Companies: BEZ   

America provides a major chunk of the insurance business written by many Lloyd’s underwriting groups – and the USA has generated many of the market’s biggest problems, from asbestosis claims to Hurricane Katrina. But God’s Country is proving a particularly bright spot for Beazley Group, a Lloyd’s insurer with £860 million underwriting capacity, which has more than doubled first-half profits from £28 million to £60.2 million pre-tax and is predicting an equally strong second half year.

Beazley, founded 21 years ago by Lloyd’s underwriter and chief executive Andrew Beazley, scored this impressive profits gain on a more modest ten per cent increase in gross written premiums to £434 million. However, premiums in the USA, where the company has recently established itself with 150 people writing domestic insurance business, surged nearly 200 per cent to £39 million.

Overall, costs and claims expenses fell from 90 per cent to 87 per cent of premium income. Invested funds reached £1.3 billion and yielded an improved five per cent, thanks to rising interest rates. First half earnings doubled to 11.5p a share, allowing a 25 per cent dividend increase to 2p a share.

The company’s profitability derived added impetus from a £25.2 million release from reserves, which had previously been set aside to meet potential claims from policies written in earlier periods, but were not needed. This reserve release was more than twice the figure for the first half of 2006.

Beazley operates at Lloyd’s through two ‘parallel’ syndicates, 623 and 2623. Outside capital provides underwriting capacity for 623 and Beazley’s own capital supports the much larger 2623, but both have identical mixes of underwriting and both enjoy A.M.Best credit ratings of A – ‘excellent’. In the USA, Beazley operates through Beazley Insurance Company Inc, which sports a similar A.M.Best rating.

Andrew Horton, the company’s chief financial officer, says Beazley’s approach is to give its own people ‘good terms’ within the policies determined by the board.
The syndicates business is divided between ‘medium tail’ professional indemnity, where any claims are paid within five years, property, marine cover and reinsuring other insurers who have covered wind storms and earthquakes. The reinsurance element is ten per cent of the total.

The company’s London market clients tend to be large companies or big professional firms. But the non-Lloyd’s clients in the USA tend to be smaller groups. According to Horton, business from the smaller clients offers similar proportionate returns to that from larger clients, but is less volatile. He suggests this could prove significant at a time when premium rates are falling. ‘In a softer market, margins on smaller business hold up,’ he contends. ‘That should provide a safeguard against weaker premiums.’

Beazley has a comparatively large exposure in the US professional indemnity market, where Horton suggests risks are ‘better priced’ than in the London market. The company has not gone to Bermuda, the large and potentially volatile offshore reinsurance centre, but has instead gone for local US commercial property and equivalent direct insurance business.

Closer to home, Beazley does not expect to take a serious hit from the recent floods in Britain. Although no firm figures have yet come through, Andrew Beazley says ‘it’s pretty small in the general scheme of things’.

Analysts’ estimates for the full year range from £111.4 million to £137.3 million pre-tax. Thereafter, much depends on how successfully Beazley has insulated itself against London market premium softening, with 2008 estimates varying from £106 million from £142.3 million pre-tax.

There is much talk of consolidation in the market, though Horton warns that takeovers in such a ‘people business’ can hit ‘cultural problems’. Nevertheless, it adds spice to the shares at 178p.

Beazley Group	LSE	£387.13m	110.75p	-0.75p
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Other company articles:
‘Challenging’ first half at Beazley			25/07/2008
US cheer for London insurer			09/08/2007