Beazley plc

Good morning, everyone. Welcome to the Beasley Annual Results for the year 2023. I am Adrian Cox, the Group CEO, and I'm joined by Sally Lake on the right, our Group CFO, and Bob Kwan on the left, our CUO. So here with the order of play... I'll take you through the highlights. Sally will then go through some of the details from financial performance. Bob will take us through the underwriting performance. I'll share thoughts a little bit after that about how we think about long-term performance and give some guidance for this year, for 2024. And then we'll move on to Q&A. We have a hard stop. at 10 o'clock for two reasons, I think. One, some of us have to get to Admiral for 10.15, and we also have a fire alarm test at 10. So two good reasons, I think, to stop at 9.59. Please do read the disclaimer. And with that done, we'll move on to the results. So a superset of results, I think, this year with record profits of one and a quarter billion, which is over twice as much as our previous record profit, with a combined ratio of 71% or 74% undiscounted. In addition, our insurance written premiums increased by 7% gross and 24% net for the full year, which I think are both in line with the guidance we gave at the third quarter. The net remains considerably higher than the gross because of that reduction in proportional reinsurance that we needed to buy following the capital raise in November 2022, which we've talked about before. all of which gives a combined return on equity of 30% for the year. And so given those numbers, I'm pleased to be able to declare an ordinary interim dividend of 14.2p, which is not surprisingly 5% more than last year, which is sort of what we do, and a share buyback of up to $325 million. I think that success last year demonstrates that our clear strategy based on good access to risk, a well-diversified business, disciplined underwriting, and a responsive claims infrastructure delivers good outcomes for all of our stakeholders. In particular, I'd like to call out property risks, which had a standout year. reflecting the rate increase of 22%, helping the growth of 64%, but really reflecting significant investment in that team, both in the U.S. and London, allowing us prudently to increase our exposure to take advantage of those excellent market conditions that we had. And an opportunity in property business that we expect to persist for some time. In an era of accelerating risk, property risks need more expertise and underwriting expertise that we can bring to the market. And at $1.35 billion, that team is now the second largest in the company, which is great. I would like to reiterate that we wouldn't have had the confidence to execute on this property plan without the capital raise that we did in November 2022. Our cyber team also had an excellent year growing nicely outside the U.S., particularly in Europe, which grew by 27% last year, off the back of continued accelerating demand growth. And that offset a more competitive environment in North America that was also quite noisy with cyber war discussions. We remain comfortable with the rating conditions in cyber and in the robustness of that ecosystem that we have that is proving effective at improving both our threat detection and our risk selection. And given that, our ransomware activity remained stable last year despite rising levels of cyber criminal activity across the world. Given that one of the features of the 2023 earnings season has been reserve deterioration in U.S. casualty business in the so-called soft market era of 15 to 19, marked by social inflation, I wanted to highlight that this has had no material impact on our result in 2023. Sally will talk about this a little bit more later, but social inflation is something we've been adjusting for in pricing and reserving for a number of years. It's also something that hasn't gone away since 2019. And whilst it isn't a feature in most of our business because we don't write GL really or auto or umbrella or excess casualty that's in the crucible of social inflation, we do underwrite carefully to it where it is. I thought it would be an opportune time to reiterate the principles of our capital strategy. So in order, we begin with an ambition to have an SCR ratio of more than 170%. And when we think about how much more we should have, we go through the following considerations. Firstly, we will look to deploy capital by investing in sustainable, profitable growth that hits our ROE target of 15% cross cycle in a way that helps build that balanced, diversified business. And we look at those opportunities over a multi-year basis rather than just the next year because insurance tends to be a cyclical business. And the SCR contemplates just the proceeding 12 months. Next, we look at peak risks to equity, two of which, of course, are natural catastrophe and cyber risks. And those are some of the sensitivities that we share. And we consider how much of our equity we should put at risk to those risks given our view of expected levels of reward in those markets. And having thought about those, we think about whether there are anything else we need to take into account. And following that, any surplus capital should be returned to shareholders. So we've been through that process this year. which has led us to the conclusion that on top of our ordinary interim dividend, we should launch a $325 million share buyback program. And in coming to that conclusion, thinking about the level of capital that we want to post dividend buyback, we debated a number of things, two of which I think are worth a mention. The first is the impact of potential interest rate reductions on the SCR ratio, and we have to think, don't we, that interest rates are more likely than not to move at some point this year. And secondly, we think about the complexity of the marketplace in the light of remaining visible elevated risk, and therefore the potential for new opportunities to emerge over the next year or two, despite our central estimate that our gross growth will likely be in the highest single digits for 2024. And given all that, that's how we came to the level of shared buyback that we decided to do. And with that, I'll pass over to Sally.

Thank you, Adrian. And good morning, everyone. My name is Sally Lake. I'm the group CFO of Beasley. Okay, so I'm going to go through my usual trio, but to begin with, let's just have a quick look at the financial performance in a little bit more detail. So I'm pleased to present an outstanding set of results with PBT growth of 115% compared to last year. Gross insurance contract written premium have grown by 7% year on year, with an impressive growth in net premium of 24%. As Adrian spoke about, we've always planned to grow our nets more than our gross during 2023. It's really pleasing to see that these record profits are also driven by both insurance service results and also the investment performance where we saw an income of $480 million during the year. Our expertise in underwriting, together with lower catastrophe experience in the year compared to 2022, has led to an impressive undiscounted call of 74%. This is despite quite an active catastrophe market. Higher interest rates in the first three quarters of the year have led to an increase in the discount unwind expense hitting the IFI, coupled with a decrease in interest rates at the end of the year, meaning the impact over the year on the change in discount rates is reasonably flat. If we then move to expenses coming back to the record profit, we have looked to remunerate our staff as well as ongoing digitization of our business. This has led to an increase on total expense ratio once we allow for OPEX as well. And this has moved from 37% to 40%. And as Adrian mentioned, we've also announced a share buyback of up to 325 million. So this graph shows a make-up of the discounted combined ratio and undiscounted combined ratio and the different elements of that. The loss ratio has been split between the amount coming from current year claims and prior year releases. So the net current year loss ratio is 42%, which is an improvement on last year, and reserve releases accounted for an improvement of 2.5%. A benign catastrophe season, as well as our underwriting expertise, have been part of the driver of the improved combined ratio this year. with the current year net claims ratio reducing from 63% to 44% on our property division. This, coupled with the growth that we've seen in property this year, have shown that we've led into market conditions at the right time. It's not just been the lack of catastrophes that have led to property making more profit this year. We've also seen improvement in attrition year on year. There has been other improvements in the claims ratios in others of our larger divisions. So if we go into the reserve releases in a little bit more detail. So this graph shows where we've seen reserve releases and strengthening by segment on our LIC. Overall, you can see that reserves remained stable over time with a percentile of 85% right in the middle of our range. Releases on past years have contributed to a strong service result. The overall past service reduced by 110 million during the year. And as I said, this corresponds to a 2.5% release. It's worth noting specialty risks here, as Adrian mentioned, as there's been a lot of talk about social inflation and a lot of questions asked. Overall, you can see that specialty risk reserves, where the majority of our social inflation risk sits, has seen reserve release overall in 2023. We have seen some movements on prior years due to the ongoing effects that Adrian mentioned. And we've been telling you for a number of years that this has been a problem we've been highly alert to. We do minimize our exposure to these types of areas. And actually, in addition to that, we look to write on a claims made form, which reduces our exposure further still. We also write very little general liability business. In addition, we also buy in aggregate excess of loss reinsurance that has been placed for many years over those years that are affected as well. Whilst we have seen releases across most of our classes, there is an exception in cyber which has seen a small strengthening due to some adverse development arising for some cyber liability claims. This has been almost entirely offside by more recent years having benign claims experience. Property risks has seen the largest reserve lease of 78 million. And as we mentioned, due to favorable claims experience, improved estimates on past catastrophes, along with the expiry of risk on the more recent years. Digital has seen reductions in estimates on specific losses, favorable nutritional experience, and cyber businesses in that division as well. And as I mentioned, our reserve percentile remains consistent in the middle of our range at 85%. So now if I move on to our investment portfolio, the first thing worthy of note is that it grew from $9 billion to $10.5 billion during the period as we continue to grow. And our investment team made some adjustments to our portfolio during the year, specifically adding to risks while seeking out additional return. Exposures to high quality corporate debt grew more than 10%, with high yield credit and equity exposures also increasing. The decisions added to our return this year. It's worthy of note that this is a rebalance to our more neutral asset allocation after a period of being slightly risk off in our portfolio. By aligning interest rate exposure to our investments with those on our liabilities, we can earn investment return which reflects the prevailing level of yield with minimal risk to our earnings. Our approach to investment strategy, which includes scope for tactical portfolio adjustments like this, has been in place for a number of years and has served us well. So as I mentioned earlier, at $480 million or 4.9%, our investment produced the highest income in our history by some margin. Higher years prevailing at the start of the year promised good returns, but performance remained modest for much of the period as yields continue to rise, generating losses on our fixed income investments. Most of the strong performance in 2023 occurred in the final two months of the year as yields begin to decline. Ultimately, the fixed income portfolio delivered the level of return that we had originally hoped, while our capital growth assets also performed well, driven by a strong performance on the equity markets. Yields are currently at similar levels to early 2023, suggesting that we may continue to see attractive returns for investments, although the global market remains uncertain. With interest rates likely to fall over the short to medium term, by aligning the interest rate exposures of our investments to those of our liabilities, we can earn an investment return which reflects the prevailing levels of yields with minimal risk to our earnings. Let's move on to capital. So you can see here movements in both our eligible owned funds and our one-year SCR over the year. You can see that we've had an increase in our SCR over the year, which is driven by three things. So firstly, we have included our expectation of growth for the year 2024, which, as Adrian pointed out, is high single-digit growth of reinsurance. In addition to this, we're also seeing an impact from the increase in net reserve risk, which has come through from our recent significant growth on a net of reinsurance basis, which also leads to an exposure to an increase in our SCR. Finally, the increase in SCR is also affected by changes to the model that we make over the year, which has had a small effect as well. Given the current position in the cycle and substantial capital above our aim to be above 170%, we have decided to return some excess capital to shareholders. Between the ordinary dividend and share buyback, we will aim to return up to 440 million. This still leaves a healthy group solvency ratio of 218%, which will continue to support our growth going forward. So let's just quickly walk through what has happened over the year. So firstly, our capital coverage has reduced as we increase the SCR as I've described. We've also generated capital at the same time as we've made a healthy profit over the year. This leads us to a coverage ratio before any capital actions of 240% before we then talk about the dividend and the share buyback. And finally, from me, the updates to our scenarios. The main point of note here is to show that we are now looking at our cyber sensitivity on a probabilistic basis and showing that one in 250 downside risk is the main scenario, which you'll remember we discussed in November at our Capital Markets Day. Previously, you've seen us referring to our largest cyber realistic disaster scenario. And in the past, we've shown that to be about a 13 point impact on our coverage ratio. For context, if I gave you the equivalent figure today on that same scenario, the sensitivity would have been 10%. And just so you know, we're not going to be sharing that anymore. We're going to focus on the one in 250 going forward to be more in line with what we show on the NACAT. To refer back to the previous slide where we continue to hold a capital ratio of 280%, we are in a certain world and we can see that a 50 BIP decrease in rates would lead to a 10% impact on the solvency ratio. A NatCat event would lead to one in 250 of 26% on the solvency ratio. And we continue to think about this when we look at the level of capital we want to hold. Furthermore, we are operating in a very dynamic market, and we don't know when growth opportunities will reemerge. We want to ensure that we have sufficient capital to take advantage of emerging growth opportunities, especially in the very short-term lines like cyber, where market conditions can evolve rapidly. And with that, I will pass over to Bob.

Hi, everyone. Great to see everyone here today. I am Bob Kwan, and I'm the Chief Underwriting Officer here at Beasley, and I'll be taking you through the underwriting section of today's presentation. I am proud of our underwriting teams and the success that they had in 2023. They have shown agility and insight in the delivery of risk management expertise to their clients, while focusing on underwriting profitability. through actively managing the cycle and achieving a 4% increase in rates across our business in 2023. Property shows a very strong growth as we leaned into the hard market. Specialty had active cycle management within the team. You can see they're close to flat, but as we navigated the very soft D&O market, we grew in other niche profitable products within the team. MAP, if we normalize for growth, actually had 15% growth. It's showing a reduction here due to 5623 becoming a standalone syndicate in 2023. We had strong markets in war, political risk, terrorism, and contingency. Cyber, we had modest growth, but we're very proud of that because we achieved that despite us leading the charge on updating the war exclusion. We had good new exposure growth internationally, especially in Europe. Our focus is having the right people in the right places, ensuring that our subject matter experts are close to where the risks are being underwritten. This provides us with the best possible market access and intelligence. In 2023, we moved this forward as we further balanced our business across the portfolios. North America is 40% of our portfolio, and as you can see, we focus in the non-admitted market, which we have more flexibility in our terms and conditions. And it also has a rate that's above the market trend in terms of growth. Europe has had fast-paced growth. And Europe is 7% of Beasley's portfolio. But we see a multi-year growth opportunity here. Global wholesale remains the largest part of Beasley. and we have a growth rate that reflects a mature market segment. Property risk had a standout year, and it grew by 64%. This was driven by a 22% rate increase and also strong exposure growth. The capital raise in 2022 really enabled us to achieve this growth, and we're delighted about what we were able to accomplish. As we've said in the past, climate risk makes property more complicated to underwrite, and it makes it less commoditized and more specialized, which plays to our strengths. The investment the team made during the soft market into understanding the impact of climate risk and effectively managing property valuations paid off as the rating environment improved. In addition to our strong growth, we improved the core by nearly 30 points. The attritional loss ratio was better than we expected in our initial guidance, and the catastrophe activity was much better than both last year, meaning 2022, and also much better than an average catastrophe year. The improvement in core compared to 22 was driven by a combination of these two points. We expect the market to be positive as we head into 2024, although the rate change will not be at the same magnitude or the same pace that we saw in 2023. We believe climate risk will keep property more disciplined than we've seen in the past. North America grew by 85%. As we've said before, we see a long-term opportunity to grow our market share in the United States. All of our U.S. business and property is in the non-admitted market. As commercial property underwriting has become increasingly complex and more volatile, many brokers have shifted their clients' program to the non-admitted market. This market has the ability to adapt more quickly to fast-changing conditions and address complex risks more effectively than the admitted market. As a result, we are building our relevance in the market, accessing new clients that previously would have been unavailable to us. We expect this opportunity to persist throughout 2024 and beyond. We saw growth across both our insurance and our reinsurance portfolios, but we saw the vast majority of our exposure growth in the insurance book. You have seen these slides before. Both the 1 in 250 as a percent of our capital and the 1 in 10 as a percent of our expected company's annual earnings have decreased into 2023. Over more than a decade, we have actively reduced the volatility to our firm, and we will continue to maintain these lower levels of volatility going forward. We have seized the opportunity of the property hardening market with enthusiasm, and we've achieved that without increasing the volatility to our firm. Our cyber business continued to see demand-led growth in 2023 outside of the United States and especially in Europe. Undiscounted core of 72% is still well within our target range, and we continue to see an opportunity for profitable growth within cyber. We continue to believe in the importance of showing leadership in the marketplace where we were one of the pioneers. And in 2023, we launched the first markets cyber catastrophe bond. We've led the update on the cyber war clause to ensure it, to sustain, to ensure the product sustainability and still managed to achieve growth despite the resistance to that change. And just last month, we announced the formation of Beasley security, which will be a leader in delivering cyber resilient services to our clients. Today's cyber rating adequacy is good. Rates through 2023 did come off a bit. But as you can see, they're still materially higher than where they were in 2020. But that was due to the increase in exposure due to ransomware. The early signs of 2024 make us optimistic that the rates are heading towards flat. We are confident that this positive environment puts a lead into the demand-led growth we will see the strongest growth markets outside of the United States. Outside the U.S., we had demand-led growth, especially in Europe. It grew by 27% and is now 12% of the total cyber book. It is our largest product on the European platform. As I said previously, this is where we expect to see strong exposure growth in 2024. We have been building infrastructure and attracting a talented team for several years, and we're ready to capitalize on this opportunity. North America is the largest part of our book, but we saw a slight downturn in growth. This was due to increased competition and our leadership on updating the war clause. Specialty risk saw its combined ratio improve to 78%. We were especially proud of achieving that during the soft market. D&O will continue to be a significant part of specialty risk, but during the soft market, we become less dependent on this product as we've grown in other profitable niches within specialty. North America is more diversified with these profitable products, which is why you saw modest growth there. Europe and global wholesale are more dependent on the D&O product, which is why we saw negative growth on those platforms. Our MAP team continued to show the power of the expertise they bring to our clients during 2023. Across the division, they play a vital role in helping to keep business investing and trade moving despite ongoing geopolitical uncertainty. Specifically, to touch on ongoing geopolitical concerns, the situation in the Middle East and the Red Sea has not materially impacted our business so far. On a normalized basis, MAP has actually increased by about 15% despite the slide showing premium reducing in 2023. As mentioned already, this was driven by 5623, which is our smart tracker syndicate, becoming a standalone syndicate in 23. The division continues to have consistently profitable core. Global wholesale is by far the largest platform for MAP risk. We had 15% growth, if normalized, for 5623 becoming a standalone syndicate, and the growth was driven by war, political risk, terrorism, and contingency. Europe's growth was driven by the same products, but is off a much smaller base. We will continue to look for growth opportunities in Europe and North America during 2024. And with that, I will turn it back to Adrian.