, Beazley appointed its first head of investor relations in 2020. We are in touch with all of our shareholders at least five times per annum with information about shareholder meetings, dividend payments and the company’s financial results and trading statements. We have regular meetings with institutional investors and analysts to understand their views and address any concerns. During 2020, we also engaged with our shareholders through calls with our top 15-20% investors regarding the equity placing in May and the trading update issued in September. Conference calls were hosted following the announcement of trading updates issued in September and November 2020, which were open to all. Where requested, other meetings with shareholders were facilitated during the year and the board received updates on these discussions.
How we engage with our broker partners There is regular, coordinated engagement with our key broker partners facilitated through our broker relations team. Even throughout the period of remote working in 2020, the company’s senior management has continued to engage with senior leaders of the broking firms and the board received regular updates on our key broker relationships.
How we engage with our regulators We continue to have transparent dialogue with our key regulators supported by our compliance team. We recognise the importance of preserving these regulatory relationships and we seek to maintain the highest possible regulatory standards. Our senior management and the non-executive directors of our regulated entities have ongoing engagement with our regulators on an ad hoc basis, including when requested to discuss specific matters. Any significant regulatory engagements are reported to the board.
We recognise that our people are fundamental to the long-term success of the company and we have various engagement mechanisms in place. We believe it is imperative to attract, engage and develop a diverse, high performing workforce to enable Beazley to achieve its strategic objectives.
The board considers the outcome of relevant stakeholder engagement and recognises the long term consequences of its decisions. The following case studies provide some examples of key decisions taken by the board and explain how stakeholder interests have been taken into account.
Impact of the ongoing COVID-19 pandemic on the company’s workforce The board recognised that the company must play its part in stopping the spread of the coronavirus and in mid-March 2020, the company successfully transitioned to remote working for all employees across the globe. Over the past few years, Beazley has been moving toward a flexible working model for its employees, which placed the company in good stead to transition seamlessly to remote working with less than 24 hours’ notice. From an operational perspective, there has been no material disruption to the company’s business. No employees were furloughed as a result of the pandemic. The board knows that it is the talented workforce that is the core contributor to the long-term success of the company. Roles and responsibilities vary across the company and the Beazley Citizen initiative was launched early on in the pandemic as a ‘call to action’ to support our claims team, who at the time were experiencing high claims volumes due to COVID-19 losses. This avoided the requirement to hire additional temporary resources. The idea was to seek volunteers from other parts of the business who might have some spare capacity and could offer their time to support others. This initiative proved to be such a success that it will be part of the company’s business as usual processes going forward.
Keeping connected To ensure the Beazley workforce remained connected in the remote working environment, weekly communications from the CEO and the executive management team were introduced in March 2020. These communications alternated between written and live virtual web-enabled updates to keep employees apprised of what was going on within the company and connected to their colleagues. The executive committee members and nonexecutive directors have hosted several virtual question and answer sessions as part of the weekly communications programme. The board asked for explanations and to have sight of the employee communications about the capital raise and the COVID-19 losses, recognising that many of our employees are also shareholders of the company.
Capital Throughout the year the board has taken various decisions in support of the company’s long term strategy, such as securing the extension of the multicurrency standby letter of credit and revolving credit facility and raising equity of $292.6m to support ongoing organic growth. The multicurrency standby letter of credit and revolving credit facility was extended in order to maintain a similar contingency buffer of standby funds available under the facility following a drawdown of funds earlier in the year. In May 2020, the board considered the optimal capital structure for the group and concluded it was an appropriate time for the company to raise equity. The board believed the decision would position the business for future growth opportunities (during a time of positive rate momentum across the company’s core markets) and provide further strength to the balance sheet in light of the continued uncertainty from the COVID-19 pandemic.
In taking the decision to raise capital, the board carefully considered the quantum and the timing, in light of the dilutive impact for shareholders and the deterioration in the company’s share price at the time. The board was keen to explore how a retail offering could be made in order that all shareholders could participate in the placing and agreed that a concerted effort would be made. The board sought the most expeditious means of conducting the placing given the uncertainty and volatility in the equity markets at the time and established that this solution would not allow for a pro-rata offering. The placing was successful and the board thanks our investors for their continued support. Given the financial result and the continued uncertainty, the board also took a difficult decision to not pay a dividend, but remains committed to returning to a progressive dividend strategy as soon as possible.
Beazley delivered increased premium and a robust investment return to achieve a modest loss against a backdrop of severe claims activity fuelled by COVID-19.
Net insurance claims 1,958.3 1,452.5 35% Acquisition and administrative expenses 974.4 889.7 10% Foreign exchange gain (11.2) (1.1) 918%
Reinsurance purchased Reinsurance is purchased for a number of reasons: • to mitigate the impact of natural catastrophes such as hurricanes and non-natural catastrophes such as cyber attacks; • to enable the group to put down large lead lines on the risks we underwrite; and
The amount the group spent on reinsurance in 2020 was $646.8m (2019: $500.4m). As a percentage of gross premiums written it increased to 18% from 17% in 2019.
Combined ratio The combined ratio of an insurance company is a measure of its operating performance and represents the ratio of its total costs (including claims and expenses) to total net earned premium. A combined ratio under 100% indicates an underwriting profit. Consistent delivery of operating performance across the market cycle is clearly a key objective for an insurer. Beazley’s combined ratio deteriorated in 2020 to 109% (2019: 100%) due to the impact of first-party COVID-19 losses and increases in ransomware reserves.
Claims After a series of years with material natural catastrophes, COVID-19 brought a wave of event cancellation and business interruption claims that have particularly hit our contingency and property books. Our first-party COVID-19 claims estimate remains at $340m net of reinsurance (of which $82.5m has been treated as an unexpired risk reserve in respect of events dated after 31 December 2020). This figure assumes a resumption to some form of normality in the second half of 2021. Were this not to be the case, we estimate that there is potential for a further $50m of claims net of reinsurance to the end of 2021. We continue to see increases in attritional claims due to ransomware and social inflation. As a result of these trends as well as the COVID-19 related costs, our claims ratio for the year deteriorated to 73% (2019: 62%).
Reserve releases Beazley has a consistent reserving philosophy, with initial reserves being set to include risk margins that may be released over time as and when any uncertainty reduces. Historically these margins have given rise to held reserves within the range of 5-10% above our actuarial estimates, which themselves include some margin for uncertainty. The margin held above the actuarial estimate was 6.3% at the end of 2020 (2019: 6.8%). Reserve monitoring is performed at a quarterly ‘peer review’, which involves a challenge process contrasting the claims reserves of underwriters and claim managers, who make detailed claim-by-claim assessments, and the actuarial team, who provide statistical analysis. This process allows early identification of areas where claims reserves may need adjustment. During years where we experience large losses we tend to see the margin we monitor being lowered as often we hold the same estimates within both the actuarial and held reserve estimates. This year, there are a number of drivers which cause this effect. Firstly, the significant first-party losses resulting from COVID-19 are held at a similar level in both the held loss reserves and the actuarial estimates. This is also the case for the number of natural catastrophes that occurred in the second half of 2020. Finally, as the aggregate reinsurance is operating on a number of years with Specialty Lines and Cyber & Executive Risk, this also has the effect of the two measures being similar net of reinsurance. Allowing for these effects would move the surplus around the middle of the target range.
The reserve releases in 2020 increased to $93.1m (2019: $9.5m) with all divisions contributing releases except Cyber & Executive Risk where an uptick of cyber ransomware activity resulted in a strengthening of $4.4m this year (2019: $9.4m release). Our Specialty Lines division has seen an increase in releases to $58.0m (2019: $36.9m). Our newly separated division Market Facilities, which was previously within Specialty Lines, is also contributing a $0.9m release (2019: nil). Our Political, Accident & Contingency division provided $4.6m of releases (2019: $16.8m) and our Marine, Property and Reinsurance divisions have all seen a return to releases this year, with Marine contributing $8.9m (2019: $6.4m strengthening), Property contributing $4.4m (2019: $17.1m strengthening) and Reinsurance contributing $20.7m (2019: $30.1m strengthening).
Prior year reserve adjustments $m $m $m $m $m 5 year average $m
Brokerage costs are the premium commissions paid to insurance intermediaries for providing business. As a percentage of net earned premiums they have remained a steady 23% in the current year (2019: 23%). Brokerage costs are deferred and expensed over the life of the associated premiums in accordance with the group’s accounting policy. Other acquisition costs comprise costs that have been identified as being directly related to underwriting activity (e.g. underwriters’ salaries and Lloyd’s box rental). These costs are also deferred in line with premium earning patterns.
Beazley focuses on improving our expense ratio during times of strong growth. In addition, reduced travel during recent times have dampened expenses during 2020 compared to previous years. Finally, due to the overall financial result this year, there have been further reductions as a result of lower discretionary remuneration. These three effects have led to the overall expense ratio improving from 38% in 2019 to 36%, with actual administrative expenses decreasing to $235.5m (2019: $244.3m).
Investment performance Our financial assets continued to grow in 2020: the total value of our investments, cash and cash equivalents reached $6,671.5m by the year end (2019: $5,851.3m). These generated an investment return of 3.0%, or $188.1m, in 2020 (2019: 4.8%, $263.7m). This outcome is ahead of our expectations at the beginning of the year, but belies the significant volatility which our investments have experienced during the period, reflecting the unprecedented global background.
Most of our fixed income securities, which form the majority of our investments, are exposed to movements in US risk-free yields. The value of these investments rose as risk-free yields declined to near zero in the first quarter, driven by expectations that COVID-19 would impair economic activity, requiring very low interest rates for an extended period. However, these gains were more than offset by losses on our other investments in the first quarter. Global equity markets declined by more than 20% in this period, but more significant for Beazley was a widening of credit spreads on our US corporate debt investments: even short-dated securities with investment grade credit ratings saw spreads increase by more than 200 basis points in Q1, generating significant losses in these securities. We acted quickly to reduce our exposures to the most volatile asset classes as losses developed, limiting the impact on our portfolio, but our investments still lost 1.0% in the first three months.
Our core portfolio exposures returned 2.9% in 2020 overall (2019: 4.3%), ultimately driven by the decline in riskfree yields in the first quarter, while our more volatile capital growth investments returned 3.5% (2019: 8.6%), helped by the robust recovery in equities, as well as a strong performance from our hedge fund portfolio.
AA+ 1% AA- 46% A+ 42% A 3% A- 1% Collateralised 6% Others 1%
Net assets per share (pence) 219.1p 235.0p (7%) Net tangible assets per share (pence) 203.8p 217.3p (6%)
1 Excludes shares held in the employee share trust and treasury shares.
Intangible assets Intangible assets consist of goodwill on acquisitions of $62.0m (2019: $62.0m), purchased syndicate capacity of $10.7m (2019: $10.7m), US admitted licences of $9.3m (2019: $9.3m), renewal rights of $8.7m (2019: $17.3m) and capitalised expenditure on IT projects of $35.6m (2019: $22.9m).
Reinsurance assets Reinsurance assets represent recoveries from reinsurers in respect of incurred claims of $1,305.6m (2019: $1,068.8m), and the unearned reinsurance premiums reserve of $379.1m (2019: $269.4m). The reinsurance receivables from reinsurers are split between recoveries on claims paid or notified of $262.2m (2019: $223.7m), an actuarial estimate of recoveries on claims that have not yet been reported of $1,034.4m (2019: $845.1m), and unexpired risk reserve of $9.0m (2019: nil).
• regular monitoring of the outstanding debtor position by our reinsurance security committee and credit control committee. We continue to provide against impairment of reinsurance recoveries and at the end of 2020 our provision in respect of reinsurance recoveries totalled $14.8m (2019: $13.7m).
Insurance liabilities Insurance liabilities of $7,378.4m (2019: $6,059.0m) consist of two main elements, being the unearned premium reserve (UPR) and gross insurance claims liabilities. Our UPR has increased by 20% to $1,924.3m (2019: $1,598.7m). The majority of the UPR balance relates to current year premiums that have been deferred and will be earned in future periods. Current indicators are that apart from the specific provisions made in respect of the unexpired risk reserves detailed in note 24, the business is profitable. Gross insurance claims reserves are made up of claims which have been notified to us but not yet paid of $1,507.3m (2019: $1,263.7m), an estimate of claims incurred but not yet reported (IBNR) of $3,855.3m (2019: $3,196.6m), and an unexpired risk reserve of $91.5m (2019: nil). These are estimated as part of the quarterly reserving process involving the underwriters and group actuary. Gross insurance claims reserves have increased 22% from 2019 to $5,454.1m (2019: $4,460.3m). Part of the first-party claims estimate of $340m has been treated as an unexpired risk reserve, in respect of those losses which were booked during 2020 in respect of events that were planned to happen during 2021.
The cash element of the facility will expire on 23 July 2022, whilst letters of credit issued under the facility can be used to provide support for the 2019, 2020 and 2021 underwriting years. In 2020 $225m has been drawn down under the facility and placed as a letter of credit as Funds at Lloyd’s (FAL).
(2019: $350.7m); and • deferred tax assets available for use against future taxes payable of $26.8m (2019: $41.0m).
During 2020 there were significant growth opportunities as many markets in which we operate saw conditions improving. The combination of this, along with the increased claims arising during the year from COVID-19 led to Beazley proceeding with an equity raise in May 2020. We successfully raised $292.6m of new capital through a non-pre-emptive share issuance, in part, to aid our growth ambitions.
Beazley has a number of requirements for capital at a group and subsidiary level. Capital is primarily required to support underwriting at Lloyd’s, the US and through our European branches and is subject to prudential regulation by local regulators (Prudential Regulation Authority, Lloyd’s, Central Bank of Ireland, and the US state level supervisors). Beazley is subject to the capital adequacy requirements of the European Union (EU) Solvency II regime (SII). We comply with all relevant SII requirements.
Overall we expect our capital requirement to grow broadly in line with the net written premiums in our business plan, which in the short-term should be mid double digit growth.
At Beazley we aim to hold excess capital over the Lloyd’s ECR and US capital requirement, expressed as a % of Lloyd’s ECR, and have a preferred range of 15-25%. At 31 December 2020, we have surplus capital (on a solvency II basis) of 23% of ECR, within our current target range of 15% to 25% of ECR. Given the stringent nature of the Lloyd’s ECR as noted above, our group surplus capital ratio is not directly comparable to the standard Solvency II capital ratio which is based on a one year time horizon.
In 2020, Beazley acquired two million of its own shares into the employee benefit trust. These were acquired at an average price of 528.7p and the cost to the group was $13.6m.
Solvency II The Solvency II regime came into force on 1 January 2016. Beazley continue to provide quarterly Solvency II pillar 3 reporting to both Lloyd’s for the Beazley managed syndicates and the Central
• Beazley NewCo Captive Company, Inc – provides internal reinsurance to BICI for adverse development on older accident years.
Operationally, the events of this year have tested us – but it’s important that we don’t lose sight of the positive changes that have taken place and use the opportunity to move our business forward.
How businesses operate has been evolving incredibly quickly in recent years as technology and data have reshaped society, changing the way organisations interact and how markets function.
However, over the past 12 months the speed of that change accelerated dramatically as COVID-19 forced all of us to adapt overnight to living and working with a degree of uncertainty and ambiguity never before seen.
Working flexibly Part of ensuring that Beazley remains forward-looking and able to attract and retain talent is challenging ourselves to offer a differentiated working experience. We are not just competing with our insurance peers for talent, but with employers that appeal more naturally to those with the digital and data-focused skills we need as we develop our techfriendly workforce. One of the ways we have sought to differentiate ourselves has been in transforming our offices into more flexible, collaborative working spaces based on the principle of activitybased working (ABW). We started this project three years ago and colleagues in Birmingham, Toronto, Barcelona and New York have been the forerunners in moving into these new-look offices. In 2019 and early 2020, we rolled out new equipment and offered training to our global workforce to give them the tools and option to work more flexibly, either in the office or remotely. This investment in equipment and software, including collaboration tools we are all now so familiar with, has enabled us all to trade and communicate with our partners and colleagues with scarcely an interruption throughout 2020.
Whilst the pandemic will have a lasting effect on how and where we work, we believe office space plays an integral role in our future. We postponed our move in London to 22 Bishopsgate due to lockdown and are now looking forward to moving in during the summer of 2021. We signed this lease in 2018, taking the decision at the time to reduce capacity, based on research into how work spaces were being used by colleagues and in anticipation of employees choosing to work remotely for more of the time in the future. This data-led approach has served us well; the only significant change we have made to our plans for the new office is to shift the balance between high-focus and collaboration areas in favour of collaboration. Our internal feedback and research suggest this rebalancing better reflects how people will choose to split their working time between the office and home post lockdown.
We have carefully observed the impact of this pandemic on our business and fully intend to preserve the positive elements. Productivity in terms of submissions, quotes and new policies increased year on year and we will continue to operate a hybrid model of remote and office working for the future, secure in the knowledge that it works from the perspective of both our business and our people.
Market developments The Future at Lloyd’s programme has continued to push the market towards greater operational efficiency, better processes and solutions for easier clients. We remain heavily engaged across multiple levels as well as taking an active role in Lloyd’s innovation platforms. For Beazley we have substantially increased our usage of the Lloyds Placing Platform Limited (PPL) and 85% of our risks are now placed electronically in London. In pursuit of greater efficiency in terms of less re-keying, we have installed robotics to manage data flow in PPL and to free up underwriters from time spent on administrative tasks.
Digital future-proofing We continue to review our processes and systems to build a more digitally enabled data-led organisation in the future. We do not just focus on how we use technology but how we apply it to improve overall business practices.
The digital business management committee established in June 2020, has become the governing body to drive forward Beazley’s e-trade initiatives to improve customer, product and service outcomes against a five-year plan from 2021. The committee is considering the complexity of products and their digital viability to determine the scope of the plan, as well as the suitability of Beazley’s structures and systems and any skills gaps to drive it forward.
Workflow automation has continued at pace through the standardisation of underwriting systems, processes and resources where we have identified commonality. To improve this we have been promoting cross-team reuse of data, data-sharing and collaboration. This has worked effectively for our US-based private enterprise team and in rationalising endorsement data.
Through the Faster, Smarter Underwriting (FSU) strategic initiative we continue to use data and analytics to: help underwriters to better monitor their portfolio performance; to standardise systems and processes where there is commonality; and to drive more efficiency and standardisation into complex underwriting. To do this we need to capture and apply the data we already have more effectively and work with specialist partners where they bring value. We have been applying these strategies across the business.
In one instance, our highly experienced internal information and security (InfoSec) team identified potential software vulnerabilities that could have affected many of our clients’ networked systems. They then worked with one of our recently appointed cyber security partners to proactively scan our existing policyholders for these vulnerabilities so we could actively bring the issue to their attention and ensure they install the required patch. We have been able to alert thousands of clients to potential weaknesses in their cyber security and share the patch, thus avoiding potentially millions of dollars in claims and disruption to their businesses. This approach has proved so successful in protecting our operations, improving loss ratios and providing clients with added value services that we can now extend it globally through a new partnership for non-US operations.
We continue to invest in building out application programming interfaces (APIs) so brokers can directly link into our systems to transact business without excessive re-keying, making it quicker and simpler for brokers to retrieve multiple quotes. The use of APIs means improved data transmission and scope for analytics, and have the added advantage to us of being scalable and simple to adapt. We now actively integrate with three brokers in this way and believe it will become the norm for interfacing between brokers and carriers in the commercial insurance space over this decade.
This is now the third year that change has been the key theme of my report; however, what has shifted is the sheer scale of change that this year has brought. COVID-19 has had a profound impact on society, industry and us as individuals.
This year we have been put through our paces, with the pandemic proving to be a robust test of the design and operation of our risk management framework – which has responded well, helping us navigate the many challenges thrown our way. In particular, the framework remains effective despite the fundamental change to our ways of working – a transformation in practices not seen for generations.
Transition Responding to change starts with transition. Like many companies around the globe, all Beazley employees moved to remote working in March 2020, in an operational shift the size and scale of which had never been imagined. During this time of uncertainty, and whilst managing this shift, our employees retained focus and momentum and the company continued to function seamlessly. Behind this transition were a number of operational risk management drivers. Our investment in IT hardware and training meant staff had the tools needed to work effectively anywhere, and also the requisite knowledge to use them effectively. Additionally, processes and controls were in place and clearly understood so they could continue to work efficiently and effectively despite the physical distancing of the workforce.
At its heart, operational risk is about people, processes and systems. Monitoring provided by the risk management framework has provided assurance to the board that these three elements continued to work effectively during 2020.
Brexit The UK and EU signed a trade agreement prior to the end of the Brexit transition period. Whilst this removes some key economic uncertainties, the practical challanges for financial services in general and Beazley specifically are unchanged and so the preparations previously put in place mean that Beazley could continue to operate despite the loss of passporting rights. As such, no changes to the structures and processes put in place by Beazley are necessary following the trade deal. Furthermore, on 30 December 2020, Lloyd’s policies covering EU based insureds were
The underwriting percentages have reduced slightly since the 31 December 2019 assessment, as a result of changes in the Treaty portfolio which mean that more of the policies are already exhausted, thereby reducing the scope for further deterioration under the three scenarios. The investment percentages have generally increased since the 31 December 2019 assessment as a result of holding a higher proportion of sovereign bonds. It is worth noting that the investment portfolio is not significantly affected with all scenarios generating a loss that would be less than 0.5% of the total portfolio.
(a Minsky moment), ensuing from rapid global action and policies, and materialising over the medium-term business planning horizon, that results in temperature increase being kept below 2 degrees Celsius (relative to pre-industrial levels) but only following a disorderly transition.
Risk management strategy The Beazley plc board has delegated executive oversight of the risk management department to the executive committee, which in turn has delegated immediate oversight to the risk and regulatory committee. The Beazley plc board has also delegated oversight of the risk management framework to the audit and risk committee, and the primary regulated subsidiary boards have each established an audit and risk committee or standalone risk committee.
For each risk, the risk management report brings together a view of how successfully the business is managing risk and whether there have been any events that we can learn from (risk incidents). Finally, the framework is continually evaluated and where appropriate improved, through the consideration of stress and scenario testing, themed reviews using risk profiles, and an assessment of strategic and emerging risks. There were no material changes made during 2020. A suite of risk management reports are provided to the boards and committees to assist senior management and board members to discharge their oversight and decision-making responsibilities. The risk reports include the risk appetite statement, the risk management report, risk profiles, stress and scenario testing, reverse stress testing, an emerging and strategic report, a report to the remuneration committee and the Own Risk and Solvency Assessment (ORSA) report.
I provide a quarterly ORSA to the board summarising the short-term and longerterm risks to the group and the capital implications.
The board has also given specific consideration to the work of the Brexit team and whether or not Brexit materially impacts viability and has concluded it does not.
The risks to financial performance The board monitors and manages risks grouped into eight categories, which cover the universe of risk that could affect Beazley. There have been no new risk areas identified and, apart from COVID-19, there have been no major changes in existing risks. The board confirm that they have undertaken a robust assessment of the principal risks and uncertainties that the group faces. The board considers the first two of the following risk categories to be the most significant.
• Crisis management: This is the risk caused by the destabilising effect of the group having to deal with a crisis and is mitigated by having a detailed crisis management plan.
• Operational risk: This is the risk of failures of people, processes and systems or the impact of an external event on Beazley’s operations, and is monitored by the operations committee. An example would be a cyber-attack having a detrimental impact on our operations.
• Credit risk: Beazley has credit risk to its reinsurers, brokers and coverholders, of which the reinsurance asset is the largest. The underwriting committee monitors this risk.
• Group risk: The key risk is a deterioration in Beazley’s culture which leads to inappropriate behaviour, actions or decisions. This is monitored through engagement surveys, staff feedback and regular dialogue with senior management. As the structure of the Beazley group is not complex, the other main group risk is that one group entity operates to the detriment of another group entity or entities. The Beazley plc board monitors this risk through the reports it receives from each entity.
Climate change risk The changing global climate is recognised as an important emerging risk due to its widespread potential impact on the global population, environment and economy. A key aspect of Beazley’s business model is to support our clients who have been affected by natural catastrophes, helping them return to pre-catastrophe conditions as soon as possible. As a specialist insurer, various classes of business we underwrite are subject to the effect climate change presents to the risk environment.
We acknowledge and accept that over time climate change could impact the risks facing our insureds and we aim to manage the resulting risk to Beazley as described below: • Pricing risk: This is the risk that current pricing levels do not adequately consider the prospective impact of climate change, resulting in systemic underpricing of climate-exposed risks. The group’s business planning process establishes how much exposure in certain classes of business or geographic area we wish to accept. We benefit from a feedback loop between our claims and underwriting teams to ensure that emerging claims trends and themes can be contemplated in the business planning process, the rating tools and the underwriter’s risk-by-risk transactional level considerations. Our underwriters are empowered to think about climate risk during their underwriting process in order to determine the implication on each risk.
• Catastrophe risk: This is the risk that current models do not adequately capture the impact of climate change on the frequency, severity or nature of natural catastrophes or other extreme weather events (e.g. wildfires) that could drive higher-than-expected insured losses. The group utilises commercial catastrophe models to facilitate the estimation of aggregate exposures based on the group’s underwriting portfolio. These catastrophe models are updated to reflect the latest scientific perspectives. Catastrophe models are evolving to include new or secondary perils which may be related to climate change. In addition, the group runs a series of natural catastrophe Realistic Disaster Scenarios (RDS) on a monthly basis which monitor the group’s exposure to certain scenarios that could occur. These RDS include hurricanes in the US, typhoons in Japan, European windstorms and floods in the UK.
• Asset risk: This is the risk that climate change has a significant impact across a number of industries which may negatively impact the value of investments in those companies. The group considers the impact of climate change on its asset portfolio by seeking to incorporate an assessment of environmental risks in the investment process. We subscribe to the research services of a specialist company in the field of environmental, social and governance research and have integrated their proprietary ratings into the internal credit process applied to investments in corporate debt securities. A minimum standard for environmental, social and governance performance is defined and companies not meeting the required standard will be excluded from the approved list of issuers. The analysis also includes consideration of the sustainability of each company with regard to the potential decline in demand in specific sectors.
• Commercial management risk: The group aims to minimise where possible the environmental impact of our business activities and those that arise from the occupation of our office spaces. As we operate in leased office spaces our ability to direct environmental impacts is limited. However, we do choose office space with climate change mitigation in mind, and engage with our employees, vendors and customers in an effort to reduce overall waste and our environmental footprint.
Management report The directors’ report, together with the strategic report on pages 1 to 68, serves as the management report for the purpose of Disclosure and Transparency Rule 4.1.8R.
Review of business A more detailed review of the business for the year and a summary of future developments are included in the statement of the Chair, the Chief Executive’s statement and the financial review.
Given the financial result, and the continued uncertainty around COVID-19, the directors have decided not to pay a second interim dividend, in line with the action taken at the half year (2019 second interim dividend: 8.2p). Beazley remain fully committed to a progressive dividend strategy and are focused on returning to paying dividends in 2021.
Going concern and viability statement A review of the financial performance of the group is set out on pages 44 to 52. The financial position of the group, its cash flows and its borrowing facilities are included therein.
Directors The directors of the company who served during 2020 and/or to the date of this report were as follows: David Lawton Roberts Non-Executive Chair David Andrew Horton Chief Executive Adrian Peter Cox Director Pierre-Oliver Desaulle Non-Executive Director (appointed 01/01/2021) Nicola Hodson Non-Executive Director Sally Michelle Lake Finance Director Christine LaSala Non-Executive Director Sir John Andrew Likierman Non-Executive Director Anthony Jonathan Reizenstein Non-Executive Director John Peter Sauerland Non-Executive Director Robert Arthur Stuchbery Non-Executive Director Catherine Marie Woods Non-Executive Director
Sir Andrew Likierman and John Sauerland will be standing down from the board at the conclusion of the AGM on 26 March 2021.
The board is complying with the provision on annual re-election of all directors in accordance with the UK Corporate Governance Code. The appointment and replacement of directors is governed by the company’s Articles of Association (the Articles), the UK Corporate Governance Code (the Code), the Companies Act 2006 and related legislation. The Articles may be amended by a special resolution of the shareholders. Subject to the Articles, the Companies Act 2006 and any directions given by special resolution, the business of the company will be managed by the board which may exercise all the powers of the company.
Corporate governance The company was compliant with UK Corporate Governance Code during 2020. More information on compliance is disclosed in the statement of corporate governance on pages 77 to 91.
Fidelity Management & Research 54,836,274 9.0 MFS Investment Management 41,497,340 6.8 Wellington Management 31,167,709 5.1
Platinum Asset Management 25,151,060 4.1 Vanguard Group 24,924,689 4.1 Janus Henderson Investors 18,345,350 3.0 Note: All interests disclosed to the company in accordance with DTRs that have occurred can be found on the news and alerts section of our corporate website: www.beazley.com
Research and development In the ordinary course of business the group develops new products and services in each of its business divisions and develops IT solutions to support the business requirements.
Employee engagement We place great emphasis on open and regular communication, which helps to ensure employees are apprised of what is going on at Beazley. Throughout the year the board considered the impact of the ongoing COVID-19 pandemic on the company’s employees and received regular feedback via monthly employee pulse surveys. The board also received regular updates on the enhanced communication mechanisms that were implemented during the pandemic. We have a number of channels to share information and gather feedback, including an intranet which is accessible by all employees and is updated at least every other day with company news.
share. During 2020, we continued to have these sessions virtually. We also ask for volunteers to work on projects outside their day jobs in order to give different perspectives to decisions the company is making. In addition, a group of selected representatives from across the business gather input and views on set topics and provide those to the board through Bob Stuchbery, the non-executive director nominated by the board to bring views of the workforce to the boardroom.
Part of our Beazley culture is creating an open and inclusive environment for all of our employees, celebrating our differences and creating internal networks to help us connect. We treat everyone equally irrespective of age, sex, sexual orientation, race, colour, nationality, ethnic origin, religious or other philosophical belief, disability, gender identity, gender reassignment, marital or civil partner status, pregnancy or maternity. We hire people with wider perspectives, leading to a more dynamic, innovative, and responsive organisation in touch with the changing world and marketplace. All applications for employment are fully considered on the basis of the skills and aptitudes of the applicant concerned, including those candidates with disabilities. In the event an employee becomes disabled, every effort is made to ensure that their employment with the group continues, and that appropriate support is arranged. It is the policy of the group that the training, career development and promotion of disabled persons should, so far as possible, be identical to that of other employees.
Share capital Beazley raised $292.6m of equity during the year to take advantage of growth opportunities and in response to COVID losses. As at 31 December 2020, the company’s issued shared capital comprised 608,942,527 ordinary shares, each with a nominal value of 5p and representing 100% of the total issued share capital. Details of the movement in ordinary share capital during the year can be found in note 21 on page 181. There are no restrictions on the transfer of shares in the company other than as set out in the Articles of Association and certain restrictions which may from time to time be imposed by law and regulations.
The board continues to regard the ability to repurchase issued shares in suitable circumstances as an important part of the financial management of the company. A resolution will be proposed at the 2021 AGM to renew the authority for the company to purchase its own share capital up to the specified limits for a further year. More detail of this proposal is given in the notice of AGM.
In 2020 we amended the multicurrency standby letter of credit and revolving credit facility to increase its capacity from $225m to $450m. No other significant changes were made to the facility agreement since the previous amendment in July 2019. The agreement, which is between the company, other members of the group and various banks, provides that if any person or groups of persons acting in concert gains control of the company or another group obligor, then: (a) the banks are thereafter not obliged to participate in any new revolving advances or issue any letter of credit; and (b) the facility agent may: (i) require the group obligors to repay outstanding revolving advances made to them together with accrued interest; and (ii) 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.
The directors have pleasure in presenting their report and the audited financial statements of the group for the year ended 31 December 2020.
Further clarifications for each section of the reporting is included below: Company cars Data collated for company cars include yearly mileage agreement, make, model, registration and fuel type. Consumption has been based on the maximum agreed mileage for the car in 2020, as set out in the lease agreement. Fuel economy data has been based on the worst case fuel consumption figures cited by the manufacturer. This has enabled the kWh energy associated with the car to be calculated. There were 13 company cars used across 2020 of which seven are current at the end of 2020. Five of these cars are either hybrids or electric.
Energy report Beazley has a total of 1,646.5 FTE staff (including contractors) as at 1st January 2021, 1,450.52 (including contractors) of which are considered in scope for the global energy consumption reported in the tables below. Within the UK, Beazley has 773.61 FTE (including contractors). This is the equivalent of 46.98% of our global workforce.
Company cars The total estimated kWh equivalent for fuel consumption in 2020 is 55,480.50 kwh.
Car hire There was no in scope energy use related to car hire within 2020. It is estimated globally hire car use was as follows: Estimated energy use from car hire (kWh) 2018 2019 2020
Overall energy consumption Within the scope of the SECR, total energy consumption within the UK was 1,364,903.5 kWh. This equates to 1,764.33kWh/FTE.
Global energy use from Beazley’s operations within the same scope was 2,945,731.98 kWh, which equates to 2,030.81kWh/FTE.
By order of the board, covering the strategic report from pages 1 to 68 and the directors’ report from pages 63 to 68.
On behalf of the board of directors, I am pleased to present the governance report, in which we describe our governance arrangements, the operation of the board and its committees and how the board discharged its responsibilities throughout the year.
We have not made any fundamental changes to our governance framework during the year, however the board has continued to increase its emphasis on its consideration of our wider stakeholders and on our corporate purpose.
The board welcomed Pierre-Olivier Desaulle who was appointed as a director with effect from 1 January 2021. Pierre-Olivier’s operational insurance experience will provide valuable insight to the board, as the group continues to grow its presence in Europe.
As we announced in September 2020, Nicola Hodson has joined the remuneration committee and John Reizenstein joined the nomination committee.
Our people Communication with our people has always been a key focus for the company, but the importance of this has been underscored in 2020 during the pandemic, and I have been impressed with the effort and enthusiasm afforded to communicating and keeping employee engagement levels high, together with finding innovative ways of supporting the workforce. This year we introduced monthly pulse surveys. This allowed us to understand our people’s concerns, and the company has been able to react in meaningful ways to address these. Bob Stuchbery, the director appointed to bring workforce feedback into the boardroom, has continued to report to the board and also to evolve the process. One of the particular contributions from the ‘Sounding Board’ this year that the board considered was their feedback on the company’s sustainability strategy. In addition to the regular engagement that the executive team has with staff in all jurisdictions, the non-executive directors periodically travel to Beazley’s offices to meet with staff – this year, we continued these office visits ‘virtually’. Along with other non-executive directors, I participated in panel discussions on the work of the board and topical areas of interest that were broadcast to all staff.
The board continues to devote significant attention to developing robust succession plans for both the board and senior management and reviewing the pipeline of emerging talent throughout the organisation. The board has also had continued oversight and provided challenge on the group’s inclusion and diversity strategy.
Board effectiveness In 2019, we conducted internal board and committee evaluations. As was the case last year, the review concluded that the board, its committees and its individual members continue to operate effectively however there were particular areas on which the board should focus. The following were the key areas that the board addressed during 2020: • the board considered whether to separate the audit and risk committee, in order to achieve a greater emphasis on risk as identified in the evaluation process. The agendas of the audit and risk committee were subsequently revised to provide a more balanced time allocation for risk discussions and Bob Stuchbery agreed to act as the director with designated responsibility for risk. The board concluded that the change in the agendas had brought about the desired outcome and the committee structure would remain as it was.
• the search for two non-executive directors to bring additional skillsets and knowledge to the board, was progressed, and one of the positions was filled. It is anticipated that the other role will be filled in 2021.
• progress was made in reducing duplication of matters considered by the board and its subsidiaries, and opportunities for reducing this further would be sought in the coming year.
• improvements were made to both the quality and conciseness of board reports, which allowed for meaningful discussions. • delivery of the board training plan.
I would like to thank all of my colleagues on the board for their contribution during the year.
The audit and risk committee assists the board of directors in fulfilling its oversight responsibilities 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. It also ensures that an effective risk management process exists in the major regulated subsidiaries and that the Beazley group has an effective framework and process for managing its risks.
Appointed: 1 November 2017 Experience: David joined Beazley on 1 November 2017 and became Chair on 22 March 2018. He is Chair of Nationwide Building Society and Vice Chair of NHS England. He has over 30 years’ experience in financial services and was previously Chair and CEO of Bawag PSK AG, Austria’s second largest retail bank, and an executive director and member of the group executive committee at Barclays plc, where he was responsible for the international retail and commercial banking business. Prior to joining Nationwide he was group Deputy Chair at Lloyds Banking Group. His previous non-executive directorships include Absa Group SA and BAA plc. Committee: Nomination committee (chair) Skills: governance, strategy, board leadership and regulation.
12. Robert Stuchbery Non-Executive Director and Employee Voice of the Board
Appointed: 10 April 2019 Experience: Nicola joined the board in April 2019. Nicola is Vice President Field Transformation, for Microsoft Global Sales and Marketing and was previously Chief Operating Officer for Microsoft UK. She is a NonExecutive Director on the board of Drax Group plc and is chair of its remuneration committee. Nicola was formerly a NonExecutive Director at Ofgem, a board member at the UK Council for Child Internet Safety and at the Child Exploitation and Online Protection group. Committees: Audit and risk committee, remuneration committee Skills: strategy, leadership and management. digital transformation, sales & marketing.
Appointed: 1 January 2016* Experience: Catherine has 35 years’ experience in financial services as well as significant governance experience. Her executive career was with JP Morgan in the City of London, specialising in European financial institutions. She is a former vice president and head of the JP Morgan European Banks equity research team. She is currently a Non-Executive Director of BlackRock Asset Management (Ireland) and is an independent director at Lloyds Banking Group Board. She was previously appointed by the Irish Government to the Electronic Communications Appeals Panel and the Adjudication Panel to oversee the rollout of the National Broadband scheme. Catherine is a former Deputy Chair of AIB Group plc, former Chair of EBS DAC and former Non-Executive Director of AIB Mortgage Bank and An Post. Committees: Audit and risk committee, remuneration committee, nomination committee Skills: insurance, strategy, stakeholder management, finance, governance, leadership and management.
Non-Executive Directors * Where the appointment date of a director pre-dates 13 April 2016 (being the date that Beazley plc became the holding company of Beazley Group) this appointment date refers to their representation on the Beazley Ireland Holdings plc board (formerly Beazley plc).
Financial reporting for insurance companies can seem to be complex. In order to help shareholders and potential investors better understand the key drivers of the business and its prospects, we have endeavoured to provide increasing levels of transparency and explanation in our communications. As a result, in addition to enhancing the information contained in the annual and interim reports, the investor relations centre on the company website contains a substantial amount of relevant information for investors, including key corporate data and news, presentations to analysts, information for the names of syndicate 623 and special purpose syndicates 5623 and 6107, analyst estimates and a financial calendar. The website also gives investors the opportunity to sign up for an alert service as new information becomes available.
The Code can be viewed on the www.frc.org.uk website. The governance section, together with the directors’ and remuneration reports, describes how the committee have applied the main principles of the Code and complied with its detailed provisions.
Governance framework The company operates through the main board, the managing agent board, the board of the Irish insurance company (that accepts non-life reinsurance premiums ceded by the corporate member, Beazley Underwriting Limited), the board of the US admitted insurance companies and their board committees. The group has established properly constituted audit and risk, remuneration, nomination and disclosure committees of the board. There are terms of reference for each committee and details of their main responsibilities and activities in 2020 are set out on pages 78 to 91. Andrew Horton as the chief executive officer, has also constituted an executive committee that he chairs and which acts under delegated authority from the board. The executive committee usually meets on a monthly basis and is responsible for managing all activities of the operational group. The governance framework of the main board and its committees is shown in the diagram on the following page.
Key responsibilities The nomination committee is focused on evaluating the board of directors, ensuring an appropriate balance of skills, considering and recommending board and committee candidates and considering board succession.
Key responsibilities The company secretary’s responsibilities include ensuring good information flows within the board and its committees and between senior management and non-executive directors, as well as advising the board through the chair on all governance matters.
As senior independent director Christine LaSala will, if required, deputise for the chair. She is available to talk to shareholders if they have any issues or concerns or if there are any unresolved matters that shareholders believe should be brought to her attention. There were no changes to board membership during 2020. Pierre-Olivier Desaulle was appointed as a non-executive director to the board with effect from 1 January 2021. Pierre-Olivier also serves as a non-executive director on the board of our subsidiary, Beazley Insurance dac. On 25 September 2020, the board appointed Nicola Hodson to the remuneration committee and John Reizenstein to the nomination committee.
Board meeting attendance The full board meets at least five times each year and more frequently where business needs require. In 2020, in addition to the seven regular board meetings, there were further meetings to consider the interim trading statements, the equity raise and the impact of COVID-19 on the business. All the directors also attend an annual strategy day. The audit and risk committee had additional ad hoc meetings. The chair holds meetings with the non-executive directors without the executive directors being present.
D Andrew Horton 7 7 – – – – – – Sally M Lake 7 7 – – – – – –
1 Nicola Hodson was appointed to the remuneration committee on 25 September 2020. 2 John Reizenstein was appointed to the Nomination committee on 25 September 2020.
4 Sir Andrew Likierman was unable to attend the December board meeting due to a scheduling clash brought about by the global pandemic.
There is an annual schedule of rolling agenda items to ensure that all matters are given due consideration and are reviewed at the appropriate point in the financial and regulatory cycle. Meetings are structured to ensure that there is sufficient time for consideration and debate of all matters.
During the year, the board has spent time particularly on: • monitoring of the impact of COVID-19 on the business; • discussions on the capital position and dividends, including the placement of new ordinary shares of the company and capital allocation; • review of strategic initiatives; • talent development and succession planning; • climate change and the risks and opportunities associated with it; • engagement with the workforce and other key stakeholders; • discussing the prioritisation of investment expenditure; • review of risk management framework, including risk appetite; • review of the Own Risk and Solvency Assessment (ORSA); • approval of the 2021 business plan, including plans for optimising growth; • cyber product development and cyber security; and • continued monitoring of developments and responding to requirements for Brexit.
Training, information and support New directors receive appropriate induction training when they join the board of Beazley plc. They are asked to complete a skills and knowledge assessment and a tailored training plan is developed. There are a number of modules available to the directors which are regularly reviewed to ensure they meet best practice and the changing business environment. Where appropriate, mentoring is provided to new directors by an external provider. Annual training is provided for all directors. The training sessions include business and industry specific topics and information on changes to director duties and responsibilities and to legal, accounting, information security and tax matters. Bespoke training will also be provided if requested by any director.
Overall the review concluded that the board and its committees continue to operate effectively.
The respective responsibilities of the directors and the auditors in connection with the accounts are explained in the statement of directors’ responsibilities and the independent auditors report, together with the statement of the directors on going concern in the directors’ report.
The board agreed the 2020 risk appetite for the group at the end of 2019 and, throughout 2020, the board has considered and acted upon the information presented to it in order to make risk based decisions against risk appetite. Key components of the risk management framework include monthly control self-assessments, with ad hoc risk assessments being conducted when required. These matters have been considered by the executive risk and regulatory committee each month and the audit and risk committee and board quarterly. Risk management also provides the board with a risk management view and/or opinion on key decision documents. In addition, the board has considered the quarterly Own Risk and Solvency Assessment report in the past year. This risk management framework has provided the board with an ongoing process for identifying, assessing, monitoring and managing the risks to the company. 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 chair of the audit and risk committee also had regular contact with external and internal auditors during 2020.
The company has the authority within its articles to communicate with its shareholders using electronic and website communication and to allow for electronic proxy voting.
Only members of the committee have the right to attend meetings; however standing invitations are extended to the chair, chief executive officer, the group finance director, the chief risk officer, the head of internal audit and the head of compliance. Other non-members may be invited to attend all or part of any meeting as and when appropriate. The company secretary acts as secretary to the committee.
John Reizenstein 10 April 2019 9/9 Nicola Hodson 10 April 2019 9/9 Christine LaSala 1 July 2016 9/9 Robert Stuchbery 11 August 2016 9/9 Catherine Woods 11 March 2016 8/9
John Reizenstein Non-Executive Director in the current environment. In addition to assessing the risk and control framework, in 2020 the committee also considered a number of specific issues including monitoring changes in regulatory and tax environments, appraising the impact of COVID-19 on the group and assessing the risks associated with Brexit.
• review and approve the internal audit plan, charter and ensure the function has the necessary resources and access to information.
Risk management and compliance a) Internal control and risk management systems • review the company’s internal financial controls and the company’s internal control and risk management systems; • advise the board on the company’s risk management framework, which includes the risk management objectives, risk appetite, risk culture and assignment of risk management responsibilities; • review risk reports and management information to enable a clear understanding of the key risks and controls in the business; • review any breaches of risk appetite and the adequacy of proposed action; • review the identification of future risks, including considering emerging trends and future risk strategy; and
• review the regular reports from the group head of compliance and keep under review the adequacy and effectiveness of the group’s compliance function.
As with the prior years, the committee also considers the report of the external auditor following its re-projection of reserves using its own methodologies. On the basis of the work the auditor undertook, it reported no material misstatements in respect of the level of reserves held by the group at the balance sheet date.
On the basis of the information provided by the group actuary throughout the year and at the year end and the consistent application of Beazley’s reserving philosophy, the committee was satisfied that the reserves held on the group statement of financial position at 31 December 2020 were appropriate.
On the basis of the reporting received and reviewed during the last 12 months, the audit and risk committee remains satisfied that the estimation and control processes deployed by the group are appropriate.
The committee notes that the overall investment strategy is broadly unchanged from prior periods. The committee receives updates from the group finance director and/or the chief investment officer and it has reviewed reports that confirm that the investment portfolio is in line with the 2020 board approved risk appetite, that carrying values of the portfolio as at 31 December 2020 are appropriate and that the valuation methodologies applied to each hierarchy level are consistent with the accounting policies. Committee members are invited to and periodically attend the investment committee.
No misstatements that were material in the context of the financial statements as a whole were identified and the committee was satisfied with the approach employed by management in valuing the financial assets at fair value on the balance sheet at 31 December 2020.
v) Recoverability of reinsurance assets The committee received confirmation from management that over 90% of Beazley’s reinsurance receivables are due from highly rated institutions. During the year, the committee has not noted any instances where poor quality reinsurers have led to a material financial loss and is comfortable with the monitoring processes management have described and put in place to ensure this continues.
Considering management updates and supported by the external auditor’s report on the output of their work over assessing the recoverability of the group’s reinsurance assets, the committee was satisfied that the judgements applied by management in making provision for bad debts are appropriate.
The committee reviews detailed projections of future cash flows, profit forecasts and capital requirements under various scenarios, including scenarios stressed in terms of claims frequency and liquidity. In the current year, we considered the group’s capital position with regards to the group’s issuance of new equity of $293m.
We also considered the appropriateness of management’s viability statement and the period over which this analysis is performed. The committee was satisfied by the level of analysis presented during the year and the related approach taken and statements made in the group’s key external reporting.
c) Internal audit The group’s internal audit function reports directly, and is accountable to, the committee and the head of internal audit has direct access to the committee chair. The committee has reviewed the effectiveness of the function and remains satisfied that the internal audit function had sufficient resources during the year to undertake its duties.
During 2020 the committee: • considered the results of all internal audit reports, and the findings and themes emerging from them; • monitored the implementation of the 2020 internal audit plan; • reviewed and approved the basis for internal audit planning. This included reviewing and approving the group’s risk-based audit universe and the internal audit plan, and reviewing other business developments which could also potentially be the subject of internal audit work in the coming year. It also included challenging the frequency of audits in certain areas of the business and challenging the balance between thematic reviews and full end-to-end audits; • reviewed and approved the internal audit charter; • reviewed and approved the internal audit budget for 2021; • received information relating to the internal audit functions quality assurance activities; • reviewed how the internal audit, risk management and compliance functions contributed information and assurance relating to the group’s control effectiveness; • received and reviewed an overall summary assessment of 2020 internal audit activity; • monitored the timely implementation of agreed management actions and reviewed the status of the same; • requested and reviewed a report regarding the group’s control environment as a whole; and
d) Compliance The group head of compliance has direct access to the committee members and attends all committee meetings.
In reviewing the effectiveness of the function the audit and risk committee remained satisfied that the compliance function had sufficient resources during the year to undertake its duties.
e) External audit i) Assessing the effectiveness of the external auditor The committee places great emphasis on ensuring there are high standards of quality and effectiveness in the external audit process. Audit quality is assessed throughout the year, with a focus on strong audit governance and the quality of the team.
• considering the level of challenge evidenced in discussions and reporting.
The split between audit and nonaudit fees for the year under review is disclosed in note 6 to the financial statements.
f) Other updates During 2020, in addition to the financial reporting matters mentioned above, the following items were key topics of discussion for the committee: • oversight of the reporting and control processes and procedures relating to Solvency II reporting requirements; • overview of key reporting and regulatory updates, including updates on accounting standards, changes in tax legislation and changes in regulatory requirements; • a project to improve efficiency and control over the payments process; • consideration of an appropriate level of investment risk for the group; • a program of change to the finance function; • a review of the whistleblowing policy; • compliance, financial crime and assurance reporting including risk incident information; • quarterly reserving and actuarial data; • the consideration of strategic, emerging and heightened risks identified by management and the group’s risk management team, alongside the processes and controls in place to mitigate these risks; • the impact of Brexit was discussed and monitored during the year. Potential outcomes were considered and actions taken to mitigate the impact where possible. The impact on the estimates and judgements contained within this report were considered and deemed immaterial; and
The committee also reviewed the Solvency II technical provisions on an ad hoc basis.
David Roberts 22 March 2018 4/4 Christine LaSala 21 March 2019 4/4 Sir Andrew Likierman 25 March 2015 4/4 Catherine Woods 1 October 2018 3/4 John Reizenstein 25 September 2020 1/1
Policy on gender, inclusion and diversity Beazley commits to recruit, retain and develop people with diverse backgrounds and experiences to thrive at all levels of our business, in a truly inclusive environment that operates zero tolerance to discrimination or harassment and fully supports and celebrates differences. These differences could include but are not limited to age, disability, gender, gender reassignment, marital status, pregnancy & maternity, race, nationality or ethnic origin, religion or religious beliefs, sexuality, socio-economic group or working pattern.
The specific responsibilities and duties of the committee are set out in its terms of reference. The committee has responsibility to keep under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring that the organisation
We want our workforce to reflect the diversity of our customers and communities where we work around the world however we know that simply aspiring to have a diverse workforce is not enough. We will set measurable targets at an organisational level and clear objectives at an individual level as we work to become a truly diverse and inclusive organisation where everyone is able to contribute their best work and develop fully.
Beazley will continue to: • Have leadership and sponsorship of our inclusion and diversity commitments at the most senior levels of our organisation; • Work to embed inclusion and diversity within the organisation, ensuring all employees have the tools, training and understanding to be able to fully comply with this policy; • Ensure all employees are able to work with dignity and respect free from harassment, bullying or victimisation; • Support our employee-led resource groups encouraging them to continue to raise awareness and contribute to our strategy and policy changes; • Nurture, support, mentor and encourage individuals from diverse backgrounds across all areas of the business and encourage them to grow into senior positions within our organisation; • Regularly review our employment policies and practices. We expect our people to respect and embrace them and work with us to further enhance our commitments; • Ensure all employees receive equality of opportunity in recruitment, training, development, promotion and remuneration; and
• Recognise that individuals will need bespoke support where an overarching policy may not exist. In this case, we commit to working with the individual, applying our flexible working practices and support to find a solution best suiting the individual.
Key activities in 2020 Tasks which the committee carried out in 2020 were to: • carry out the search for two further non-executive directors one having expertise in US distribution and the other European insurance/business expansion. The committee appointed search consultants Sainty, Hird & Partners to facilitate the external search process and an internal search process was also conducted. One of these roles was filled following the appointment of Pierre-Olivier DeSaulle to the board with effect from 1 January 2021. Pierre-Olivier also serves on the board of our subsidiary, Beazley Insurance dac. The search for a candidate with US distribution expertise is anticipated to conclude by Q2 2021; • consider whether the hybrid working environment had necessitated the requirement of any different skillsets across the organisation; • review the performance of management by inviting all nonexecutive directors to attend a nomination committee meeting to review the performance of the executive management team; • consider the board and committee succession plans; • assess the collective skills and competency of the board and consider the proposed reappointment of directors; • ensure that director development plans were implemented and that the board collectively received relevant training; • ensure board members were able to allocate sufficient time to the company to discharge their responsibilities effectively; • consider the wider executive management succession and has planned for the non-executive directors to get to know some of the potential successors; and
Currently the membership of the remuneration committee comprises Sir Andrew Likierman (chair), Christine LaSala, John Sauerland, Catherine Woods and Nicola Hodson.
• considered the chief risk officer’s report which confirmed that the design of remuneration promotes appropriate risk behaviour throughout the organisation. In addition, the analysis considered the performance of the control environment, profit related pay targets, calculation of the bonus pool, share awards, a suite of risk metrics for each Solvency II member of staff and any individual who has created a higher than expected level of risk; • ensured incentives continued to be appropriate to align company and shareholders; • reviewed methodology of reporting of bonus disclosures with the objective of improving transparency; • approved the grant of share awards under the group’s deferred, retention and LTIP plans; • considered the salary and bonus awards for 2020 for executive directors, heads of control functions, material risk takers and other officers; • approved the gender pay gap report; • approved the chair’s fees; • reviewed the executive director employment contracts; • reviewed the remuneration landscape for FTSE 250 and FTSE 100 companies and guidance from proxy agencies; and
• recommend the remuneration of the chief executive, the other executive directors, the direct reports to the chief executive, the company secretary and such other members of the executive management as it is designated to consider. No director or manager shall be involved in any decisions as to his or her own remuneration; • obtain reliable, up-to-date information about remuneration in other companies; and
Dear shareholder On behalf of the board, I am pleased to present the 2020 directors’ remuneration report.
Despite making a loss of $50.4m due to the impact of COVID-19, our diversified business model and skills of our people have meant we have been able to navigate the impacts of the pandemic and find opportunities. Beazley achieved double-digit premium growth in 2020 across the business as a whole, with gross premiums increasing to $3,563.8m (2019: $3,003.9m). This growth has been primarily been driven by rate rises across all divisions. We also saw a good performance from our investments with returns of $188.1m or 3%. The decision to raise capital in May 2020 provides additional strength to the balance sheet and positions the business well for future growth opportunities.
Incentive out-turns At Beazley, our remuneration policy is aligned with performance outcomes and the interests of our shareholders, with our incentive out-turns being based on group profitability and long term performance. Our senior leaders are rewarded through annual bonuses, which are funded by the group’s profitability. Once the bonus pool has been determined, corporate and individual performance against set objectives drives the allocation of the bonus awards for the executives. For 2020, in light of the group’s financial performance, the remuneration committee decided that no annual bonus should be awarded to the executive directors. While the group managed the challenges presented by COVID-19 and achieved double digit premium growth, the committee took into account the impact of COVID-19 on the group’s overall level of profitability and the experience of our shareholders during the year.
Awards under the Long Term Investment Plan (LTIP) vest (pay out) based on growth in net asset value per share to ensure alignment with shareholders performance is measured over the long term with three and five year performance periods. In respect of 2020, executive directors are eligible to receive the second tranche (instalment) of the 2016 LTIP which has vested at 13.2%. However, the first tranche of the LTIP for 2018 will lapse. These outcomes reflect net asset value growth per annum of 9.6% and, 6.3% respectively for the five and three year performance periods. The committee reviewed the vesting out-turn for the 2016 award and given the long-term nature of the award, considered that the out-turn was appropriate. Therefore the committee did not exercise discretion in respect of the LTIP awards.
The committee believes that the remuneration policy operated as intended during 2020 and considers that out-turns are aligned with company and individual performance.
Incentive arrangements for 2021 The remuneration committee undertook a detailed review of our remuneration arrangements as part of the renewal of our remuneration policy at the 2020 AGM. I would like to thank shareholders for the levels of support we received for our policy. The full policy can be found on our website at www.beazley.com. We continue to believe that the current remuneration framework works well for Beazley and supports our strategy to promote the long-term success of the group. Therefore for 2021 we are not making any material changes to our annual bonus or LTIP arrangements.
For the second year we have published information on our CEO to employee pay ratio of our fourth gender pay gap analysis. The committee takes internal pay gaps and our ratios into account when considering remuneration policies and frameworks for the group and will continue to monitor them. As part of its agenda the committee reviews the firm-wide remuneration policy and is also presented with updates on arrangements for the wider workforce.
Simplicity Remuneration structures should avoid complexity and their rationale and operation should be easy to understand
Risk Remuneration arrangements should ensure reputational and other risks from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identified and mitigated
Proportionality The link between individual awards, the delivery of strategy and the long-term performance of the company should be clear. Outcomes should not reward poor performance
Individual remuneration reflects group objectives but is dependent on the profitability of the group and is appropriately balanced against risk considerations. Potential rewards are market-competitive and the committee is comfortable that the range of potential out-turns are appropriate and reasonable.
Alignment to culture Incentive schemes should drive behaviours consistent with company purpose, values and strategy
The remuneration committee considers that the structure of remuneration packages supports meritocracy, which is an important part of Beazley’s culture. All employees at Beazley are eligible to participate in a defined contribution pension plan and a bonus plan. Bonuses are funded by a pool approach which reflects our commitment to encourage teamwork at every level, which is one of our key cultural strengths.
Contribution rates for executive directors are in line with wider workforce at 12.5%
In line with policy. In 2021, executive directors will receive the usual grant levels, subject to the usual NAVps performance condition: • D A Horton: 200% • A P Cox: 150% • S Lake: 150% The committee retains discretion to adjust the outcomes at vesting if they are not considered appropriate or if the committee identifies that the executives have benefited unduly from the current share price. Further details are provided on page 105.
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 we introduced post-employment shareholding guidelines. Executives are expected to maintain 100% of their shareholding requirement for the first year post-departure and 50% of their shareholding requirement for the second year post-departure.
The CEO and CUO met their shareholding guidelines. The CFO was appointed during 2019 and has made progress towards meeting the guideline.
Single total figure of remuneration ▪ The tables below set out the single figure of total remuneration for executive directors and non-executive directors for the financial years ending 31 December 2020 and 31 December 2019.
Executive directors Fixed pay Pay for performance £ Salary Benefits Pension Total fixed pay
Adrian P Cox 1 A portion of the 2019 bonus awards shown in the table above is deferred into shares for three years (see page 105). 2 The LTI figures for 2020 have been calculated using the average share price in the last three months of 2020 of 368.53p. The share prices at the time LTI
2 Nicola Hodson joined the plc board on 10 April 2019 and the figure in the table above represents her fees from this date. Included in the figures are her fees for membership on Audit & Risk from 1 Jan 2020 and Remco which she became a member of from 24 Sep 2020.
3 Christine LaSala received fees of $10,800 for her role on the BICI board which are represented in the table above. The fees for this role have been converted at an exchange rate of 1.27. Christine joined the BFL board on 2 April 2020 and also started to receive fees for her membership on Remco and Audit & Risk from 1 Jan 2020.
7 Catherine M Woods’ non-executive director fee was based on €106,000 (2019 :89,750) and has been converted into sterling for this table at the average exchange rate of 1.12 (2019: the fee was converted into £80,134 at the average exchange rate of 1.132).
For 2021, the average salary increase was 2.6%, which was below the average salary increase across the group.
The base salaries for the executive directors in 2020 and 2021 are as set out below: base salary £
Executive directors receive a pension allowance of 12.5% of salary, in-line with the rate available to the majority of the UK workforce.
Annual bonus The annual bonus plan is a discretionary plan in which all employees are eligible to participate. The annual bonus is funded by a bonus pool. The pool is calculated as a percentage of profit subject to a minimum group ROE. The size of the pool as a percentage of profit increases for higher levels of ROE. This ensures that outcomes are strongly aligned with shareholders’ interests.
Assessment of corporate achievements In determining annual bonuses for 2020 the committee took into account a range of financial and strategic elements as set out below. Performance against corporate/strategic and individual objectives has been provided. Due to the overall financial performance of the Group, the remuneration committee decided to not award the executive directors an annual bonus for 2020.
• $292.6m of new capital was raised through a non-pre-emptive share issuance. • Banking facility increased from $225m to $450m, of which $225m has been drawn down.
• Formed a captive insurer in the US to ensure active management of capital requirements.
• Improved SAM corporate sustainability assessment (CSA) ESG score by 25 points. • Improved climatewise score by 6 points. • Achieved a 0.8 improvement in sustainalytics ESG rating. • Continued focus on reducing CO2 emissions from our operations.
Strategic initiatives Strong progress with strategic initiatives, as areas which have the potential make a considerable difference to the business
• Launched an online booking system to allow brokers in London to arrange virtual appointments with our underwriters through COVID-19.
• Our faster smarter underwriting strategic initiative is collecting cyber data to see our insureds the way cyber criminals see them, so we can stay one step ahead and improve our risk selection.
• Results from broker feedback, surveys showed above average scores ,with high scores for claims function through pandemic.
• Sustain high levels of employee engagement, focussing in particular on enhancing colleague wellbeing.
• Deliver Syndicate 5623 business plan. • 139% growth in premium from $36.0m to $86.1m. =
• Update long term plan to include new modules for expenses and reinsurances.
• 2020 KPIs and objectives met and initiative is now making an impact across the business.
• Ensure we have the right level of capital to cover COVID-19 related issues and growth plans.
• Ensure Beazley is on track for IFRS 17 and continues to deliver within budget.
• 2020 Women in Finance Charter targets achieved, including 35% gender diversity in our senior management.
The following graph and table set out the out-turn for 2020 against performance and illustrate the way in which bonuses over time reflect profit and ROE performance.
■ Pre-tax profit Average executive director bonus as a percentage of salary $m
Pre-tax profit/(loss) $251m $313m $262m $284m $293m $168m $76m $268m $(50)
Bonus deferral ▪ As there were no annual bonuses for 2020, there was no bonus deferral. Generally a portion of the bonus will be deferred into shares for three years. Dependent on the level of bonus the deferral will range from 20% to 40%. Deferred shares are generally subject to continued employment.
For 2020, the portion of each director’s annual bonus deferred into shares was as follows: Deferred into shares
D Andrew Horton £0 Adrian P Cox £0 Sally M Lake £0
LTIP outturns in respect of 2020 ▪ The LTIP awards shown in the single total figure of remuneration for 2020 include: • the second tranche of awards granted on 13 February 2016. These are due to vest on 13 February 2021, subject to the achievement of a NAVps growth performance condition over the five years ended 31 December 2020; and • the first tranche of awards granted on 9 February 2018. These are due to vest on 9 February 2021, subject to the achievement of a NAVps growth performance condition over the three years ended 31 December 2020.
Actual NAVps growth achieved in the five years to 31 December 2020 was 9.6% p.a. which resulted in 13.2% of the second tranche of the 2016 awards vesting.
Actual NAVps growth achieved in the three years to 31 December 2020 was 6.3% p.a. which resulted in 0% of the first tranche of the 2018 awards vesting.
LTIP D Andrew Horton Nil cost option (LTIP) 200% of salary 166,246 990,000 10% 31/12/2022 31/12/2024 Adrian P Cox Nil cost option (LTIP) 150% of salary 98,236 585,000 10% 31/12/2022 31/12/2024 Sally M Lake Nil cost option (LTIP) 150% of salary 88,161 525,000 10% 31/12/2022 31/12/2024 Deferred bonus (in respect of 2019 bonus) D Andrew Horton Deferred shares n/a 55,415 330,000 – – – Adrian P Cox Deferred shares n/a 45,340 270,000 – – – Sally M Lake Deferred shares n/a 21,410 127,497 – – – 1 The face value of shares awarded was calculated using the three day average share price prior to grant, which was 595.50p.
LTIP awards for 2021 It is intended that the performance conditions and targets for the LTIP awards for 2021 will be in line with those granted in 2020 (see table above). The remuneration committee carefully considered LTIP award sizes for 2021 in-light of the company’s current share price. Taking into account Beazley’s share price history and the long-term nature of the LTIP awards which measure performance, in-part, over five financial years, the committee has decided to maintain awards at the typical level. Therefore for 2021 the LTIP awards will be 200% of salary for the CEO and 150% for other executive directors. The committee will review LTIP outcomes at the end of the performance period and retains discretion to adjust the vesting level if does not reflect the underlying financial or non-financial performance or if it would otherwise not be appropriate. This will include a review of the share price at the time of vesting and if the committee considers that the executives have benefitted unduly from the current share price awards will be scaled back.
Sally M Lake1 – n/a 100,000 100,000 1 Sally M Lake was appointed to the board on 23 May 2019.
Risk and reward at Beazley The committee regularly reviews developing remuneration governance in the context of Solvency II remuneration guidance, other corporate governance developments and institutional shareholders’ guidance. The chief risk officer reports annually to the remuneration committee on risk and remuneration as part of the regular agenda. The committee believes the group is adopting an approach which is consistent with, and takes account of, the risk profile of the group.
Chair of board fee £211,150 £211,150 Basic fee £63,100 £63,100 Senior independent director fee (additional) £11,300 £11,300 Chair of audit and risk committee fee (additional) £19,000 £19,000 Chair of remuneration committee fee (additional) £17,500 £17,500 Membership fee for non-executive directors on the audit and risk committee (additional) £7,500 £7,500 Membership fee for non-executive directors on the remuneration committee (additional) £5,000 £5,000 Fee for designated non-executive director representing employee voice (additional) £5,000 £5,000
Beazley operates across Lloyd’s, Europe and the US markets through a variety of legal entities and structures. Non-executive directors, in addition to the plc board, typically sit on either one of our key subsidiary boards, namely Beazley Furlonge Ltd, our managing agency at Lloyd’s, or Beazley Insurance dac, our Irish insurance company. Non-executive directors may receive additional fees for sitting on subsidiary boards. As a result of developments in regulation, the degree of autonomy in the operation of each board has increased in recent years, with a consequent increase in time commitment and scope of the role.
Non-executive directors’ service contracts ▪ Details of the non-executive directors’ terms of appointment are set out below: Commencement of appointment Expires
Christine LaSala 1 Jul 2016 AGM 2023 Sir J Andrew Likierman 25 Mar 2015 AGM 2021 David L Roberts 1 Nov 2017 AGM 2021 John P Sauerland 5 May 2016 AGM 2023 Robert A Stuchbery 11 Aug 2016 AGM 2023 Catherine M Woods 1 Jan 2016 AGM 2022 A John Reizenstein 10 Apr 2019 AGM 2022 Nicola Hodson 10 Apr 2019 AGM 2022
Profit related pay plan To align underwriters’ reward with the profitability of their account.
Support bonus plan To align staff bonuses with individual performance and achievement of objectives.
Participation is limited to staff members not on the executive or in receipt of profit related pay bonus. The support bonus pool may be enhanced by a contribution from the enterprise bonus pool.
A proportion of this award may also be dependent on the group’s ROE and therefore allocated from the enterprise bonus pool. A proportion of this bonus may be paid in deferred shares, which vest after three years subject to continued employment.
Annual percentage change in remuneration of directors and employees Percentage change in remuneration from 31 Dec 2019 to 31 Dec 2020
Non-executive directors The average fee increase for 2020 (excluding the introduction of committee membership fees) was 2.7%. During 2020 a number of the non-executive directors joined additional board committees and therefore received additional fees. Therefore, for these non-executive directors, the year-on-year comparisons reflect their additional responsibilities and corresponding fees relative to 2019.
LTIP awards may be forfeited if shareholding requirements are not met. The CEO and CUO met the shareholding guidelines. The group finance director was appointed during the 2019 and has made progress towards meeting the guideline (see chart below).
Conditional shares not subject to performance conditions (deferred shares and retention shares)
No changes in the interests of directors have occurred between 31 December 2020 and 4 February 2021.
Pay ratio data The following table provides pay ratio data in respect of the CEO’s total remuneration compared to the 25th, median and 75th percentile UK employees. Financial year Method 25th percentile pay ratio Median pay ratio 75th percentile pay ratio 2020 Option A 13:1 7:1 5:1 2019 Option A 42:1 25:1 15:1
Notes to share plan interests table Deferred bonus Deferred bonus awards are made in the form of conditional shares that normally vest three years after the date of award.
LTIP 2017 – 3/5 year Awards were made on 8 February 2017 at a mid-market share price of 434.33p. 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 2027.
LTIP 2019 – 3/5 year Awards were made on 12 February 2019 at a mid-market share price of 510.16p. 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 2029.
Share prices The market price of Beazley ordinary shares at 31 December 2020 (the last trading day of the year) was 364p and the range during the year was 293p to 606p.
During the year the committee was advised by remuneration consultants from Deloitte LLP. Total fees in relation to executive remuneration consulting were £87,500. Deloitte LLP also provided advice in relation to share schemes, tax, internal audit and compliance support.
Statement of shareholder voting The voting outcomes of the 2019 annual remuneration report and remuneration policy were as follows: Votes for % for Votes against % against Total votes cast Votes withheld
I am keen to encourage an ongoing dialogue with shareholders. Accordingly, if you would like to discuss any matter arising from this report or remuneration issues generally, please email Christine Oldridge at christine.oldridge@beazley.com.
Under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules, group financial statements are required to be prepared in accordance with IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Under company law the directors must not approve the group financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group and the company for that period.
Under company law the directors must not approve the group financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group and the company for that period.
• prepare the financial statements on the going concern basis unless it is appropriate to presume that the company and the group will not continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s and group’s transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the company and the group financial statements comply with the Companies Act 2006 and, with respect to the group financial statements, Article 4 of the IAS Regulation . They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
Responsibility statement of the directors in respect of the annual financial report We confirm, to the best of their knowledge: • that the consolidated financial statements, prepared in accordance with IFRSs in conformity with the Companies Act 2006 and
IFRSs adopted pursuant to Regulation(EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the parent company and undertakings included in the consolidation taken as a whole; • that the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
Consolidated statement of profit or loss for the year then ended Statement of comprehensive income for the year then ended Statement of comprehensive income for the year then ended Statement of changes in equity for the year then ended Statement of changes in equity for the year then ended Statement of financial position as at 31 December 2020 Statement of financial position as at 31 December 2020 Statement of cash flows for the year then ended Statement of cash flows for the year then ended Related notes 1 to 34 to the financial statements, including a summary of significant accounting policies (except for note 2 where it is marked as unaudited).
Related notes 1 to 34 to the financial statements including a summary of significant accounting policies.
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the Group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.
Details of the seven reporting components are set out below: Component Scope Auditor
(*) In addition to the above we perform specific audit procedures over group wide processes.
The reporting components where we performed audit procedures accounted for 97% (2019: 97%) of the Group’s Loss before Income Tax, 97% (2019: 98%) of the Group’s gross written premium and 98% (2019: 99%) of the Group’s total assets. For the current year, the full scope components contributed 91% (2019: 61%) of the Group’s Loss before Income Tax, 90% (2019: 79%) of the Group’s Gross Written Premium and 10% (2019: 8%) of the Group’s Total assets. The specific scope components including group wide processes contributed 6% (2019: 36%) of the Group’s Loss before Income Tax, 7% (2019: 19%) of the Group’s Gross Written Premium and 88% (2019: 91%) of the Group’s Total assets. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.
Changes from the prior year In the prior year BICI was classified as specific scope but due to growth of the business over the year, BICI now represents a greater proportion of the Group’s operating performance and is now considered a full-scope component. Furthermore, in the prior year Group specific scope entities where work was performed by the primary team, being Beazley Services USA Inc., Beazley Furlonge Limited, Beazley Management Limited and group wide processes, were defined as ‘Group function.’
For one full scope component (Syndicate 2623), four specific scope components (Syndicate 3623, BIDAC, Beazley Furlonge Limited, Beazley Management Limited) and all group wide processes, all audit procedures were performed directly by the primary audit team whilst the other full scope component (BICI) and specific scope component (Beazley Services USA Inc) were audited by a component audit team in the United States of America. For the companies where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence has been obtained as a basis for our opinion on the Group as a whole.
The assumptions used to develop the IBNR reserves, which make up a significant component of the insurance liabilities (gross and reinsurer’s share on IBNR), involves a significant degree of judgement. As a result we focused on this area as the valuation can be materially impacted by various factors including: • The risk of inappropriate assumptions used in determining gross IBNR and reinsurer’s share of IBNR, especially on newer or growing classes of business such as Financial Institutions and Cyber, due to changing historical trends and greater reliance on expert judgement in management’s estimates due to the limited historical data available.
• The risk that IBNR loss reserve estimates in respect of catastrophe and large claims losses are insufficient due to the size and extent of these losses being uncertain. The areas we consider as key areas of judgement include the tail development and consistency of reserves specifically on reserving classes where prior year deteriorations are seen, premium rate increases are assumed, and inflationary trends, including social inflation, are experienced.
• The areas we consider as key areas of judgement include the tail development and consistency of reserves specifically on classes such D&O where prior year deteriorations is seen, premium rate increases, allowance of social inflation and other inflationary trends at a reserving class level which are key assumptions used in management’s projections.
• Benchmarking catastrophe, large losses, assumptions and rates used in inherently uncertain classes and new growing classes, against other comparable industry participants to challenge and assess the reserving assumptions.
We determined that the actuarial assumptions as a whole, which are used by management are reasonable based on our analysis of the experience to date, industry practice and the financial and regulatory requirements. We therefore conclude that reserves lie within our reasonable range of possible outcomes.
• Tested the completeness and accuracy of the claims, reinsurance programme and premium data used within the reserving process by reconciling the data used in the actuarial projections to the underlying policy administration, reinsurance and finance systems.
• Additionally, for claims outstanding we assessed the consistency in reserving methodology used in the current year compared to methodology used in previous years.
We determined based on our audit work that the data used for the actuarial model inputs was materially consistent and accurate.
• For the data used in our independent re-projections we corroborated premium data to underlying policy and finance systems in order to test the completeness and accuracy of this data set. This was performed through substantive testing of key reconciliations to external sources such as external service organisations reports.
• Performing analytical review procedures on a class of business level, comparing actual premium to management’s business forecasts.
Valuation of level 3 investments ($268.5m, PY comparative $216.6m) Refer to the Audit and Risk Committee Report (pages 83 to 88); Accounting policies (pages 143 and 144); and Note 16 of the Consolidated Financial Statements (pages 173 to 179). Investments in level 3 assets predominately comprise illiquid credit asset funds managed by third party managers (generally closed end limited partnerships or open ended funds). The investments themselves are in many cases private and unquoted. These assets are inherently harder to value due to the inability to obtain a market price of these assets as at the balance sheet date. Therefore, there is judgement in both deriving the price and the timeliness of receiving the information from the third party managers, either of which could result in misstatements of the value recognised in the financial statements. Additionally, Beazley hold syndicate loans which are funds provided by Beazley’s group syndicates to the Central Funds at Lloyd’s in respect of the 2019 and 2020 underwriting years. Observable inputs are not readily available for the valuation of Syndicate loans and so management use models with other inputs to estimate their value. We consider that the key risks on the valuation of Syndicate loans relates to (i) the assumptions used, as these are largely based on nonobservable inputs (ii) the appropriateness of the valuation methodology applied to derive the fair value.
To obtain sufficient audit evidence to conclude on the appropriateness of valuation of level 3 investments, we performed the following procedures for a sample of key investments: • Obtained an understanding of the process and tested the design and operating effectiveness of key controls.
• With support from our EY valuation specialist we perform independent valuation of the syndicate loans.
Based on our procedures performed we are satisfied that the valuations of illiquid credit asset funds were reasonable. In respect of the syndicate loans, our own valuation was not materially different to the carrying value recorded.
We determined materiality for the group to be $11 million (2019: $11 million), which is 5% of average profit before income tax over the last 5 years in line with 2019, adjusted for COVID-19 losses ($340m net of reinsurance in 2020 financial year), reflecting the unprecedent nature of those losses. We considered that adjusted profit before income tax is the most relevant performance measure used by investors, regulators and other stakeholders when assessing the Group. Given the nature of risks underwritten by Beazley, we believe the use of a five year average profit is appropriate, as the profitability of the group is expected to fluctuate from period to period. Despite this we believe that an additional adjustment for COVID-19 losses is also appropriate given its unprecedented nature, which would not normally be expected in such a five year time horizon. Additionally, the COVID-19 losses have not reduced the scale and complexity of Beazley’s business and so we are satisfied that no reduction in materiality is required as a result of them. We determined materiality for the Parent Company to be $10 million (2019: $7 million), which is 1% of net assets (FY19: 1% of net assets). The Parent company primarily holds the investment in Group entities and, therefore, net assets is considered to be the key focus for users of the financial statements.
We calculated materiality at the planning stage of the audit and then during the course of our audit, we reassessed initial materiality at year end based on actual 2020 results.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 50% (2019: 50%) of our planning materiality, namely $5.5m (2019: $5.5m).
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was $5.5m to $1.1m (2019: $4.5m to $1.4m).
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact
Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Corporate Governance Statement The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Statement specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: • Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 115; • Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is appropriate set out on page 59; • Directors’ statement on fair, balanced and understandable set out on page 77; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 60; • The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 82; and; • The section describing the work of the audit committee set out on pages 83 to 88.
Responsibilities of directors As explained more fully in the Directors’ responsibilities statement set out on page 115, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
• Based on our understanding we designed our audit procedures to identify non-compliance with such laws and regulations including those at the components impacting the group. Our procedures involved making enquiry of those charged with governance and senior management for their awareness of any non-compliance of laws or regulations; inquiring about the policies that have been established to prevent non-compliance with laws and regulations by officers and employees both at a group and component level; inquiring about the Group’s methods of enforcing and monitoring compliance with such policies; and inspecting significant correspondence with CBI, Lloyd’s, FCA and PRA.
Other matters we are required to address • We were appointed by the Company Directors on 23 May 2019 to audit the financial statements for the year ending 31 December 2019 and subsequent financial periods.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Gross premiums written 3 3,563.8 3,003.9 Written premiums ceded to reinsurers (646.8) (500.4) Net premiums written 3 2,917.0 2,503.5
Income tax credit/(expense) 9 4.3 (33.6) (Loss)/profit for the year attributable to equity shareholders (46.1) 234.1
(Loss)/earnings per share (cents per share): (Loss)/earnings per share (pence per share): Consolidated statement of profit or loss for the year ended 31 December 2020 www.beazley.com Beazley | Annual report 2020
Group (Loss)/profit for the year attributable to equity shareholders (46.1) 234.1 Other comprehensive (expense)/income Items that will never be reclassified to profit or loss: (Loss)/gain on remeasurement of retirement benefit obligations (2.0) 6.6 Income tax on defined benefit obligation (0.5) (0.4)
Statement of comprehensive income for the year ended 31 December 2020 $m $m
Equity settled share based payments 22 – – – 2.8 – 2.8 Acquisition of own shares in trust 21 – – – (13.6) – (13.6) Tax on share option vestings 9 – – – (5.4) 1.2 (4.2) Transfer of shares to employees 22 – – – 3.2 (2.7) 0.5 1 During the financial year ended 31 December 2020, the group raised $292.6m through a share issuance via a cash box structure. Merger relief under the
Statement of changes in equity for the year ended 31 December 2020 www.beazley.com Beazley | Annual report 2020
Issue of shares 21 – 2.1 – – – – 2.1
Plant and equipment 13 19.7 – 8.9 – Right of use assets 29 86.4 – 35.9 – Deferred tax asset 28 26.8 – 41.0 – Investment in subsidiaries 31 – 724.6 – 724.6 Investment in associates 14 0.3 – 0.1 – Deferred acquisition costs 15 384.9 – 350.7 – Retirement benefit asset 27 4.8 – 5.4 –
Financial assets at fair value 16, 17 6,362.0 – 5,572.8 –
Deferred tax liability 28 0.6 – 19.5 – Current income tax liability 16.7 – 9.3 –
Cash flow from operating activities (Loss)/profit before income tax (50.4) 46.1 267.7 74.7 Adjustments for: Amortisation of intangibles 12 16.7 – 14.1 – Equity settled share based compensation 22 2.8 2.8 4.7 4.7 Net fair value gain on financial assets 4 (83.0) – (151.6) – Depreciation of plant and equipment 13 3.2 – 2.4 – Depreciation of right of use assets 13.0 – 10.1 – Impairment of reinsurance assets recognised 6 1.1 – 1.5 – (Decrease)/increase in insurance and other payables 1,486.9 (12.5) 722.8 0.1 (Increase)/decrease in insurance, reinsurance and other receivables (782.1) (268.7) (265.0) 10.3 Increase in deferred acquisition costs (34.2) – (43.3) –
Foreign exchange on financial liabilities – – (3.2) – Income tax paid (26.5) – (6.8) – Net cash generated from operating activities 476.8 (282.2) 460.2 11.5
Cash flow from investing activities Purchase of plant and equipment 13 (12.9) – (6.3) – Expenditure on software development 12 (20.5) – (12.3) – Purchase of investments (6,126.6) – (4,824.5) – Proceeds from sale of investments 5,443.8 – 4,125.3 –
1 Statement of accounting policies Beazley plc (registered number 09763575) is a company incorporated in England and Wales and is resident for tax purposes in the United Kingdom. The company’s registered address is Plantation Place South, 60 Great Tower Street, London EC3R 5AD, United Kingdom. The group financial statements for the year ended 31 December 2020 comprise the parent company, its subsidiaries and the group’s interest in associates. The principal activity of the company and its subsidiaries (the ‘group’) is to participate as a specialist insurer which transacts primarily in commercial lines of business through its subsidiaries and through Lloyd’s syndicates.
The financial statements of the parent company, Beazley plc, and the group financial statements have been prepared and approved by the directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (EU). On publishing the parent company financial statements together with the group financial statements, the company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual statement of profit or loss and related notes that form a part of these approved financial statements.
None of the amendments issued by the IASB have had a material impact to the group.
• As was stated in the 2017 annual report, the group chose to apply the temporary exemption permitted by IFRS 4 from applying
On 25 June 2020, the International Accounting Standards Board (IASB) issued amendments to IFRS 17 Insurance Contracts, which included the deferral of the effective date of IFRS 17 and IFRS 9 (for qualifying insurers) to 1 January 2023.
Financial assets managed and evaluated on a fair value basis Fixed and floating rate debt securities: – Government issued 2,723.7 1,870.9 – Corporate bonds – Investment grade 2,444.9 2,696.4 – High yield 251.1 235.8 Syndicate loans 40.6 8.0 Equity funds 203.2 163.6 Hedge funds 442.1 354.0 Illiquid credit assets 227.9 216.6 Derivative financial assets 28.5 25.5 Total financial assets managed and evaluated on a fair value basis 6,362.0 5,570.8
Financial assets meeting the SPPI test Cash and cash equivalents 309.5 278.5 Other receivables 86.5 72.0 Total financial assets meeting the SPPI test 396.0 350.5
Going Concern The financial statements of Beazley plc have been prepared on a going concern basis. The group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic report contained in the group’s Annual Report & Accounts. In addition, the Risk report includes the group’s risk management objectives and the group’s objectives, policies and processes for managing its capital.
The group continues to monitor and respond to the global COVID-19 outbreak, in particular in relation to the impact on the group that is expected to relate to claims on the business previously written. The current assessment is an exposure of $340m net of reinsurance across our political, accident and contingency, property, marine and reinsurance divisions. It is too early to say what the quantum of claims within our liability classes will be as these will emerge as the impact of the pandemic is fully realised over the next few years. The group has taken a number of underwriting actions on its future business which should reduce this impact.
1 Statement of accounting policies continued Use of estimates and judgements The preparation of financial statements requires the use of certain critical accounting estimates and judgements that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those on which management’s estimates are based. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. Estimates which are based on future economic conditions, and sensitive to changes in those conditions, have been impacted by COVID-19.
Another critical estimate within insurance liabilities is the estimation of an unexpired risk reserve (URR) for the expected value of net claims and expenses attributable to the unexpired periods of policies in force at the balance sheet date which exceeds the unearned premium reserve. The provision has been determined by reviewing various policies/events which are expected to trigger a COVID-19 related claims loss in the first half of 2021. This estimate is based on the assumption that various government restrictions are predicted to ease from July 2021. If this estimation was to prove inadequate, the unexpired risk reserve provision could be understated. The total estimate for URR gross of reinsurers’ shares at 31 December 2020 was $91.5m (2019: nil). The total estimate for URR net of reinsurers’ shares at 31 December 2020 was $82.5m (2019: nil).
The claims handling expense provision is based on a set percentage of IBNR and URR which is reviewed on an annual basis.
The best estimate of the most likely ultimate outcome is used when calculating notified claims. This estimate is based upon the facts available at the time, in conjunction with the claims manager’s view of likely future developments.
Financial assets & liabilities Another critical area of estimation is the group’s financial assets and liabilities. Information about estimation uncertainty related to the group’s financial assets and liabilities is described in this statement of accounting policies and note 16: financial assets and liabilities (valuations based on models and unobservable inputs).
Premium estimates Other critical estimates contained within our close process are premium estimates and the earning pattern of recognising premium over the life of the contract. In the syndicates the premium written is initially based on the estimated premium income (EPI) of each contract. Where premium is sourced through binders, the binder EPI is pro-rated across the binder period. This is done on a straight-line basis unless the underlying writing pattern from the prior period indicates the actual underlying writing pattern is materially different. The underwriters adjust their EPI estimates as the year of account matures. As the year of account closes premiums are adjusted to match the actual signed premium. An accrual for estimated future reinstatement premiums is retained. Premiums are earned on a straight-line basis over the life of each contract. At a portfolio level this is considered to provide a reasonable estimate for the full year of the pattern of risk over the coverage period.
Consolidation a) Subsidiary undertakings Subsidiary undertakings are entities controlled by the group. The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
For all business combinations: (i) transaction costs, other than those associated with the issue of debt or equity securities, that the group incurs in connection with a business combination, are expensed as incurred; (ii) in addition, any consideration transferred does not include amounts related to the settlement of pre-existing relationships.
Other factors that are considered when determining the existence of significant influence also include: • representation on the board of directors or equivalent governing body of the investee; • participation in the policy-making process including participation in decisions about dividends or other distributions; • material transactions between the entity and the investee; • interchange of managerial personnel; or • provision of essential technical information.
Foreign currency translation a) Functional and presentational currency Items included in the financial statements of the parent and the subsidiaries are measured using the currency of the primary economic environment in which the relevant entity operates (the functional currency). The group financial statements are presented in US dollars, being the functional and presentational currency of the parent and its main trading subsidiaries, as the majority of trading assets and insurance premiums are denominated in US dollars.
1 Statement of accounting policies continued Net earned premiums a) Premiums Gross premiums written represent premiums on business commencing in the financial year together with adjustments to premiums written in previous accounting periods and estimates for premiums from contracts entered into during the course of the year. Gross premiums written are stated before deduction of brokerage, taxes, duties levied on premiums and other deductions. For the year ending 31 December 2020, gross premiums written includes a one off transfer of business written through the group syndicates to Lloyd’s Brussels and subsequent inward reinsurance of business from Lloyd’s Brussels to reflect the Part VII transfer. The net impact of this transaction is nil.
Any deficiency is immediately charged to the statement of profit or loss and subsequently by establishing a URR provision for losses arising from liability adequacy tests.
Any benefits to which the group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of balances due from reinsurers and include reinsurers’ share of provisions for claims. These balances are based on calculated amounts of outstanding claims and projections for IBNR and URR, net of estimated irrecoverable amounts, having regard to the reinsurance programme in place for the class of business, the claims experience for the period and the current security rating of the reinsurer involved. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when a contract incepts.
Revenue Revenue consists of net earned premiums, net investment income and other income (made up of commissions received from Beazley service companies, profit commissions, managing agent’s fees and service fees). Profit commissions are recognised as profit is earned. Commissions received from service companies and managing agent’s fees are recognised as the services are provided.
Intangible assets a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses.
d) IT development costs Costs that are directly associated with the development of identifiable and unique software products and that are anticipated to generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs include external consultants’ fees, certain qualifying internal staff costs and other costs incurred to develop software programs. These costs are amortised over their estimated useful life (three years) on a straight-line basis and subject to impairment testing annually. Amortisation commences when the asset becomes operational. Other non-qualifying costs are expensed as incurred.
e) Renewal rights Renewal rights comprise future profits relating to insurance contracts acquired and the expected renewal of those contracts. The costs directly attributable to acquire the renewal rights are recognised as intangible assets where they can be measured reliably and it is probable that they will be recovered by directly related future profits. These costs are subject to an impairment review annually and are amortised on a straight-line basis, based on the estimated useful life of the assets, which is estimated to be between five and 10 years.
h) Investment income Investment income consists of dividends, interest, realised and unrealised gains and losses and foreign exchange gains and losses on financial assets and liabilities at fair value through the statement of profit or loss (as defined in accounting policy e). Dividends on equity securities are recorded as revenue on the ex-dividend date. Interest is recognised on an effective rate basis for financial assets at fair value through the statement of profit or loss. The realised gains or losses on disposal of an investment are the difference between the proceeds and the original cost of the investment. Unrealised investment gains and losses represent the difference between the carrying value at the reporting date, and the carrying value at the previous period end or purchase value during the period.
j) Other payables Other payables are stated at amortised cost determined according to the effective interest rate method.
The group has not designated any derivatives as fair value hedges, cash flow hedges or net investment hedges and therefore all fair value movements are recorded through profit or loss.
1 Statement of accounting policies continued m) Cash and cash equivalents Cash and cash equivalents consist of cash held at bank, cash in hand, deposits held at call with banks, cash held in Lloyd’s trust accounts and other short term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. These investments have less than three months maturity from the date of acquisition. Cash and cash equivalents are measured at fair value through the profit and loss account.
b) Lease liabilities At the commencement date of the lease, the group recognises a lease liability measured at the present value of the lease payments to be made over the lease term.
c) Short-term leases and leases of low-value assets The group applies the short-term lease recognition exemption to its short-term leases of property (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as an expense in the profit or loss on a straight-line basis over the lease term.
Net interest income/expense is recognised in the statement of profit or loss.
For the defined contribution plan, the group pays contributions to a privately administered pension plan. Once the contributions have been paid, the group has no further obligations. The group’s contributions are charged to the statement of profit or loss in the period to which they relate.
b) Share based compensation The group offers option plans over Beazley plc’s ordinary shares to certain employees, which includes the save-as-you-earn (SAYE) scheme.
Earnings per share Basic earnings per share are calculated by dividing profit or loss after tax available to shareholders by the weighted average number of ordinary shares in issue during the period.
The symbol † by a table or numerical information means it has not been audited.
To address this, the group sets out the exposure that it is prepared to accept in certain territories to a range of events such as natural catastrophes and specific scenarios which may result in large industry losses. This is monitored through regular calculation of realistic disaster scenarios (RDSs). The aggregate position is monitored at the time of underwriting a risk, and reports are regularly produced to highlight the key aggregations to which the group is exposed.
2 Risk management continued The group’s high level catastrophe risk appetite is set by the board and the business plans of each team are determined within these parameters. The board may adjust these limits over time as conditions change. In 2020 the group operated to a catastrophe risk appetite for a probabilistic 1-in-250 years US event of † $437.0m (2019: $416.0m) net of reinsurance. This represents an increase of 5% in 2020.
San Francisco quake (2020: $78.0bn) 663.2 232.1 Los Angeles quake (2020: $78.0bn) 706.4 228.6 Gulf of Mexico windstorm (2020: $112bn) 642.8 216.0
The tables above show each event independent of each other and considered on their own. The impacts would be net of reinsurance exposures for the two California quakes and have increased by circa 4% in 2020, whereas gross exposures have reduced by 9% for the San Francisco event and 5.5% for the Los Angeles scenario. The reduction in gross exposures is being driven by the Property division, who have reduced their writings of US quake business, but this has not lead to a reduction in net as the drop in exposure is contained within the reinsurance programme. Windstorm exposures have increased in the Gulf of Mexico during 2020, which has resulted in the Gulf of Mexico windstorm scenario replacing the US northeast windstorm scenario as being the third largest scenario. The natural catastrophe risk appetite increased by 5% in 2020 to † $437m.
To manage the potential exposure, the board has established a risk budget for the aggregation of data breach related claims which is monitored by reference to the largest of ten realistic disaster scenarios that have been developed internally. These scenarios include the failure of a data aggregator, the failure of a shared hardware or software platform and the failure of a cloud provider. Whilst it is not possible to be precise, as there is sparse data on actual aggregated events, these severe scenarios are expected to be very infrequent. The largest net realistic disaster scenario is currently similar to the Gulf of Mexico windstorm event shown above for the group as at 31 December 2020. The reinsurance programmes that protects the CyEx and Specialty Lines divisions would partially mitigate the cost of most, but not all, data breach catastrophes.
Operating divisions In 2020, the group’s business consisted of seven operating divisions. The following table provides a breakdown of gross premiums written by division, and also provides a geographical split based on placement of risk.
In 2020, the group managed its foreign exchange risk by periodically assessing its non-dollar exposures and hedging these to a tolerable level while targeting to have net assets that are predominantly denominated in US dollar. As part of this hedging strategy, exchange rate derivatives were used to rebalance currency exposure across the group. Details of foreign currency derivative contracts entered into with external parties are disclosed in note 17. On a forward looking basis an assessment is made of expected future exposure development and appropriate currency trades put in place to reduce risk.
Change in exchange rate of sterling, Canadian dollar and euro relative to US dollar $m $m $m $m
Dollar weakens 30% against other currencies (25.0) 3.4 (33.9) (1.0) Dollar weakens 20% against other currencies (16.7) 2.3 (22.6) (0.6) Dollar weakens 10% against other currencies (8.3) 1.1 (11.3) (0.3) Dollar strengthens 10% against other currencies 8.3 (1.1) 11.3 0.3 Dollar strengthens 20% against other currencies 16.7 (2.3) 22.6 0.6 Dollar strengthens 30% against other currencies 25.0 (3.4) 33.9 1.0 b) Interest rate risk Some of the group’s financial instruments, including cash and cash equivalents, certain financial assets at fair value and borrowings, are exposed to movements in market interest rates.
The following table shows the modified duration at the reporting date of the financial instruments that are exposed to movements in market interest rates. Duration is a commonly used measure of volatility and we believe gives a better indication than maturity of the likely sensitivity of our portfolio to changes in interest rates. Duration
Borrowings consist of two items. The first is $250m of subordinated tier 2 debt raised in November 2016. This debt is due in 2026 and has annual interest of 5.875% payable in May and November of each year. The second comprises $300m of subordinated tier 2 debt raised in September 2019. This debt is due in 2029 and has annual interest of 5.5% payable in March and September each year.
2 Risk management continued Sensitivity analysis Changes in yields, with all other variables constant, would result in changes in the capital value of debt securities and syndicate loans as well as subsequent interest receipts and payments. This would affect reported profits and net assets as indicated in the table below: Impact on profit after income tax for the year Impact on net assets $m $m $m $m
c) Price risk Financial assets and derivatives that are recognised in the statement of financial position at their fair value are susceptible to losses due to adverse changes in prices. This is referred to as price risk.
COVID-19 has caused a temporary shift in the operational strategy of Beazley from an office based environment to a completely remote working environment. This has meant that internal processes, capability of people and systems have been put to the test. The group have adapted to the changes in the operational environment and business processes have continued to be carried out. The group continues to actively manage operational risks caused by COVID-19, while engaging in open communication with staff. The group also continues to regularly monitor the performance of its controls through the risk management reporting process.
2 Risk management continued 2.5 Credit risk Credit risk arises where counterparties fail to meet their financial obligations in full as they fall due. The primary sources of credit risk for the group are: • reinsurers – reinsurers may fail to pay valid claims against a reinsurance contract held by the group; • brokers and coverholders – counterparties fail to pass on premiums or claims collected or paid on behalf of the group; • investments – issuer default results in the group losing all or part of the value of a financial instrument or a derivative financial instrument; and • cash and cash equivalents.
Tier 1 A++ to A- Aaa to A3 AAA to ATier 2 B++ to B- Baa1 to Ba3 BBB+ to BBTier 3 C++ to C- B1 to Caa B+ to CCC Tier 4 D, E, F, S Ca to C R, (U,S) 3 www.beazley.com Beazley | Annual report 2020
2 Risk management continued The following tables summarise the group’s concentrations of credit risk: Tier 1 $m Tier 2 $m Tier 3 $m Tier 4 $m Unrated $m Total $m
Financial assets at fair value – fixed and floating rate debt securities 4,813.6 606.1 – – – 5,419.7 – syndicate loans 40.6 – – – – 40.6 – equity funds – – – – 203.2 203.2 – hedge funds – – – – 442.1 442.1 – illiquid credit assets – – – – 227.9 227.9 – derivative financial instruments – – – – 28.5 28.5 Insurance receivables – – – – 1,467.9 1,467.9 Reinsurance assets 1,684.7 – – – – 1,684.7 Other receivables 86.5 – – – – 86.5 Cash and cash equivalents 307.2 0.8 – – 1.5 309.5
Financial assets at fair value – fixed and floating rate debt securities 3,536.0 1,269.1 – – – 4,805.1 – syndicate loans 8.0 – – – – 8.0 – equity funds – – – – 163.6 163.6 – hedge funds – – – – 354.0 354.0 – illiquid credit assets – – – – 216.6 216.6 – derivative financial instruments – – – – 25.5 25.5 Insurance receivables – – – – 1,048.0 1,048.0 Reinsurance assets 1,338.2 – – – – 1,338.2 Other receivables 72.0 – – – – 72.0 Cash and cash equivalents 278.5 – – – – 278.5
The largest counterparty exposure within tier 1 is $2,326.0m of US treasuries (2019: $1,599.9m).
The group believes that the unimpaired amounts that are past due more than 30 days are still collectable in full, based on historic payment behaviour and analyses of credit risk.
2 Risk management continued The following is an analysis by business segment of the estimated timing of the net cash flows based on the net claims liabilities1 balance held at 31 December: Within 1 year $m 1-3 years $m 3-5 years $m
The following table is an analysis of the net contractual cash flows based on all the liabilities held at 31 December: 31 December 2020 Within 1 year 1-3 years 3-5 years Greater than 5 years Total
The group makes additional interest payments for borrowings. Further details are provided in notes 8 and 25. The next two tables summarise the carrying amount at reporting date of financial instruments analysed by maturity date. Maturity
Fixed and floating rate debt securities 1,620.5 1,899.3 562.5 422.8 445.5 469.1 – 5,419.7
Derivative financial instruments 28.5 – – – – – – 28.5 Cash and cash equivalents 309.5 – – – – – – 309.5 Insurance receivables 1,467.9 – – – – – – 1,467.9 Other receivables 86.5 – – – – – – 86.5 Other payables (733.9) – – – – – – (733.9)
Borrowings consist of two items. The first is $250m of subordinated tier 2 debt raised in November 2016. This debt is due in 2026 and has annual interest of 5.875% payable in May and November of each year. The second comprises $300m of subordinate tier 2 debt raised in September 2019. This debt is due in 2029 and has annual interest of 5.5% payable in March and September each year.
2.8 Group risk Group risk occurs where business units fail to consider the impact of their activities on other parts of the group, as well as the risks arising from these activities. There are two main components of group risk which are explained below.
2 Risk management continued The group uses letters of credit (LOC) available under a syndicated short term banking facility led by Lloyds Banking Group plc to support Funds at Lloyd’s (FAL) requirements. Lloyd’s of London apply certain criteria to banks issuing LOCs as FAL, including minimum credit rating requirements and counterparty limits. Should any of the banks on the existing LOC facility breach Lloyd’s of London requirements, the group might be asked to replace the LOC provided with alternative eligible issuer(s) and/or assets meeting Lloyd’s requirements. The creditworthiness of the counterparties on the facility is monitored by the group on an ongoing basis.
For more detail on the value of capital managed, please see pages 51 to 52.
Market Facilities This new segment underwrites entire portfolios of business with the aim of offering a low cost mechanism for placing follow business within the Lloyd’s market.
Political, Accident & Contingency This segment underwrites terrorism, political violence, expropriation and credit risks as well as contingency and risks associated with contract frustration. In addition, this segment underwrites life, health, personal accident, sports and income protection risks.
Expenses for the acquisition of insurance contracts 180.0 82.2 19.3 75.9 105.4 32.0 244.1 738.9
Expenses for the acquisition of insurance contracts 143.2 82.4 9.9 76.4 110.3 30.6 192.6 645.4
Additional information 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.
Segment assets UK (Lloyd’s) 9,433.1 8,046.5 US (Non-Lloyd’s) 976.6 762.4 Europe (Non-Lloyd’s) 178.0 64.8
Interest and dividends on financial investments at fair value through profit or loss 110.7 120.6 Interest on cash and cash equivalents 0.2 0.3 Net realised gains on financial investments at fair value through profit or loss 46.3 21.5 Net unrealised fair value gains on financial investments at fair value through profit or loss 36.7 130.1 Investment income from financial investments 193.9 272.5 Investment management expenses (5.8) (8.8)
Other income: As part of other income, the group has received $0.2m of government grants relating to COVID-19 for wage relief for our Singapore employees (31 December 2019: nil). These grants are deemed to be tax free in the hands of the employer. Under IAS 20: Government Grants, government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.
Impairment loss recognised on reinsurance assets 1.1 1.5 1 Other than the fees disclosed above, no other fees were paid to the company’s auditor.
Wages and salaries 179.6 165.2 Short term incentive payments 39.1 56.2 Social security 17.5 17.0 Share based remuneration 3.0 4.9
Current tax expense Current tax expense 12.9 38.8 Prior year adjustments (6.5) (4.0)
Income tax (credit)/charge (4.3) 33.6 www.beazley.com Beazley | Annual report 2020
As noted on page 48, the group has assessed the potential impact of the diverted profits tax (DPT) following the enactment of new legislation in April 2015 and is 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.
A new Tax Act (the Tax Cuts and Jobs Act) was signed into law in the US in December 2017. The Tax Act includes base erosion anti-avoidance tax provisions (the “BEAT”). We have performed an assessment for our intra-group transactions potentially in scope of BEAT. The application of this new BEAT legislation is still uncertain for some types of transaction and we are keeping developments under review. With support from external advisors, we believe that the BEAT impact on the group is not significant. For the year 2020 $1.1m was provided in the group accounts for BEAT liabilities (for 2019 the group paid BEAT tax of $3.2m). The ultimate outcome may differ and if any additional amounts did fall within the scope of the BEAT, incremental tax at 10% might arise on some or all of those amounts.
Current tax: share based payments (1.2) (2.6) Deferred tax: share based payments 5.4 (1.0)
Diluted Diluted (loss)/earnings per share are calculated by dividing loss after tax of $46.1m (2019: Profit $234.1m) by the adjusted weighted average number of shares of 582.6m (2019: 532.4m). The adjusted weighted average number of shares assumes conversion of dilutive potential ordinary shares, being shares from the equity settled compensation schemes. The shares held in the ESOP of 3.8m (2019: 4.8m) have been excluded from the calculation, until such time as they vest unconditionally with the employees. Further details of equity compensation plans can be found on note 23 as well as in the directors’ remuneration report on pages 91 to 114.
Other additions – – – 20.5 – 20.5 Foreign exchange gain – – – 0.9 1.3 2.2
Specialty Lines $m Total $m 1 From 1 January 2020, the Market Facilities division has been split from Speciality Lines. The prior year comparative has been represented to allow comparison.
A discount rate, based on weighted average cost of capital (WACC) of 7% (2019: 7%) has been applied to projected future cash flows. This has been calculated using independent measures of the risk-free rate of return and is indicative of the group’s risk profile relative to the market. The impairment test for goodwill confirms that no impairment is required.
Significant changes in the economic and regulatory environment, such as COVID-19, US legislation and Brexit, could impact the amount of premium written and investment income for each CGU which could adversely impact the carrying value of each CGU.
The group has taken the following measures to ensure that the key assumptions used in deriving value in use for each CGU considers the potential adverse effects of these potential changes in economic and regulatory environments: • Premium growth rates/Retention rates – The group has used a terminal growth rate of 0% to extrapolate projections beyond the covered five year period. This is to allow for a conservative approach to the effect of COVID-19 on the PAC business as well as any adverse effects of the UK leaving the European Union.
* Speciality lines, when flexed to the upper range of 12% (7% + 5% flex) resulted in the segmental carrying value being greater than the value in use. After performing a sensitivity analysis we noted that speciality lines weighted average cost of capital can be flexed up to 11% (1% less than Beazley’s current test) before the carrying value exceeds the value in use. Management will continue to monitor speciality lines for a potential impairment of $2.9m of goodwill which is allocated to the CGU.
Falcon Money Management Holdings Limited (and subsidiaries) Malta1 25% – Pegasus Underwriting Limited Hong Kong2 33% – CyberAcuView LLC New York3 14% 0.3 1 259 St Paul Street, Valletta, Malta.