Beazley surges as losses are not as bad as feared

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Beazley Group PLC (LON:BEZ), the Lloyd’s of London insurance firm, fell into the red last year as it counted the cost of the coronavirus pandemic.


The loss before tax was US$50.4mln versus a pre-tax profit of US$267.7mln in 2019, despite a 19% increase in gross premiums written to US$3,563.8mln from US$3,003.9mln the year before.


The group’s combined ratio – a measure of how wisely it underwrote insurance risk (a lower ratio is better) – rose to 109% from 100% in 2019.


The global pandemic affected many lines of its business, most notably its contingency book where it had to stump up money relating to cancelled or postponed events.


Beazley said its first-party losses related to the coronavirus (COVID-19) have reached US$340mln, with more losses to come, although it said it has taken action in anticipation of a future recession to mitigate the impact in its “longer tail” liability classes, where claims are expected to materialise from 2021 onwards.


The group did not declare a dividend but Andrew Horton, Beazley’s chief executive officer, said he is confident that it would be able to resume dividend payments during the course of 2021.


“The year demonstrated the importance of flexibility and the need for a clear and consistent strategy. The strength of our diversified business and significant growth in many classes in 2020 is a testament to the expertise of our people and a long-term strategic underwriting approach. We anticipate the favourable rating environment will continue throughout 2021 and we will continue to pursue growth in areas where we can deliver consistent value for brokers and clients while managing our claims and expenses,” Horton said in the results statement.


“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,” Horton revealed.


The shares rose Beazley 165 to 371.2p as the losses were not as bad as the market feared.


Broker Peel Hunt (PH) had forecast losses of US$113mln, above the consensus prediction of a loss before tax of US$106mln, and had expected the combined ratio to deteriorate to 109.6% – a shade higher than the 109% reported by Beazley.


“The beat was driven by a slightly better underwriting result and higher capital gains on investments. The Covid-19 losses are US$340mln (in line) and the company guided to US$50mln of additional losses in 2021E. The solvency ratio reached 123%, close to the top of the 115-125% range (PHe 118%). The outlook suggests the business will be able to return to a low 90’s combined ratio in 2021E (PHe c.93%) and return to paying a dividend,” Peel Hunt said in a broker note.


“The rate environment should remain favourable following mid-teen rate increases in 2020. Beazley trades at 1.5x TNAV, for a return that we estimate will average c.15% in the next five years and we have a Hold recommendation on the stock,” it added.


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