• The ability to scale our operations to ensure that client and broker service keep pace and, wherever possible, improve as the company grows.
We hired 63 underwriters in 2016, a record number. For talented individuals in our lines of business, Beazley provides an opportunity that combines a high level of professional support with a high level of personal accountability.
As our divisions have grown, they have also become more diversified. Specialty lines, which accounted for 53% of our premiums in 2016, is the foremost example of this (see pages 8 to 11), but our property and marine divisions have also diversified significantly in recent years. A decade ago, large scale property business written out of London accounted for more than half of our property division’s portfolio; last year it stood at 29%. Similarly, a decade ago marine hull and energy business together accounted for more than two thirds of our marine division’s portfolio; last year they accounted for approximately 45% and aviation business, which we began underwriting in 2013, represented 8%.
Beazley was founded in 1986 in the midst of a crisis of capacity for liability risks in the US that prompted Time magazine to run a cover story in March of that year headlined ‘Sorry America. Your insurance has been cancelled’. Professional indemnity covers for large US law firms and for major US engineering design firms were among the first risks Andrew Beazley underwrote on behalf of the fledgling Lloyd’s syndicate.
Although the US will unquestionably continue to be the biggest market for the specialty lines division in the years to come, business in other markets is gaining ground. Lloyd’s remains a crucible for innovation in insurance, as well as the natural home to many of the largest and most complex risks. From 2017, as part of the expansion of our international (non-US) specialty lines business, a team under Gerard Bloom’s leadership will be targeting new opportunities in financial institutions and in other specialty lines such as management liability and cyber.
In the year Beazley begins trading, the first acknowledged computer virus, Brain, is released. Thirty years later Beazley is at the forefront of insuring against this type of threat.
Finally in August, the board appointed Bob Stuchbery as a non-executive director and member of the audit and risk committee. Bob had previously been appointed as a non-executive director to the board of Beazley Furlonge Ltd, the group’s Lloyd’s managing agency, where he chairs the risk committee. He brings extensive Lloyd’s experience, having been CEO of Chaucer until 2015 and his deep knowledge of the Lloyd’s market and distribution and operational strategies will be an asset to the board.
Beazley prospered in 2016, generating a profit before income tax of $293.2m (2015: $284.0m) on gross premiums that rose by 6% to $2,195.6m (2015: $2,080.9m). At 89% our combined ratio was in line with our performance in recent years, despite more challenging underwriting conditions for many lines of business and rate declines that averaged 2% across our portfolio.
Many of the new partnerships we have negotiated in 2016 further the growth aspirations of our cyber underwriters. In April we announced a partnership with the Corporate Insurance Partner unit of Munich Re to offer tailored cyber protection to the world’s largest companies. In September we launched an initiative with GNP Seguros, one of the largest insurers in Mexico, to offer data breach insurance to that company’s clients. Also through similar ventures in the US we continue to broaden the reach of our market-leading data breach product, Beazley Breach Response.
We were pleased to receive, overall, very high ratings from brokers for the responsiveness and expertise of our underwriting and claims teams. Willingness to recommend Beazley, for both underwriting and claims, was also very high.
A Our return to the UK has delivered exactly the benefits we anticipated and we would have made the same decision, regardless of Brexit. In practical terms it would, we believed, be easier to manage the group from London, where the bulk of our business continues to be transacted. That has proved the case. However we kept our internal reinsurance company, Beazley Re dac, in Dublin with the intention of using this as a vehicle to develop further European business, subject to regulatory approval from the Central Bank of Ireland (CBI). Our application to convert Beazley Re dac from a reinsurance company to an insurance company was submitted to the CBI last November and now we will be working with them to answer any questions they have, with the aim of obtaining approval in the first half of this year.
Our business in Australia, as around the world, relies heavily on strong broker and coverholder relationships. We were therefore delighted in September to learn that a large scale survey conducted among nearly 3,000 Beazley brokers around the world recorded particularly high satisfaction and ‘willingness to recommend’ scores for our underwriters and claims staff in Australia. This is a tribute to the excellent work that Suzie White and her team have put into broadening and strengthening our broker relationships in the region.
Political risks & contingency Diverse product mix delivers strong combined ratio.
The political risks and contingency division performed well in 2016 in markets that continued to be quite competitive for both political and terrorism risks. At 75%, the division’s combined ratio compared favourably to 2015’s 76%, despite declining rates in both these business lines.
We have, however, continued to see hedge funds, pension funds and other investors gain access to major reinsurance programmes through the provision of collateralised reinsurance – a market that we have ourselves tapped to help meet our needs for retrocession cover.
Gross premiums written 2,195.6 2,080.9 6% Net premiums written 1,854.0 1,713.1 8%
Investment performance Financial markets experienced another volatile year in 2016. Weak energy prices and concerns about fragile global growth led to significant declines in equity markets and wider credit spreads, particularly for high yield issuers, in January and February. Subsequently, these asset classes recovered their earlier losses and continued to improve throughout the year as easy global monetary policy, recovering energy prices and, latterly, hopes of a ‘Trumpian’ boost to economic growth, all helped investors regain confidence. Global equities returned 9.0%, in local currency terms, in 2016. High yield bonds also performed strongly as average credit spreads declined by more than 250 basis points over the year.
Net assets per share (cents) 286.8c 281.7c 2% Net tangible assets per share (cents) 268.2c 263.9c 2%
Beazley Underwriting Limited; • Syndicate 2623 – corporate body regulated by Lloyd’s through which the group underwrites its general insurance business excluding accident & life. Business is written in parallel with syndicate 623; • Syndicate 623 – corporate body regulated by Lloyd’s which has its capital supplied by third-party names; • Syndicate 6107 – special purpose syndicate writing reinsurance business, and from 2017 cyber, on behalf of third-party names; • Syndicate 3622 – corporate body regulated by Lloyd’s through which the group underwrites its life insurance and reinsurance business; • Syndicate 3623 – corporate body regulated by Lloyd’s through which the group underwrites its personal accident and
Looking ahead Three areas of focus for 2017 are, firstly, continuing to increase our ability to efficiently scale up operational support in areas where we see greatest growth potential and margin. Secondly, continuing to research and develop innovative ways to get our products to the customer. Working closely with our broker partners, we want to continue to make best use of technology and data insight to maximise the efficiency of getting the most appropriate insurance cover for our customers. Thirdly, using innovating specialist underwriting data is a Beazley strategic initiative – next year will see the implementation of several projects in this space including the rollout of a new data analytics capability for our teams that will bring together our own internal data and the wealth of externally available data using third party specialists.
We place great importance on maintaining consistency in our approach to delivering high quality service and continually improving operational efficiency. We have a highly experienced operations team to deliver on the above strategic objectives and we take great pride in our ability to create competitive advantage through operational service provision and in our ability to react quickly and efficiently to new business opportunities.
An important element of risk management’s role is to work with staff across the business to better understand the practical challenges facing our business. During 2016, members of the risk management team visited Beazley offices in the US, Europe, and Asia to identify how we can improve what we do and to observe how the Beazley culture ensures our staff do the right thing.
Celebrating our products that are making a real difference to our customers.
Colleagues mentor students and graduates in a number of ways. In 2016 we held workshops for more than 350 students focusing on careers and work skills. We’re also members of the Lloyd’s Community Programme, which offers hundreds of volunteering opportunities in and around our London office – from children with literacy and numeracy needs to young teenagers struggling to find work.
Further information can be found in the statement of corporate governance on page 77.
Corporate governance The company’s compliance with corporate governance is disclosed in the statement of corporate governance on pages 77 to 82.
Risk management The group’s approach to risk management is set out on pages 52 to 55 and further detail is contained in note 2 to the financial statements on pages 144 to 158.
Diversity and inclusion Information concerning diversity and inclusion can be found in the responsible business section on page 60 and in the statement on corporate governance on page 77.
As part of planning for board succession, the nomination committee and board looked at the balance of the board, including the skills and experience and there were a number of new appointments made in 2016. During the year, the board welcomed John Sauerland, Christine LaSala and Bob Stuchbery with effect from 5 May, 1 July and 11 August 2016 respectively. Details of the search processes are set out in the nomination committee report. Rolf Tolle resigned from the board on 11 March 2016. After having served more than six years on the board, Padraic O’Connor and Vincent Sheridan resigned on 24 March and 31 December 2016 respectively. The board would like to thank them all for their valuable contributions during their time on the board.
We ensure directors continually update their skills through individual development plans and board training. Talent development and succession planning are critical components of sustainable success and this starts at the very top, in the boardroom. It is vital that we have on the board the right balance and diversity of expertise, skills, experience and perspectives, in addition to independence of thought and action.
Financial calendar 3 March 2017 Second interim dividend and special dividend record date 24 March 2017 Annual general meeting 29 March 2017 Second interim dividend and special dividend payment date for the six months ended 31 December 2016 21 July 2017 First interim dividend announcement for the six months ended 30 June 2017
Audit and risk committee Chairman Angela Crawford-Ingle Members Catherine Woods Christine LaSala George Blunden Robert Stuchbery Vincent Sheridan 1
John Sauerland, Christine LaSala and Robert Stuchbery were appointed to the board during 2016 on 5 May, 1 July and 11 August respectively. Rolf Tolle, Padraic O’Connor and Vincent Sheridan resigned from the board on 11 March 2016, 24 March and 31 December 2016 respectively.
Board meeting attendance The full board meets at least five times each year and more frequently where business needs require. In 2016, in addition to the five regular board meetings, there were further meetings to consider the Q3 2016 interim statement and director changes. Attendance at the meetings was high. All the directors also attend an annual strategy day. The remuneration, nomination, and audit and risk committees had additional ad hoc meetings with full attendance. The chairman holds meetings as required with the non-executive directors without the executive directors being present.
The committee has received updates and commentary from management in relation to updates from both Lloyd’s of London and the Central Bank of Ireland in respect of Solvency II reporting dates and requirements as well as associated audit requirements. The committee also considered the appropriateness of the group’s proposed governance processes around these financial statements.
Discretionary annual bonus to individuals. Bonuses are determined by reference to both financial and individual performance.
Fixed remuneration Base salary Annual base salary Pension 15% of base salary Benefits Taxable value of annual benefits provided in 2016
Please be aware that following a scheme of arrangement on 13 April 2016 the parent company of the Beazley group changed from Beazley Ireland Holdings plc (formerly Beazley plc) to Beazley plc (formerly Swift No.3 Limited). The remuneration disclosed for 2016 within this report are for the director’s services to both of the respective parent companies of the Beazley group and to theBeazley group as a whole. The remuneration disclosed for 2015 is for the director’s services to the parent company Beazley Ireland Holdings plc (formerly Beazley plc) and to the Beazley group as a whole.
For 2017, the average salary increase for executive directors was 2.0%, which was below the average salary increase across the group.
Awards for 2017 It is intended that the performance conditions for the LTIP awards for 2017 will be in line with those granted in 2016 (see below). LTIP awards will be 200% of salary for the CEO and 150% for other executive directors, other than for the head of speciality lines. For the head of speciality lines an LTIP award of 175% of salary will be granted in recognition of his contribution to the group. It is expected that his award level for the following year will revert to 150%.
• Challenged the quality of Beazley’s historical reserving estimates by monitoring progression of loss ratios against expectations.
Change in gross provision for unearned premiums (83.4) (57.4) Reinsurer’s share of change in the provision for unearned premiums (2.4) 43.0 Change in net provision for unearned premiums (85.8) (14.4)
Total comprehensive income recognised – – – – – – Dividends paid 11 – – – – – – Equity settled share based payments 22 – – – – – – Acquisition of own shares in trust 22 – – – – – – Transfer of shares to employees 22 – – – – – – Balance at 31 December 2015 – – – – – –
The financial statements were approved by the board of directors on 2 February 2017 and were signed on its behalf by: D Holt Chairman
Throughout the period from incorporation to 13 April 2016, Beazley plc (formerly Swift No.3 Limited) was a shell company with no material revenues and assets and did not constitute a ‘business’ as defined by IFRS 3: Business combinations. As part of the scheme of arrangement, the shareholders of Beazley Ireland Holdings plc (formerly Beazley plc) acquired 100% of the share capital of Beazley plc on completion of the transaction.
The financial statements of Beazley plc have been prepared on a going concern basis. The directors of the company have a reasonable expectation that the group and the company have adequate resources to continue in operational existence for the foreseeable future. In accordance with the requirements of IAS 1 the financial statements’ assets and liabilities have been presented based on order of liquidity which provides information that is more reliable and relevant for a financial institution.
Certain group subsidiaries underwrite as corporate members of Lloyd’s on syndicates managed by Beazley Furlonge Limited. In view of the several and direct liability of underwriting members at Lloyd’s for the transactions of syndicates in which they participate, only attributable shares of transactions, assets and liabilities of those syndicates are included in the group financial statements. The group continues to conclude that it remains appropriate to consolidate its share of the result of these syndicates and accordingly, as the group is the sole provider of capacity on syndicates 2623, 3622 and 3623, these financial statements include 100% of the economic interest in these syndicates. For the other syndicates to which Beazley is appointed managing agent, being syndicates 623, 6107 and 6050, for which the capacity is provided entirely by third parties to the group, these financial statements reflect Beazley’s economic interest in the form of agency fees and profit commission to which they are entitled.
www.beazley.com144 Beazley Annual report 2016 1 Statement of accounting policies continued Employee benefits a) Pension obligations The group operates a defined benefit pension plan that is now closed to future service accruals. The scheme is generally funded by payments from the group, taking account of the recommendations of an independent qualified actuary. All employees now participate in defined contribution pension arrangements, to which the group contributes.
The group also recognises that insurance events are, by their nature, random, and the actual number and size of events during any one year may vary from those estimated using established statistical techniques.
2.9 Capital management The group follows a risk-based approach to determine the amount of capital required to support its activities. Recognised stochastic modelling techniques are used to measure risk exposures, and capital to support business activities is allocated according to risk profile. Stress and scenario analysis is regularly performed and the results are documented and reconciled to the board’s risk appetite where necessary.
Basic Basic earnings per share are calculated by dividing profit after tax of $251.0m (2015: $249.0m) by the weighted average number of shares in issue during the year of 516.3m (2015: 510.4m). The shares held in the Employee Share Options Plan (ESOP) of 6.1m (2015: 9.7m) have been excluded from the calculation, until such time as they vest unconditionally with the employees.
Foreign exchange forward contracts 278.6 2.8 131.0 0.1 Bond futures contract – – – –
Plan assets are comprised as follows: Cash – 5.1 UCITS funds 6.3 –
Written premium ceded to syndicates 57.3 53.2 Other income received from syndicates 33.1 28.2 Services provided 38.6 39.2
Further details of directors’ shareholdings and remuneration can be found in the directors’ remuneration report on pages 94 to 118.
Return on equity (ROE) Ratio, in percentage terms, calculated by dividing the consolidated profit after tax by the average daily total equity. In 2016, this was calculated as profit after tax of $251.0m (2015: $249.0m) divided by average equity of $1,381.6m (2015: $1,330.4m).