Beazley plc

Thank you. Good morning, everyone. And thank you for joining us on the call to go through our 2024 half year results. It's been a busy week for insurance results and it's a busy day today. So we very much appreciate you taking the time to dial in. I'm Adrian Cox, CEO, and I'm joined by Barbara, our CFO for the first time. So welcome, Barbara. Thank you. So here are the contents. I'll go through some highlights. Barbara will take us through some more details on the financial performance and then hand back to me to talk a little bit about some of the underwriting. And then we'll finish with an outlook and then move to Q&A. Please note the disclaimer. And so... been a very positive year so far for us our six-month profits of just under 730 million are by some margin our best ever from first half and it's pleasing to note that um just as for the full year last year all the parts of the beasley machine have been contributing a good investment result a good underwriting result with profits coming from all the divisions across the group and i think It speaks both to the underwriting DNA at Beazley and the fact that despite the fact that this is definitely not a benign claims environment, we are getting paid properly for the risks that we are taking. So we have an insurance service result of £558 million up from £342 last year, investment income of £252 up from £144 last year, and an undiscounted combined ratio of 81, markedly better than the 88 that we posted this time last year. Our growth of 7% is in line, I think, with the high single digits guidance we've been giving. and the net growth a little bit higher of 10 as we complete our strategy of aligning our reinsurance purchasing to the larger balance sheet that we now enjoy. Property continues to lead the way, growing by about 25% as we make the most of that opportunity, and we do believe that the complex challenges that property insurance and reinsurance present make that class an excellent investment for a specialty insurer like us. We mentioned in our Q1 IMS that the launch of our new E&S carrier in the US had begun well. That strong performance continues and we now expect over a third of the business that we had been writing on Lloyd's paper will transition over this year and that will complete the whole thing in the three-year horizon that we had targeted previously. The ENS marketplace is an exciting one. It continues to grow as business moves across from the admitted space so it can benefit from the underwriting and flexibility that that market allows. In addition, this year, we've brought together our in-house cyber breach response team in our cybersecurity consulting business to create Beasley Security so that all our consulting risk management and incident response capabilities are under one roof. And that has gone down very well with our clients. And last month, of course, the world experienced a cyber event of a magnitude to date unseen when an update from CrowdStrike malfunctioned. This is exactly the sort of scenario that we model and we underwrite to, but one of the smaller ones. And I'm pleased that we were able to understand the impact that it would have on our business quickly and update the market within days that this would not happen. uh in and of itself impact our full year results in a material way uh i'll share a couple of data points on this in the underwriting section uh later on the subject though we continue to be very active in building and helping to grow the cyber catastrophe reinsurance markets and we launched a second uh tranche of our pole star bond in june um in addition to the one we did in january to reach 300 million dollars in total And I think that's starting to demonstrate that this market can develop genuine scale. It's an important tool for us and for the cyber market overall as it continues to grow and provide vital risk transfer solutions for one of the key businesses, one of the key risks, sorry, that businesses face across the world. And lastly, I'd like to highlight that we are continuing to execute our share buyback programme. We expect that to complete in the fourth quarter of this year. Capital management is an important discipline for us. We've had consistent feedback from investors that it's important to them too. And so I'd like to emphasise that our approach to investing in growing the business when it hits our hurdles and to return capital when those opportunities are less than the capital that we have will persist as they always have. So with that, I will hand over to Barbara for the first time to take us through the financial performance in more detail.

Thank you very much, Adrian. I'm very pleased to join you today, especially as we present an exceptional set of half-year results reflecting our underwriting expertise and strong investment performance. We have grown our gross premium by 7%, in line with guidance, despite the moderating rate environment. robust risk selection supporting better than expected claims experience, which has resulted in an increase of the insurance service result of 63% and a combined ratio of 77%, driven by an improved claims ratio of 45%. In addition, our total expense ratio, including operating expenses, has improved from 41 to 38. This is consistent with where we were at the half year of 22. At that time, it was 37%. Last year, we had an increased expense ratio due to the growth targets that were in place. But as we progressed through 2023, we reduced these growth targets. And as has been reported today, we are successfully meeting our growth targets for 2024, and our expenses are matching this. Overall, this is an outstanding underwriting result and is coupled with an excellent investment result of $251.7 million, up 75% compared to the same half year last year. The combination delivers, as Adrian said, a record half-year profit before tax of $729 million, demonstrating that the key drivers of our business are performing incredibly well. Now, please turn to slide nine, where we will be looking at our reserves. Our consistent strength in reserve continues. We aim to remain within the 80th and 90th percentile. And as you can see on this slide, we continue to be comfortably within this preferred range. Please remember that at half year, the ultimate risk adjustment also includes the business that will be written in the second half of the year and the allowance that is held in respect of the upcoming catastrophe season. As we progress through the second half of the year, we gain more certainty. And as we discussed back in 2023, with all things being equal, we expect the half year percentile to reduce by year end. Looking forward, we expect to continue to remain within our preferred range. Please turn to slide 10 regarding our investments. I'm pleased to say that almost all of our assets in the investment portfolio delivered strong results in the first half of 2024, and hence our investments delivered a fantastic result of 252 million, which equals to an annualized return of 4.8%. Our diverse asset portfolio is growing and is now $10.7 billion. Our fixed income portfolio yield was 5% at the end of June. Overall, a very strong first half investment return for Beasley, making a great contribution to the overall earnings in the first half of the year. On slide 11, you will find an overview of the asset allocation in our investment portfolio. As mentioned before, the total portfolio is growing and is now $10.7 billion, with group financial assets increasing by $200 million in the first half of the year. Our well-diversified assets include 82% in cash and fixed income securities with high credit quality and short duration. During the first half of 2024, we added value by increasing exposures to our capital growth investments, including equities that delivered a record high 14.5%, high-yield credit and hedge funds, all of which delivered excellent returns on our investment portfolios. Please turn to slide 12, where you'll find more details on our insurance finance income or the expense, otherwise known as the IFI. A line item showing the movements resulting from discounting over the period. Today, I'm going to go a little bit more into details on this slide, as this is only our second set of half-year results under the IFRS 17 standard. I thought it might be useful to provide a reminder of the different parts. Firstly, we discount for the time value of money. And as we move forward in time, we unwind this discounting benefit. This discount unwind is shown on the first bar on the waterfall. This will always be an expense. And for the first half of the year, this was $133 million negative. Secondly, we then need to account for the impact from the change in yield curves. This can be an income or an expense depending on yield curve movements. In the first half of the year, there has been a modest increase to the yield curves compared to the year end 2023, which resulted in an income of $64.6 million as is shown in the first pink bar on the waterfall chart. Finally, we have changes in other financial assumptions. This is shown in the second pink bar, and again, this can be an income or an expense. Under IFRS 17, there will be a difference in this line item depending on whether the approach is PAA or GMM. PAA will not have a discounting on unearned cash flows, whereas in the GMM model, the methodology that we're using, you will need to discount for both earned as well as unearned cash flows. Changes in the financial assumptions could include the current interest yield environment. The higher the rates, the bigger the impact. differences between actual versus expected cash flows, and thirdly, and or changes in the underlying payment patterns. We have seen all of these occur in the first half of the year, and this has driven the change in other financial assumptions income of 106.2 million. Overall, this has resulted in an increased finance income of $37.5 million. We acknowledge that this is hard to predict or that it's hard to predict the performance in the assets. However, we've provided some additional detail in the appendices in today's presentation to explain what factors can impact each of these elements. On slide 13, you can see that we have a robust capital position at the half year with a group solvency ratio of 245%. We update the capital requirement at year end. And so the group solvency ratio as of 30th of June is made up of the previous year, year-end solvency ratio, plus the own funds generated in the first half of the year, minus dividend distributions. The year-end position considers the business plan for the following year. However, the half-year position does not. And therefore, when our business is growing, we would expect to have a higher solvency ratio at the half-year point compared to the year-end. On slide 14, you can see that our capital remains resilient and we carefully consider sensitivities when deciding on how much capital we want to hold. The graph here shows the impact of the key sensitivities to the SCR. And as you can see, we remain above our preferred floor of the 170%, even with the impact of a sensitivity scenario combining a 1 in 250 cyber event at the same time as a 50 basis points decrease in rates. This demonstrates our strong capital position and ability to withstand a shock, which you might find reassuring after the interest movements in the recent days. Speaking of capital, on slide 15, we reiterate our capital strategy. As I just mentioned, we have an ambition to remain above an ASCR ratio of 170%, and we're deciding how much capital we should hold Above that level, we consider a number of factors. First and foremost, we're a growth company, and we seek to use our capital for sustainable, profitable growth, which can generate an ROE of 15% across the cycle, taking into consideration growth opportunities on a two- to three-year horizon. As I just described, as well as future growth, we seek to absorb volatility. When we'll have surplus capital after taking these factors into account, we'll take into consideration special capital distribution that could take place. Well, this concludes my part of the financial performance. I'd like to pass back to yourself, Adrian, to provide details on our underwriting performance as well as the outlook for the remainder of the year.

Thank you, Barbara. Okay. So starting with cyber, then, the team grew above about 6% year-to-date. You may recall that we launched some partnership business in 23 that we expected to grow this year. And in addition, a better renewal retention and new business generation now that the wordings issues of last year are receding. The market did continue to get more competitive in the first half of the year, despite the background of increasing cybercrime activity, particularly ransomware, the emergence of some privacy issues that we discussed at the end of the year, alongside other smaller systemic events, including, for example, CDK change healthcare. We remain comfortable with the overall rating levels. I think the combined ratio of the cyber team of 73% this year testifies to that. Our frequency of claims remains steady at lower levels, as previously disclosed, underscoring, I think, our underwriting emphasis on risk management and risk control. However, there has been across the market a notable increase in severity of claims in the large risk segment, which we do believe will mean that prices need adjustment going forward, and we expect the market to address this presently. However, I would like to underscore that we are fortunate that our business and our cyber strategy is geared towards the primary and low access layers, which means the impact to us is more limited. I thought it would be useful to give a little context to the CrowdStrike event and why we were able to give the reassurance to the market that we did. We've had just under 200 notifications from clients for comparison. This exhibit shows how many we've had for other single point of failure events being Change Healthcare, Move It, CDK and Blackboard. And it is noticeably lower than all of them. The vast majority of notifications do come within the first two weeks, given the speed at which these things move. And these other events have also not caused us to update our combined ratio guidance for the market. I think this demonstrates a couple of things. One, our emphasis on underwriting companies with an appropriate level of operational resiliency, risk control and risk management. And secondly, that this incident was the result of a technology error rather than a cyber attack. And therefore, the fix was able to be produced and affected relatively quickly. However, I think what this incident has done is give a data point to the world of the sort of thing that can happen and the impact that it can have. For us, it highlights the value that we can provide as an insurance market and the skills we need as an insurer to provide that value in a prudent way. Moving on to property, as I indicated earlier, strong growth again from that team. And whilst rate change is more mooted than last year, we're comfortable with the rating levels that we're at. We continue to see business moving in the US from the admitted to the NS market, driven by the more complex exposures that property presents now, and we remain excited by that opportunity. The combined ratio is better at the six-month point than this time last year because partly of prior reserve releases and also the fact that the business is growing less fast than it did in 2023. And the seasonal effects that we discussed last year are less pronounced in 2024. Our loss experience for the first six months has been positive, both on the nutritional side and the catastrophe, which were better than we planned, despite the continued heightened levels of natural pests across the world. Our active approach to reinsurance is not limited to cyber business, and whilst we're careful not to overreact, we have increased our reinsurance protections this year to limit the impact of a higher incidence of hurricanes, given the climate conditions in the Atlantic this year. And lastly, I'd like to share that our 1 in 10 and 1 in 250 exposures relative to profit and equity respectively remain steady despite the continued growth of the book. Moving on to specialty lines, our full year guidance in terms of growth for this team remain unchanged. We do expect some modest growth overall. And as we discussed at Q1, the growth was unlikely to be an accurate guide then. And we think that the slight contraction of the half year is also a bit of interportal noise. There are some early signs of DNO rates beginning to stabilize, but not enough for us to change our plan for that business this year. As we mentioned a few times, there are lots of products in this division and we're very focused on growing those with more favourable risk reward, like environmental, as we mentioned there, programmes and safeguard. The combined ratio for this team has increased year on year. The biggest driver of this has been reinsurance. Our aggregate reinsurance contract that we've mentioned before has an adjustable feature, which has impacted both the premiums we paid this year and the recoveries that we booked. However, I would like to underscore that this programme remains intact. It's performing the role for which it is intended, and this is a one-off impact for us this year. Moving on to Matt, the business has actually grown this year by about 6% as demand for these products continues to grow. As we've been flagging, increased risk awareness and economic growth are big drivers for our marine energy contingency political risk offerings. But as part of the restructure of our U.S. business, our third-party syndicate, larger portion of this business, which is written in London, hence the 3% reduction as far as the Beazley Group is concerned. An excellent combined ratio of 64% reflecting both positive prior year development and the current levels of pricing that we're able to get. Again, I'd like to reflect that the profitability here is a reflection of the pricing and the underwriting rather than a lack of claims. The Baltimore Bridge collapse, marine war losses and very large fires in shipyards demonstrate that the risks that this team are underwriting are very real. On to Outlook then. As I said at the beginning, we're not in a benign claims environment in marked contrast to a decade ago. We are rather in an era of accelerating risk. However, we're also in an era where this is well understood. And so we're getting properly rewarded for it. And I think this plays to our strength as a specialty insurer and one that really focuses on underwriting and claims excellence. Our diversified portfolio, both by product and distribution, helps as it mitigates volatility and gives us options as market conditions change and we're in a dynamic set of markets. We remain genuinely excited by the property opportunity in the US E&S market and believe that long-term this opportunity may extend beyond the States. Our expectations on long-term demand growth in cyber remain undiminished, and I think the CrowdStrike event serves to highlight the value of insurance here. Our yield at the end of June was 5%, and whilst that has reduced in the last couple of days, it remains a powerful engine for additional profit generation for us, particularly as our assets under management continue to grow. As I mentioned at the beginning, our claims activity in the first half of the year was better than expected on the attritional side and catastrophe activity. From a guidance perspective, our expectations for H2 remain as they were at the beginning of the year, but recognising that outperformance to date, we are moving our combined ratio guidance from low 80s to around 80, assuming average catastrophes in the second half of the year. Our growth guidance is unchanged, noting that the market remains very dynamic, but high single digits gross and a little higher than that looks reasonable. And lastly, we will be hosting a capital market session on cyber and systemic risk on the 1st of October this year. So please book early to avoid disappointment. And with that, I will open up to questions.