Argenta Comment: Beazley plc is the first of the Lloyd’s insurers to report its annual results as at the 2012 year-end and delivered an impressive set of results, with overall profit at US$251m up by 400%, and gross premium income, at US$1,896m, up by 11% on 2011’s numbers.

Premiums were up by 11% across the group, although year on year rate increases averaged 3%. A chart of rate movements since 2001 can be found is attached (below). As ever with Beazley, there are a number of new initiatives, with a new team underwriting smaller aviation risks, and an underwriter joining to write kidnap and ransom and marine piracy. Beazley is a market leader in the emerging cyber risk and data breach markets.

Beazley’s profile is different from most of the other Lloyd’s insurers, with a greater casualty (aka specialty lines) content and hence lower (albeit still material) exposure to natural catastrophes. This has been reflected in combined ratios* that are less volatile than some of the market peers. (Between 2006 and 2010 it was never higher than 90% nor lower than 87%). The combined ratio fell from 99% in 2011 to 91% in 2012.

The most significant loss event during 2012 was Superstorm Sandy; Beazley made an initial estimate of net costs to the group of $90m in December, and has reported that this estimate remains unchanged at what is still an early stage.

Reserves continue to perform well. Beazley aims to hold reserves at a margin of between 5% and 10% above actuaries’ best estimates. This margin has reduced slightly, from 7.4% last year end to 6.9% this, but reserve releases again made a meaningful contribution to the result, reducing the combined ratio by 8.5% (2011, 13.5%).

Although investment returns remain thin, changes to the portfolio’s allocations and duration saw returns increase from 1% to 2%. The overall asset quality remains high, more than 84% is held in A- or better rated securities, and there is no exposure to sovereign debt issued by distressed European countries.

In addition to the results, this morning the group announced an increase in the final dividend, a special dividend, a buy back of debt and plans to issue a further bond for retail investors.

Beazley will release the results and update forecasts for its third party syndicates 623 and 6107 shortly.

The full press release can be found here and the presentation to analysts here

* a measure of profitability, calculated as claims and expenses as a percentage of net premiums, a ratio of less than 100% being an underwriting profit