Find out more pages 34 to 35 Find out more pages 36 to 37 Find out more pages 38 to 39
Natural catastrophes shine a spotlight on the claims paying ability of insurers, and particularly the speed with which funds can be dispatched to those in need. However, the less high profile work of claims teams who focus on other lines of business plays an equally important role. Beazley is often able to distinguish itself by the quality of the claims service provided for third party risks as well as first party risks: for many businesses a lawsuit can be just as damaging as a hurricane.
It has been a privilege to work with such a strong executive and non-executive team on the board and also to get to know so many talented individuals at many levels across the company. It is a cliché – but true – that the success of a service-oriented business such as Beazley depends on the quality of its people and the culture that binds them together. On both counts, Beazley should have a very successful future.
Looking ahead, we are budgeting for growth in all of our divisions in 2018, the first time this has been the case for over 10 years. Overall, we expect to reach double digit growth in 2018.
In Europe, we opened a new office in Spain, expanded our office in Germany and plan to transact business for the account of Beazley Insurance dac through branches in those countries, as well as in the UK and France. Clients will have a choice of security: that of the insurance company, which enjoys passporting freedoms under European Union law, and that of our Lloyd’s syndicates.
1 Based on premiums due for renewal in each calendar year.
Find out more page 34 Find out more page 36 Find out more page 38
Pricing in the marine hull and machinery market remained exceptionally competitive throughout 2017 – an indication, as in previous years, of too much insurance capacity chasing too few ships. Rates in the war risks market also continued their downward trajectory. The waters off Yemen, Libya and Nigeria are now among the world’s most dangerous but demand for cover is far lower than it was in the sea lanes off the horn of Africa in the earlier years of this century.
An upsurge in political risk, terrorism and contingency claims reduced profits for Beazley’s political, accident & contingency (PAC) division in 2017. The division – created through the merger of the political risk & contingency division with the life, accident & health division – recorded a combined ratio of 101% (2016: 91%) on gross premiums written of $214.3m (2016: $245.3m).
We are a specialist insurer with individual risk selection and pricing at the heart of our business. We will not therefore be applying blanket rate rises of equal size to all accounts and will continue to recognise and reward high quality clients.
Stronger prospective margins have prompted us to review our underwriting appetite for 2018. However for our open market large risk property team in London, 2017 was a challenging year with rates falling 2% at January 1 renewals, reflecting a continuation in the pricing declines we had seen in previous years. The profitability of our book was materially stronger than the Lloyd’s market average, but to achieve this we had to turn down a growing volume of risks that did not meet our requirements.
The impact of catastrophe losses in the US and Mexico was mitigated by the steps we have taken in recent years to diversify our book geographically. A little over half of our business now derives from US cedents, down from 66% a decade ago. Outside the US, our European and Asian books performed well in 2017.
Much talk in the insurance industry has focused on the impact of technology; some of it utopian, some apocalyptic. Beazley ended 2017 with 239 specialty lines underwriters – 69 more than we began the year with. We see technology as a supplementary tool for our underwriters and claims professionals, not a substitute for their skills.
Net earned premiums 1,869.4 1,768.2 6% Net investment income 138.3 93.1 49%
Using the United Nations’ Sustainable Development Goals to inspire and motivate participants, we are working with an external sustainability consultant to run workshops to raise our business teams’ understanding of global environmental and social challenges. Through this process we will consider how we can make changes to existing policies to incentivise better outcomes, create new policies addressing these issues, and/or design additional risk mitigation services to help our insureds better manage their risks - while continuing to meet our clients’ needs and maintain profitability.
Our committees also encourage and support Beazley people to participate in charitable activities. The most significant change this year has been the introduction of a business sponsored volunteer event. We offered the chance for eight employees to volunteer on an All Hands and Hearts project to rebuild a school in Nepal. This was very well received by employees with over 150 colleagues registering interest and then almost 50 applying. A working group was established to select the volunteers. Eight colleagues from across the business were then chosen, including a charity committee member to lead the group. The volunteers were in Nepal for two weeks from Saturday, 4 November to Saturday, 18 November.
Networks Our 2017 staff survey showed that our people have become increasingly engaged with our diversity and inclusion initiative.
Principal activity Beazley plc is the ultimate holding company for the Beazley group, a global specialist risk insurance and reinsurance business operating through: its managed syndicates at Lloyd’s in the UK; Beazley Insurance Company, Inc., a US admitted carrier in the US; and Beazley Insurance dac, a European insurance company, in Ireland.
Directors The directors of the company who served during 2017 and/or to the date of this report were as follows: Dennis Holt Non-executive chairman David Andrew Horton Chief executive George Patrick Blunden Non-executive director Martin Lindsay Bride Finance director Adrian Peter Cox Director Angela Doreen Crawford-Ingle Non-executive director Christine LaSala Non-executive director Sir John Andrew Likierman Non-executive director Neil Patrick Maidment Director David Lawton Roberts Non-executive director (appointed 01/11/2017) John Peter Sauerland Non-executive director Robert Arthur Stuchbery Non-executive director Clive Andrew Washbourn Director (resigned 20/07/2017) Catherine Marie Woods Non-executive director
Diversity and inclusion Information concerning diversity and inclusion can be found in the responsible business section on page 68 and in the statement on corporate governance on page 94.
Scope 3 Emissions 2015: 5,091.21 2016: 4,235.00 2015: 1,491.63 2016: 1,483.74
Notes: i) We have disclosed global GHG emissions that we are responsible for as set out by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.
The scope of 2016 reporting is consistent with that for 2015. We plan to expand the 2017 scope of reporting to include our Atlanta office; this will take US office coverage to 80% of employees (based on 2016 occupancy).
Governance framework Board of directors Audit and risk committee The audit and risk committee is chaired by Angela Crawford-Ingle.
Remuneration committee The remuneration committee is chaired by Sir Andrew Likierman.
David Roberts Non-executive director Appointed: 1 November 2017 Experience: David is chairman of Nationwide Building Society and vice chairman of NHS England. He has over 30 years’ experience in financial services and was previously chairman 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 chairman at Lloyds Banking Group. His previous non-executive directorships include Absa Group SA and BAA plc.
Appointed: 21 July 2011* Experience: Dennis has more than 46 years’ experience in financial services markets. He was formerly a main board executive director at Lloyds TSB (2000-2001), chief executive of AXA UK and a member of AXA’s Global executive committee (2001-2006). He has been chairman of Liverpool Victoria and deputy chairman of Bank of Ireland. Dennis was appointed chairman of The Co-operative Bank plc in 2014. Committee: Nomination committee (chairman)
George Blunden has served a term in excess of six years and continues to bring strong challenge and insight to the board and its committees. His appointment was extended for a further three years at the 2016 AGM, subject to annual reappointment at the AGM. The nomination committee carried out a rigorous assessment of George Blunden’s continuing independence, taking into account the length of his tenure on the boards of both Beazley plc and Beazley Furlonge Ltd, and concluded that he remained independent. As senior independent director George will, if required, deputise for the chairman. He 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 his attention.
To enable the board to function effectively and directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters. Directors have access to an electronic information repository to support their activities. During 2017 the board continued to support the maintenance and development of Beazley’s information security programme to address changing and emerging cyber security threats. All directors allocate sufficient time to the company to enable them to discharge their responsibilities effectively. The terms and conditions of appointment for all the non-executive directors set out the expected time commitment and they agree that they have sufficient time to provide what is expected of them.
The audit and risk committee receives regular reports from both the internal group actuary and the external audit team, as the output of independent projections are reviewed at key reporting quarters. In the latter part of the year, the group actuary has reported both informally and formally on the results of the third quarter reserving process, which the committee considers to be a key control as this process provides a level of informed independent challenge for the reserve position. To support the year end view, the committee has received a detailed paper in support of the level of margin held within technical reserves in the group’s statement of financial position. Management confirmed that they remain satisfied that the outstanding claims reserves included in the financial statements provide an appropriate margin over
To date, the committee has reviewed management’s initial strategy for the tender process. The audit committee expects the tender process to involve three main steps being the creation of an initial list of potential firms that are willing to be involved in the tender process, narrowing this initial list down to two preferred service providers through a combination of information requests and presentations, and finally making a recommendation to our shareholders following a final round of submissions and presentations to the committee. Among our primary aims throughout this process will be ensuring that any incumbent external audit firm possesses an appropriate range of technical skills and expertise, while demonstrating an understanding of the key markets in which we operate. The committee will also engage with subsidiary audit committees with a view to ensuring that each Public Interest Entity (‘PIE’) is able to operate a comprehensive audit tender process in its own right.
The 2017 board review was overseen by the committee and was facilitated in October/November 2017 using a survey completed by board and committee members. No material matters were identified and the committee will oversee the implementation of an action plan to strengthen the board’s overall effectiveness in 2018.
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 2017 and 31 December 2016.
Neil P Maidment 1 A portion of the bonus awards shown in the table above is deferred into shares for three years. Details of the deferral in respect of 2017 awards can be found on page 105.
• Extending the reach of US specialty lines products to new clients in Europe, Asia and Latin America • Syndicate 5623 to focus on facilities in the London market
D Andrew Horton • Delivery of $130.0m profit after tax and dividends to shareholders of $76.5m in a challenging market • Premium growth of 7% across our business including growth of 12% in the US • Acquisition of Creechurch Underwriters in Canada and continued to recruit new talent • Continued to build on our culture with strong employee engagement results • Robust risk management in a highly volatile and competitive market
LTIP Martin L Bride Nil cost option (LTIP) 150% of salary 110,515 480,000 10% 31/12/2019 31/12/2021 Adrian P Cox Nil cost option (LTIP) 175% of salary 137,999 599,375 10% 31/12/2019 31/12/2021 D Andrew Horton Nil cost option (LTIP) 200% of salary 210,439 914,000 10% 31/12/2019 31/12/2021 Neil P Maidment Nil cost option (LTIP) 150% of salary 118,285 513,750 10% 31/12/2019 31/12/2021 Clive A Washbourn Nil cost option (LTIP) 150% of salary 118,285 513,750 10% 31/12/2019 31/12/2021 Deferred bonus (in respect of 2016 bonus) Martin L Bride Deferred shares n/a
Refer to page 89 (Audit and Risk Committee Report), page 139 (Statement of accounting policies) and pages 171 & 172 (financial disclosures).
— Methodology assessment: Inspected the binder adjustment calculation and agreed that the methodology remains consistent and appropriate in the context of the timing of business written throughout the year.
— the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Gross premiums written 3 2,343.8 2,195.6 Written premiums ceded to reinsurers (365.0) (341.6) Net premiums written 3 1,978.8 1,854.0
Statement of comprehensive income for the year ended 31 December 2017 $m $m
Net (decrease)/increase in cash and cash equivalents (81.8) 0.7 (165.2) (0.2) Cash and cash equivalents at beginning of year 507.2 – 676.9 – Effect of exchange rate changes on cash and cash equivalents 15.1 – (4.5) 0.2 Cash and cash equivalents at end of year 20 440.5 0.7 507.2 –
In the current year, the group has applied amendments to IFRSs issued by the IASB that are mandatorily effective for an accounting period that beings on or after 1 January 2017. The new effective requirements are: • IAS 7: Amendment: Disclosure Initiative (EU effective date: 1 January 2017); and • IAS 12: Amendment: Recognition of deferred tax assets for unrealised losses (EU effective date: 1 January 2017).
Financial statem ents www.beazley.com Annual report 2017 Beazley 133 1 Statement of accounting policies continued • IFRS 9 provides a reform of financial instruments accounting to supersede IAS 39: Financial Instruments: Recognition and
The group also determines the net interest expense/(income) for the period on the net defined benefit liability/(asset) by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability/(asset) at the beginning of the annual period, taking into account any changes in the net defined benefit liability/(asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the defined benefit liability/ (asset) comprises: • interest cost on the defined benefit obligation; • interest income on plan assets; and • interest on the effect of the asset ceiling.
b) Share based compensation The group offers option plans over Beazley plc’s ordinary shares to certain employees, including the SAYE scheme.
Dollar weakens 30% against other currencies 19.6 (1.2) 11.8 (9.5) Dollar weakens 20% against other currencies 13.0 (0.8) 7.9 (6.3) Dollar weakens 10% against other currencies 6.5 (0.4) 3.9 (3.2) Dollar strengthens 10% against other currencies (6.5) 0.4 (3.9) 3.2 Dollar strengthens 20% against other currencies (13.0) 0.8 (7.9) 6.3 Dollar strengthens 30% against other currencies (19.6) 1.2 (11.8) 9.5
The total impairment provision in the statement of financial position in respect of reinsurance assets past due (being reinsurance recoverables due on paid claims) by more than 30 days at 31 December 2017 was $3.1m (2016: $3.2m). This $3.1m provision in respect of overdue reinsurance recoverables is included within the total provision of $13.2m shown in the table at the top of the page.
Borrowings consist of three items as at 31 December 2017. The first is $18m of a subordinated debt facility raised in 2004 which is unsecured. The subordinated notes are due in 2034 and have been callable at the group’s option since 2009. The second 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 third is a £75m sterling denominated 5.375% notes due in 2019 with interest payable in March and September each year.
Diluted Diluted earnings per share are calculated by dividing profit after tax of $130.0m (2016: $251.0m) by the adjusted weighted average number of shares of 533.6m (2016: 531.0m). The adjusted weighted average number of shares assumes conversion of dilutive potential ordinary shares, being shares from the SAYE, retention and deferred share schemes. The shares held in the ESOP of 3.8m (2016: 6.1m) have been excluded from the calculation, until such time as they vest unconditionally with the employees.
11 Dividends per share A second interim dividend of 7.4p per ordinary share (2016: 7.0p) will be payable on 28 March 2018 to Beazley plc shareholders registered at 5.00pm on 2 March 2018 in respect of the six months ended 31 December 2017. No special dividend was declared in 2017 (2016: 10.0p). The company expects the total amount to be paid in respect of the second interim to be approximately £38.6m. These financial statements do not provide for the second interim dividend as a liability.
Write off – – (0.4) (0.4) Foreign exchange loss – (1.6) (0.7) (2.3)
Additional information is obtained from fund managers relating to the underlying assets within individual hedge funds. We identified that 67% (2016: 77%) of these underlying assets were level 1 and the remainder level 2. This enables us to categorise hedge funds as level 2.
Total financial liabilities not measured at fair value – 354.1 – 354.1
Principal actuarial assumptions Discount rate 2.4% 2.8% Inflation rate 3.4% 3.5% Expected return on plan assets 2.4% 2.8% Future salary increases 3.4% 3.5% Future pensions increases 3.3% 3.0% Life expectancy for members aged 60 at 31 December 90 years 90 years Life expectancy for members aged 40 at 31 December 93 years 92 years