• Profit Before Tax: $729 million, a record half-year profit.

• Insurance Service Result: $558 million, up from $342 million last year.

• Investment Income: $252 million, up from $144 million last year.

• Combined Ratio: 81%, improved from 88% last year.

• Gross Premium Growth: 7%, in line with guidance.

• Property Growth: 25% increase.

• Cyber Combined Ratio: 73%.

• Total Expense Ratio: Improved from 41% to 38%.

• Investment Portfolio: $10.7 billion, with a 4.8% annualized return.

• Group Solvency Ratio: 245%.

• Cash and Fixed Income Securities: 82% of the investment portfolio.

• Warning! GuruFocus has detected 4 Warning Signs with BZLYF.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Beazley PLC (BZLYF) reported a record half-year profit before tax of $729 million, driven by strong underwriting and investment performance.

• The company's combined ratio improved significantly to 81% from 88% the previous year, indicating better operational efficiency.

• Investment income increased by 75% year-over-year, reaching $252 million, with a diverse asset portfolio yielding strong returns.

• The property division experienced robust growth of 25%, capitalizing on opportunities in the complex property insurance and reinsurance markets.

• Beazley PLC (BZLYF) successfully launched a new E&S carrier in the US, with strong performance and a strategic transition of business from Lloyd's paper.

Negative Points

• The cyber insurance market remains competitive, with rates down 6%, and potential challenges in maintaining growth if rates continue to fall.

• Specialty lines experienced a slight contraction, with a combined ratio increase due to reinsurance adjustments and exposure to social inflation.

• The company faces a dynamic market environment, making it challenging to predict growth opportunities for 2025 and beyond.

• Despite strong capital management, the solvency ratio of 245% may face pressure if significant growth opportunities arise, requiring careful capital allocation.

• The impact of IFRS 17 on financial reporting introduces complexities, particularly in understanding the effects of changes in financial assumptions and cash flow timing.

Q & A Highlights

Q: Why hasn't Beazley adjusted its expectations for attritional losses despite lower-than-expected claims? A: Adrian Cox, CEO, explained that while Beazley has outperformed in terms of loss perspective, particularly on the catastrophe side, the company is cautious due to the current claims environment where large losses are still occurring globally. Therefore, they have maintained their original guidance for the second half of the year, adjusting the overall guidance to around 80% due to better-than-expected catastrophe performance in the first half.

Q: Can you provide insights on the reserve development seen in H1 and any extraordinary factors contributing to the results? A: Barbara Plucnar Jensen, CFO, noted that Beazley is comfortably within its preferred reserve range, and while specific splits will be provided at year-end, the MAP line has seen good releases due to fewer claims. Adrian Cox added that there was nothing extraordinary to highlight qualitatively.

Q: How does Beazley view the current cyber insurance market, and what are the implications of recent systemic events like CrowdStrike? A: Adrian Cox stated that Beazley remains comfortable with current pricing levels, with a combined ratio of 73% for cyber. He expressed optimism about the market, noting that systemic events like CrowdStrike highlight the value of insurance and could lead to increased demand. The company is focused on primary and low excess layers, which limits its exposure to large losses.

Q: What is the impact of the recent reinsurance adjustments on Beazley's specialty risk performance? A: Adrian Cox explained that the biggest driver for the jump in the combined ratio was a reinsurance adjustment, which involved paying more and adjusting attachment points. Specialty risks continue to face challenges, particularly in areas exposed to social inflation, but there are also areas performing well.

Q: How does Beazley plan to manage its capital given the strong solvency ratio and potential growth opportunities? A: Adrian Cox emphasized that capital management depends on growth prospects for 2025 and beyond. The company aims to maintain a solvency ratio above 170% and will assess growth opportunities before deciding on capital distribution. The dynamic market conditions make it challenging to predict future capital needs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.