Beazley Delivers Strong Underwriting Performance in 2008

Group announces US acquisition and £150 million capital raising to support growth

 

London, February 13, 2009

 

Beazley Group plc results for year ended 31st December 2008

 

  • Profit before tax of £87.2m (2007: £138.5m)
  • Profit before tax and foreign exchange on non monetary items of £41.0m (2007: £130.3m)
  • Return on equity of 16% (2007: 28%)
  • Return on equity excluding foreign exchange on non-monetary items of 8% (2007: 26%)
  • Investment returns –1.5% (2007: 4.9%)
  • Final dividend of 4.4p per share

 

Strong underwriting performance through difficult market conditions

  • Combined ratio 90% (2007: 90%)
  • Prior year reserve releases of £72.8m (2007: £64.1m)

 

Growth across the business

  • Gross written premiums up 12% to £875.7m; net written premiums up 14% to £740.4m
  • Business written through US operations up 54% to US$269.1m (2007: US$175.2m)

 

Healthy financial position

  • Investment and cash balances up to £1,994.2m (2007: £1,490.6m)
  • Net tangible assets of £360.2m (2007: £369.9m)

 

 

Strategic initiatives

 

  • Agreement to acquire First State Management Group, Inc. (“First State”), a US underwriting manager specialising in excess and surplus lines commercial property insurance,  from the Hartford Financial Services Group, Inc. for cash consideration of US$35.4 million. 
  • Plans to raise additional equity capital of £150m net of expenses through a proposed rights issue and placing, supporting the acquisition of First State and growth at Lloyd’s (see separate announcement).
  • Plans to change corporate structure through creation of new parent company for the Beazley Group, incorporated in Jersey and tax resident in the Republic of Ireland.

 

Summary Financial Information

 

                 

2008

£m

2007

£m

% increase/ (decrease)

Gross written premiums

875.7

780.5

12

Net written premiums

740.4

 652.2

14

Net earned premiums

683.1

617.2

11

Profit before tax

87.2

138.5

(37)

Comprises:

 

 

 

Profit before income tax and foreign exchange adjustments on non-monetary items

41.0

130.3

(69)

Foreign exchange on non-monetary items

46.2

8.2

NA

 

 

 

 

Earnings per share (p)

18.8

28.1

(33)

Dividend per share (p)

 

 

 

-          Ordinary

6.6

6.0

10

-          Special

-

4.0

NA

Net tangible assets per share (p)

106.9

104.0

3

 

Beazley Group announces a series of initiatives designed to capitalise on attractive growth opportunities while enhancing the tax efficiency of the business.

 

Acquisition of First State

 

Beazley is pleased to announce the acquisition of the entire share capital and all renewal rights of First State, a leading US underwriting manager specialising in surplus lines commercial property insurance led by president and chief operating officer Judy Patterson.

 

The acquisition will significantly increase Beazley’s presence as an insurer of mid-sized US commercial property business that does not normally come to Lloyd’s.  First State plans to underwrite around US$150 million of gross premium for 2009, balancing the specialty lines business (professional and management liability business) that Beazley has been writing locally in the US since 2005.

 

The total consideration payable in respect of the transaction, which will be satisfied with cash, is US$35.4 million, comprising US$32.6 million plus an expected dollar for dollar adjustment for net assets at closing of US$2.8 million.  As of 30 November 2008, First State had gross assets of US$10.6 million.  First State does not report on its own profit as a standalone entity but instead reports as part of a division of the Hartford Group.  Accordingly for the purposes of Listing Rules 10.4.1.(2) (e) the Directors of Beazley estimate that the pro forma profit before tax attributable to First State and the renewal rights purchased for the year ended 31st December 2008 would have been approximately US$3.0m.  This estimate assumes that appropriate third party commission arrangements are applied to the total gross written premiums to derive a pro forma commission income from which appropriate expenses incurred on behalf of First State by the Hartford Group (and supplied by the Hartford Group) have been deducted.

 

In addition, Beazley Group will contribute additional capital to its Lloyd’s syndicates (funds at Lloyd’s) of £27 million to support First State’s underwriting in 2009.  The acquisition of First State is not conditional upon the successful completion of the proposed rights issue and placing.

 

Proposed rights issue and placing

 

The proposed rights issue and placing, involving the offering of 9 new shares for every 19 ordinary shares and firm placing of 17,478,904 new shares to raise £150 million net of expenses, is designed to enable Beazley to capitalise on attractive growth opportunities for its Lloyd’s and US businesses, driven by the turnaround in premium rates that began to emerge earlier this year.  The rights issue is fully underwritten. 

 

Change to corporate structure

 

Beazley Group also announced plans to incorporate a new holding company for the group, incorporated in Jersey and tax resident in the Republic of Ireland, and to establish a newly incorporated Irish reinsurer.  The new corporate structure, which will have no affect on the placement by Lloyd’s brokers of business with Beazley’s Lloyd’s syndicates in London, will provide a favourable operating base from which to develop the business and bring the group’s corporate tax rate down in line with its global peer group, in a stable tax environment.

 

Beazley Group Chief Executive Andrew Horton said:

 “We called a turn in the market last October and foresaw “significant opportunities” for Beazley. Opportunities to grow our Lloyd’s business and our locally underwritten US business have increased since then, with January renewals confirming our expectations of premium rate rises in many classes.

 

“The acquisition of First State marks a significant step forward in the development of our US strategy, which focuses on gaining access to profitable business that would not normally come to London.  We have reinsured First State for many years and the expertise of their team and quality of their broker relationships is well known to us.

      

“In London, our underwriters are now seeing diminished competition and a clear flight to quality from brokers and clients.  In both the near and medium term, we see a range of attractive opportunities for profitable capital deployment across our core lines.

 

“The Republic of Ireland enjoys a stable and respected legal, regulatory and tax environment.  The changes to our corporate structure should enhance the group’s return on capital and competitive position.”

 

The acquisition of First State is subject to the approval of Lloyd’s.  The changes to the group’s corporate structure and the capital raising are subject to shareholders’ and regulatory approval.

 

PDF version - full release