Beazley plc | Annual report and accounts 2019
Navigating
change
Navigating change
The world is constantly changing.
From the Lloyd’s market to climate
change, internal structure to
management succession, change
is a constant and navigating these
is something Beazley increased
focus on in 2019. Change also
brings opportunities and the steps
we have taken in preparation
over the last year mean we are
ready to take advantage of these
opportunities in 2020 and beyond.
You can find out about how we have
navigated changes throughout 2019
wherever you see this symbol.
Find out more on pages 10 to 11
www.beazley.com
Strategic report
IFC Highlights
01
Our key performance indicators
Our key differentiators
02 Entrepreneurial spirit
03 Strong partnerships
04 Diversified business
08 Our business model
10 Navigating change
12 Management changes
16 Statement of the chair
18 Chief executive’s statement
22 Q&A with the chief executive
24 Chief underwriting officer’s report
28
Performance by division
30 Navigating change for 33 years
32 Financial review
32 Group performance
37 Balance sheet management
39 Capital structure
41 Operational update
44 Risk management
51 Responsible business
66 Section 172 statement
67 Directors’ report
Governance
72 Letter from our chair
74 Board of directors
78
Investor relations
79 Statement of corporate governance
94
Letter from the chair of our
remuneration committee
96 Directors’ remuneration report
125 Statement of directors’ responsibilities
126 Independent auditor’s report
Financial statements
137 Consolidated statement of profit or loss
138 Statements of comprehensive income
139 Statements of changes in equity
141 Statements of financial position
142 Statements of cash flows
143 Notes to the financial statements
207 Glossary
Please turn overleaf for our
key performance indicators
and highlights.
www.beazley.com
Highlights
Gross premiums written
Net premiums written
Net earned premiums
$3,003.9m
(2018: $2,615.3 m)
$2,503.5m
(2018: $2,248.5 m)
$2,347.0m
(2018: $2,084.6m)
Net investment income
Cash and investments
Investment return
$263.7m
(2018: $41.1m)
$5,851.3m
(2018: $5,052.6 m)
4.8%
(2018: 0.8%)
Rate increase on renewals
6%
(2018: 3%)
Profit before tax for the
financial year
$267.7m
(2018: $76.4m)
Beazley Annual report 2019
Key performance indicators
Financial highlights
Earnings per share (c)
Net assets per share (c)
Gross premiums written ($m)
60
50
40
30
20
10
0
48.8
48.6
44.6
25.0
13.0
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
350
300
250
200
150
100
50
0
17.8
18.7
25.5
263.9
268.2
261.6
24.2
256.2
23.3
286.3
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
3,500
3,000
2,500
2,000
1,500
1,000
500
0
■ Tangible ■ Intangible
.
9
0
8
0
2
,
.
6
5
9
1
2
,
.
8
3
4
3
2
,
.
3
5
1
6
2
,
.
9
3
0
0
3
,
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Dividends per share (p)
Return on equity (%)
Combined ratio (%)
30
25
20
15
10
5
0
18.4
9.9
10.0
10.5
11.1
11.7
12.3
5
1
0
6
1
0
7
1
0
8
1
0
2
2
■ Interim and second interim ■ Special
2
2
2
9
1
0
25
20
15
10
5
0
19
18
15
9
5
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
100
80
60
40
20
0
99
98
100
87
89
48
39
48
41
58
41
59
39
62
38
5
1
0
2
■ Claims ratio
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
■ Expense ratio
The interim and second interim dividend for 2019
has grown by 5%, which is in line with our dividend
strategy.
Average five year return on equity of 13%.
Our combined ratio has averaged 95% over
five years.
The group is of the view that some of the above metrics constitute alternative performance measures (APMs).
Further information on our APMs can be found in the financial review on page 33 and in the glossary on page 207.
Find out more within our financial statements on pages 136 to 206
www.beazley.com
Beazley Annual report 2019
01
Our key differentiators
We create value through the implementation of three key
differentiators – consistently applied and nurtured across
our specialist insurance operations around the world.
Entrepreneurial
spirit
We look for individuals with a
strong sense of ownership for
the business they handle who
are willing – indeed keen –
to be accountable for
their decisions
Strong
partnerships
Strong long term relationships
with brokers, reinsurers and
clients have sustained our
business over three decades
Diversified
business
We maintain a diverse underwriting
portfolio and actively manage
the different insurance cycles
to target consistent results
year on year
02
Beazley Annual report 2019
www.beazley.com
Our key differentiators continued
Entrepreneurial
spirit
As companies grow, they often find it harder to
maintain the entrepreneurial flame that brought
them success in their early days. Below are two
ways Beazley has met the challenge of sustaining
its entrepreneurial spirit.
First, by a strong cultural bias
towards openness and transparency.
Organisations in which information
is shared reluctantly, if at all, cannot
hope to maintain an entrepreneurial
culture because new products and
new ways of doing business almost
invariably spring from people sharing
ideas and insights. Transparency is
deeply rooted in Beazley’s culture,
and information and ideas are
widely shared.
One forum that exemplifies Beazley’s
commitment to openness is the
NexCo, an alternative executive
committee comprising high potential
employees – usually at an early stage
in their careers – from around the
company. The NexCo meets monthly
and reviews the same briefing papers
as Beazley’s executive committee.
Its role is to exchange ideas, challenge
the senior management team
and suggest alternative strategic
approaches. The NexCo was first
established in 2018 and has made
important contributions in a number
of areas, including imagining the
future skills needed for an underwriter
in 2030 and what the roadmap looks
like for how to move our talent from
where it is today, to where we think
it needs to be.
The second way in which Beazley
encourages entrepreneurial spirit is
by offering employees varied career
paths. This has become easier as
the company has grown around the
world. Many Beazley employees have
now worked for a duration of two
years or more outside their home
countries. This too supports the cross-
fertilisation of ideas that characterises
entrepreneurial companies.
‘Our NexCo provides a
platform for us to review
the thoughts and views
from a more diverse
group of employees,
enhancing entrepreneurial
spirit, and allowing
Beazley to make more
informed decisions.’
Rachel Turk
Head of corporate development
www.beazley.com
Beazley Annual report 2019
03
Strong
partnerships
Strong partnerships have underpinned
Beazley’s success since the company
was founded in 1986.
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As a leading participant in the
Lloyd’s market, Beazley is constantly
cooperating – as well as competing
– with other Lloyd’s syndicates.
Sometimes these relationships are
formalised into Lloyd’s consortia or
lineslip facilities, whereby syndicates
allocate pre-determined capacity
to particular classes of business. In
2019, Beazley partnered with other
Lloyd’s syndicates to form consortia
focusing on reputational risk and
technology-enhanced marine cargo
insurance.
Beazley is also a founding member
of the product innovation facility (PIF)
at Lloyd’s, launched in June 2019 by
a number of syndicates to develop
solutions for non-standard risks that
might not suit the traditional market,
such as risks relating to intangible
assets and new technologies.
The PIF launched its first product
in September 2019.
Around the world, Beazley’s
partnerships with insurance brokers
are also critical in securing access
to high quality business. For smaller
risks these relationships are
increasingly dependent on online
systems that allow brokers to place
business with Beazley with minimal
effort. A growing number of brokers
have been gaining access to Beazley’s
award-winning e-trading platform,
myBeazley, through application
programming interfaces (APIs)
that enable them to link their
own trading platforms to ours.
‘In 2019, we launched myBeazley in Germany
and Spain and added new products to our
offering in France and the UK. As the platform
continues to grow it allows us to strengthen
the partnerships we have and form new ones.’
04
Beazley Annual report 2019
www.beazley.com
Our key differentiators continued
Diversified
business
Beazley’s diverse
portfolio of business,
combined with the
risk selection skills of
its underwriters, has
been critical to the
company’s track
record of profitability
through widely varying
market conditions.
In 2019, the mix of business underwritten
by Beazley was particularly important
as a succession of natural catastrophes
in the US and Japan rocked the world’s
reinsurance markets and some
lines of US liability business saw jury
awards climb steeply. The latter mainly
impacted Beazley’s management
liability book, comprising predominantly
directors’ & officers’ (D&O) and
employment practices liability (EPL)
risks, as well as healthcare liability
risks, particularly for large hospitals.
Other lines of liability business have
been less affected.
Each year we review the make up of
our portfolio and assess which areas
offer profitable growth opportunities
and which require us to reduce our
underwriting appetite.
Every underwriting portfolio will have
peaks and troughs and Beazley’s
underwriting profit was reduced to
$4.8m in 2019. However, achieving
an underwriting profit albeit small, is
testament to the benefits of a carefully
balanced portfolio of non-correlated lines
of business that Beazley has built up
over many years.
2009 gross premiums written
2014 gross premiums written
2019 gross premiums written
Specialty lines
Property
Cyber & executive risk
Marine
Political, accident & contingency
Reinsurance
28%
23%
15%
15%
11%
8%
Specialty lines
Cyber & executive risk
Property
Marine
Political, accident & contingency
Reinsurance
24%
20%
17%
16%
13%
10%
Specialty lines
Cyber & executive risk
Property
Marine
Political, accident & contingency
Reinsurance
33%
27%
14%
10%
9%
7%
www.beazley.com
Beazley Annual report 2019
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Diversified portfolio
The spread of our overall portfolio by division and the impact this diversification has had on our combined ratio
over the past ten years can be seen in the chart below.
Diversified portfolio achieves consistent combined ratio through market cycles
160%
140%
120%
100%
80%
60%
40%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Lines of business
Diversified portfolio
US managed gross premiums $m
1,200
1,000
800
600
400
200
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
06
Beazley Annual report 2019
www.beazley.com
Our key differentiators continued
Diversified
business
continued
Growth of managed
gross premiums
by division $m
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
Cyber & executive risk
Marine
Our cyber & executive risk division
comprises cyber and management
liability cover for our clients. Our
products range from our flagship
cyber product, Beazley Breach
Response (BBR), through to crime
insurance and private and public
directors’ & officers’ (D&O) insurance.
We help insure in excess of 20% of the
world’s ocean-going tonnage and are
the pre-eminent leader of voyage and
tow business in the London market. The
aviation team provides cover for airlines
and general aviation clients globally,
ranging from start-up operations through
to large commercial fleets. We have
extensive experience insuring a wide
variety of cargoes including project
cargo, fine art and specie.
Political, accident
& contingency
In addition to traditional lines such as
contract frustration, expropriation and
credit, we insure a growing number
of businesses against terrorism and
political violence. Our personal accident
product covers a number of niche classes
and we have a growing account of US
supplemental health business providing
tailored benefit solutions to a wide range
of employers.
Find out more on page 25
Find out more on page 26
Find out more on page 26
www.beazley.com
Beazley Annual report 2019
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4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
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Property
Reinsurance
Specialty lines
We’ve protected clients ranging from
Fortune 1000 companies to homeowners
through 27 years of natural and man-
made catastrophes. We underwrite
this business through five platforms:
London, the US, Canada, Latin America
and Singapore, with a business focus
on commercial property risks, valuable
assets and select homeowners’ business.
The reinsurance team specialises in
writing worldwide property catastrophe,
per risk, aggregate excess of loss,
pro-rata business and casualty clash.
Approximately 80% of our top clients have
reinsured with us for 20 years or more.
The specialty lines division writes
a diverse book of specialty liability
business including professional
liability, healthcare, life sciences,
environmental liability and international
financial lines. Included in the team
is our casualty reinsurance business
which focuses on reinsuring other
specialists in classes such as surety
and professional liability and also
distributing Beazley products via
our reinsured partners.
Find out more on page 26
Find out more on page 27
Find out more on page 27
08
Our business model
Our business model
Resources and inputs
How we create value
The Beazley brand
Our approach
Our distinctive brand, and the
perceptions it generates, helps
us to grow our business, sustain
relationships and attract and
retain talented people.
Our people,
culture and values
Beazley’s success is based on
the talent and commitment of
our people, our entrepreneurial
culture and the values that
enable us to maintain growth.
Financial strength
Our financial strength enables
us to support long-term strategies
for navigating change and keeping
ahead of the curve in our markets.
• Beazley is a specialist insurer.
We have a targeted product
set, largely in commercial lines
of business, and underwrite
each risk on its own merit
• We employ highly skilled,
experienced and specialist
underwriters and claims
managers
• We tend to write capped
liabilities
• We operate through specific
insurance hubs rather than
seeking a local presence in every
country in which we do business
• We primarily transact business
through brokers and work with
selected managing general
agencies and managing general
underwriters to improve
distribution in specialist niches
Find out more on pages 18 to 27
Our platforms
These platforms give us global
reach, with each platform
focused on a different market
and offering different opportunities.
Our US & European insurance
companies complement our Lloyd’s
business well and ensure we
can offer coverage across a
wider distribution network.
Beazley Insurance Company, Inc.
Writes business in the
US admitted insurance market.
Underpinned by a robust, consistent strategy
• The creation of an environment
in which talented individuals with
entrepreneurial spirit can build
successful business
Our strategy is designed to
achieve our vision to become,
and be recognised as, the highest
performing specialist insurer.
• Prudent capital allocation
to achieve a well diversified
portfolio that is resistant to
shocks in any individual line
of business
Beazley Annual report 2019www.beazley.com www.beazley.com
Beazley Annual report 2019
09
Our business model is reviewed and reconfirmed annually as part
of our business planning process, with a focus on ensuring that we
continue to create value across our entire stakeholder base.
How we create value
How we measure value creation
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Our differentiators
For shareholders
Entrepreneurial
spirit
We look for individuals with a strong
sense of ownership for the business they
handle who are willing – indeed keen –
to be accountable for their decisions.
Earnings per share
44.6c
Underpinning our strong results
against all of these metrics has
been our consistently strong
underwriting performance,
reflected in our combined ratio:
• 2019, a year of active
claims environment: 100%
• Five year average up until
2019: 95%
• Monitoring staff
retention levels; and
• Employee engagement
survey which we
conduct every two years.
Net assets per share
309.6c
TSR since
1 January 2010
23.3% pa
For staff
We employ talented
people and invest
accordingly in expanding
their skills and helping
them build rewarding
careers. We measure
the impact of these
investments in two
main ways:
For customers
Nearly all business at
Beazley comes through
brokers. We monitor
broker and client
perceptions of our service
in a variety of ways,
including through
a detailed annual broker
survey. This is the third
year Beazley has
conducted a global
survey and the number
of brokers participating
continues to increase,
reflecting strong
engagement.
Over 5,000 brokers
provided feedback on
our underwriting and
claims service
5,000+
Strong
partnerships
Strong long term relationships with
brokers, reinsurers and clients have
sustained our business over three
decades.
Diversified
business
We target a diverse underwriting
portfolio and actively manage the
different insurance cycles to achieve
consistent results year on year.
Find out more on pages 01 to 07
Beazley Insurance dac
Writes business in Europe
and provides reinsurance to
Beazley Underwriting Limited.
Beazley
Underwriting Limited
Provides capacity to our three
Lloyd’s syndicates to write
business through the Lloyd’s
platform globally.
• The ability to scale our
operations to ensure that
client and broker service
keeps pace and, wherever
possible, improves as the
company grows
• Consistent investment
in product innovation to
provide better products
and services to improve
our clients’ risk transfer
Find out more in the chief executive’s statement
on pages 18 to 21
10
Beazley Annual report 2019
www.beazley.com
terms and conditions – but a challenge
that seasoned underwriters can handle.
Also there is an opportunity, particularly
for Beazley’s claims professionals, to
differentiate the service they provide
from that of less experienced insurers.
“Our healthcare claims team comprises
former defence attorneys who are
not afraid to take a case to court if a
plaintiff’s demands are unreasonable,”
says Steve Chang, team leader for
healthcare claims. “We work closely with
hospitals and other healthcare clients
to identify the optimal defence strategy.
In many cases, we may have seen
similar claims play out in the past,
whereas for our client it may well be the
first time such an event has occurred.”
Many liability lines of business
underwritten at Beazley have been less
affected by social inflation and even in
the affected lines, such as healthcare
liability, the impact has varied by type
of risk. Beazley underwrites a large and
growing book of miscellaneous medical
liability insurance, covering healthcare
service providers of various kinds that
are not hospitals or physicians, and many
parts of this book have seen far lower
claims activity than the large hospitals
and health systems.
Navigating change
Risk is dynamic so, for any insurer, change
is constant and inevitable. However, in 2019
changes came faster than usual, both for
Beazley and the broader insurance industry.
For Beazley, the changes
to be navigated took three
main forms.
Market changes
The first was market changes as
rates for many lines of business
climbed steeply to address surging
claims or prolonged underpricing
and, in some cases, both.
Structural changes
The second was structural changes
as insurers strove to put in place
more efficient, innovative and client-
friendly ways of doing business.
Management changes
The third set of changes for Beazley
was those that inevitably occur when
one generation of senior executives
passes the baton to another.
Market changes
In the US rates for management
liability lines such as directors’ &
officers’ (D&O), and employment
practices liability (EPL) rose steeply in
response to an increase in the cost of
the most severe claims. “We’ve seen
higher frequency of severe losses
in common with other parts of the
market” says Mike Donovan, Beazley’s
head of cyber & executive risk. “We
might normally see a couple of big
losses in a year and we saw four or
five in the first six months of 2019.”
“International D&O rates are
increasing faster than we have seen in
many years” says James Eaton, head
of Beazley’s specialty lines division.
“This is being driven by a combination
of losses and capacity withdrawals
which we first saw in the London
market in late 2018, and which has
continued and spread across our
regional offices in 2019.”
Speciality lines division brings growth
The specialty lines division also includes
Beazley’s healthcare liability practices,
which have been a major area of
growth in recent years and accounted
for $198m in gross premiums written
or approximately 20% of the division’s
premium in 2019. Healthcare and
management liability business are the
areas most affected by social inflation
– a sharp uptick in jury awards resulting
in multi-million dollar claims. The
phenomenon has been most prevalent
in the US, but is manifesting across
the world.
What’s driving social inflation
The causes of social inflation have
been much debated. Generally, they
have been attributed to the growing
use of third party litigation funding,
more aggressive attorney advertising
and increasing antagonism from jurors
towards organisations that are perceived
as having let down their customers or
investors. In cases where the victims
have also been physically hurt – such
as patients injured as a result of hospital
errors – jury awards can be particularly
heavy.
Adrian Cox, Beazley’s chief underwriting
officer, argues that social trends of this
kind – which Beazley has witnessed
several times in its 33 year history – are
usually only resolved by government
action, such as tort law reform. However,
there is little impetus evident for tighter
restrictions on jury awards in the US
at present.
For a specialist insurer such as Beazley
with a long track record in its selected
lines of liability business, social inflation
is a challenge but also an opportunity.
It is a challenge to select risks that are
adequately priced with appropriate
www.beazley.com
Beazley Annual report 2019
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Some risks remain underpriced
In other parts of Beazley’s business,
rates have also been rising steeply
after a prolonged period of rate erosion
that drove prices down to uneconomic
levels. In the marine, aviation and
commercial property markets, the
turnaround began in 2018 and continued
through 2019. Nevertheless, some risks
remain underpriced. “We’re fixated on
risk quality and risk selection,” says
Richard Montminy, who took over the
leadership of Beazley’s property division
in May 2019.
The market for large risk property
business, which Beazley underwrites
in London and New York, is “very
dynamic” Montminy says, with rates
rising on average by 18% in 2019.
“Brokers are looking for homes for
clients. Whether or not we want to
write them is the question. However,
submission flow is strong.”
Against the backdrop of an often
volatile rating environment, Beazley is
also investing in operational change
designed to increase the efficiency
with which business is transacted and
deliver an improved service to clients.
Two strategic initiatives designed to drive
change in this area align very closely with
the approach laid out by Lloyd’s in its
Blueprint One plan published in October.
Reducing a high cost base
Lloyd’s has divided the task of reducing
the market’s currently high cost base
between two distinct but related
initiatives. One, called the Lloyd’s Risk
Exchange, will focus on automating
the transaction of relatively simple,
high volume, low premium business –
currently accounting for around half the
risks placed at Lloyd’s. The other, the
Complex Risk Platform, will “support
the sourcing and efficient placing
of complex risks,” according to the
Blueprint. The goal is to move to a “data
first” digital model, and away from the
current document-based model, with
large efficiency gains in the process.
More than a year before the Lloyd’s
Blueprint was published, Beazley
had adopted a similar approach to
its business, with the Beazley Digital
strategic initiative focusing on the
automation of small, simple business
and the Faster, Smarter Underwriting
initiative focusing on larger and more
complex risks.
Structural changes
myBeazley roll out
With the backing of the Beazley Digital
team, the company has been rolling out
its broker e-trading platform, myBeazley,
across numerous markets. In 2019,
myBeazley was launched in Spain and
Germany and new products were added
to the platform in France and the UK.
Announcing the launch of myBeazley
in Spain in November, international
financial lines regional manager Lorena
Segovia said: “Beazley has applied
its expertise in management liability,
professional indemnity and cyber
insurance to create simple, specialist
products that can be sold separately
or as a package for brokers looking
to work through an online channel to
secure quick and efficient quotes.”
Historically Beazley underwriters have
focused exclusively on a single line of
business, but multiline underwriters
are now increasingly common for small
business. With myBeazley automating
a large part of the placement process,
underwriters can focus their attention
on the more unusual risks that require
human intervention.
Exploring new data sources
The team behind the Faster, Smarter
Underwriting initiative, led by Adrian Cox
and chief operating officer Ian Fantozzi,
has also been looking to technology
to improve the speed of transacting
business. In addition, Beazley has been
exploring new data sources that will
permit existing risks to be written in
new ways or enable entirely new risks
to be insured.
Again, there is a clear connection
between the priorities of Beazley and
the ambition of Lloyd’s, as set out in
the Blueprint One, “to combine data,
technology and new ways of working
with our existing strengths to transform
… everything we do.”
Beazley has been a strong supporter of
the Lloyd’s Lab, which was established
in 2018 to help promising technology
companies develop and test their
solutions, mentored by underwriters
and other insurance professionals
within the Lloyd’s market. In February
2019 Beazley teamed up with
another Lloyd’s insurer to form a new
consortium to underwrite marine cargo
business. The venture relies on data
gathered by sensors installed by data
science specialists Parsyl – a graduate
of the Lloyd’s Lab programme.
Management changes
The final set of changes that
confronted Beazley in 2019 was
internal. In the course of the year,
three members of the executive
team retired, while a fourth, Anthony
Hobkinson, head of claims, is
retiring in early 2020. These moves
followed earlier changes in the chief
underwriting officer role, with Adrian
Cox succeeding Neil Maidment at
the end of 2018, and in the head of
talent management role, with Pippa
Vowles succeeding Penny Malik in July
2018. In 2020, we also announced to
employees that Mike Donovan will be
retiring in June 2020.
Looking ahead
“An important test of a company is
how it handles executive succession,”
says Beazley chief executive Andrew
Horton. “This is particularly so when
a large number of senior executives
retire at around the same time.
Change of this kind can be unsettling
but I believe the transition at Beazley
has been smooth, aided by the fact
that six of our eight new executives
are internal hires.”
Looking ahead, Andrew Horton
predicts more change to come in the
markets in which Beazley operates.
“In addition to the natural ebb and
flow of rates in response to claims
and capacity, we can expect to
see further significant changes
stemming from the broader adoption
of technology and the better use
of data. We’ve really only just begun
on that journey.”
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www.beazley.com
Management changes
There have been many changes to the management of Beazley
at both a board and executive committee level. On the executive
committee there have been several changes, two from within
Beazley and two external appointments. Here the new committee
members discuss their prior experience and how they see Beazley
changing over the next few years.
Sally Lake
Group finance director
“Change is all
around us and
we are embracing
this in so many
different ways.”
What is your background?
I qualified as an actuary in 2004 and
joined Beazley in 2006. I initially worked
within the specialty lines claims team on
analytics, and helped build the reserving
process that the business continues to
use today. Whilst the role was different
compared to a traditional actuarial
role, I loved the closeness to the claims
managers and really getting a deep
understanding of the drivers of reserves.
I moved into the actuarial function in
2012 and there had the opportunity
to gain a broader view of the entire
business. I was group actuary prior to
taking on the group finance director role
in 2019.
What have you enjoyed in your
first year being on the executive
committee?
Too many to list, but I will name a
few here. Spending more time on key
decisions which will shape the business
in the future. I have appreciated getting
to know people in more depth, and being
part of the new team who have fresh
ideas and lots of energy to get things
done. I enjoy the mix of colleagues I
have worked with for many years, along
with new faces like Lou Ann and Richard
bringing in fresh ideas and different
perspectives.
What changes would you like to see
at Beazley over the next three years?
Change is all around us, and we are
embracing this in so many different
ways at Beazley. We continue to invest
in new technology to enable efficiency,
enhance our expert underwriting and get
closer to our clients with our strategic
initiatives. Our largest office, London, is
going to move and continue our adoption
of new ways of working. We have come
so far from an inclusion and diversity
perspective, but there is more to do and
I would like us to capitalise on the positive
momentum that has been created.
www.beazley.com
Beazley Annual report 2019
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Lou Ann Layton
Group head of broker relations and marketing
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“I would like to
see us achieve a
more diverse
leadership team.”
What is your background?
I began my career as a directors’ &
officers’ (D&O) underwriter before joining
Marsh. I left Marsh after a 31 year career
to join Beazley. My first role at Marsh
was as a D&O broker then leading the
US FINPRO practice. I left FINPRO to take
on P&L leadership roles in the Northwest
and Southeast of the US.
What have you enjoyed in your
first year being on the executive
committee?
My executive role at Beazley has
given me insights into aspects of an
organisation that I had never been
exposed to. I also appreciate having a
voice in which I can share my thoughts
and experiences about all parts of the
company not just those that I have
responsibility for.
What changes would you like to see
at Beazley over the next three years?
One change that I would really like to
see is an even more diverse leadership
team. I believe achieving this lends itself
to better outcomes. It is also important
that we continue to innovate our existing
products as well as create game
changing new product offerings.
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Beazley Annual report 2019
www.beazley.com
Management changes continued
Jerry Sullivan
Chair of the US management committee
“We must position
the business to
gain a competitive
advantage by utilising
various technological
solutions.”
My Beazley career began in 2005, with
responsibility for miscellaneous errors
and omissions (E&O), tech E&O and A&E
admitted business. A year later, I began
to focus on building out A&E and in 2010
we launched our environmental focus
area. In 2012, I took over the lawyers
business and in 2019 I became chair of
the US management committee.
What is your background?
My first job in the financial services
industry was at Executive Risk, where
I was underwriting directors’ & officers’
(D&O) and employment practices liability
insurance (EPL). Soon after, I moved to
Lexington Insurance Company as a multi-
line underwriter.
After nine years and working my way up
to the head of the architect & engineers
(A&E) portfolio at Lexington, I was offered
a role at Beazley, along with the chance
to return to my family home state of
Connecticut.
What have you enjoyed in your
first year being on the executive
committee?
Our US business continues to outperform
our expectations, so reporting our
progress is a joy. I’m proud of what
we have been able to achieve over the
past 15 years, facing some challenges
and coming out even stronger on the
other side.
Being part of the committee means
I’m able to learn about other areas of
the business, such as capital raising,
the evolution of Lloyd’s and growing our
European operations, to name a few.
One highlight of the year was hosting the
Beazley plc board in Farmington. It was
inspiring to hear the passion of our focus
group leaders and teams, highlighting
the successes and unique challenges
to their business lines.
What changes would you like to see
at Beazley over the next three years?
Technology is already impacting the
insurance industry in a big way, and
it will only continue year after year.
We must position the business to gain
a competitive advantage by utilising
various technological solutions. Two of
our strategic initiatives are focused on
just this, which will inevitably transform
the business.
We need to embrace this evolution
instead of fighting against it. This will
take strong, diligent leadership, who
are open to change.
On the US side, we intend to achieve our
goal of $2bn gross premiums written
around three years from now. I’m excited
to see us accomplish this milestone and
am ready to take on the challenge to get
us there.
www.beazley.com
Beazley Annual report 2019
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Richard Montminy
Head of property
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“We need to provide
our underwriters
with accurate real
time risk data and
insights.”
What is your background?
My career has spanned some 30 plus
years. Having obtained an engineering
degree, I had never planned to be in
the insurance industry. Then like many
I fell into this vast world of insurance.
My work experience has included tenures
on both the brokerage and carrier
side of the business. This experience
included loss prevention engineering,
claims, account development, portfolio
management, brokerage/placement,
client executive and various levels of
leadership roles for FM Global, Marsh,
Zurich and now Beazley.
What have you enjoyed in your
first year being on the executive
committee?
My initial seven months with Beazley
have flown by. The time has been both
exciting and challenging learning the
interworkings of a new company. I have
most enjoyed working with and alongside
people that are extremely passionate
about not only being highly successful
at what we do, but also truly valuing and
caring about all the colleagues that help
make us successful.
What changes would you like to see
at Beazley over the next three years?
I believe that we all understand that
efficiency and technology will continue
to be key drivers of our productivity and
profitability. Subsequently we need to
adopt process change and improve
technology to not only compete with but
exceed our competitors. One of the key
changes that would help drive success,
would be to provide our underwriters with
accurate real time risk data and insights
on their computers to enable them to
complete quicker, smarter analysis and
make quicker, smarter decisions.
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Beazley Annual report 2019
www.beazley.com
Statement of the chair
Beazley delivered strong growth in 2019, with premiums rising 15%
to $3,003.9m (2018: $2,615.3m) in a market that saw rates respond sharply
to heightened claims activity in many lines of business. Strong investment
returns drove pre-tax profits up to $267.7m (2018: $76.4m) offsetting a
combined ratio that deteriorated to 100% (2018: 98%). The company
generated a return on average shareholders’ equity of 15% (2018: 5%).
Higher return on
shareholder equity
despite elevated
claims activity.
David Roberts
Chair
The board is pleased to
announce a second interim
dividend of 8.2p per ordinary
share, in line with our strategy
of delivering 5-10% dividend
growth. Together with the first
interim dividend of 4.1p this
takes the total dividends declared
for 2019 to 12.3p per ordinary
share (2018: first interim dividend
of 3.9p plus a second interim
dividend of 7.8p, totalling 11.7p).
Beazley has a well-diversified portfolio
of risks and we continue to take action
to ensure we anticipate and respond to
the challenges and opportunities arising
from current market conditions.
Our deep experience in managing our
portfolio of risks through differing market
cycles tells us that preparation is critical for
a turbulent market of the kind that we saw
in 2019 and Beazley has been preparing
for more than two years for such a market.
We withdrew from underwriting
construction and engineering business
in 2018 because it failed to meet our
cross-cycle profitability requirements and
took steps to strengthen our catastrophe
reserves. In both 2018 and 2019 we
opened our underwriting at historically
high loss ratios to provide a strong
reserve buffer against rising claims.
We are now in a market in which rates
are often adequate to achieve profitable
growth but significant pockets of
www.beazley.com
Beazley Annual report 2019
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underpriced business remain. This plays
to all of Beazley’s traditional strengths
as a company, in risk selection, reserving
and claims management. Our diversified
portfolio of business should also continue
to stand us in good stead: only two of the
liability classes we transact – management
liability and healthcare liability – have been
significantly exposed to social inflation,
which has driven US jury awards up.
The role of the Beazley board is to
challenge, support and advise Beazley’s
management as they navigate current
market conditions and plan for profitable
growth in the future. The board met for
three days in the US in May to discuss
the changes and disruptors that are
reshaping our market and the company’s
readiness to adapt to these changes and
prosper. We identified three main areas
of focus: the impact of new technology
and data-driven risk insights; Beazley’s
role in the changes taking place at
Lloyd’s; and the maintenance and
development of the company’s corporate
culture, all of which aligns to our
strategic initiatives.
Three strategic initiatives at Beazley are,
in different ways, focused on operational
efficiency and improving the client
experience. Through our Closer to the
Client initiative we are consulting closely
with clients on their evolving needs.
While our Faster, Smarter Underwriting
and Beazley Digital initiatives are
harnessing data and technology to
provide an enhanced experience to our
large risk clients and our small business
clients respectively. The board considers
all three initiatives to be well chosen
given the winds of change that are
blowing through our market.
These areas of focus are also priorities
for the leadership of Lloyd’s and are
reflected in the Lloyd’s Blueprint One
published in September 2019. As a
major participant in the Lloyd’s market,
writing 85% of our business on Lloyd’s
paper, Beazley has been actively involved
in shaping the market’s future plans. We
are a strong supporter of the far-reaching
reforms proposed in Lloyd’s Blueprint One:
our London Market strategic initiative
is designed to ensure that Beazley can
benefit to the fullest possible extent from
the changes as they are implemented.
Finally, Beazley’s transparent, supportive
and collaborative culture has been
one of the company’s greatest assets
since its earliest days: it has served as
a magnet for talent in our market. The
Lloyd’s culture survey published last
September revealed that high standards
of behaviour have not been universally
upheld across the market. The board
strongly supports Beazley’s management
in its commitment to ensure no Beazley
employee should ever hesitate to report
unacceptable or inappropriate behaviour.
Board and management changes
To ensure the board remains able to
challenge, support and advise Beazley’s
management, we constantly evaluate the
mix of skills and experience the board
possesses. In April 2019, we welcomed
two new board members, Nicola Hodson
and John Reizenstein, who added to the
board’s skillset in important ways.
Nicola has brought deep expertise in the
areas of technology, data and operations
to the board, developed in the course
of a series of senior executive roles at
Microsoft, including as chief operating
officer of Microsoft UK. John was
formerly chief financial officer of Direct
Line Insurance Group, and the board has
benefited from his extensive financial
services experience across insurance,
investment banking, and financial
markets. He replaced Angela Crawford-
Ingle as chair of Beazley’s audit and risk
committee following her retirement at the
end of May 2019.
I am also delighted that so many of
Beazley’s recent senior executive
appointments (six out of eight in the
past two years) have been internal.
This speaks well to the vibrancy of the
company and its success in preparing
talented individuals for senior roles.
Part of the board’s role is to consider
the interests of all stakeholders in the
company. Beazley is a profit-making
business that must meet, and if possible
exceed, the expectations of investors.
Nevertheless we also need to take a
broader view of the role that insurance
plays in society and in addressing the
major challenges of our times.
2018 UK Corporate
Governance Code
The introduction of the 2018
UK Corporate Governance Code
reporting requirements has brought
the discussion around how the
board and its committees ensure
Beazley brings value to its various
stakeholders into the spotlight.
We believe understanding and
reporting the needs and views of our
various stakeholders is extremely
important and we are always trying
to enhance these relationships.
The new code’s reporting requirements
reflect this commitment which
Beazley maintains with its various
stakeholders and provides
transparency to our policies
and procedures.
Find out more on pages 79 to 93
Climate change is unquestionably one
such challenge, and possibly the most
important. Another is the vulnerability
of our interconnected world to cyber
attacks. At Beazley we are keen to
ensure we are able to protect our
insureds, and have developed products
that address these cyber risks. We are
also investigating products that address
the effect of climate change. In both
cases we can amplify our impact by
collaborating with others. The Lloyd’s
market offers a tried and tested model
for such collaboration and we will
continue to work with other syndicates
at Lloyd’s to push forward the boundaries
of insurable risk.
Beazley’s immediate focus is to deploy
its traditional underwriting strengths
to navigate what remains a turbulent
market. However, we are well aware
that market conditions in the not too
distant future will present very different
challenges and require new strengths.
I am confident that Beazley has the
means and the will to adapt and navigate
these changes.
David Roberts
Chair
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Beazley Annual report 2019
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Chief executive’s statement
Natural catastrophes took a
smaller toll on our business than
in 2018, but nevertheless had
a material impact with our
estimated costs of Typhoons
Faxai and Hagibis and Hurricane
Dorian totalling approximately
$80m net of reinsurance and
reinstatement premiums.
A number of our liability lines
were also impacted by US
jury awards that have been
increasing for some time
now, particularly affecting our
management liability book
and our large risk professional
liability business for hospitals.
We have been taking action to address
underperforming classes of business
for several years and we have seen
rates rise steadily as the market has
responded to elevated claims. The claims
that we have seen in these classes,
combined with the continuing high
incidence of natural catastrophe claims
in recent years, reduced the contribution
to profits from prior year reserve releases
in 2019 to $9.5m (2018: $115.0m).
The insurance market has continued
to respond strongly to this unsettled
claims environment and we saw renewal
rates rise by 6% on average across our
business during the course of 2019. In
the lines of business most affected by
severe claims, we have seen much larger
rate rises, as described in our chief
underwriting officer’s report on page 24.
Double digit
premium growth
sets Beazley up
well for the future.
Andrew Horton
Chief executive officer
Beazley achieved a second year of double digit premium
growth in 2019, with gross premiums written increasing
15% to $3,003.9m (2018: $2,615.3m). Profit before
income tax rose to $267.7m (2018: $76.4m), driven by
a very strong investment return. Our combined ratio
of 100% (2018: 98%) was impacted by intensifying
claims across several lines of business and reduced
reserve releases from prior years.
www.beazley.com
Beazley Annual report 2019
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Beazley benefits from a well-diversified
underwriting portfolio that we have
carefully constructed over the years
to spread our exposures across
geographies, classes of business and
size of risk. Our property division, which
incurred heavy underwriting losses in
2017 and 2018, returned to profit in
2019 with a combined ratio of 97%, and
our political, accident & contingency
division delivered a strong performance
with a combined ratio of 89%. These
results helped to balance deteriorating
results in our reinsurance division (where
the bulk of the natural catastrophe
losses fell) and marine division.
During 2019 we also split what had
previously been by far our largest division
– specialty lines – into two. Both of the
new divisions, one of which continues
to be called specialty lines and the
other cyber & executive risk, underwrite
classes of business that were negatively
affected by increased jury awards and
settlements in 2019. However, many
lines of business were unaffected and
continued to show strong growth and
profitability.
Growth opportunities
Rising premium rates were by no
means solely responsible for the strong
premium growth we saw in 2019. We
have continued to grow in newer lines
of business in our traditional markets
and in long established lines in newer
markets. As an example of the former,
our accident and health team in the US
– now renamed Beazley Benefits – saw
premiums rise 20% to $24.7m. As an
example of the latter, our cyber business
grew by 26% outside the US in 2019,
outstripping our cyber growth in the US,
where demand for this form of insurance
originated.
As by far the world’s largest insurance
market, the US continues to present
many attractive growth opportunities for
Beazley, but we are also seeing strong
demand for many of our specialist
products in Canada, Europe and Asia.
In the course of 2019, we saw our
European business grow by 17%, while
the business we underwrote locally in
the US grew by 13%.
Investing in innovation
Brokers around the world look to Beazley
as a source of innovation in specialist
insurance and we sought to build on
this reputation in 2019. In the US our
environmental team launched Beazley
SLEAP (Site Lender Environment Asset
Protection) to protect lenders from
pollution risks that could impair the
value of property used as collateral
for commercial loans. In London our
marine underwriters unveiled a new
marine cyber insurance product to meet
the rapidly developing needs of vessel
owners and operators. Also in London
our cyber & executive risk team launched
a reputational risk product to protect
businesses against a peril that is of huge
and growing concern to senior executives
at our client companies.
Product innovation, although important,
is not the only form of innovation that
benefits brokers and clients in our
markets. The insurance industry has
seen heavy investments in technologies
designed to make business processes
more efficient. Substantial sums have
also been invested in harnessing new
data sources to improve the speed and
accuracy with which risk can be priced.
At Beazley we have two strategic
initiatives focused on these issues.
The first, which we call Faster, Smarter
Underwriting, addresses the large and
complex risks that have been the historic
mainstay of our business. Improved
technology can make the transaction of
this business far more efficient, and we
have identified several opportunities for
underwriting productivity improvements,
complementing – but not supplanting –
the underwriter’s skill and judgement.
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Our strategic initiatives
Beazley Digital
Focus on smaller/less complex risks
by doing business in a way which
maximises the value we get from
technology and provides seamless
and efficient solutions to brokers
and clients.
Faster, Smarter Underwriting
Focus on larger more complex
risks using new technology and data
analytics to improve the efficiency
and the quality of our complex risk
underwriting and claims settlement.
Closer to the Client
By better understanding our
clients’ needs, we will be able to
enhance our product design and
improve our clients’ experience.
Also we look to improve the client
experience and strengthen our
brand as a client-focused insurer
by enhancing our client attraction,
retention and cross-selling.
London Market
Explore ways of promoting London
as a great place to write specialist
insurance while improving the
efficiency of the London market
(Lloyd’s and company market).
Also ensure the market continues to
obtain the most value for our clients,
brokers and shareholders. Enhance
ways that the London market can
generate access to business and
capital more efficiently.
Find out more on pages 41 to 50
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Beazley Annual report 2019
www.beazley.com
Chief executive’s statement continued
For smaller, simpler risks, the role of
technology is even greater. Our Beazley
Digital strategic initiative has identified
significant scope for automation in this
space, with the underwriter’s day to day
role limited to the pricing of unusual
risks that fall outside the constraints
programmed into our systems. In
2019, we launched our award-winning
broker e-trading platform, myBeazley,
in Spain and Germany. The platform,
already in service for brokers in the UK
and France, enables brokers to access
Beazley’s specialist insurance products
online, including management liability,
professional indemnity, and cyber cover.
Change at Lloyd’s
The varying approaches that we are
taking towards large complex risks on
the one hand and smaller and simpler
risks on the other are mirrored in
Blueprint One, a programme of far-
reaching reforms published by Lloyd’s in
September 2019. We strongly support
the plan Lloyd’s has put forward and,
in particular, the goal of reducing the
market’s stubbornly high expense ratio.
Beazley’s expense ratio in 2019 was
38%, in line with the Lloyd’s market
average. We would like to see both
come down materially.
In 2018, we launched a new Beazley
managed syndicate, syndicate 5623,
which focuses on writing market facilities
business with the aim of reducing
the cost of underwriting at Lloyd’s.
Underwriting for the account of third
party investors, the syndicate aims to
offer a low cost mechanism for placing
follow business within the Lloyd’s
market. In 2019, we underwrote market
facilities premiums of $36.0m through the
syndicate, up 330% from the previous year.
Our participation in the Lloyd’s market
also gives our continental European
clients a choice of options to access
Beazley products. Business from
continental Europe can be placed either
with the Beazley Lloyd’s syndicates
through the Lloyd’s platform in Brussels
or with our European insurance company,
Beazley Insurance dac, based in Dublin.
We have continued to recruit underwriters
across Europe, including in the UK
regions, and saw our European business
as a whole grow by 17% in 2019.
Climate change
As with any insurance company, climate
change is going to be an area where we
will expect to give greater focus to in the
coming years. The perceived risks around
climate change are great and should not
be underestimated, but the opportunities
around providing suitable cover, products
and claims service to our insureds is
something that aligns to Beazley’s
current service model. We have always
prided ourselves on delivering on our
promises to our insureds and these
promises will become even more
important as the potential severity
of losses increases.
During 2019 our risk management team
worked through a number of long term
scenarios around the potential impact of
climate change on Beazley. We have also
continued to look at ways of acting more
responsibly within our business, such
as sourcing our office products locally.
During 2019 our submission to
Climatewise was benchmarked against
the framework from the Financial
Stability Board’s Taskforce on Climate-
related Financial Disclosures (TCFD)
achieving a preliminary score of 39%
(compared to the average score within
the Lloyd’s Market of 38%). It is clear
from this score that we are at the same
stage of our development on climate
change as many others, but we know
that more needs to be done. As such we
are currently recruiting a sustainability
officer who will oversee our strategy on
climate change going forward while
building on the progress made so far.
Executive changes
In 2019, we welcomed four new
members to Beazley’s executive
committee. Two of these were individuals
who have been with Beazley for more
than a decade, and two were external
hires. The internal promotions were
Sally Lake, who succeeded Martin Bride
as group finance director; and Jerry
Sullivan, who heads our US management
committee, both of which were
mentioned in our 2018 annual report.
We also announced in 2019 that Beth
Diamond, who has recently succeeded
Anthony Hobkinson as head of claims,
will join the executive committee from
2020. We also announced to employees
in early 2020 that Mike Donovan has
decided to retire at the end of June 2020
and we will announce his successor in
due course.
From outside the company, we recruited
Lou Ann Layton, who succeeded Dan
Jones as head of broker relations and
marketing, and Richard Montminy, who
succeeded Mark Bernacki as head of
our property division.
I paid tribute to Martin, Dan and Mark
at the half year for their enormous
contributions to Beazley’s success over
the years. Here I would like to express
my gratitude to Anthony, who has guided
our claims function skilfully since 2011.
In insurance, we offer clients a simple
promise to pay. As our business has
grown around the world, Anthony and his
team have ensured that we fulfil these
promises consistently and in a way that
increases the loyalty of our clients. I have
every confidence that Beth, who was the
head of our third party complex claims
team prior to succeeding Anthony, will
ensure that world class claims service
remains a differentiator for Beazley.
Investment performance
Beazley’s financial assets have continued
to grow in recent years, from $4.9bn in
December 2017 to $5.9bn by December
2019. As a result, the returns we achieve
on these assets are important to our
overall performance. After a challenging
year in 2018, financial market conditions
in 2019 proved much more supportive
and Beazley’s financial assets returned
$263.7m, or 4.8% in this period (2018:
$41.1m, or 0.8%). The 2019 return is
the highest in recent years, supported
by falling yields, declining credit spreads
and strong equity markets.
Our fixed and floating rate debt securities
are the mainstay of our investment
portfolio and represented 82.3% of
our investment assets as at December
2019 (2018: 81.1%). These investments
(including cash and cash equivalents
and derivatives) returned 4.3% in 2019,
(2018: 1.1%) well above the level of
yields at the beginning of the period,
as declining yields and narrowing credit
spreads generated capital gains on these
assets. We were able to take advantage of
the conditions by increasing the duration
of our portfolio, which was maintained at
close to two years for much of the year.
www.beazley.com
Beazley Annual report 2019
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We are now part way through a broad-
based turn in the market, with rates
rising steeply across many lines of
business. Over the past two years, we
have seen premium rates on renewal
business rise cumulatively by more than
10% for half of our book. We expect rates
to continue to rise through 2020.
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In this environment we will continue
to grow our business prudently and
anticipate achieving double digit premium
growth once again in 2020. However, we
continue to believe that some business
remains underpriced, notably in the
property and treaty reinsurance markets,
and our underwriters will continue to walk
away from business that does not meet
our requirements.
The market conditions we witnessed
in 2019 reaffirmed the importance of
skilled underwriters capable of making
prudent promises to our clients as well
as resourceful claims professionals
able to deliver swiftly on our promises.
Technology will assist us, but these core
skills should continue to underpin the
profitable growth of our business in the
years ahead.
Andrew Horton
Chief executive officer
The team also stress-tested a variety
of long term climate change scenarios
that could affect Beazley’s business
as a whole, as well as conducting
a detailed pilot assessment of the
impact of climate change on the liability
lines offered by our US architects and
engineers professional liability team. We
are currently expanding upon this pilot
exercise to other classes of business and
have estimated that around a third of
the group’s 2019 premium arises from
classes that have material exposure to
climate change effects.
Outlook
For a company with an exceptional track
record of underwriting profitability, 2019
was a difficult year.
However, although history never repeats
itself exactly, we have seen market
conditions similar to this in our 33 year
history and know that early remedial
action is critical in lines of business
where the market as a whole has failed
to make adequate provision for rising
claims. We have been taking such action
for several years now across a number
of areas.
These measures should result in an
improved underwriting performance
in 2020, with further improvement
expected in 2021. We have been
reserving conservatively against
business underwritten in 2018 and
2019 but it will take some time for claims
against this business to crystallise.
We therefore expect prior year reserve
releases to be below average in 2020.
Our capital growth assets also
performed strongly, helped by rallying
equities; returning 8.6% overall (2018:
a loss of 1.0%). We took advantage of
the strong market conditions by adding
to more volatile asset classes earlier in
the year, utilising nearly all of our current
appetite for investment risk. However,
a more cautious approach later in the
year, as risk assets became increasingly
expensive, meant that we did not capture
all of the available return, as markets
continued to rally. Looking ahead,
and despite our limited appetite for
investment risk, the material difference
between outcomes in 2018 and 2019
highlights the dangers of forecasting
investment returns in the short term.
Notwithstanding, yields and credit
spreads are much less attractive than
they were and this leads us to expect a
lower return in 2020.
Risk management
With the recent arrival of new executive
committee members, we took the
opportunity in 2019 to re-examine
the risks we run in different parts
of the business and enhance the
control environment. As a result of this
reassessment, our chief risk officer
Andrew Pryde has taken over as chair of
the risk and regulatory committee, which
is the executive level committee that
oversees how the business is managing
risk. This has helped the committee to
operate as an effective second line of
defence to monitor and challenge risk
owners across the organisation. Senior
risk managers now also attend the
committee, alongside risk owners.
As explained on pages 44 to 50, our risk
management team works closely with
others across the business to identify
and manage emerging and strategic
risks. In 2019, this included preparations
to enable Beazley to continue to serve
continental European clients and write
EU business in the event of a hard Brexit.
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Beazley Annual report 2019
www.beazley.com
Q&A with the chief executive
Q Beazley’s combined ratio
has been close to 100% for
three years now. When do you
expect it to improve?
A We ran combined ratios averaging
below 90% from 2012 through
2016, during which time rates fell steadily
in response to a generally benign claims
environment and we saw a large influx
of capital into parts of the market. We
warned in 2016 that further declining
rates and any rise in claims would
make it harder for us to maintain these
underwriting margins, and so it has proved.
With the sustained rate rises we have
seen over the past two years, we expect
to be able to achieve a combined ratio in
the low 90s in the medium term (barring,
of course, exceptional catastrophe
losses). However, a combined ratio in the
mid-90s is a more realistic expectation
for 2020 subject to a more normalised
claims environment.
Q How concerned are you
about the increased jury
awards and settlements that are
pushing claims higher in many
liability lines of business?
A They are a source of concern and
are one of the reasons we opened
our underwriting at a higher reserve
position in 2018 and sustained that
approach in 2019. It is important to note,
however, that there are many parts of our
liability book that have not been affected
by this phenomenon, including our cyber
business, our environmental business
and our small risks business.
Various reasons have been proposed for
social inflation, which bears no relation
to inflation levels in the wider economy.
These are discussed in our chief
underwriting officer’s report on page 24.
It is a phenomenon we have seen before
– indeed Beazley was founded at a time
of sharply increasing jury awards that
generated a crisis of capacity for many
liability risks in the US. The situation is
not currently so extreme and the market
has been responding in an orderly manner
to the claims inflation we have seen.
Andrew discusses
key topics around
performance
and outlook
To take one example, we saw rates
on our US directors’ & officers’ book
increase by 30% in 2019.
It is often a fine judgment for a company
to decide whether to settle litigation or
allow it to proceed to trial, and the stakes
can be higher at times such as these.
Our seasoned claims professionals are
well equipped to help clients make these
difficult decisions.
Q There have been several
management changes at
Beazley in the past two years.
What principles have guided
you in the new appointments
you have made?
A We put a lot of effort into
succession planning. Twice a year
I go through with the board plans for my
successor and other senior executive
roles. There has been a significant
generational shift at Beazley over the
past two years as a number of senior
executives have retired.
We have as a result welcomed eight new
members of the executive committee
over the past two years. Of these, six
were internal appointments and two were
external. All but one of the individuals
appointed internally have been with
Beazley for more than 10 years.
Our overriding principle of course is to
secure the best available person for the
job. Where this criterion can clearly be
met through an internal hire, it brings a
number of advantages. The individuals
are very familiar with our culture and
their promotion opens opportunities for
talented individuals further down the
organisation. I am very pleased that
Beazley has had the bench strength to
make so many internal appointments
at all levels within the company.
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Beazley Annual report 2019
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No matter whether they are internal or
external appointments, I have found
that our new executive members have
brought valuable fresh perspectives
to our discussions. I believe firmly
that a diverse executive team can
only contribute to the quality of our
decisions and I am pleased that we now
have four female executive committee
members, up from one two years ago.
Our appointments are always made
on merit but we ensure that we have a
diverse roster of candidates from whom
to choose.
Q How will the reforms put
forward by Lloyd’s in its
Blueprint One document
affect Beazley?
A Positively I believe. The costs
of doing business at Lloyd’s are
too high and are denying attractive
growth opportunities, for our market.
We strongly support Lloyd’s plans to
lower expense ratios and this is something
I have also championed in my time as
chair of the London Market Group.
There is a remarkable degree of
alignment between the four strategic
initiatives that Beazley announced in
2018 and the six initiatives described in
the Lloyd’s Blueprint One last September.
Like Lloyd’s we have developed discrete
approaches to our large, complex
business and to our smaller and more
standardised business. Also like Lloyd’s
we see more scope for automation –
and thus cost reduction – for the smaller
standardised business. However, we
also see a significant role for technology
and new data sources in pricing complex
risks and in processing this business
more efficiently.
Lloyd’s has an unmatched record of
settling valid claims stretching back
more than three centuries. Nevertheless
there is more that we can do to
improve the speed and efficiency of
claims settlement across the market.
Colin Masson, from our claims team,
was involved in the Lloyd’s claims
initiative up until October 2019, which
also aligns closely with our own Closer
to the Client strategic initiative to
improve client service.
natural catastrophe losses
Q Do you believe that the
insurers have seen in recent years
are due in part to climate change
and, if so, how does this affect
your underwriting strategy?
A Yes I do, but the extent to which
climate change has aggravated
these losses is difficult to assess given
the limited data sets available. We have
certainly seen increasing severity of
weather-related events and in some
cases the impact of climate change is
not hard to discern. For example, warm
air can hold more moisture than colder
air, contributing to the severity of floods
accompanying storms.
At Beazley we have begun to explore
these connections and their impacts on
our business, including the opportunity
to underwrite new forms of cover.
I believe that, broadly speaking, the
insurance market can accommodate
climate change, given our ability to
reprice policies annually, but the costs
to the most vulnerable communities
may ultimately become unsustainable.
Q More generally, is climate
change something that you
are worried about for Beazley?
A The world is changing and Beazley
has to be prepared to move with it.
As described above we have taken action
on our underwriting strategy in 2019, but
we cannot be complacent as climate
change has more far reaching impacts.
In 2019, we continued our drive to
increase recycling and reduce waste
throughout the business. We also
continue to look at the environmental
impact of our suppliers and actively look
to source our office products locally.
However, climate change is not a short
term problem and investment in long
term solutions and policies are required.
We are currently recruiting a sustainability
officer to join Beazley who will lead
our efforts on climate change and
sustainability across the group, aligning
the work done to date, and constructing
our policy going forward.
technological development
Q Are there any areas of
that hold particular promise
for Beazley?
A There are many, but one I would
identify is the opportunity to
connect our systems directly to those
of our brokers via APIs or ‘application
programming interfaces’. We now have
APIs in place in three markets – Canada,
Spain and Australia – that enable
brokers to enter risk submissions
onto their own systems, which are then
routed straight through into our systems.
We then automatically send back
quotes and policy documentation in real
time. We are working on several new
opportunities with brokers to develop
products that connect directly to Beazley
via APIs. This approach brings many
advantages – a low cost of submission
processing, quicker service to clients,
and greater Beazley product
distribution potential.
biggest drivers of premium
Q What do you see as the
growth for Beazley in the
years ahead?
A We expect to see further growth
from rate rises in 2020. In
addition, we still have a relatively small
footprint in most of our target markets
– both by product and geography – and
therefore significant further scope to
grow. We plan to grow as we always
have done, by focusing on risks that
we understand and in areas where we
can attract high quality people.
I also believe strongly that we need to
keep talking to our clients and designing
new products to meet their changing
needs. Not all products can cross
borders unmodified, but where there
is an underlying demand we can also
look at adapting existing products for
new markets. We have been doing this
with our flagship cyber product, Beazley
Breach Response, over the years and in
2019 we began to globalise our virtual
care liability product for telemedicine
providers.
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www.beazley.com
Chief underwriting officer’s report
Beazley’s underwriters achieved strong premium growth
of 15% to $3,003.9m (2018: $2,615.3m) in 2019 against
a backdrop of increasingly severe claims in a number
of lines of business. Although in absolute dollar terms
we achieved an underwriting profit, our combined
ratio rose to 100% (2018: 98%), due in large measure
to a far smaller prior year reserve release than in 2018.
The underwriting losses sustained by
many insurers in recent years have
driven rates up significantly for many
lines of business, and the momentum
shows no sign of slowing. Rates across
our portfolio rose by 6% in 2019, on
top of rises averaging 3% in 2018. This
masked far steeper rises in lines such as
directors’ & officers’ (D&O) (31%); hospital
professional liability (15%); aviation (27%);
and large risk property (18%).
Strong premium
growth while
claims environment
remained challenging.
Adrian Cox
Chief underwriting officer
The drivers of rate change varied. In
some markets, business had by the
end of 2017 become significantly
underpriced after a long period of rate
erosion. Our marine division, which
includes energy and aviation business,
saw rates fall for five years in a row from
2012 through 2017. Our reinsurance
division saw a similar decline while our
property underwriters saw rates begin
to fall in 2013 and continue to do so into
2017. The turn in property markets –
both insurance and reinsurance – was
initially spurred by the intense natural
catastrophe experience of 2017 and
sustained by further major events in
the US and Japan during the course
of the following two years.
In some but not all liability lines of
business, we have been seeing a
surge in US jury awards that has driven
increased claims severity. The trend is
particularly evident in claims from US
hospitals. Between 2015 and 2018, the
share of claims in excess of $5m within
our total hospital claims rose by 68%
compared to the years 2011 to 2014.
Various reasons have been proposed for
the rise in large jury awards in the US.
Evidence is certainly growing for a shift
in sentiment against organisations that
are perceived to have failed to protect
customers or investors (or patients in the
case of hospitals). At Beazley, we have
seen the main impact of this trend in
our healthcare and management liability
books. Other lines of liability business,
such as environmental and cyber, have
been relatively unaffected.
Beazley has more than 30 years
experience of underwriting large,
complex risks and our underwriters
are constantly scanning the horizon
for opportunities and threats.
www.beazley.com
Beazley Annual report 2019
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Cumulative renewal rate changes since 2015 (%)
Rate change
120
110
100
90
80
2015
2016
2017
Underwriting year
2018
2019
■ Marine
■ Property
■ Specialty lines
■ Reinsurance
■ Political, accident & contingency
■ Cyber & executive risk
■ All divisions
Equipped with one of the market’s
largest claims databases, our healthcare
underwriters saw the rise in large
hospital claims early and have adjusted
their underwriting accordingly. We have
a diversified book of US healthcare
business and have been able to grow
in segments less impacted by social
inflation.
The strong premium growth we saw in
2019 was thus not merely the effect
of rate rises, but also reflected our
success in targeting profitable growth
opportunities around the world. Since
2017 we have been investing heavily in
the growth of our business – particularly
our liability business – outside the US. In
many cases, we have been able to adapt
products that have been road tested
in the US for other markets in Europe,
Asia and the Americas. Beazley Breach
Response (BBR), our flagship cyber
product, is now available in six countries
including the US.
Profitability also depends on the
efficiency with which we transact
business. One of our strategic initiatives
– Faster, Smarter Underwriting – has
been targeting efficiency gains in the
transaction of large, complex risks, with
a focus in 2019 on cyber, D&O,
commercial property and marine risks.
Another strategic initiative – Beazley
Digital – has concentrated on the
smaller, more standardised risks that
can be more fully automated: here our
main focus has been on the continuing
roll-out of our myBeazley e-trading
platform for brokers around the world.
Historically, the slow pace of change
in insurance markets has meant that
insurers have not funded significant
research and development budgets
to implement new and promising
technologies. This is now changing and
at Beazley we have, through our targeted
strategic initiatives, been investing
more heavily and widely in research
and development.
Lines of business long seen as more
traditional are now seeing benefits from
new technology and data sources:
for example, in February we partnered
with another Lloyd’s insurer to establish
a Lloyd’s marine cargo consortium
using technology from the Lloyd’s
Lab insurtech Parsyl to track cargo
accumulation and collect data to assist
in risk management and claims.
Cyber & executive risk
In its first year as a standalone
division, Beazley’s cyber &
executive risk (CyEx) division, led
by Mike Donovan, grew premiums
by 15% and achieved a combined
ratio of 93% (2018: 90%).
Market conditions affecting the division’s
two largest lines of business – cyber
insurance and D&O liability insurance
– were very different. The cyber market
continues to grow and, although
competition has been intensifying,
claims have not been as heavy as in lines
such as D&O that have borne the brunt of
social inflation. We saw rates remain stable
across our cyber book compared with
rate rises for US D&O business of 30%.
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The new division, which was formally
launched in February 2019, has been
very well received by brokers. Under
the banner of ‘protecting what matters
most,’ our cyber and management
liability teams address major boardroom
issues and purchasing patterns for their
products overlap. We have made great
strides in cross-selling products offered
by the two teams.
Cyber insurance originated in the US in
the years following the enactment of the
first data breach regulation in California
in 2002. Beazley’s flagship cyber
product, BBR, was launched in 2009
and, since then, most of the demand
for cover has remained in the US. That
began to change with the coming into
force of the European Union’s General
Data Protection Regulation (GDPR) in
May 2018 and with the passage of
similar laws and regulations elsewhere
in the world. In 2019, our international
cyber business outside the US grew by
14% (albeit from a relatively low base)
compared with growth of 9% for our
more mature US business.
We still see considerable opportunities
to grow our cyber business in the US
where the increasingly sophisticated
and frequent attacks, particularly
on mid-sized companies, are still
significantly underinsured. However,
growth opportunities outside the US,
where we have been investing for more
than five years now, may well prove more
significant in the years to come.
Our international cyber team, based in
London, has bound risks in 55 countries
and we have launched BBR in the UK,
France, Italy, Spain and Canada.
The CyEx division offers a range of
specialist products under the executive
risk banner and many of these have
been growing strongly. We saw rapid
growth in transaction liability business,
which protects the parties in mergers
and acquisition deals, in 2019 and the
team has also been growing, hiring
underwriters in Germany and Singapore.
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www.beazley.com
Chief underwriting officer’s report continued
Marine
Most of the lines of business
underwritten in our marine division,
led by Tim Turner, have seen
significant price erosion over a
number of years and recent rate
rises have not yet proved sufficient
to reverse the damage. In 2019,
the division recorded a combined
ratio of 107% (2018: 94%) on
premiums that increased by 8%
to $306.4m (2018: $284.8m).
This increase in premium was due to
the division increasing their indemnity
appetite, notably in lines such as aviation
and marine cargo.
The aviation market, which accounts
for approximately 10% of the division’s
premiums, has seen the most dramatic
rate rises over the past two years.
Prices for the business Beazley writes
have risen 39% since 2017 and we
plan to increase our participation in this
business significantly in 2020. Marine
cargo rates also rose sharply – by 12% –
in 2019, prompting us to re-forecast our
underwriting for this class of business
upwards during the course of the year.
The authorities at Lloyd’s have been
addressing the underperforming classes
of business, with the marine classes
of business being a particular area of
focus. We have seen rates rise faster
than would likely have been the case had
Lloyd’s not taken action, and the Lloyd’s
business planning process has allowed
us to increase our underwriting appetite
swiftly when market conditions warrant it.
Political, accident
& contingency
Our political, accident & contingency
(PAC) division under the leadership
of Christian Tolle had a very good
year with strong profitable growth
generated by all major lines of
business. The division’s combined
ratio was 89% (2018: 90%) on
premiums that grew 14% to
$272.7m (2018: $238.7m).
In a year in which some political risk
underwriters sustained heavy credit
losses, Beazley’s business was
largely unscathed and we made some
recoveries from prior year claims.
In fact, both the political risk and
contingency teams continued to
successfully grow their portfolios in a
controlled manner in competitive market
conditions. Risk selection remains key
in these markets and the teams have a
proven track record.
On terrorism business, the rate declines
that we have seen over the years were
less steep in 2019. Civil unrest in Hong
Kong, Lebanon and Chile contributed to
nervousness in the market and – in the
case of more than 100 Walmart stores
damaged by arson and looting in Chile –
to actual losses. Although Beazley was
not exposed to these losses, we did have
some exposure to the terrorist attack on
the Shangri-La hotel in the Sri Lankan
city of Colombo in April.
Our accident and health business in the
US, now rebranded Beazley Benefits,
had a very good year with premiums
growing 20% to $24.7m – the fruits of
sustained investment in our team and
the operational infrastructure needed to
compete in this business.
Our main growth has come from group
limited medical indemnity business,
which provided supplemental medical
insurance for company employees with
defined and pre-agreed medical limits.
These plans have proven particularly
attractive in the retail and hospitality
industries, which employ large numbers
of part time workers.
The pressures on US employers faced
with rising employee healthcare costs
show no sign of abating. We therefore
see significant growth opportunities for
companies such as Beazley that can
offer well designed supplemental cover
at affordable prices.
In London our personal accident team,
which underwrites a diverse portfolio
of risks, saw growth in US disability
business in 2019. Personal accident is
one of the classes of business in which
the retrenchment of a number of Lloyd’s
syndicates has opened up some growth
opportunities for Beazley.
Property
The property division under the
leadership of Richard Montminy
saw a return to underwriting
profitability in 2019, generating
a combined ratio of 97% (2018:
125%) after two years of heavy
losses. Premiums increased by
3% to $428.7m (2018: $415.4m).
Rates across the portfolio rose strongly
in 2019, up 10% for the mid-sized excess
& surplus lines risks written locally in the
US and 18% for the large risks business
written predominantly in London. We see
rate rises as still having further to run.
Submission flow to our property teams
remains very strong but we are being
selective in the business we underwrite,
as by no means all the risks we see meet
our underwriting requirements. 2019
was a quiet year for catastrophe losses
affecting our property division (although
not our reinsurance division) but we
still see scope for improvement in our
attritional loss ratios.
www.beazley.com
Beazley Annual report 2019
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Most of our large risk business,
categorised at Lloyd’s as open market
property, continues to be underwritten in
London, but we have seen a very positive
response from brokers to our decision to
underwrite large risk property business in
the US, originally taken in 2017. We added
two new underwriters to the New York
team in 2019.
The small property business we
underwrite under binding authorities
granted to Lloyd’s coverholders around
the world saw continued remediation in
2019 after performing poorly in 2018. In
2018, we cancelled a number of binders
that failed to satisfy our cross cycle
profitability requirements and this process
continued in 2019. Our preference
is to lead covers and we have been
withdrawing from a number of accounts
for which we only provided following
capacity. We took action relatively early
to tackle poor performance in this part of
the market and have since seen a number
of other Lloyd’s insurers follow suit.
Our jewellers’, fine art and specie book
performed well in 2019. The business
is currently largely concentrated in the
UK where we are by some distance the
leading insurer of jewellers’ business,
but we have also been investing in
international growth opportunities. We
hired a fine arts underwriter in Paris in
May and an underwriter to write jewellers’
and fine arts business via the Lloyd’s
China platform in December 2019.
Reinsurance
Catastrophe losses affecting our
reinsurance division, led by Patrick
Hartigan, were once again severe
in 2019, the third year marked by
heavy losses across the market.
Rates have risen, but in many cases
not as far as they need to in our
estimation. Our underwriting stance
for 2020 is therefore very cautious.
The business of our reinsurance division,
which is almost entirely property-focused,
generated a combined ratio of 154% in
2019 (2018: 103%) on gross premiums
written of $206.0m (2018: $207.4m).
The most significant catastrophe losses
for Beazley stemmed from Typhoons
Faxai and Hagibis that hit Japan in
September and October 2019. Our
Japanese treaties include cover for flood,
which was a major source of claims in
the wake of Hagibis.
architects & engineers; environmental
liability business; and management
liability business outside the US.
Beazley’s private enterprise team, which
offers a range of products including
cyber insurance to small businesses,
primarily in the US, also forms part of
the division.
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The strong premium growth that the
division saw in 2019 was driven in large
part by our non-US business, which has
received steady investment in recent
years. Since 2017, we have been building
a diversified book of financial institutions
business outside the US, particularly in
continental Europe, as well as offering
management liability and cyber cover
to a broader clientele. In addition, the
healthcare liability expertise that we
have built over many years in the US has
proved highly relevant to new markets
outside the US: in 2019, we launched our
virtual care product to meet the needs of
telemedicine providers – a fast growing
market – in the UK.
Parts of our specialty lines book have
been affected by social inflation, most
notably healthcare liability risks. In our
hospitals professional liability (HPL)
book we saw rates rise by 16% in 2019,
spurred by a sharp increase in large
claims over $5m referenced earlier. Even
with these rate rises some hospital risks
remain inadequately priced in our view
and we have declined to underwrite them.
A significant growth area for Beazley
in recent years has been environmental
liability business, which we currently
write in the US, London and Canada.
In 2019, the team unveiled an innovative
product, Beazley SLEAP (Site Lender
Environmental Asset Protection), to
cover lenders against their exposures
to property assets that may subsequently
be found to be contaminated.
Adrian Cox
Chief underwriting officer
Beazley’s share of the Japanese treaty
market remains small at approximately
1% - the same level as a decade ago.
However, we maintain our very long term
relationships in this market, which have
proven profitable over time.
Other sources of risk continue to
present concerns. We have reduced our
exposures to US wildfires following the
very severe losses of 2017 and 2018.
Claims were less severe in 2019, but
the longer term weather patterns – with
rising temperatures in California and
other regions exposed to wildfires –
are not encouraging.
Overall, reinsurance rates have yet to
respond to recent catastrophe losses as
strongly as rates in the primary property
market or in the retrocession market.
A good deal of reinsurance capital is
now trapped following the Japanese
catastrophe events and we may see
a lower willingness to deploy surplus
capital once these losses are fully
realised, which will drive rates up further.
Specialty lines
Beazley’s specialty lines division,
led by James Eaton, saw stronger
rate rises than anticipated in 2019,
with the team renewing business
at prices that were on average
6% higher than in 2018.
This reflected the increased severity of
major losses that has affected parts of
the market, feeding into a combined ratio
of 99% (2018: 92%) on premiums that
rose 28% to $967.1m (2018: $755.5m).
Specialty lines is one of the two new
Beazley divisions created when we split
the old specialty lines division at the start
of 2019. It underwrites a mix of specialty
liability insurance, including professional
liability for hospitals, lawyers, and
28
Beazley Annual report 2019
www.beazley.com
Performance by division
Cyber & executive risk
Marine
Political, accident
& contingency
Mike Donovan
Head of cyber & executive risk
Tim Turner
Head of marine
Christian Tolle
Head of political, accident
& contingency
Portfolio mix
Portfolio mix
Portfolio mix
Cyber and technology
Executive risk
Fidelity and crime
53%
43%
4%
Cargo
Hull & miscellaneous
Energy
Liability
Aviation
War
Satellite
25%
24%
15%
15%
10%
6%
5%
Political
PA direct
Contingency
Stand alone terrorism
Life direct
PA reinsurance
Sports
Life reinsurance
22%
20%
19%
13%
10%
10%
3%
3%
2018
$m
713.5
712.2 615.3
2019
$m
Gross premiums written 823.0
Net premiums written
Results from
operating activities
Claims ratio
Expense ratio
Combined ratio
Rate change
126.6
61%
32%
93%
5%
69.7
56%
34%
90%
(1%)
2019
$m
2018
$m
Gross premiums written 306.4 284.8
222.1 255.0
Net premiums written
Results from
operating activities
Claims ratio
Expense ratio
Combined ratio
Rate change
8.4
57%
50%
107%
11%
20.5
54%
40%
94%
3%
245.8
2019
$m
2018
$m
Gross premiums written 272.7 238.7
Net premiums written
212.7
Results from
operating activities
Claims ratio
Expense ratio
Combined ratio
Rate change
41.2
47%
42%
89%
–
24.2
46%
44%
90%
(1%)
Find out more on page 25
Find out more on page 26
Find out more on page 26
www.beazley.com
Beazley Annual report 2019
29
Strong growth across majority of divisions, with
three divisions achieving growth of double digits.
Property
Reinsurance
Specialty lines
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
Richard Montminy
Head of property
Patrick Hartigan
Head of reinsurance
James Eaton
Head of specialty lines
Portfolio mix
Portfolio mix
Portfolio mix
Commercial property
Small property business
Jewellers & homeowners
Engineering
68%
16%
15%
1%
Property catastrophe
Property risk
Miscellaneous
Casualty class
2018
$m
415.4
365.6 360.2
2019
$m
Gross premiums written 428.7
Net premiums written
Results from
operating activities
Claims ratio
Expense ratio
Combined ratio
Rate change
43.3
(80.4)
57%
84%
40%
41%
97% 125%
11%
10%
2019
$m
Gross premiums written 206.0
123.0
Net premiums written
Results from
operating activities
Claims ratio
Expense ratio
Combined ratio
Rate change
5%
(48.2)
118%
36%
(1.8)
70%
33%
154% 103%
6%
85%
9%
5%
1%
2018
$m
207.4
137.3
Professions
Small business
Healthcare
International specialities
Treaty
Market facilities
24%
23%
20%
15%
12%
6%
2019
$m
2018
$m
Gross premiums written 967.1 755.5
834.8 668.0
Net premiums written
Results from
operating activities
Claims ratio
Expense ratio
Combined ratio
Rate change
124.1
62%
37%
99%
6%
66.6
50%
42%
92%
2%
Find out more on page 26
Find out more on page 27
Find out more on page 27
30
Beazley Annual report 2019
www.beazley.com
Navigating change for 33 years
Beazley’s vision is to become,
and be recognised as, the highest
performing specialist insurer
Beazley began life in 1986
Since then we have grown steadily in terms of the risks
we cover, the clients we serve and our geographic reach,
and today Beazley is a mature insurance business with
a well-diversified portfolio. We have weathered some of
the toughest times the Lloyd’s market has seen in more
than three centuries and our underwriting activities
have an unbroken record of profitability.
Trading
began
1986
Flotation
2002
1986
1991
1992
2000
2001
2007
Began trading at the ‘old’ 1958 Lloyd’s building
in 1986 with a capacity of £8.3m
Beazley, Furlonge & Hiscox established and
takes over managing syndicate 623
Specialty lines and treaty accounts started
UK windstorms $3.5bn
European storms $10bn
Management buyout of Hiscox share
Management buyout of minority shareholders
Commercial property account started
EPL and UK PI accounts started
Corporate capital introduced at Lloyd’s followed
by Lloyd’s Reconstruction and Renewal
Flotation raised £150m to set up Beazley
Group plc
APUA, based in Hong Kong, forms a strategic
partnership with Beazley Furlonge
D&O, healthcare, energy, cargo and specie
accounts started
Recall, contingency and political risks
accounts started
Marine account started
US Hurricane Andrew $17bn
UK Bishopsgate explosion $750m
US Northridge earthquake $12.5bn
European storms $12bn
Local representation established in the US
Beazley MGA started in the US
Beazley acquires Omaha P&C and renames
it Beazley Insurance Company, Inc. (BICI)
US 9/11 terrorist attack $20.3bn
SARS outbreak in Asia $3.5bn
US Hurricanes Katrina, Rita and Wilma $101bn
Managed gross premiums and Group share
$m
Managed gross premiums
Group share
13.4
42.5
58.8
128.4
168.8
256.1
431.6
1,374.9
1,485.1
1,371.0
1,762.0
1,561.0
1,919.6
1,148.7
736.2
1,015.6
1,984.9
1,620.0
2,121.7
2,108.5
1,751.3
1,741.6
1,712.5
2,278.0
2,079.2
1,895.9
2,352.3
2,424.7
1,970.2
2,021.8
2,525.6
2,666.4
2,343.8
2,080.9
2,195.6
2,857.1
2,615.3
3,522.3
3,170.9
3,003.9
1986
1991
1992
1997
1998
2000
2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
www.beazley.com
Beazley Annual report 2019
31
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
2008
2009
2010
2011
2012
2013
Beazley opens new
office in Munich
Political risks &
contingency group
formed as new division
Acquisition of
Momentum Underwriting
Management
Accident & life formed
as new division
US Hurricane Ike $20bn
Raised £150m through
rights issue to develop our
business at Lloyd’s and in
the US
Acquisition of First State
Management Group, Inc.,
a US underwriting
manager focusing on
surplus lines commercial
property business
Beazley plc becomes the
new holding company for
the group, incorporated
in Jersey and tax-resident
in Ireland
Andrew Beazley,
co-founder of Beazley
Group and chief executive
until September 2008,
dies at the age of 57
Beazley changes
functional and
presentational
currency to US dollar
Beazley opens new office
in Oslo
Special purpose syndicate
6107 formed to grow
reinsurance business
Chile and NZ earthquakes
$14bn
Deepwater Horizon
explosion triggers biggest
oil spill in history
Expansion of Australian
accident & health
business through
acquisition of two MGAs
Launch of the Andrew
Beazley Broker Academy
Nick Furlonge, co-founder,
retires as an executive
member but becomes a
non- executive of Beazley
Furlonge Limited
Beazley remains
profitable in worst year
ever for insured natural
catastrophe losses
Tohoku earthquake
in Japan $37bn
Floods in Thailand $16bn
US tornadoes $15bn
NZ earthquake $16bn
Expansion into aviation
and kidnap & ransom
markets
Construction
Consortium launched
at Lloyd’s
Reinsurance division
broadens access to South
East Asia, China and
South Korea business
with local presence in
Singapore
Political risks &
contingency expands
into French market
Superstorm Sandy
$25-30bn
Miami office opened to
access Latin American
reinsurance business
Beazley Flight –
comprehensive
emergency evacuation
cover – launched
Beazley data breach
cover extended in
Europe. 1,000th breach
managed
Local representation
added in Rio to develop
Latin American
insurance business
2014
2015
2016
2017
2018
2019
Construction
Consortium extended
to Lloyd’s Asia
Entered into a
reinsurance agreement
with Korean Re
US underwritten premium
grows by 21%
Cyber Consortium
launched at Lloyd’s
Beazley welcomes
its 1,000th employee
globally
Middle East office
opened to access local
political risk and
violence, terrorism,
trade credit and
contingency business
Space and satellite
insurance account
started
D&O Consortium
launched at Lloyd’s
Locally underwritten
US business grows
19% to $537m
Beazley celebrates its
30th anniversary
10th anniversary of
operations in Singapore
and Paris
Beazley plc becomes the
new holding company for
the group, incorporated in
England & Wales and
tax-resident in the United
Kingdom
Partnership established
with Munich Re to
broaden and enhance the
cyber cover available to
the world’s largest
companies
Beazley Insurance dac
acquires licence to write
business within the EU
Beazley opens a new
office in Barcelona and
acquires Creechurch
Underwriters in Canada
Beazley closes Middle
East office and sells
Australian renewal rights
Hurricanes Harvey, Irma
and Maria $90-95bn
Californian wildfires
$10bn
Mexican earthquakes
$2-5bn
US local written premium
reaches $1bn, overall
gross premiums written
grow 12% during 2018
Neil Maidment retires as
chief underwriting officer
Beazley closes Oslo office
Hurricanes Florence and
Michael $11-14bn
Typhoons Jebi and Trami
$10-12bn
Californian wildfires
$9-15bn
Martin Bride retires as
group finance director
Gross premiums written
passes $3bn
Hurricane Dorian
$4.5bn
Typhoons Faxai and
Hagibis $15-25bn
1,984.9
1,620.0
2,121.7
2,108.5
1,751.3
1,741.6
1,712.5
2,278.0
2,079.2
1,895.9
2,352.3
2,424.7
1,970.2
2,021.8
2,525.6
2,666.4
2,080.9
2,195.6
2,343.8
2,857.1
2,615.3
3,522.3
3,170.9
3,003.9
13.4
42.5
58.8
128.4
168.8
256.1
431.6
1,374.9
1,485.1
1,371.0
1,762.0
1,561.0
1,919.6
1,148.7
736.2
1,015.6
1986
1991
1992
1997
1998
2000
2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
32
Beazley Annual report 2019
www.beazley.com
Financial review
Group performance
Beazley delivered increased
premium, increased investment
return and increased profit
before tax. This highlights how
Beazley’s financial performance
derived from a range of areas
across the business in 2019.
Profit
Profit before tax in 2019 was $267.7m
(2018: $76.4m). The group’s combined
ratio increased to 100% (2018: 98%)
due to a lower reserve release being
available, although a small underwriting
profit was achieved in absolute dollar
terms. Unfortunately, three years of
heightened claims activity has taken its
toll on the reserves of our catastrophe
exposed lines leading to lower releases.
Our investment team achieved a strong
investment return of 4.8% (2018: 0.8%)
or $263.7m (2018: $41.1m), which
counteracted our reduced
underwriting result.
Premiums
Gross premiums written have increased
by 15% in 2019 to $3,003.9m (2018:
$2,615.3m). We continue to monitor
our underwriting portfolio and look for
areas where we see good opportunities
to achieve profitable growth. Rates on
renewal business on average increased
by 6% across the portfolio (2018:
increased by 3%) with our property
and marine classes seeing the largest
movement.
We have seen strong growth in our
international platform, especially in
Europe, as we continue to expand the
variety of our offerings to our insureds.
The charts overleaf highlight how we
achieve diversification by product mix.
Strong investment
return drives profit
during changing
underwriting
environment.
Sally Lake
Group finance director
www.beazley.com
Beazley Annual report 2019
33
Statement of profit or loss
Gross premiums written
Net premiums written
Net earned premiums
Net investment income
Other income
Revenue
Net insurance claims
Acquisition and administrative expenses
Foreign exchange (gain)/loss
Expenses
Impairment of investment in associate
Finance costs
Profit before tax
Income tax expense
Profit after tax
Claims ratio
Expense ratio
Combined ratio
Rate increase
Investment return
S
t
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a
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i
c
r
e
p
o
r
t
Movement
%
15%
11%
13%
542%
(23%)
22%
18%
9%
(108%)
14%
2019
$m
3,003.9
2,503.5
2,347.0
263.7
25.8
2,636.5
1,452.5
889.7
(1.1)
2,341.1
–
(27.7)
267.7
(33.6)
234.1
62%
38%
100%
6%
4.8%
2018
$m
2,615.3
2,248.5
2,084.6
41.1
33.7
2,159.4
1,227.8
812.6
13.2
2,053.6
(7.0)
(22.4)
76.4
(8.2)
68.2
59%
39%
98%
3%
0.8%
The group is of the view that some of the above metrics constitute alternative performance measures (APMs). Further information
on our APMs can be found in the key performance indicators section (inside front cover) and in the glossary on page 207.
Insurance type
Business by division
Insurance
Reinsurance
85%
15%
Specialty Lines
Cyber & executive risk
Property
Marine
Political, accident & contingency
Reinsurance
Premium written by claim settlement term
Geographical distribution
Short tail
Medium tail
54%
46%
USA
Worldwide
Europe
32%
27%
14%
10%
9%
7%
58%
24%
18%
34
Beazley Annual report 2019
www.beazley.com
Financial review continued
Group performance continued
Reinsurance purchased
Reinsurance is purchased for a number
of reasons:
• to mitigate the impact of natural
catastrophes such as hurricanes and
non-natural catastrophes such as
cyber attacks;
• to enable the group to put down large
lead lines on the risks we underwrite;
and
• to manage capital to lower levels.
The amount the group spent on
reinsurance in 2019 was $500.4m
(2018: $366.8m). As a percentage of
gross premiums written it increased to
17% from 14% in 2018. This was due to
an increase in market facilities business
written (which is 90% reinsured out of
the group) as well as us reinsuring our
trucking portfolio during 2019. These
impact the net earned premiums in the
specialty lines and marine divisions
respectively.
Combined ratio
The combined ratio of an insurance
company is a measure of its operating
performance and represents the ratio
of its total costs (including claims and
expenses) to total net earned premium.
A combined ratio under 100% indicates
an underwriting profit. Consistent
delivery of operating performance across
the market cycle is clearly a key objective
for an insurer. Beazley’s combined ratio
increased in 2019 to 100% (2018: 98%)
due to lower reserve releases.
Claims
2019 was the third year in a row where
material natural catastrophe losses were
experienced. We estimate the cost of
Hurricane Dorian and Typhoons Faxai
Prior year reserve adjustments
and Hagibis at $80m net of reinsurance.
We have also experienced an increase
in attritional claims within our directors’
& officers’, employment practice liability
and healthcare liability books driven by
social inflation within the US. As a result
of these our claims ratio for the year has
increased to 62% (2018: 59%).
Reserve releases
Beazley has a consistent reserving
philosophy, with initial reserves being
set to include risk margins that may be
released over time as and when any
uncertainty reduces. Historically these
margins have given rise to held reserves
within the range of 5-10% above our
actuarial estimates, which themselves
include some margin for uncertainty.
The margin held above the actuarial
estimate was 6.8% at the end of 2019
(2018: 5.6%). As we indicated in the
2018 annual report, our reserve releases
for 2019 have been subdued compared
to our long term average. We expect this
to remain the case for 2020. Reserve
monitoring is performed at a quarterly
‘peer review’, which involves a challenge
process contrasting the claims reserves
of underwriters and claim managers,
who make detailed claim-by-claim
assessments, and the actuarial team,
who provide statistical analysis. This
process allows early identification
of areas where claims reserves may
need adjustment.
The reserve releases in 2019 decreased
to $9.5m (2018: $115.0m). Our specialty
lines, cyber & executive risk and political,
accident & contingency divisions all
contributed releases within 2019. Both
the specialty lines and cyber & executive
risk divisions have been impacted over
the past few years by the increased
claims seen on their liability books.
As such, specialty lines releases
decreased to $36.9m (2018: $85.5m)
while cyber & executive risk releases
reduced to $9.4m (2018: $25.7m).
Our political, accident & contingency
division provided a release of $16.8m,
$2.0m higher than the $14.8m released
in 2018. These releases were offset by
strengthening in our marine, property
and reinsurance book. Our reinsurance
division saw reserves strengthen by
$30.1m (2018: release of $23.8m), driven
by loss creep on Typhoon Jebi and the
Woolsey Fires. Our marine and property
business saw reserves increased,
with marine strengthening by $6.4m
(2018: release of $12.5m) and property
strengthening by $17.1m (2018: $47.3m).
Both were in books of business where
we have taken remedial action, with
US trucking being the main driver of
the marine division’s increase, while
construction and engineering drove the
strengthening in property. We have since
stopped underwriting both of these lines
of business.
Prior year reserve adjustments across
all divisions over the last five years are
shown below.
Please refer to the financial statements
for further information on reserve
releases and loss development tables.
Whole account reserve strength
within our 5-10% target range (%)
Surplus in net held assets: reserves
10
5
0
03
05
07
09
11
13
15
17
19
Financial year
Cyber & executive risk
Marine
Political, accident & contingency
Property
Reinsurance
Specialty lines
Total
Releases as a percentage of net earned premium
2015
$m
20.6
31.2
23.7
37.8
44.9
18.1
176.3
10.4%
2016
$m
6.9
15.9
27.2
36.8
32.3
61.6
180.7
10.2%
2017
$m
32.5
10.7
3.9
13.2
54.7
88.9
203.9
10.9%
2018
$m
25.7
12.5
14.8
(47.3)
23.8
85.5
115.0
5.5%
2019
$m
9.4
(6.4)
16.8
(17.1)
(30.1)
36.9
9.5
0.4%
5 year
average
$m
19.0
12.8
17.3
4.7
25.1
58.2
137.1
7.5%
www.beazley.com
Beazley Annual report 2019
35
Acquisition costs and
administrative expenses
Business acquisition costs and
administrative expenses increased
during 2019 to $889.7m from $812.6m
in 2018. The breakdown of these costs
is shown to the right.
Brokerage costs are the premium
commissions paid to insurance
intermediaries for providing business.
As a percentage of net earned premiums
they have increased slightly to 23% in
the current year (2018: 22%). Brokerage
costs are deferred and expensed over
the life of the associated premiums in
accordance with the group’s accounting
policy. Other acquisition costs comprise
costs that have been identified as being
directly related to underwriting activity
(e.g. underwriters’ salaries and Lloyd’s
box rental). These costs are also deferred
in line with premium earning patterns.
Beazley’s overall expense ratio was
down by one percent from 39% in 2018
to 38%. In actual terms administrative
expenses also decreased to $244.3m
(2018: $250.7m) driven primarily by
favourable foreign exchange rates on
our large sterling expense base. The
company has always stressed that
improving the expense ratio during the
phases of stronger growth was a key
objective. By actively managing our
expenses we have been able to stop them
growing as quickly as earned premium.
Foreign exchange
The majority of Beazley’s business is
transacted in US dollars, which is the
currency we have reported in since 2010
and the currency in which we hold the
company’s net assets. Changes in the
US dollar exchange rate with sterling, the
Canadian dollar and the euro do have an
impact as we receive premiums in those
Comparison of returns –
major asset classes ($m)
250
200
150
100
50
0
-50
58.0
(6.7)
Capital growth
portfolio
■ 2019
■ 2018
205.8
47.8
Core
portfolio
Brokerage costs
Other acquisition costs
Total acquisition costs
Administrative expenses
Total acquisition costs and administrative expenses
2019
$m
533.8
111.6
645.4
244.3
889.7
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
2018
$m
461.1
100.8
561.9
250.7
812.6
currencies and a material number of
our staff receive their salary in sterling.
Beazley’s foreign exchange gain taken
through the statement of profit or loss in
2019 was $1.1m (2018: loss of $13.2m).
Investment performance
During 2019, the funds managed by
the Beazley group increased on the
prior year, with financial assets at fair
value and cash and cash equivalents
of $5,851.3m at the end of the year
(2018: $5,052.6m). The chart below
shows the increase in our group funds
since 2015.
We have seen a much stronger
investment performance in 2019, as
financial market conditions proved
more supportive of returns than many
anticipated. Interest rates, particularly
in the US, were generally expected to
continue their upward path in 2019,
but growing concerns about the
sustainability of global growth instead
resulted in an easing of monetary policy
and the US Federal Reserve reduced
interest rates three times between
July and October.
These developments helped to stabilise
economic growth later in the year
and provided the catalyst for much
improved investor sentiment across most
asset classes. Geopolitical concerns
persisted and generated intermittent
market volatility, but the most adverse
outcomes were avoided, or at least
Beazley group funds ($m)
6,000
5,000
4,000
3,000
2,000
1,000
0
4,591
4,703
4,890
5,053
5,851
2015
2016
2017
2018
2019
■ Group funds including funds at Lloyd’s
■ Syndicates 2623, 3623 and 3622
deferred, so that these considerations
had limited ultimate impact on market
levels. Many asset classes had seen
significant weakness in the final part
of 2018, making valuations look more
attractive, and this was also a factor
in the strong recovery in asset values
during 2019. The level and direction of
risk free yields is the most significant
driver of our investment returns. US
sovereign bond yields are most relevant
to us, as nearly all of our investments
are denominated in US dollars. At the
start of 2019, US sovereign bonds of a
two-year duration yielded more than they
had for some years, at around 2.5%, but
many feared that yields would continue
to rise as interest rates increased
further, generating capital losses and
unattractive overall returns.
However, interest rates fell as global
growth faltered and yields also declined
throughout most of the year, generating
capital gains and resulting in a return of
3.5% on two-year sovereign US securities
in 2019: the highest return achieved by
these assets for more than a decade.
We increased the duration of our fixed
income portfolio in 2019, maintaining
it at around two years for much of the
period. This unusually high asset duration
helped us to take good advantage of the
falling yield environment.
Corporate credit spreads on our fixed
income investments were also a major
contributor to returns. Rising interest
rates in 2018 led to a widening of
spreads in the final part of that year
and the extra yield available on our
investment grade bonds had risen to
around 0.8% at the start of 2019, before
declining throughout the year to 0.4%
as interest rates fell and economic
sentiment improved. As a result, the
credit element of our investment grade
bonds returned 1.5% in this period and
our more modest exposure to high yield
bonds performed better still, as the credit
element of these returned more than 9%.
36
Beazley Annual report 2019
www.beazley.com
Financial review continued
Group performance continued
Approximately 65% of our fixed income
investments include exposure to corporate
credit spreads. The combination of strong
contributions from both risk free yields
and credit spreads is fairly unusual and
resulted in an overall return of 4.3%
(2018: 1.1%) for our core portfolio in 2019.
levels of cash in the business is a
challenge, particularly as our financial
assets continue to grow quickly: we need
sufficient cash for liquidity purposes,
but excess cash balances reduce our
opportunity to generate investment
returns.
We are hopeful that macro conditions will
remain supportive of investment returns,
but these starting conditions lead us
to expect a more modest contribution
from investments in 2020, with our
overall running yield at 2.1% as at
31 December 2019.
Our capital growth assets also performed
well, returning 8.6% (2018: a loss
of 1.0%), again helped by attractive
valuations at the beginning of the year,
following the market correction in the
final quarter of 2018, as well as the
easing of monetary policy during the year.
We added to our equity investments early
in 2019, utilising most of our maximum
appetite for investment risk, and this
proved beneficial to returns. However,
we reduced exposures in the second
half of the year, as equity valuations
became more expensive and so missed
out on some of the available return in this
unusual year.
Other capital growth investments include
our hedge fund and absolute return
portfolios, which target alternative
investment strategies, to provide risk
diversification against our equity and
credit exposures. Maintaining appropriate
Our cash balance has reduced in recent
years, to $278.5m, or 4.8% of our
financial assets, at the end of 2019
(2018: $336.3m, or 6.7%).
Our total investment return was 4.8%,
or $263.7m (2018: 0.8%, $41.1m). The
2019 investment return is the highest
we have achieved in recent years.
This reflects the current supportive
financial market, but the changes
we have made to the structure of our
investment portfolio in recent years
have helped us to take advantage of this
environment, extracting the available
return in the context of our investment
risk appetite. Looking ahead, most
investment assets look more expensive
following their strong performance in
2019: sovereign yields are 1% lower
than a year ago, and credit spreads 0.4%
lower, while equity earnings yields are up
to 1.5% lower, based on historic earnings.
The table below details the breakdown of our portfolio by asset class:
Cash and cash equivalents
Fixed and floating rate debt securities
– Government and quasi-government
– Corporate bonds
– Investment grade
– High yield
– Senior secured loans
Derivative financial instruments
Core portfolio
Equity funds
Hedge funds
Illiquid credit assets
Total capital growth assets
Total
Comparison of return by major asset class:
Core portfolio
Capital growth assets
Overall return
31 Dec 2019
31 Dec 2018
$m
278.5
%
4.8
$m
336.3
%
6.7
1,870.9
32.0 1,410.1
27.9
2,706.4
235.8
–
25.5
5,117.1
163.6
354.0
216.6
734.2
5,851.3
46.3 2,525.3
32.7
4.0
132.1
–
0.4
6.9
87.5 4,443.4
85.4
2.8
337.2
6.0
186.6
3.7
609.2
12.5
100.0 5,052.6
50.0
0.6
2.6
0.1
87.9
1.7
6.7
3.7
12.1
100.0
31 Dec 2019
31 Dec 2018
$m
205.8
58.0
263.7
%
4.3
8.6
4.8
$m
47.8
(6.7)
41.1
%
1.1
(1.0)
0.8
Tax
Beazley is liable to corporation tax in a
number of jurisdictions, notably the UK,
the US and Ireland. Beazley’s effective
tax rate is thus a composite tax rate
mainly driven by the Irish, UK and US
tax rates. The weighted average of the
statutory tax rates for the year was
15.0% (2018: 18.6%). The effective tax
rate has increased in 2019 to 12.6%
(2018: 10.7%). The increase has been
a result of lower favourable prior year
tax adjustments in 2019 as compared
to 2018. The application of the diverted
profits tax legislation passed by the UK
government early in 2015 still remains
uncertain. We have considered the
implication of this and retain the view
that this tax should not apply to Beazley
(see note 9 to the financial statements).
Whilst the uncertainty around the
legislation remains, the quantum of our
earnings that could theoretically fall
within its scope grows as the period
since the legislation started to apply
lengthens.
A new Tax Act (the Tax Cuts and Jobs Act)
was signed into law in the US in December
2017. The Tax Act includes a base erosion
anti-avoidance tax (the “BEAT”) provisions.
We have performed an assessment for
a number of our intra-group transactions
for BEAT purposes. Although the
application of this new BEAT legislation
is still not fully certain for some types of
transactions we believe that the BEAT
impact on the group is not significant.
For the year 2019 the amount of $1.9m
was provided for in the group financial
statements for BEAT liabilities (for 2018
the group paid BEAT tax of $0.9m).
In addition, if BEAT encourages other
governments to introduce similar
legislation impacting cross-border
transactions, Beazley’s tax liability
could consequently increase in those
countries. We continue to assess the
future impact of BEAT and other tax
changes (including OECD’s Pillar 1 and
Pillar 2 proposals) on our business.
www.beazley.com
Beazley Annual report 2019
37
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
2019
$m
122.2
1,338.2
1,048.0
514.0
5,851.3
8,873.7
6,059.0
554.8
634.6
7,248.4
1,625.3
309.6c
286.3c
235.0p
217.3p
524.9m
2018
$m
126.5
1,192.8
943.3
418.7
5,052.6
7,733.9
5,456.2
356.7
454.1
6,267.0
1,466.9
280.4c
256.2c
219.6p
200.7p
523.1m
Movement
%
(3%)
12%
11%
23%
16%
15%
11%
56%
40%
16%
11%
10%
12%
7%
8%
–
Insurance receivables
Insurance receivables are amounts
receivable from brokers in respect of
premiums written. The balance at
31 December 2019 was $1,048.0m
(2018: $943.3m).
Balance sheet management
Summary statement of financial position
Intangible assets
Reinsurance assets
Insurance receivables
Other assets
Financial assets at fair value and cash and cash equivalents
Total assets
Insurance liabilities
Financial liabilities
Other liabilities
Total liabilities
Net assets
Net assets per share (cents)
Net tangible assets per share (cents)
Net assets per share (pence)
Net tangible assets per share (pence)
Number of shares 1
1 Excludes shares held in the employee share trust and treasury shares.
Intangible assets
Intangible assets consist of goodwill on
acquisitions of $62.0m (2018: $62.0m),
purchased syndicate capacity of $10.7m
(2018: $10.7m), US admitted licences of
$9.3m (2018: $9.3m), renewal rights of
$17.3m (2018: $25.2m) and capitalised
expenditure on IT projects of $22.9m
(2018: $19.3m).
Reinsurance assets
Reinsurance assets represent recoveries
from reinsurers in respect of incurred
claims of $1,068.8m (2018: $951.7m),
and the unearned reinsurance premiums
reserve of $269.4m (2018: $241.1m).
The reinsurance receivables from
reinsurers are split between recoveries
on claims paid or notified of $223.7m
(2018: $231.9m) and an actuarial
estimate of recoveries on claims that
have not yet been reported of $845.1m
(2018: $719.8m).
The group’s exposure to reinsurers is
managed through:
• minimising risk through selection of
reinsurers who meet strict financial
criteria (e.g. minimum net assets,
minimum ‘A’ rating by S&P). These
criteria vary by type of business (short
vs medium tail). The chart below shows
the profile of these assets (based on
their S&P rating) at the end of 2019;
• timely calculation and issuance of
reinsurance collection notes from
our ceded reinsurance team; and
• regular monitoring of the outstanding
debtor position by our reinsurance
security committee and credit control
committee. We continue to provide
against impairment of reinsurance
recoveries and at the end of 2019
our provision in respect of reinsurance
recoveries totalled $13.7m
(2018: $12.2m).
Reinsurance debtor credit quality
AA+
AA
AA-
A+
A
A-
Collateralised
Others
1%
1%
46%
43%
4%
1%
3%
1%
38
Beazley Annual report 2019
www.beazley.com
Financial review continued
Balance sheet management continued
Insurance liabilities
Insurance liabilities of $6,059.0m
(2018: $5,456.2m) consist of two
main elements, being the unearned
premium reserve (UPR) and gross
insurance claims liabilities. Our UPR
has increased by 13% to $1,598.7m
(2018: $1,415.5m). The majority of the
UPR balance relates to current year
premiums that have been deferred
and will be earned in future periods.
Current indicators are that this business
is profitable. Gross insurance claims
reserves are made up of claims which
have been notified to us but not yet paid
of $1,263.7m (2018: $1,171.2m) and an
estimate of claims incurred but not yet
reported (IBNR) of $3,196.6m (2018:
$2,869.5m). These are estimated as
part of the quarterly reserving process
involving the underwriters and group
actuary. Gross insurance claims reserves
have increased 10% from 2018 to
$4,460.3m (2018: $4,040.7m).
Financial liabilities
Financial liabilities comprise borrowings
and derivative financial liabilities.
The group utilises two long term debt
facilities:
• in November 2016, Beazley Insurance
dac issued $250m of 5.875%
subordinated tier 2 notes due in 2026;
and
• in September 2019, Beazley
Insurance dac issued $300m of 5.5%
subordinated tier 2 notes due in 2029.
In September 2019, Beazley Ireland
Holdings plc redeemed its £75m sterling
denominated 5.375% notes as per the
due date.
A syndicated short term banking
facility led by Lloyds Banking Group
plc provides potential borrowings up to
$225m. Under the facility $225m may
be drawn as letters of credit to support
underwriting at Lloyd’s. Of this, 100%
may be advanced as cash under a
revolving facility. The cost of the facility is
based on a commitment fee of 0.385%
per annum and any amounts drawn are
charged at a margin of 1.1% per annum.
The cash element of the facility will
expire on 31 July 2021, whilst letters of
credit issued under the facility can be
used to provide support for the 2019,
2020 and 2021 underwriting years.
The facility is currently unutilised.
Other assets
Other assets are analysed separately in
the notes to the financial statements.
The items included comprise:
• deferred acquisition costs of $350.7m
(2018: $307.4m);
• profit commissions of $nil (2018:
$5.9m); and
• deferred tax assets available for
use against future taxes payable of
$41.0m (2018: $28.9m).
Judgement is required in determining
the policy for deferring acquisition costs.
Beazley’s policy assumes that variable
reward paid to underwriters relates
to prior years’ business and is not an
acquisition cost. As a result, the quantum
of costs classified as acquisition is
towards the lower end of the possible
range seen across the insurance market.
Costs identified as related to acquisition
are then deferred in line with premium
earnings.
www.beazley.com
Beazley Annual report 2019
39
The following table sets out the group’s sources of funds:
Shareholders’ funds
Tier 2 subordinated debt (2026)
Retail bond (2019)
Tier 2 subordinated debt (2029)
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
2019
$m
1,625.3
248.9
–
297.9
2,172.1
2018
$m
1,466.9
248.7
95.6
–
1,811.2
Our funding comes from a mixture of
our own equity alongside $546.8m
($550.0m gross of capitalised borrowing
costs) of tier 2 subordinated debt, and an
undrawn banking facility of $225.0m.
The final Lloyd’s economic capital
requirement (ECR) at year end 2019, as
confirmed by Lloyd’s, is consistent with
our projection at the interim results and
reflects our plans for growth. Overall
we expect our capital requirement to
grow broadly in line with the net written
premiums in our business plan, which in
the short-term should be low double
digit growth.
The following table sets out the group’s capital requirement:
Lloyd’s economic capital requirement (ECR)
Capital for US insurance companies
2019
$m
1,828.4
203.9
2,032.3
2018
$m
1,594.5
173.4
1,767.9
Under Solvency II requirements, the
group is required to produce a Solvency
Capital Requirement (SCR) which sets
out the amount of capital that is required
to reflect the risks contained within the
business. Lloyd’s reviews the syndicates’
SCRs to ensure that SCRs are consistent
across the market.
At 31 December 2019, we have surplus
capital of 22% of ECR (on a Solvency II
basis). Following payment of the second
interim dividend of 8.2p, this surplus
reduces to 19% compared to our current
target range of 15% to 25% of ECR.
Solvency II
The Solvency II regime came into force
on 1 January 2016. Beazley continue
to provide quarterly Solvency II pillar 3
reporting to both Lloyd’s for the Beazley
managed syndicates and the Central
Bank of Ireland for Beazley Insurance
dac and Beazley plc. During 2019 the
third annual solvency financial condition
report (SFCR) of Beazley plc was
published.
Capital structure
Capital structure
Beazley has a number of requirements
for capital at a group and subsidiary
level. Capital is primarily required to
support underwriting at Lloyd’s and
in the US and is subject to prudential
regulation by local regulators (Prudential
Regulation Authority, Lloyd’s, Central
Bank of Ireland, and the US state level
supervisors). Beazley is subject to the
capital adequacy requirements of the
European Union (EU) Solvency II regime
(SII). We comply with all relevant SII
requirements.
Further capital requirements come from
rating agencies who provide ratings
for Beazley Insurance Company, Inc
and Beazley Insurance dac. We aim
to manage our capital levels to obtain
the ratings necessary to trade with our
preferred client base.
Beazley holds a level of capital over
and above its regulatory requirements.
The amount of surplus capital held is
considered on an ongoing basis in light
of the current regulatory framework,
opportunities for organic or acquisitive
growth and a desire to maximise returns
for investors.
The group actively seeks to manage its
capital structure. Our preferred use of
capital is to deploy it on opportunities
to underwrite profitably. However, there
may be times in the cycle when the group
will generate excess capital and not
have the opportunity to deploy it. At such
points in time the board will consider
returning capital to shareholders.
On issuance of tier 2 subordinated debt
in 2016, Beazley Insurance dac was
assigned an Insurer Financial Strength
(IFS) rating of ‘A+’ by Fitch.
Beazley Insurance dac also issued tier 2
debt in September 2019 and maintained
its ‘A+’ rating.
In 2019, Beazley acquired 2.0m of its
own shares into the employee benefit
trust. These were acquired at an average
price of 530.1p and the cost to the group
was £10.6m.
40
Beazley Annual report 2019
www.beazley.com
Financial review continued
Capital structure continued
The current SCR has been established
using our Solvency II approved internal
model approved by Central Bank of
Ireland (CBI) which has been run within
the regime as prescribed by Lloyd’s. In
order to perform the capital assessment:
• we use sophisticated mathematical
models that reflect the key risks in
the business allowing for probability
of occurrence, impact if they do occur,
and interaction between risk types.
A key focus of these models is to
understand the risk posed to individual
teams, and to the business as a whole,
of a possible deterioration in the
underwriting cycle; and
• the internal model process is
embedded so that teams can see
the direct and objective link between
underwriting decisions and the capital
allocated to that team. This gives
a consistent and comprehensive
picture of the risk/reward profile of the
business and allows teams to focus
on strategies that improve return
on capital.
IFRS 17
The implementation of IFRS 17:
Insurance contracts is currently
scheduled for accounting periods
commencing on or after 1 January
2021, although a 12 month deferral
was proposed by the IASB in June
2019. Applying this standard is a major
undertaking and so the company has
established a multi-disciplinary project
group to oversee this activity.
The project has made good progress
during 2019 and Beazley’s preparations
for IFRS 17 are on schedule.
• Syndicate 623 – corporate body
regulated by Lloyd’s which has its
capital supplied by third party names;
Group structure
The group operates across Lloyd’s,
Europe, Asia, Canada and the US through
a variety of legal entities and structures.
The main entities within the legal entity
structure are as follows:
• Beazley plc – group holding company
and investment vehicle, quoted on
the London Stock Exchange;
• Beazley Ireland Holdings plc –
intermediate holding company;
• Beazley Underwriting Limited –
corporate member at Lloyd’s writing
business through syndicates 2623,
3622 and 3623;
• Beazley Furlonge Limited – managing
agency for the seven syndicates
managed by the group (623, 2623,
3622, 3623, 6107, 6050 and 5623);
• Beazley Insurance dac – insurance
company based in Ireland that accepts
non-life reinsurance premiums ceded
by the corporate member, Beazley
Underwriting Limited and also writes
business directly from Europe;
• Syndicate 2623 – corporate body
regulated by Lloyd’s through which
the group underwrites its general
insurance business excluding accident,
life and facilities. Business is written
in parallel with syndicate 623;
• Syndicate 6107 – special purpose
syndicate writing reinsurance
business, and from 2017 cyber,
on behalf of third party names;
• Syndicate 3622 – corporate body
regulated by Lloyd’s through which the
group underwrites its life insurance
and reinsurance business;
• Syndicate 3623 – corporate body
regulated by Lloyd’s through which the
group underwrites its personal accident,
BICI reinsurance business and, from
2018, market facilities business;
• Syndicate 6050 – special purpose
syndicate which has its capital
provided by third party names and
provided reinsurance to syndicates
623 and 2623 on the 2015, 2016 and
2017 years of account;
• Syndicate 5623 – special purpose
syndicate writing market facilities
ceded from syndicate 3623;
• Beazley America Insurance Company,
Inc. (BAIC) - insurance company
regulated in the US. In the process of
obtaining licenses to write insurance
business in all 50 states;
• Beazley Insurance Company, Inc.
(BICI) – insurance company regulated
in the US. Licensed to write insurance
business in all 50 states; and
• Beazley USA Services, Inc. (BUSA)
– managing general agent based in
Farmington, Connecticut. Underwrites
business on behalf of Beazley syndicates,
2623 and 623, BICI and BAIC.
Beazley plc
Beazley Ireland Holdings plc
Beazley Insurance dac
Capital
Reinsurance
contract
Beazley Underwriting Ltd
(Corporate member)
Beazley Group Ltd
Beazley Furlonge Ltd
(Managing agency)
Management
Capital
Third party capital providers
* Syndicate 5623 is supported by both
Beazley capital and third party capital.
Quota share
Syndicate 623
Syndicate 2623
Syndicate 3622
Syndicate 3623
Syndicate 6107
Syndicate 6050
Syndicate 5623*
Beazley USA
Beazley
USA
Services,
Inc.
(service
company)
Beazley
Insurance
Company,
Inc.
(admitted
insurance
company;
A rated)
Beazley
America
Insurance
Company,
Inc.
(admitted
insurance
company;
A rated)
Excess of loss contract
Quota share
www.beazley.com
Beazley Annual report 2019
41
Operational update
Ian Fantozzi
Chief operating officer
Operational efficiency and
digital transformation are
key to our future success
and performance in an
increasingly digital world.
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
To support Beazley’s growth
we have a scalable and
efficient operating platform
that through focused investment
has become an important
competitive advantage. A high
performing global operations
function relies on us maintaining
consistency in operational
standards throughout the group,
while being prepared to try new
things and leverage our depth
of insurance operations
expertise to give us a lead
over the competition. In order
to achieve this, we pursue our
group operations strategy. This
focuses on the following areas:
Supporting growth initiatives
In support of our growth plans, we have
built an infrastructure that enables us
to quickly trial and launch new products
in the market as efficiently as possible.
Expanded versions of our products such
as virtual care UK, marine cyber and
environmental eclipse are examples
launched in 2019. We have also
expanded our product development team
that employs agile delivery techniques
to more quickly convert new ideas into
market-ready insurance products and
services.
We continue to grow our market reach
in the small business segment with
product launches on our myBeazley
e-trading platform. In 2019, we launched
our management liability package
offering in Spain, Germany and France.
While in the US, another important
myBeazley product launch was Beazley
Breach Response. The myBeazley portal
provides a quick and simple way for
brokers to access our flagship products.
Supporting business growth relies on
effective processes and systems, but
it is also important that we have a high
quality working environment that is
conducive to team working and thought
leadership. In 2019, we opened new
larger offices in New York, Toronto
and Barcelona. These offices bring
greater access to local markets and are
located in areas proximate to our broker
partners. We put a great deal of time and
effort towards selecting locations that
will attract new business, and negotiating
lease arrangements that represent good
value to our shareholders.
Cost efficiency
Beazley is organised to a large degree
around global underwriting and claims
teams. This model has served us well in
ensuring that products that succeed in
one market can be swiftly introduced in
others. However, it is important that this
does not result in back office systems
and support resources becoming
duplicative or the administration of
insurance transactions impeding the
business in any way.
In pursuit of greater efficiency and
consistency of operational service, we
have centralised operations support or
outsourced it where this brings further
value. We want to make sure that
operations and processing are done by
appropriately skilled people, at the most
cost effective location, whilst providing
the best service levels. To help achieve
this we have operations service centres
in Connecticut and Georgia in the US,
and are currently trialling a new support
centre in Phoenix, Arizona. In the UK,
the Birmingham office provides a cost-
effective alternative to London. It also
benefits from excellent access to skills
relevant to Beazley’s future growth plans,
for example in technology, data analytics
and financial services support more
generally.
42
Beazley Annual report 2019
www.beazley.com
Operational update continued
We also make use of global outsourcing
agreements for business processing
support and information technology
support. These arrangements have been
carefully planned and selected to ensure
we can maximise a highly efficient and
scalable operating platform to support
our business growth. A significant
proportion of our IT is outsourced to
specialist technology vendors. Not only
has this enabled us to deliver far more
for our shareholders’ money, but it has
also been a source of expertise and
ideas that would have been difficult
to build in-house.
Managing operational
risk effectively
Effective risk management requires
clear visibility of the level of operational
risk we maintain. Critical to supporting
an effective control environment
is consistency of ownership for
operations support and the provision
of management information.
A widely discussed topic across our
industry is the preparation for the
UK departure from the EU. We have
worked closely with the Lloyd’s Brussels
subsidiary and our regulators to make
sure that we are operationally ready for
a post Brexit world.
Another area of focus across the
Financial Services industry is operational
resilience. As more financial services
benefit from technology automation,
they also become more dependent on
system availability and the supporting
technology infrastructure. At Beazley
we have responsible individuals
and teams committed to ensuring
business continuity, IT disaster
recovery, information security and
critical outsource management. We
have brought these together under one
operational resilience governance model
which works in partnership with our
business managers to ensure that, in the
event of an incident, we can minimise the
impact to our customers, shareholders
and employees.
Beazley’s digital transformation
We can see many applications of data
and technology across our business,
and there continues to be a flow of new
technology innovations that we could
pursue. However, as we move further
into the digital age, we recognise that
it is not just about the technology. To
truly transform our business and make
it fit for a digital environment, there are
several areas we must focus on:
1) Applying technology and data to our
business model
Our specialist insurance business
provides cover for a broad range of client
risks – both smaller risks such as those
covered by our SME business products,
and larger complex risks such as those
covered by our open market property
products. Different technology solutions
are best applicable to different points on
this spectrum of risk size and complexity.
So that we best leverage technology, we
have two strategic initiatives: Beazley
Digital to focus on our smaller and higher
volume underwriting; and Faster, Smarter
Underwriting to focus on our larger and
more complex risk underwriting.
The goal of Beazley Digital is to take
out any unnecessary points of manual
interaction in the underwriting process,
which is key to writing profitable business
and to minimising response times for
our higher volume products. The main
technologies that we are applying here
are: myBeazley, for our brokers wanting
an end-to-end electronic trading portal;
natural language processing, to enable
us to quickly extract underwriting data
from the high volumes of submission
emails we receive; and Application
Programming Interfaces (APIs), so that
we can interface directly with broker IT
systems and provide quotes or policies
without any re-keying required by either
the broker or Beazley staff.
In an increasingly connected world, we
see APIs as a critical technology for
transacting insurance business going
forward. We have APIs in place with
broker systems in several regions now,
and demand continues to grow strongly
for transacting business in this way.
Faster, Smarter Underwriting aims to
use technology and data to support the
expert judgement of our underwriters.
The types of technology most applicable
here are data science tools which
identify correlations in external data sets
that could enhance our underwriting
decisions. A practical example of this
is with our cyber and Breach Response
products. In 2019, we partnered with a
leading software business to provide a
range of data attributes that can indicate
whether a business is more likely to
suffer from a cyber attack or data
breach. Not only can this type of solution
improve underwriting decision making,
it also provides information that we can
use to advise our customers and reduce
their risk exposure.
2) Building an agile delivery capability
One thing is certain in a digital world
– business agility is key. Beazley is
well regarded for its innovation in
specialist insurance. To stay ahead of
the competition, we seek to innovate
in an increasingly agile way, taking new
ideas to the market quickly, gathering
feedback, evolving or failing them
fast. At Beazley, we have structured
our operations and technology teams
into what we call a platform delivery
model. Instead of delivering change and
technology via many individual projects,
we have organised our teams into
‘platforms’ that are aligned to both, the
markets that Beazley operates in, and to
the type of business being written. Each
platform has an annual delivery budget
within which there is greater flexibility
afforded to the relevant business lines
on how the budget is applied, and with
the discipline of achieving against
specific business outcomes aligned to
our group strategy – such as increasing
cost efficiency and responsiveness in
customer service.
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In 2017, we commenced a project to
develop our larger offices into ABW
environments. We have now launched
four offices in this format – Birmingham,
Barcelona, Toronto and New York. Work
is currently underway to fit-out a new
ABW London office at 22 Bishopsgate.
We expect to open the new office in
late 2020.
As we proceed into 2020, we are well
placed not only as a high performing
specialist insurer, but also because we
have developed great strength in our
operational capability. The changes we
have made in 2019 will allow us to build
on this operational strength and ensure
we remain a high performing specialist
insurer in an increasingly digital world.
3) Developing our talent to best
leverage technology
We are investing in our workforce to
ensure we have the right blend of
skills for the future. This means that
our talent development programmes
are placing emphasis on cross-skilled
staff so they can operate in a more
digital insurance market. In practice
this means underwriters with increased
understanding of technology, and
similarly technology teams with greater
knowledge of how specialist underwriting
works. The outcome we strive for is to
put technology and data at the centre of
our specialist underwriting proposition.
4) Creating the optimum
physical environment
Although Beazley receives plenty of
interest when attracting new operations
and technology talent, we recognise that
our working environment needs to keep
evolving to maintain this attraction and
to then retain and further motivate this
talent. Although one benefit of activity
based working (ABW) is a more efficient
use of office space, it also creates a
physical and technological environment
that maximises the potential for our staff
to carry out their daily activities.
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Risk management
Andrew Pryde
Chief risk officer
Harnessing opportunities
from change.
The exposure management function now
reports to me. Whilst the identification
and management of aggregated
exposure remains the responsibility of
the underwriting teams and the chief
underwriting officer remains the risk
owner, the change in reporting line
means that the exposure management
team can move to more of an oversight
role and challenge the underwriting
teams to ensure that the methods and
assumptions used to manage exposure
remain appropriate.
A further enhancement has been to split
the exposure management committee
into a committee that focuses on natural
catastrophes and a committee that
focuses on man-made catastrophes
such as cyber. Again, this split means
that we have the most appropriate
people involved in oversight of these key
risks, as both areas require a different
skill set, and we ensured that we commit
an appropriate amount of time so that
one risk area does not monopolise time
to the detriment of the other.
Our experience of operating these new
governance structures for the majority
of 2019 has already demonstrated the
value of having made these changes.
Culture
Every two years we commission a
comprehensive staff engagement survey
and this was undertaken in 2019. The
results of this survey, coupled with
leadership scores, are a useful guide
for the risk management function to
understand how the risk culture is
evolving at Beazley. We have observed
that the completion rate remains high at
83% and the level of engagement is 70%,
which is on the boundary of top quartile
companies and is at a relatively similar
level from the survey in 2017. The survey
also evidences a strong and open risk
culture with consistency across most of
our offices. Any deviation by function or
office is a valuable risk metric which the
risk function use to scope their work in
order to provide assurance to the board.
2019 in review
In 2018, I focused on the impact of
external and internal change on the
group and this change has continued
into 2019.
Governance
In 2019, there were a number of changes
to the membership of the executive
committee, which resulted in changes
to risk owners. Risk owners, a key role
within the risk management framework,
are senior members of staff responsible
for identifying and managing risk in
their areas of responsibility. The risk
management function has worked with
the new risk owners to explain their
role and ensure that nothing has been
missed or lost during the transition.
Having new risk owners has created
an opportunity to take a fresh look at
the risks inherent within a function
and reassess and enhance the control
environment.
I have taken over as chair of the risk
and regulatory committee, which is the
executive level committee with oversight
of how the business is managing risk.
This evolution enables the committee
to operate as an effective second line
of defence to monitor and challenge
risk owners as they undertake their
risk responsibilities. The change has
also meant that senior risk managers
now attend the committee, which has
improved the discussion as a result of
their detailed knowledge of the areas of
the risk register they focus on.
With the change in chief underwriting
officer, we have taken the opportunity to
split the underwriting committee into two
separate committees. The underwriting
committee will continue to be chaired
by the chief underwriting officer and
will focus on developing and delivering
the business plan. The newly formed
underwriting governance committee is
chaired by me and will focus on oversight
of the quality of the information used by
the underwriting committee. The benefits
created from this split are having the
most appropriate people present at
each committee and having sufficient
time to focus on the relevant topics. The
chief underwriting officer and myself
are present at both committees, which
provides a conduit of information.
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I have taken on the executive
sponsorship of the newly formed mental
wellbeing and mental health initiative.
Mental wellbeing is about educating
the organisation on how to take care of
themselves, since our people are our
most important asset. Sleep deprivation
and stress are two issues which can
reduce the effectiveness of a workforce
and their effects can be particularly
dangerous because they are not always
visible like a physical condition. Mental
health is about providing a support
network for situations where a mental
health incident has occurred. This
initiative has the secondary benefit
of helping to support the risk culture
at Beazley.
In 2019, a number of new ways of
working were introduced at Beazley.
Activity based working provides
members of staff with different work
spaces that are more conducive to the
activity being undertaken, from a quiet
room for high focused activity such as
reading and reviewing to a collaborate
space for group discussion, innovation
and brainstorming. Remote working
means that advances in technology allow
our staff to continue to work seamlessly
when away from Beazley offices. This
reduces the need to rearrange meetings
which would have caused a delay and
reduces the risk that a meeting does
not include an important participant.
Finally, a number of change programmes
are now being undertaken using an
agile approach. This simply means that
a cross functional team is formed to
deliver change using a shared vision
from the outset rather than one function
delivering on behalf of another function.
The core team meet on a more frequent
basis so that activity is undertaken
and overseen more regularly and any
issues or decisions can be considered
and made by all stakeholders in a timely
manner, thereby increasing the likelihood
of a successful outcome.
Whilst new ways of working can
create risk, our assessment is that
these changes are actually reducing
operational risk.
Emerging and strategic risks
The emerging and strategic risk analysis
helped identify the need for two of the
current strategic initiatives. The Beazley
Digital strategic initiative is working out
how we underwrite and process our
simpler risks better. The Faster, Smarter
Underwriting strategic initiative is
working out how we provide underwriters
with data and analytics to help them
better underwrite our complex risks.
Both initiatives are creating opportunities
for Beazley to work in new ways,
develop new skill sets and harness new
technology. Whilst they fundamentally
improve profitability, they also reduce
insurance and operational risk.
Brexit
Beazley has prepared for the UK
leaving the EU, assuming a hard Brexit.
European clients have the choice
of either using the Lloyd’s Brussels
platform, which has been operating
successfully since 1 January 2019,
or using our European insurance
company in Dublin, Beazley Insurance
dac, which is authorised to underwrite
all of Beazley’s non-life products. We
have also received authorisation of
our European based service company,
Beazley Solutions International Limited,
which will underwrite risks from our
European offices onto the Lloyd’s
Brussels platform. As such, Beazley
remains prepared for whatever the Brexit
outcome.
Climate change
Our stakeholders (including investors,
regulators and staff) are increasingly
interested in the financial impact of
climate change.
To assess the risk within our insurance
and investment portfolios, we ran the
following three stress tests as part of our
General Insurance Stress Test return to
the Prudential Regulation Authority:
• Scenario A – A sudden transition
(a Minsky moment), ensuing from
rapid global action and policies, and
materialising over the medium-term
business planning horizon that results
in achieving a temperature increase
being kept below 2 degrees celsius
(relative to pre-industrial levels) but
only following a disorderly transition.
• Scenario B – A long-term orderly
transition scenario that is broadly in
line with the Paris Agreement. This
involves a maximum temperature
increase being kept well below 2
degrees celsius (relative to pre-
industrial levels) with the economy
transitioning in the next three decades
to achieve carbon neutrality by 2050
and greenhouse-gas neutrality in the
decades thereafter.
• Scenario C – A scenario with failed
future improvements in climate policy,
reaching a temperature increase
in excess of 4 degrees celsius
(relative to pre-industrial levels) by
2100 assuming no transition and a
continuation of current policy trends.
Insurance portfolio
From an insurance portfolio perspective,
the increased claims costs of a US
Hurricane under the three climatic
scenarios are:
Insurance
portfolio
Average loss
1:100 loss
Scenario A
%
15%
9%
Scenario B
%
38%
24%
Scenario C
%
90%
63%
To illustrate, whilst the average claims
costs would increase 15% under
scenario A, the cost of a 1:100 event
would only increase 9%. This is because
some of the policies will have been
exhausted in the more extreme 1:100
event and so the additional effect of
climate change will not increase the
claims costs by as much.
We also completed a pilot assessment,
investigating the impact of climate
change on the liability lines offered by
our US architects and engineers team.
The steps of the assessment were:
• Step 1 – Identify the uncertainty
• Step 2 – Create a scale of threat or
opportunity
• Step 3 – Quantify the impact on the
class, both present and future
• Step 4 – Implement changes where
agreed appropriate
We are now extending the exercise
across other classes of business to
understand the liability and transition
risk and asses how we should transition
our insurance portfolio over time.
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Risk management continued
Investment portfolio
From an investment portfolio perspective,
the potential impact on the valuations
of our portfolio under the three climatic
scenarios are:
Investment
portfolio
Transition
risk
Physical
risk
Scenario A
%
Scenario B
%
Scenario C
%
-0.36% -0.24%
n/a
-0.01% -0.09% -0.27%
Risk management philosophy
Beazley’s risk management philosophy is
to balance the risks the business takes
on with the associated cost of controlling
these risks, whilst also operating within
the risk appetite agreed by the board.
In addition, our risk management
processes are designed to continuously
monitor our risk profile against risk
appetite and to exploit opportunities as
they arise.
We have started to assess the financial
impact of climate change and will
continue this ongoing multi-year activity
to ensure Beazley responds appropriately
to this important risk.
Conclusion
Dealing with change can create
debilitating inertia for a company and
significantly increase risk or it can
create the catalyst for improvement and
ultimately reduce risk. My assessment
is that Beazley is harnessing the
opportunities created by change.
My latest report to the board has
confirmed that the control environment
has not identified any significant failings
or weaknesses in key processes and that
Beazley is operating within risk appetite
as at 31 December 2019.
Risk management strategy
The Beazley plc board has delegated
executive oversight of the risk
management department to the
executive committee, which in turn has
delegated immediate oversight to the risk
and regulatory committee. The Beazley
plc board has also delegated oversight
of the risk management framework to
the audit and risk committee, and the
primary regulated subsidiary boards
have each established an audit and risk
committee or standalone risk committee.
Clear roles, responsibilities and
accountabilities are in place for the
management of risks and controls,
and all employees are aware of the
role they play in all aspects of the risk
management process, from identifying
sources of risk to playing their part in the
control environment. The impact of each
risk is recorded in the risk register on a
1:10 likelihood of that risk manifesting
in the next 12 months. A risk owner
has been assigned responsibility for
each risk, and it is the responsibility of
that individual to periodically assess
the impact of the risk and to ensure
appropriate risk mitigation procedures
are in place. External factors facing
the business and the internal controls
in place are routinely reassessed and
changes made when necessary.
On an annual basis, the board agrees the
risk appetite for each risk event and this
is documented in the risk management
framework document. The residual
financial impact is managed in a number
of ways, including:
• mitigating the impact of the risk
through the application of controls;
• transferring or sharing risk through
outsourcing and purchasing insurance
and reinsurance; and
• tolerating risk in line with the risk
appetite.
In addition, the following risk
management principles have been
adopted:
• risk management is a part of the wider
governance environment;
• techniques employed are fit for
purpose and proportionate to the
business;
• risk management is a core capability
for all employees;
• risk management is embedded in day-
to-day activities;
• there is a culture of risk awareness, in
which risks are identified, assessed
and managed;
• risk management processes are
robust and supported by verifiable
management information; and
• risk management information and
reporting are timely, clear, accurate
and appropriately escalated.
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Risk management framework
Beazley takes an enterprise-wide
approach to managing risk following the
group’s risk management framework.
The framework establishes our approach
to identifying, measuring, mitigating and
monitoring the group’s key risks. Beazley
has adopted the ‘three lines of defence’
framework. Across the business, there
are two defined risk related roles: risk
owner and control reporter. Each risk
event is owned by the risk owner, who is
a senior member of staff. Risk owners,
supported by the risk management team,
perform a risk assessment twice a year,
including an assessment of heightened
and emerging risks.
The risk management framework
comprises a number of risk management
components, which when added together
describe how risk is managed on a day
to day basis. The framework includes
a risk register that captures the risk
universe (52 risk events grouped into
eight risk categories: insurance, market,
credit, liquidity, operational, regulatory
and legal, group and strategic), the
risk appetite set by the Beazley plc
board, and the control environment
that is operated by the business to
remain within the risk appetite which
is monitored and signed-off by control
reporters.
In summary, the board identifies risk,
assesses risk and sets risk appetite.
The business then implements a control
environment which describes how
the business should operate to stay
within risk appetite. Risk management
then reports to the board on how well
the business is operating using a risk
management report.
For each risk, the risk management
report brings together a view of how
successfully the business is managing
risk and whether there have been
any events that we can learn from
(risk incidents). Finally, the framework
is continually evaluated and where
appropriate improved, through the
consideration of stress and scenario
testing, themed reviews using risk
profiles and an assessment of strategic
and emerging risks. There were no
material changes made during 2019.
A suite of risk management reports are
provided to the boards and committees
to assist senior management and board
members to discharge their oversight
and decision making responsibilities.
The risk reports include the risk appetite
statement, the risk management report,
risk profiles, stress and scenario testing,
reverse stress testing, an emerging
and strategic report, a report to the
remuneration committee and the Own
Risk and Solvency Assessment (ORSA)
report.
The internal audit function considers
the risk management framework in the
development of its audit universe to
determine its annual risk-based audit
plan. The plan is based on, among other
inputs, the inherent and residual risk
scores as captured in the risk register.
Finally, a feedback loop operates, with
recommendations from the internal
audit reviews being assessed by the
business and the risk management
function for inclusion in the risk register
as appropriate.
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Business risk management
Risk ownership
– Identifies risk
– Assesses risk
– Mitigates risk
– Monitors risk
– Records status
– Remediates when required
Risk management
Risk oversight
– Are risks being identified?
– Are controls operating effectively?
– Are controls being signed off?
– Reports to committees and board
Internal audit
Risk assurance
– Independently tests control design
– Independently tests control operation
– Reports to committees and board
Risk appetite
(annual)
Risk assessment
(biannual)
Stress and scenario
framework (annual)
Risk profiles
(ad hoc)
Strategic and emerging
risk (annual)
Risk register
Control assessment
(monthly)
Internal model
Key risk indicators
(quarterly)
Control performance
aggregation (monthly)
Risk incidents
reporting
Consolidated assurance
report
Committees
1st line: Underwriting, Investment,
Operations, Executive committees
2nd line: Risk and regulatory, Risk committees
3rd line: Audit committees
Boards
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Risk management continued
Viability statement
The directors have completed an
assessment of the viability of the group
over a three year period. A period of three
future years has been selected to be short
enough to be reasonably assessable
but long enough to reflect Beazley’s
risk profile of a portfolio of diversified
short- tailed and medium-tailed insurance
liabilities. This three year period also
aligns with the length of time over which
business underwritten at Lloyd’s, being
the majority of our insurance business, is
managed. The board has performed an
annual risk assessment and the key risks
to the group in the future are summarised
on pages 48 to 50.
The risks and associated capital
requirements have been brought
together into a five year plan, although
the uncertainties in year 4 and 5 of the
plan mean the board focuses on the
first three years for assessing viability.
The main assumption is that the current
market conditions will prevail, over which
the outcomes of the board’s strategic
initiatives are overlaid. In addition, the
board has reviewed the sensitivity of key
assumptions and has performed scenario
testing to understand the impact on cash
flows of the key risks of a major natural
catastrophe and/or a systemic mispricing
of the medium-tailed liability classes.
The board has reviewed the financial
impact of climate change, based on three
scenarios, and has concluded that it does
not currently impact viability. Further
enhancements are planned in the future
and these will feature in each annual
assessment.
I provide a quarterly ORSA to the board
summarising the short-term and longer
term risks to the group and the capital
implications.
The directors have concluded, based on
this review, that there is a reasonable
expectation that the group will be able
to continue in operation and meet its
liabilities as they fall due over the three
year period of assessment.
The board has also given specific
consideration to the work of the Brexit
team and whether or not Brexit in
general and, more specifically, hard
Brexit materially impacts viability and has
concluded it does not.
The risks to financial
performance
The board monitors and manages risks
grouped into eight categories, which
cover the universe of risk that could
affect Beazley. There have been no new
risk areas identified and no major shifts
in existing risks. The board considers the
first two of the following risk categories
to be the most significant.
Insurance risk
Given the nature of Beazley’s business, the
key risks that impact financial performance
arise from insurance activities. The main
insurance risks can be summarised in
the following categories:
• Market cycle risk: The risk of
systematic mispricing of the medium
tailed specialty lines business which
could arise due to a change in the
US tort environment, changes to the
supply and demand of capital, and
companies using incomplete data to
make decisions. This risk would affect
multiple classes within the specialty
lines division across a number of
underwriting years. The group uses
a range of techniques to mitigate
this risk including sophisticated
pricing tools, analysis of macro
trends, analysis of claim frequency
and the expertise of our experienced
underwriters and claims managers.
• Natural catastrophe risk: The risk of
one or more large events caused by
nature affecting a number of policies
and therefore giving rise to multiple
losses. Given Beazley’s risk profile,
such an event could be a hurricane,
major windstorm, earthquake or
wildfires. This risk is monitored using
exposure management techniques to
ensure that the risk and reward are
appropriate and that the exposure is
not overly concentrated in one area.
• Non-natural catastrophe risk: This risk
is similar to natural catastrophe risk
except that multiple losses arise from
one event caused by mankind. Given
Beazley’s risk profile, examples include
a coordinated cyber attack, losses
linked to an economic crisis, an act of
terrorism, an act of war or a political
event. This risk is monitored using
exposure management techniques to
ensure that the risk and reward are
appropriate and that the exposure is
not overly concentrated in one area.
• Reserve risk: Beazley has a consistent
reserving philosophy. However, there
is a risk that the reserves put aside
for expected losses turn out to be
insufficient. This could be due to any
of the three drivers of risk described
above. The group uses a range of
techniques to mitigate this risk
including a detailed reserving process
which compares estimates established
by the claims team with a top down
statistical view developed by the
actuarial team. A suite of metrics
is also used to ensure consistency
each year.
• Single risk losses: Given the size of
policy limits offered on each risk, it is
unlikely that the poor performance of
one policy will have a material impact
on the group’s financial performance.
Strategic risk
Alongside these insurance risks, the
success of the group depends on the
execution of an appropriate strategy.
The main strategic risks can be
summarised as follows:
• Strategic decisions: The group’s
performance would be affected
in the event of making strategic
decisions that do not add value. The
group mitigates this risk through the
combination of recommendations
and challenge from non-executive
directors, debate at the executive
committee and input from the strategy
and performance group (a group of
approximately 30+ senior individuals
from across different disciplines at
Beazley).
• Environment: There is a risk that the
chosen strategy cannot be executed
because of the environmental
conditions within which Beazley
operates, thereby delaying the timing
of the strategy.
• Communication: Having the right
strategy and environment is of
little value if the strategy is not
communicated internally so that
the whole group is heading in the
same direction, or if key external
stakeholders are not aware of
Beazley’s progress against its strategy.
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Considerations relevant to this risk
include the nature, size and type of
transactions, the jurisdiction in which
transactions occur, and the degree to
which agents or third parties are used
during such transactions.
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Every employee and individual acting
on Beazley’s behalf is responsible for
maintaining our reputation. We have a
zero-tolerance approach to bribery and
corruption and are committed to acting
professionally, fairly and with integrity
in all aspects of our business. In doing
so, we aim to recruit and retain high-
calibre employees who carry out their
responsibilities honestly, professionally
and with integrity. We maintain a number
of policies designed to prevent any risk
of bribery and corruption, which are
communicated to all employees and
supplemented with appropriate training.
Climate change risk
The changing global climate is
recognised as an important emerging
risk due to its widespread potential
impact on the global population,
environment and economy. A key aspect
of Beazley’s business model is to support
our clients who have been affected by
natural catastrophes, helping them
return to pre-catastrophe conditions
as soon as possible. As a specialist
insurer, various classes of business
we underwrite are subject to the effect
climate change presents to the risk
environment.
As part of the underwriting process, we
work with our insureds to understand the
risks facing their organisation, including
applicable climate related risks, to tailor
insurance coverages to mitigate the
associated financial risks.
• Senior management performance:
• Credit risk: Beazley has credit
risk to its reinsurers, brokers and
coverholders of which the reinsurance
asset is the largest. The underwriting
committee monitors this risk.
• Regulatory and legal risk: This is the
risk that Beazley might fail to operate
in line with the relevant regulatory
framework in the territories where
it does business. Of the eight risk
categories, the board has the lowest
tolerance for this risk. This risk is
monitored by the risk and regulatory
committee.
• Liquidity risk: This is the risk that the
group might not have sufficient liquid
funds following a catastrophic event.
The investment committee monitors
this risk which, given the nature of the
asset portfolio, is currently small.
• Group risk: The structure of the
Beazley group is not complex and so
the main group risk is that one group
entity might operate to the detriment
of another group entity or entities. The
Beazley plc board monitors this risk
through the reports it receives from
each entity.
Anti-bribery and corruption risk
The group also considered anti-
bribery and corruption risk across all
risk categories. We are committed to
ensuring that all business is conducted
in an ethical and honest manner,
and that we are not involved in any
illicit activity as defined under the UK
Bribery Act and US Foreign Corrupt
Practices Act. This risk includes the
risk of bribery and corruption we are
exposed to and manifests itself in the
susceptibility to unethical or dishonest
influences whereby illicit payments and/
or inducements are either made or
received.
Such activity has severe reputational,
regulatory and legal consequences,
including fines and penalties.
There is a risk that senior management
could be overstretched or could
fail to perform, which would have a
detrimental impact on the group’s
performance. The performance of the
senior management team is monitored
by the chief executive and talent
management team and overseen
by the nomination committee.
• Reputation: Although reputational risk
is a consequential risk, i.e. it emerges
upon the occurrence of another risk
manifesting, it has the potential to have
a significant impact on an organisation.
Beazley expects its staff to act
honourably by doing the right thing.
• Flight: There is a risk that Beazley
could be unable to deliver its strategy
due to the loss of key personnel.
Beazley has controls in place to
identify and monitor this risk, for
example through succession planning.
• Crisis management: This is the risk
caused by the destabilising effect of
the group having to deal with a crisis
and is mitigated by having a detailed
crisis management plan.
• Corporate transaction: There is a
risk that Beazley could undertake
a corporate transaction which did
not return the expected value to
shareholders. This risk is mitigated
through the due diligence performed,
the financial structure of transactions
and the implementation activity.
Under the environment risk heading, the
board identifies and analyses emerging
and strategic risk on an annual basis for
discussion at the board strategy day in May.
Other risks
The remaining six risk categories
monitored by the board are:
• Market (asset) risk: This is the risk
that the value of investments could be
adversely impacted by movements in
interest rates, exchange rates, default
rates or external market forces. This
risk is monitored by the investment
committee.
• Operational risk: This risk is the failure
of people, processes and systems
or the impact of an external event on
Beazley’s operations, and is monitored
by the operations committee. An
example would be a cyber-attack having
a detrimental impact on our operations.
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Risk management continued
We acknowledge and accept that over
time climate change could impact the
risks facing our insureds and we aim to
manage the resulting risk to Beazley as
described below:
• Pricing risk: This is the risk that current
pricing levels do not adequately
consider the prospective impact of
climate change resulting in systemic
underpricing of climate exposed risks.
The group’s business planning process
establishes how much exposure
in certain classes of business or
geographic area we wish to accept.
We benefit from a feedback loop
between our claims and underwriting
teams to ensure that emerging
claims trends and themes can be
contemplated in the business planning
process, the rating tools and the
underwriter’s risk by risk transactional
level considerations. Our underwriters
are empowered to think about climate
risk during their underwriting process
in order to determine the implication
on each risk.
• Catastrophe risk: This is the risk that
current models do not adequately
capture the impact of climate change
on the frequency, severity or nature of
natural catastrophes or other extreme
weather events (eg wildfires) that could
drive higher-than-expected insured
losses. The group utilises commercial
catastrophe models to facilitate the
estimation of aggregate exposures
based on the group’s underwriting
portfolio. These catastrophe models
are updated to reflect the latest
scientific perspectives. Catastrophe
models are evolving to include new
or secondary perils which may be
related to climate change. In addition,
the group runs a series of Natural
Catastrophe Realistic Disaster
Scenarios (RDS’s) on a monthly basis
which monitors the group’s exposure
to certain scenarios that could occur.
These RDS’s include hurricanes in
the US, typhoons in Japan, European
windstorms and floods in the UK.
• Reserve risk: This is the risk that
established reserves are not sufficient
to reflect the ultimate impact climate
change may have on paid losses.
This includes liability risk unanticipated
losses arising from our clients
facing litigation if they are held to
be responsible for contributing to
climate change, or for failing to act
properly to respond to the various
impacts of climate change. With
support from our group actuarial team,
claims teams and other members of
management the group establishes
financial provisions for our ultimate
claims liabilities. The group maintains
a consistent approach to reserving to
help mitigate the uncertainty within
the reserves estimation process.
• Asset risk: This is the risk that climate
change has a significant impact
across a number of industries which
may negatively impact the value of
investments in those companies.
The group considers the impact
of climate change on its asset
portfolio by seeking to incorporate
an assessment of environmental
risks in the investment process.
We subscribe to the research services
of a specialist company in the field of
environmental, social and governance
research and have integrated their
proprietary ratings into the internal
credit process applied to investments in
corporate debt securities. A minimum
standard for the environmental, social
and governance performance is
defined and companies not meeting
the required standard will be excluded
from the approved list of issuers. The
analysis also includes a consideration
of the sustainability of each company
with regard to the potential decline in
demand in specific sectors.
• External event risk: This is the risk that
the physical impact of climate related
events has a material impact on our
own people, processes and systems
leading to increased operating costs
or the inability to deliver uninterrupted
client service. The group has business
continuity plans in place to minimise
the risk of an interrupted client service
in the event of a disaster.
• Commercial management risk:
The group aims to minimise where
possible the environmental impact
of our business activities and those
that arise from the occupation of our
office spaces. As we operate in leased
office spaces our ability to direct
environmental impacts is limited.
However, we do choose office space
and engage with our employees,
vendors and customers in an effort
to reduce overall waste and our
environmental footprint.
• Credit risk: As a result of material
natural catastrophe events, there
is a risk that our reinsurance
counterparties are unable to
pay reinsurance balances due to
Beazley. If the frequency or severity
of these events is increased due to
climate change this could have a
corresponding increase on credit risk.
An important consideration when
placing our reinsurance programme
is evaluation of our counterparty risk.
Every potential reinsurer is evaluated
through a detailed benchmarking
which considers: financial strength
ratings, capital metrics, performance
metrics as well as other considerations.
• Regulatory and legal risk: Regulators,
investors and other stakeholders are
becoming increasingly interested in
companies’ responses to climate
change. Failure to appropriately
engage with these stakeholders
and provide transparent information
may result in the risk of reputational
damage or increased scrutiny. The
group regularly monitors the regulatory
landscape to ensure that we can
adhere to any changes in relevant laws
and regulations. This includes making
any necessary regulatory or statutory
filings with regard to climate risk.
• Liquidity risk: Linked to the
underwriting and credit risks noted
above, there is a risk that losses
resulting from unprecedented natural
disasters or extreme weather could
erode our ability to pay claims and
remain solvent. The group establishes
capital at a 1:200 level based on the
prevailing business plan.
• Strategic risk: This is the risk that our
strategy fails to effectively consider
climate change resulting in our
business planning not adapting fast
enough to respond to changes in
wider claims trends. This creates a
transition risk that our underwriting
portfolio might not keep pace with
the changes, being heavily exposed
to declining industries and failing to
capitalise on the opportunities. Our
Emerging Risks analysis and business
planning process seeks to mitigate
this risk through horizon scanning
for our longer-tail book, while we are
able to be more flexible in responding
to events impacting our short tail
exposures.
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Responsible business
Emma Whiteacre
Chair of the responsible business committee
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The impact of insurance goes beyond the financial
impacts of remunerating policyholders for losses.
There is an impact on lives and livelihoods which
far outweighs the financial burden. At Beazley we
are committed to addressing these non-financial
impacts through our interaction with charities,
the community, our environment, the wider market
place and our employees. By being a responsible
business we can bring value to our stakeholders
in more ways than just monetary.
We aim to support our
local and international
communities and clients
by using our resources and
skills – whether it’s through
volunteering with the elderly
and helping to feed the
homeless as part of our
global Make a Difference
programme, creating bespoke
activities such as ‘Maths
in Insurance’ workshops or
finding ways to make existing
and new products that have
a beneficial impact on our
wider society and the
environment too.
Our aim isn’t just to provide short-term solutions for our
communities but to provide sustainable and long-term
support through our programmes. For our responsible
business strategy, we have six areas of focus:
Charity
Our global partnership, fundraising
and match funding.
Community
How we interact with the people
and places in our local area.
Environment
Taking responsibility for our own use of
resources as we conduct our business,
to minimise our environmental footprint.
Marketplace
Our awareness of the social and
environmental impact of the business
that we conduct, and how we can
support global sustainability efforts
through the provision of insurance.
Inclusivity and diversity
Our vision is to inspire and develop
people with diverse perspectives
to thrive at all levels of our business.
Responsible underwriting
compliance
We are committed to ensure our
business is conducted in an ethical
and honest manner. It ensures we
do the right thing for our stakeholders.
Responsible
business committee
Our responsible business
committee is chaired by Emma
Whiteacre and sponsored by
executive member Anthony
Hobkinson. It reports into
the executive committee
and the board.
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Responsible business continued
Charity
Our charity efforts go beyond simply
making a donation – we focus on
making a difference, both in our local
communities and around the globe.
“I am proud to have been
the executive sponsor of
Beazley’s responsible
business activity for the
last few years. We have
continued to invest not
just financially but by
encouraging employees to
take paid leave to support
local communities.”
Anthony Hobkinson
Executive committee sponsor
All Hands and Hearts
Our global charity partner, All
Hands and Hearts, addresses the
immediate and long-term needs of
communities impacted by natural
disasters. 2019 marks the end
of our three year partnership with
All Hands and Hearts. In 2017 we
chose to partner with them because
of their innovative approach focused
on deploying volunteers to areas in
need, and their relatively small size
meant that our involvement was
more impactful.
All Hands and Hearts works with
volunteers and local partners
to rebuild the basic hubs of a
community – including schools and
homes. Participating in these efforts
has enabled Beazley employees to
support devastated communities
on the ground. Many people who are
hit by these disasters fall into the
insurance gap and are unprotected
to some degree.
Over our three year partnership,
we have helped raise over
$500,000*
for All Hands and Hearts.
* This includes $49,000 match funded
by third parties.
A donation of
£350,000
is equivalent to funding an entire
school in Nepal, impacting more
than 360 students in the next
10 years.
“ All the one on one
conversations I had
with Beazley people
were really good - they
recognised the value of
what we were doing,
loved being a part of it,
were always involved in
evening activities, and
my favourite thing,
started thinking about
their lives back home.”
Tea m Nepa l helped bu i ld school
Nepal volunteer for
All Hands and Hearts
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Volunteering in Nepal
In 2015, a 7.8 magnitude earthquake
hit Nepal near the capital city
of Kathmandu. The impact was
devastating, with almost 9,000
people losing their lives and a further
23,000 being injured. There was
major destruction of infrastructure,
with more than 5,000 schools being
damaged or destroyed.
Thanks to our partnership with All
Hands and Hearts, volunteers from
Beazley were able to participate in
one of their projects for the third
year. Over 50 employees expressed
interest, and after a blind application
process, eight employees were selected.
They visited Nepal to help rebuild a school,
which accommodates 140 students.
Beazley colleagues around the world
fundraised over $15,000 (match funded
$15,000) through bake sales, quiz
nights, and global competitions
to support their colleagues during
their two week project in Nepal.
The volunteers were in Nepal from
Saturday 30 November to Sunday
15 December. They spent two
weeks working hard to help rebuild
Manakamana Basic School.
Beazley volunteers
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‘One down, 11 to go’
Match funding
The charity committee also provides
match funding for Beazley employees
that undertake their own charity
fundraising activities. We offer $750
(or local currency equivalent) per
employee and up to $5,000 per
team of three employees or more.
Some examples of colleagues who
used this are:
Chris Booth ran a half
marathon a month across
the UK, France, Portugal
and the Canary Islands.
He has raised over £500
so far.
Emma Whiteacre took part in a 10km
swim in the River Dart, raising over
£1,540 for Level Water, a charity
which provides swimming lessons
for children with physical and
sensory disabilities.
Beazley Hiking Challenge
Over three days in late
August ten Beazley
climbers raised over
$16,000 (match funded
$5,000) for All Hands
and Hearts, while scaling
four of Colorado’s mighty
Fourteeners.
Alex Hardy ran the
Bank of America
Chicago Marathon
to raise money for
Lurie Children’s
Hospital. He raised
over $4,985 and
was match funded
$750.
‘R u n, A lex , r u n’
$56,000 raised for BeLike Jake
BeLikeJake
A group of US employees
raised $56,000 for the
BeLikeJake foundation
who support the Children’s
Hospital of Philadelphia, a
long term Beazley client.
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Responsible business continued
Charity
continued
Highlights
Charity week
We raised over $7,200
during our charity week
in the UK and US, which
involved a presentation
from All Hands and Hearts,
a bake sale, an executive
mastermind session and
a Wimbledon screening.
Cha r it y week i n L ondon
Charity runs
JP Morgan London run
46 employees, including
our CEO Andrew Horton,
took part in the JP Morgan
run in London, raising
money for Macmillan Trust.
Colleagues around the
globe took part in similar
runs for local charities,
including ‘Strides of
Insurance’ in Paris, the
Inside Ride in Toronto,
and the Tunnels to Towers
run in Manhattan.
JP Morgan London run
Natural disasters
We respond to large-scale
disasters, especially if they affect
the communities where we work.
We donate to Disaster Emergency
Committee (DEC), a disaster relief
charity which brings 14 charities
together to help respond quickly
and effectively when a crisis hits.
We also support All Hands and
Hearts if they have an existing
project in the community affected.
In 2019, we donated over $7,000
to charities, including the relief
efforts following Hurricane Dorian
in The Bahamas, and Cyclone Idai
in Mozambique.
Paris: Strides of Insurance 2019
A sporting event aimed at fighting
cardiovascular diseases and
raising awareness to the public
and insurance employees
around this cause.
Strides of Insurance run
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Community
Our vision is to use our expertise, influence and
passion as a force for good in our local communities
around the globe.
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Our long-term global approach focuses on young
people, vulnerable adults and conservation. In 2019,
our primary focus has been young people and
children from lower socio-economic backgrounds.
Vulnerable adults – It’s important
to us and our people to support
the elderly and homeless in our
communities. We do this through
volunteering in programmes to tackle
root causes of these issues.
Conservation – We adopt an
honourable approach to how we should
protect and conserve our environment.
By restoring local parks and community
gardens, our communities will be
better able to enjoy these areas.
Beazley volunteers at an ELBA site
Our Dallas and Houston offices have
begun a partnership with Mission
Squash and are currently in the on-
boarding stage. They intend to develop
this partnership through 2020.
The New York office have partnered
with Reading Partners NYC to tutor
students in small groups throughout
the year.
Highlights:
Young people – We partner with a
number of educational charities to help
support local young individuals from
lower socio-economic backgrounds
through their education and into the
world of work.
Our global community
partnerships
Our London colleagues partner
with East London Business Alliance
(ELBA) to work on community projects,
including our Make a Difference
activities and student workshops,
meaning communities will be better
able to enjoy these areas.
Our Birmingham office began a new
partnership in September with Smiling
Families. Since then, they have hosted
a Children’s cinema event and run
a toy appeal.
Our Chicago office started a new
partnership with 826CHI and have
raised over $7,000 for the charity.
They have also completed their
training and have started volunteering
for field trips and tutoring.
Our Farmington colleagues partnered
with Camp Courant and throughout
the year have packed over 3,500
bags for campers, participated in the
annual run, and raised over $1,000
with internal fundraisers.
Camp Courant
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Responsible business continued
Community
continued
Make a Difference
More than 420 employees took part
in Make a Difference during 2019.
Make a Difference is our global
community volunteering programme,
with 2019 marking a fifth successful
consecutive year. Activities were
selected based on local need and
ranged from working at a farm to
harvesting crops for local food
pantries, sorting food at food banks,
preparing and serving meals to the
homeless, spending time with local
pensioners and upgrading community
facilities likes crèches and parks.
420+
employees took part in
Make a Difference 2019
Toronto office visit St. John’s Park to help keep it clean
London volunteers at Leyton Jubilee Park
New York prepares food for Loaves
& Fishes Soup Kitchen in the
office, with a group visiting the site
to deliver, setup and serve lunch.
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Our 2019 focus on Young People
Maths in Insurance workshop:
Volunteers in our London office worked on
supporting 32 aspiring students to learn about
maths related roles in the insurance market.
Hague Primary School
A group of Year 6 students from our school partner
visited the Beazley office and were introduced to the
world of insurance.
Reading Partners programme
We had 16 volunteers for our Reading Partners
programme in London and another 6 in New York.
“ I enjoy reading with my reading
partner because we laugh and
play games together, and it helps
me with my reading. It helps me
understand my book and clarify
things in my head.”
Year 5 student
“ There has been a direct
correlation between the children
making advanced progress in
reading and having a reading
partner. Our children are more
confident when meeting new
adults and able to have a
conversation, they are learning
about the wider world and
becoming more inquisitive.
The adults who join us from
Beazley are kind, inspiring and
it is truly wonderful to watch
them with our children every
week. We thank them for
their continued support.”
Year 6 teacher
Global Intern programme
In 2019 over 25 interns were given internships in our
local communities in New York, Farmington, San Francisco
and London.
Our interns worked for teams across the business. As well as
having valuable work experience, they spent time volunteering
in local food banks, engaged in social activities, and worked
on a Global Innovation Challenge.
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2019 intern cohert
“ Beazley’s ‘Summer Internship
Programme’ has provided valuable
insight as to how the insurance
industry works. Being able to work
on real cases and meet with clients has
allowed me to develop necessary skills in
communication and business acumen.
Furthermore, having the opportunity
to shadow people in other departments
has definitely opened up the idea of
working in the insurance industry
after university.”
Intern at Beazley
Toy appeals
We ran toy appeals in
our London, Birmingham,
Dublin, Chicago and
New York offices.
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Responsible business continued
Environment
In 2019 we significantly increased our focus on
the environment and employee engagement,
establishing an Environment Working Group
(EWG) in May which has a remit to materially
reduce the environmental footprint of our
operations. The group is led by Kelly Malynn
and has grown to more than 60 people globally.
We have been closely analysing
the sustainability of our offices
and commercial operations. We
continue to prioritise sourcing
sustainable office space, using
sustainable products in our fit-outs
and furniture choices, reducing our
paper usage and increasing recycling
opportunities.
Our focus is on the environmental
impact of our people, our places of
work and our business processes.
Through the EWG we are influencing
corporate decision-making, increasing
the environmental awareness of
our employees and helping them
to make more environmentally-
conscious choices.
Key developments in
2019 included:
Reports
We produced our annual Greenhouse
Gas Report employing 2018 data for
our non-US operations and for the four
largest offices in the US (Atlanta, NY,
Farmington and Chicago). We saw a
significant reduction in the emissions
associated with our UK electricity
consumption due to the reduced carbon
intensity of the UK grid. Business travel
fell from 2017 figures, but were in line
with travel pre-2017 levels.
Our offices
We moved from serviced offices to
Beazley offices in Birmingham (2018)
and Barcelona (2019), allowing us to
enhance recycling and green initiatives.
New builds in Munich and Birmingham
(2018), Barcelona (2019), New York
(2019) and Toronto (2019) enabled
a switch to appropriate sustainable
materials including LED lighting.
Wellbeing
The installation of sit/stand desks in
Paris, Dublin, Barcelona, New York and
Toronto encourages a healthier working
environment. Water filters introduced
in the new Barcelona, New York and
Toronto offices remove heavy metals,
fluoride etc, and ionises water to ensure
optimal pH levels. We have introduced
alternative milk options (soy and almond)
in all US offices and London and
Birmingham offices.
Recycling and waste
management
The EWG has conducted research
and an information campaign
about the best approaches to waste
management and recycling and has
promoted the use of the ‘Six Rs’
– Refuse, Reduce, Reuse, Repair,
Repurpose, Recycle.
We have removed desk bins in favour
of centralised trash and recycling in
Atlanta (2016), Barcelona (2019),
Toronto (2019) and New York (2019),
and following an awareness drive by
the EWG, around 80% of individual
bins in London. All US offices have
recycling bins and we have revitalised
and redistributed recycling plans;
Singapore and Barcelona are
following suit.
We are working to reduce paper towel
usage in rest rooms, while all new
offices (Dublin, Munich, Birmingham,
New York, Toronto, and Houston) are
installed with hand dryers.
Suppliers
We are conscious of the environmental
impact of our suppliers, and continue
to work to reduce emissions and
pollutants by, for example, sourcing
office and kitchen goods locally
across all offices, using local taxi
services or Uber and switching to
environmentally friendly cleaning
products in all US, London,
Birmingham and Dublin offices.
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The EWG is researching suppliers of
corporate gifts and kitchen items,
with a view to eliminating unnecessary
packaging, single-use plastics and
non-sustainable palm oil.
Carbon emissions report
Latest greenhouse gas emission figures
(tonnes CO2 equivalent)1
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Scope 1
34.17
Scope 2
722.81
Scope 3
6,637.68
tCO2e/employee/year
tCO2e/employee/year
6.8
Scope 1 and 2 emissions increased
due to expanded scope of reporting
Scope 3 emissions increased due to
increased business travel by air
1 For further information, please refer to page 70.
Awareness raising
During its first six months the EWG
has run two intranet takeovers, the
first on waste reduction and the
second on carbon emissions. It has
also hosted a number of live events,
which have been well attended.
Looking ahead, the biggest
contribution to Beazley carbon
footprint comes from flights. Ours
is a business that requires frequent
face to face contact with brokers
and clients but we will be exploring
opportunities to replace short
haul flights with train journeys
where possible.
We will also be exploring the carbon
footprint of the data centres Beazley
uses. There are significant differences
in the carbon footprint of data centres
primarily driven by the age of the
cooling systems used. Some newer
centres, such as one recently opened
in Wales, are 100% powered by
renewable energy.
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Responsible business continued
Marketplace
Our Marketplace workstream is all about using
insurance as a force for good, giving our clients
and insureds good reasons to do the right thing
and improving their risk and business profiles
by helping them to manage risks and adapt to
sustainability challenges.
Climate change is clearly a major
challenge for many of our clients
but we see it yielding business
opportunities for Beazley. Beazley
will be hiring a sustainability officer
in 2020 who will support many of the
objectives of this workstream.
Climate change impacts on insurers
may be three-fold:
Physical
The disruptive impacts of more frequent
or severe extreme weather events.
Transition
The business impact of the
decarbonisation process, which
may entail extensive policy, legal,
technology and market changes,
disruption to established business
models and potential obsolescence
and stranded assets and a switch to
appropriate sustainable materials.
Liability
The risk that parties who have
suffered loss or damage from climate
change seek to recover losses from
those they believe are responsible.
All these impacts on insurers may
equally be felt by our clients, so we
have an interest in working with them
to better understand and manage
these risks.
We have reported
into ClimateWise,
the insurance
industry’s initiative
to monitor climate
risks, since 2008.
In 2019, the reporting
framework was adapted to
more closely align with the
recommendations of the
Financial Stability Board’s
Taskforce on Climate-related
Financial Disclosures (TCFD).
Reflecting the fact that we are
still in the early stages of our
thinking on TCFD reporting,
the preliminary score for
our submission was 39%.
This compares with an
average score for Lloyd’s
market entities of 38%.
For further detail on Beazley’s
focus on climate change, please
see our standalone 2019
sustainability report
www.beazley.com
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Our US Innovation Group is also
exploring how to support insureds with
services that boost sustainability and
facilitate climate change adaptation in
anticipation of regulatory and industry
requirements. The group aims to take
a more proactive, rather than reactive,
approach to supporting insureds in risk
mitigation following such successful
examples as our healthcare underwriters
working with hospitals to improve patient
safety, and our cyber security risk
advisory offering.
Further analysis and reporting
is taking place across different
parts of the business, and will be a
growing area of focus for the group in
2020. As well as the 2019 General
Insurance Stress Tests, which
for the first time included climate
change scenarios, our architects
and engineers professional liability
team is conducting a pilot project to
understand how climate change may
impact on the liability exposures of
architects, engineers, contractors and
other related service providers we
insure. It is expected that this work
will help to develop a framework for
reporting across all business lines.
As part of our thinking around climate
change exposures, we delivered a
well-attended workshop on climate
change liability for underwriters, with
external experts in the subject matter
from Clyde and Co, Client Earth and
Acclimatise.
Climate change is a major issue
of discussion for us, internally and
externally, and we are participating in
the debate through various channels
such as the hosting of briefings in
Lloyd’s on resilience and adaptation
for property owners, climate change,
and renewable energy; press articles
including one by the head of our
reinsurance division, Patrick Hartigan,
on reinsurance and climate change in
Insurance Day; and contributing to a
forthcoming Lloyd’s report on Insuring
a Low Carbon World.
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Responsible business continued
Being Beazley is at the heart
of everything we do.
Responsible
underwriting –
compliance
It guides our behaviours, informs our
decisions, and enables us to do the
right thing.
We believe in doing business in a
manner that observes applicable law
and regulation and pays due regard
to the interests of our stakeholders.
To ensure that we consistently
meet this standard we operate a
group-wide compliance framework
designed to measure risk exposure,
govern decision-making and monitor
performance.
Our framework consists of systems
and controls, including:
• risk assessments;
• policies to ensure we comply
with regulations;
• staff training and awareness;
• compliance monitoring; and
• compliance reporting.
Staff training
The compliance framework is
supported by an annual staff training
programme covering topics such
as our approach to financial crime,
underwriting due diligence, conduct
risk and data security. We provide
training to staff when they join
Beazley and frequently throughout
the course of their employment to
ensure that we continue to operate
in a responsible manner.
Knowing our customers
Knowing our clients and business
partners is central to doing business
responsibly. It is key to managing risk
and ensuring we transact only with
reputable intermediaries, agents
and suppliers. We maintain various
policies, procedures and controls to
ensure compliance considerations are
embedded in our business processes.
Sanctions
As a responsible business, we adhere
to all applicable financial and trade
sanctions. We closely monitor sanctions
developments and are primed to
respond when changes occur. To ensure
compliance with applicable regimes, we
have embedded sanctions due diligence
procedures into our underwriting
and claims processes and ensure
continued understanding of sanctions
developments through staff training.
Anti-bribery and corruption
A strong belief in ethical business
practices underpins our relationships
with our customers and business
partners. To keep us connected to
this core value, we operate within strict
guidelines that govern the payment of
commissions, the exchange of gifts and
entertainment and all circumstances
capable of leading to a conflict of
interest. In particular, we maintain the
following policies and procedures which
ensure compliance with anti-bribery laws
in the jurisdictions in which we operate:
• anti-bribery policy
• gifts and hospitality record
and approval process
• conflicts of interest policy
• customer conduct protocol
• broker services protocol
• acquisition cost protocol
• anti-fraud policy
The exchange of gifts and hospitality
is closely monitored to ensure that
business decisions are free from
improper influence. Where there is a
risk of potential impropriety staff are
able to make use of various avenues
for reporting instances of bribery,
corruption or conflicts of interest.
Our anti-corruption policies are
supplemented by an annual risk
assessment which analyses our
business for exposure to high risk
jurisdictions, our distribution channels
and the classes of business we write.
Anti-money laundering
We have no appetite for Beazley
being used as a vehicle for financial
crime. Our controls include monitoring
transactions and ascertaining
the identity of our counterparties.
Instances of suspicious activity are
acted on in accordance with the
Beazley Financial Crime Policy, which
reflects the requirements of money
laundering and tax legislation in the
jurisdictions in which we operate.
Staff are trained to refrain from
entering into suspicious transactions
and to report all such activity to
the compliance team so that any
necessary notifications can be
made to external agencies.
www.beazley.com
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Conduct
We pride ourselves on how well we
can meet the needs of our customers;
conduct is therefore a core aspect of
our business. It permeates our culture
and informs how we design, market
and service our products. We ensure
the application of good conduct
principles by:
• promoting a top down culture that
places the customer centre stage;
• ensuring rigorous assessment,
design and review of our products;
• clearly and fairly marketing all
products and services;
• insisting on transparent
commission and remuneration
structures;
• maintaining oversight of delegated
authorities and other distribution
channels;
• operating a fair and responsive
claims and complaints
handling process; and
• safeguarding our customer data.
The standards we require of our staff
are set out in the Beazley Customer
Conduct Protocol. The protocol is
supplemented with periodic conduct
related training.
Data security
We have a robust approach to
information security and privacy
comprised of organisational, human
and technical controls designed to
safeguard data and the rights of
data subjects.
The following policies govern our
management of data:
• information security strategy
• information security policy
• information security risk assessment
and management policy
• global privacy policy and
privacy notice
These policies are well embedded in
our business processes and staff are
trained annually to apply principles of
information security in their day-to-day
role. To ensure consistent compliance
with data requirements, we undertake
frequent security testing and annual data
security/privacy audits. Our governance
structure enables the information
security and privacy function to escalate
and report data related matters without
restraint, thereby ensuring senior
management oversight of data risk
management at all times.
We are committed to upholding the
rights of data subjects, informing
them of the information we collect and
process, and ensuring that we only
collect what is required to deliver our
services. We observe the legal and
regulatory requirements of the various
jurisdictions within which we operate
and have a global privacy policy aligned
to European, North American, Canadian
and Singaporean privacy requirements.
In all, our information security and privacy
programme is built around a framework
of prepare, protect, detect, respond
and recover. This enables us to take
precautions, act decisively and protect
the interests of our data subjects.
Senior management oversight
Beazley’s executive management
is ultimately responsible for the
success of our compliance framework
and there is top down commitment
to ensuring good conduct and
regulatory compliance across the
group. Effective oversight of the
framework is achieved by analysing
our transactional data and monitoring
business operations.
Compliance monitoring reviews provide
assurance as to how well we are
doing and enable us to identify areas
that need improvement. By regularly
reporting the output of our monitoring
activities we also ensure that senior
management maintain oversight of
compliance risk across the group.
Whistleblowing
In line with our values, we actively
promote a culture that encourages
staff to speak up and escalate
concerns. In support of this, we
operate a whistleblowing policy and
process that allows for anonymous
reporting of concerns.
Such reports are treated with
the utmost confidentiality and in
accordance with all applicable
legal and regulatory requirements.
Annual reports are made to relevant
Beazley boards on the effectiveness
and operation of our whistleblowing
procedures.
Non-financial information statement
Beazley presents its non-financial information (NFI) statement in compliance with sections 414CA & 414CB of the
Companies Act 2006. The content required for this statement can be found throughout the report as per the below:
Environmental
matters
The company’s
employees
Social matters
Respect of
human rights
Anti-corruption and
anti-bribery matters
Chapter
Risk management; Responsible business; Directors’ report
Our key differentiators; Our business model; Statement of the chair; Chief executive’s statement; Q&A
with the chief executive; Operational update; Risk management; Responsible business; Section 172
statement; Directors’ report; Letter from our chair; Board of directors; Statement of corporate
governance; Letter from the chair of our remuneration committee; Directors’ remuneration report
Statement of the chair; Chief executive’s statement; Responsible business
Responsible business
Risk management; Responsible business
Page reference
44-65; 67-70
01-09; 16-23;
41-77; 79-124
16-21; 51-65
51-65
44-65
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Responsible business continued
Inclusion
and diversity
Developing diverse perspectives
and celebrating differences.
An initiative for everyone
At Beazley we appreciate and support
the mix of cultures, backgrounds
and experiences which represent
our organisation. Our clients welcome
having a diverse representation of
talent that draws from a combination
of perspectives. Our people also value
our inclusive culture and the efforts
being made in this area with 83% of
staff reporting being engaged by our
approach to inclusion and diversity
in the 2019 employee survey.
A number of initiatives were
undertaken during the year which
help support inclusion and diversity
at Beazley. We launched training
focusing on how unconscious bias
impacts our working lives, in order to
help with making fair decisions. The
year also saw the continuation of our
roll-out of agile ways of working which
allows us to attract and retain diverse
talent by providing our people more
control over their working day.
Our ongoing commitment
to gender diversity
During 2017 Beazley signed up to
participate in the HM Treasury’s
Women in Finance Charter. In doing
so we made a public commitment to
increase the percentage of females
in senior management from 28% to
at least 35% by the end of 2020. At
the beginning of 2019 32% of our
senior management were women,
however, we are pleased to announce
that as of the start of 2020 we have
achieved our goal, with 36% of our
senior management being women.
Employee diversity
Beazley plc board
Male
7
Female
4
Total 2020 – 11
Senior management
Male
74
Female
42
Total 2020 – 116
All employees
Male
787
Female
744
Total 2020 – 1,531
In 2020 we will be setting a new goal for
our commitment to gender diversity.
Additionally, female representation on
our plc board increased from 25% to
36% and executive committee from 13%
to 20% from 2018 to 2019 respectively.
To further support our commitment,
we continue our Insurance Supper
club membership, which provides
development training and events
for our female staff. In addition, we
launched our Beazley SHE employee
resource network during 2019.
Beazley SHE is a global network
with the aim of providing personal
and professional development
opportunities to women internally as
well as externally within the industry.
Inviting diverse perspectives
Through our recruitment practices
we aim to attract and retain a diverse
range of talent. Once hired we seek
to develop our people and encourage
them to share their individual
skills, opinions and experiences
to help shape our business. After
its successful launch in 2018, the
second cohort of NexCo was formed
in 2019. NexCo is a group consisting
of our younger talent from a broad
range of roles, backgrounds and
geographical locations, which aims
to get different perspectives on
the issues focused on at executive
level. The group is provided with
the monthly executive committee
papers and members meet on a
monthly basis to discuss, share ideas,
challenge the executive and even
make recommendations which the
business should consider. This allows
our future leaders to engage in key
projects they may not have otherwise
been aware of as well as present their
own ideas to executive members.
Membership is rotated every 12
months to maintain diversity of thought
and ensure a wide pool of leadership
development opportunities.
www.beazley.com
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In the spirit of inclusion, we want to
recognise calendar events that are
important to a range of our people.
During the year, our people shared
their personal stories related to black
history month, the festival of Diwali
and world mental health day among
others. We continue to encourage
personal story telling as a way to
ensure we maintain celebrating each
other, bringing us closer together and
embodying our inclusive culture.
2020 and beyond
We have made great strides during
2019, however, we recognise work
must be ongoing in order to maintain
and build on what we have achieved.
Along with finalising a new gender
diversity target, our 2020 focus will
include initiatives to support our
people from a race and ethnicity
perspective. This will include the
launch of a new employee
resource network.
Celebrating our differences
We are proud of our culture which
allows our people to feel included
and empowered to make changes
and drive progress in areas that
are important to them. This is
demonstrated by the success of our
employee led networks and initiatives.
In 2019, a small number of
passionate individuals were trained
as Wellness Champions as part of
a Lloyd’s mental wellbeing initiative.
Over the course of the year this small
group conducted ‘lunch and learns’
and presented on request in team
meetings about the importance of
good mental health and how we can
support one another and ourselves
through mental health challenges.
Our LGBT+ network, Proud@beazley,
has continued to go from strength to
strength. During 2019 they hosted
a number of internal events which
included an awareness event to
celebrate world AIDS day. Additionally,
we collaborated with our brokers
and fellow insurers to represent
the industry at Pride celebrations
in both London and New York.
Additionally, we also have an active
Young Professionals Network (YPN)
which connects our people across the
globe. The network aims to increase
networking opportunities, develop
skills, build career profiles and
widen access to the information and
opportunities within the insurance
sector. In 2019, YPN ran a number of
events including career discussions
with executive members.
“ During 2019 there has been
visible progress on inclusion
and diversity at Beazley,
particularly in relation to
gender diversity. Additionally,
there is strong evidence that
we are becoming an employer
of choice for individuals from
a wide variety of diverse
backgrounds. We are proud of
the progress made so far while
recognising we must strive for
continuous development and
improvement in all that we do.
In 2020 our aim is to continue
to attract and retain the best
possible talent so we benefit
from a range of perspectives.”
Sarah Booth
Chair of the diversity steering group
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Section 172 statement
The directors are fully aware of their responsibilities to promote the success of the
company in accordance with s172 of the Companies Act and have acted in accordance
with these responsibilities during the year. The board has identified that its key
stakeholders are: • our workforce • shareholders • customers • brokers • regulators
Beazley’s core values, which are
professionalism, integrity, effectiveness and
dynamic, reflect the company’s commitment
to do the right thing simply because it is the
right thing to do. The requirement to adhere
to this principle is embedded within all
job descriptions across the group.
Throughout the year the board
considered the wider impact of strategic
and operational decisions on the
company’s stakeholders. Examples
included the various board changes
undertaken throughout the year, the
change of auditors, the approval of
the Tier 2 debt raising by its subsidiary
Beazley Insurance dac, and the renewal
of the letter of credit and revolving credit
facility. The remuneration committee
also began consultation on updating the
company’s remuneration policy which
will be put to a shareholder vote at the
2020 AGM. The board believes that the
interests of all stakeholders are aligned in
these decisions. The company complies
with the Prompt Payment Code reporting
requirements and publishes its average
payment times for supplier invoices.
Where a supplier proposes payment
terms that differ from our standard terms,
the company uses its best endeavours to
accommodate the supplier’s terms.
The board receives an annual report from
the responsible business committee.
Further information on the company’s
responsible business strategy and how
the company aims to provide support for
our communities and the environment
are set out in the responsible business
report on pages 51 to 65.
How we engage:
• Our people: Our people are
fundamental to the long-term success
of the company. We have various
engagement mechanisms many of
which have been in place for a number
of years. Every other year we conduct
a company-wide employee survey
which provides an overall employee
engagement score. Overall employee
engagement in 2019 was 70%.
The board receives reports on the
results of the survey together with the
action plans that management intend
to take forward. The areas that had the
greatest improvement from the prior
survey were inclusion and diversity,
work/life balance, and empowerment
and autonomy, which reflects the efforts
that were made in these areas. In
addition, there are regular presentations
and updates given to staff, and feedback
is actively encouraged. When travelling
to Beazley’s offices, the executive
committee members and non-
executive directors will actively engage
with staff and often host question and
answer sessions. Emanating from the
requirements of the UK Governance
Code, enhancements were made to
employee engagement mechanisms
in 2019, with the introduction of the
‘Sounding Board’ which is chaired by
Bob Stuchbery. Bob is the non-executive
director nominated by the board to
bring the views of the workforce to
the boardroom. Bob has met with the
group twice in 2019 and will continue
to meet with the group ahead of board
meetings and the board strategy day in
2020. The board sees the input of this
group as being particularly important
in discussions on the group’s strategy,
and acknowledges this input will evolve
over time. For further information please
see pages 64 to 65.
• Our shareholders: The support and
engagement of our shareholders is
imperative to the future success of
our business. In all of their decision
making, the board ensured that they
acted fairly with regard to members
of the company. We have productive
ongoing dialogue with a number of
our investors. We are in touch with
all of our shareholders at least three
times per annum with information
about shareholder meetings, dividend
payments and the company’s financial
results. We have regular meetings with
institutional investors and analysts to
understand their views and address
any concerns. Towards the end of
2019 we entered into consultation with
over 20 of our largest shareholders
and three proxy advisory agencies
explaining proposed changes to our
remuneration policy. Having taken
the feedback of our shareholders on
board, further changes were made
to the recommended policy. These
changes included lowering the pension
contributions for executive directors
to be in line with the contribution
available to the wider workforce, and
the introduction of a minimum bonus
deferral. The remuneration committee
remains cognisant that it must ensure
that the remuneration policy remains
fit for purpose in order to attract
and retain the best talent. Other
engagement included the company’s
chair meeting with five of our
significant shareholders to understand
their views on the company.
• Our customers: Through our Closer to
the Client core strategic initiative, we
are focused on better understanding
the needs of our clients. One of the
key goals of the initiative is to ensure
that Beazley becomes a client-centric
organisation. The board receives
regular reports on the progress against
each of the strategic initiatives.
• Our broker partners: There is regular,
coordinated engagement with our key
broker partners which is facilitated
through our broker relations team.
There are a number of annual industry-
wide events that bring our senior
management together with the senior
leaders of the broking firms. The board
receives updates on our key broker
relationships.
• Regulators: We have transparent
communication with our key regulators
which is facilitated through our
compliance team. Our business teams
and the non-executive directors of
our regulated entities have ongoing
engagement with our regulators on an
ad hoc basis, including when requested
to discuss specific matters. Any
significant regulatory engagements
are reported to the board.
www.beazley.com
Beazley Annual report 2019
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Directors’ report
Principal activity
Beazley plc (registered number
09763575) is the ultimate holding
company for the Beazley group, a global
specialist risk insurance and reinsurance
business operating through: its managed
syndicates at Lloyd’s in the UK; Beazley
Insurance Company, Inc. and Beazley
American Insurance Company, Inc., both
of which are admitted insurance carriers
in the US; and Beazley Insurance dac, a
European insurance company in Ireland.
Review of business
A more detailed review of the business
for the year and a summary of future
developments are included in the
statement of the chair, the chief executive’s
statement and the financial review.
Results and dividends
The consolidated profit before taxation
for the year ended 31 December 2019
amounted to $267.7m (2018: $76.4m).
Management report
The directors’ report, together with
the strategic report on pages 1 to 70,
serves as the management report for the
purpose of Disclosure and Transparency
Rule 4.1.8R.
The directors announce a second interim
dividend of 8.2p per ordinary share
(2018 second interim dividend: 7.8p).
The dividend, together with the first
interim dividend of 4.1p per ordinary
share (2018 first interim dividend: 3.9p),
gives a total of 12.3p (2018: 11.7p).
Directors’ responsibilities
The statement of directors’
responsibilities in respect of the annual
report and financial statements is set out
on page 125.
The aforementioned second interim
dividend will be paid on 30 March 2020
to shareholders on the register on
28 February 2020.
Going concern and
viability statement
A review of the financial performance of
the group is set out on pages 32 to 40.
The financial position of the group, its
cash flows and borrowing facilities are
included therein.
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After reviewing the group’s budgets and
medium term plans, the directors have
a reasonable expectation that the group
has adequate resources to continue in
operational existence for the foreseeable
future. For this reason they continue
to adopt the going concern basis in
preparing the accounts.
In accordance with provision C.2.2 of
the UK Corporate Governance Code, the
directors have assessed the viability
of the group. The viability statement,
which supports the going concern basis
mentioned above, is included in the risk
management section on page 48.
Directors
The directors of the company who served during 2019 and/or to the date of this report were as follows:
David Lawton Roberts
David Andrew Horton
George Patrick Blunden
Martin Lindsay Bride
Adrian Peter Cox
Angela Doreen Crawford-Ingle
Nicola Hodson
Sally Michelle Lake
Christine LaSala
Sir John Andrew Likierman
Anthony Jonathan Reizenstein
John Peter Sauerland
Robert Arthur Stuchbery
Catherine Marie Woods
Non-executive chair
Chief executive
Non-executive director (resigned 21/03/2019)
Finance director (resigned 23/05/2019)
Director
Non-executive director (resigned 31/05/2019)
Non-executive director (appointed 10/04/2019)
Finance director (appointed 23/05/2019)
Non-executive director
Non-executive director
Non-executive director (appointed 10/04/2019)
Non-executive director
Non-executive director
Non-executive director
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Directors’ report continued
The board is complying with the
provision on annual re-election of all
directors in accordance with the UK
Corporate Governance Code. The
appointment and replacement of
directors is governed by the company’s
Articles of Association (the Articles), the
UK Corporate Governance Code (the
Code), the Companies Act 2006 and
related legislation. The Articles may be
amended by a special resolution of the
shareholders. Subject to the Articles, the
Companies Act 2006 and any directions
given by special resolution, the business
of the company will be managed by the
board who may exercise all the powers
of the company.
Further information can be found in the
statement of corporate governance
on page 79.
Directors’ interests
The directors’ interests in shares of
the company, for those directors in
office at the end of the year, including
any interests of a connected person
(as defined in the Disclosure and
Transparency Rules of the UK’s Financial
Conduct Authority), can be found in the
directors’ remuneration report on
pages 96 to 124.
Details of directors’ service contracts
are given in the directors’ remuneration
report. The directors’ biographies are set
out in the board of directors section of
this report.
Corporate governance
The company was compliant with
corporate governance during 2019. More
information on compliance is disclosed in
the statement of corporate governance
on pages 79 to 93.
Corporate, social and
environmental responsibility
The company’s corporate, social and
environmental activities are set out on
pages 51 to 65. During 2019 Beazley
and employees donated and raised over
$400,000 to charities, details of which
can be found in the responsible business
report on pages 52 to 54.
Risk management
The group’s approach to risk management
is set out on pages 44 to 50 and further
detail is contained in note 2 to the
financial statements on pages 155
to 168.
Substantial shareholdings
As at 5 February 2020, the board had been notified of, or was otherwise aware of, the following shareholdings of 3% or more of the
company’s issued ordinary share capital:
Fidelity Management & Research
MFS Investment Management
Invesco Perpetual
SKAGEN Fondene
Vanguard Group
BlackRock
Number of
ordinary shares
51,083,172
38,243,203
36,310,643
21,986,028
21,412,769
17,513,208
%
9.6
7.2
6.9
4.2
4.0
3.3
Note: All interests disclosed to the company in accordance with DTRs that have occurred can be found on the news and alerts section of our corporate website:
www.beazley.com
Recent developments and post
balance sheet events
Recent developments and post balance
sheet events are given in note 34 to the
financial statements on page 206.
Likely future developments
Information relating to likely future
developments can be found in the
strategic report.
Research and development
In the ordinary course of business
the group develops new products and
services in each of its business divisions
and develops IT solutions to support the
business requirements.
Employee engagement
We place great emphasis on open and
regular communication which helps to
ensure everyone knows what is going
on at Beazley. We have a number of
channels to share information and
gather feedback, including an intranet
which is accessible by all employees
and is updated at least every other day
with company news. We also email all
employees a weekly newsletter, and
provide the opportunity for colleagues
to join face to face presentations every
other week to hear about a specific
team/project/topic. Each week we host
a brief update for all colleagues to hear
progress on our strategic initiatives and
on a monthly basis our CEO provides a
bulletin giving information about general
happenings around the business and the
financial and economic factors affecting
us that month (when relevant).
Every other year all employees are
encouraged to take part in a survey
which measures the way our people
feel about the business, its vision and
aspirations. Our executive team host
regular face to face sessions with
employees in which they have the
opportunity to ask questions and share
ideas and vice versa. We also ask for
volunteers to work on projects outside
of their day jobs in order to give different
perspectives to decisions the company
is making. In addition, a group of
selected representatives from across the
business gather input and views on set
topics and provide those to the board.
www.beazley.com
Beazley Annual report 2019
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The directors have pleasure in presenting their report and the audited
financial statements of the group for the year ended 31 December 2018
In relation to performance relating to
reward, our employees’ annual bonus
relates to the performance of the company
as well as their own performance,
colleagues in the UK, the US, Ireland and
Singapore are able to join our Save As You
Earn scheme and a long term incentive
share plan is offered to senior employees.
Inclusion and diversity
Information concerning inclusion and
diversity can be found in the responsible
business section on pages 64 and
65 and in the statement on corporate
governance on page 83.
Part of our Beazley culture is creating
an open and inclusive environment
for all of our employees, celebrating
our differences and creating internal
networks to help us connect. We treat
everyone equally irrespective of age,
sex, sexual orientation, race, colour,
nationality, ethnic origin, religion,
religious or other philosophical belief,
disability, gender identity, gender
reassignment, marital or civil partner
status, or pregnancy or maternity. We
hire people with wider perspectives,
leading to a more dynamic, innovative,
and responsive organisation in
touch with the changing world and
marketplace. All applications for
employment are fully considered on
the basis of the skills and aptitudes
of the applicant concerned, including
those candidates with disabilities. In the
event an employee becomes disabled,
every effort is made to ensure that their
employment with the group continues,
and that appropriate support is arranged.
It is the policy of the group that the
training, career development and
promotion of disabled persons should,
so far as possible, be identical to that
of other employees.
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Share capital
As at 31 December 2019, the company’s
issued shared capital comprised
529,744,068 ordinary shares, each with
a nominal value of 5p and representing
100% of the total issued share capital.
Details of the movement in ordinary
share capital during the year can be
found in note 21 on page 186. There are
no restrictions on the transfer of shares
in the company other than as set out in
the articles of association and certain
restrictions which may from time to time
be imposed by law and regulations.
Authority to purchase own shares
On 21 March 2019 shareholders approved
an authority, which will expire on 21 June
2020 or, if earlier, at the conclusion of
the 2020 Annual General Meeting (AGM)
for the company to repurchase up to a
maximum of 52,776,127 ordinary shares
(representing approximately 10% of the
company’s issued ordinary share capital).
During the year, Beazley acquired
2,000,000 of its own shares into
its employee benefit trust.
The board continues to regard the ability
to repurchase issued shares in suitable
circumstances as an important part
of the financial management of the
company. A resolution will be proposed
at the 2020 AGM to renew the authority
for the company to purchase its own
share capital up to the specified limits
for a further year. More detail of this
proposal is given in the notice of AGM.
Significant agreements –
change of control
Details of an agreement to which the
company is party that alters on change
of control of the company following a
takeover bid are as follows:
The amended and restated $225m
multi-currency standby letter of credit
and revolving credit facility agreement
dated 25 July 2019 remains unchanged.
The agreement, which is between the
company, other members of the group
and various banks, provides that if any
person or groups of persons acting in
concert gains control of the company or
another group obligor, then: (a) the banks
are thereafter not obliged to participate
in any new revolving advances or issue
any letter of credit; and (b) the facility
agent may:
(i) require the group obligors to repay
outstanding revolving advances made to
them together with accrued interest; and
(ii) ensure that the liabilities under letters
of credit are reduced to zero or otherwise
secured by providing cash collateral in an
amount equal the maximum actual
and contingent liabilities under such
letters of credit.
Furthermore, the facility agreement
includes a covenant that no group obligor
(other than a wholly owned subsidiary)
will, without prior consent of the banks,
amalgamate, merge (within the meaning
of generally accepted accounting
principles in the UK), consolidate or
combine by scheme of arrangement or
otherwise with any other corporation or
person. If this covenant was breached
without prior consent, then the facility
agent may: (a) require the group obligors
to repay outstanding revolving advances
made to them together with accrued
interest; (b) ensure that the liabilities
under letters of credit are reduced to
zero or otherwise secured by providing
cash collateral in an amount equal
the maximum actual and contingent
liabilities under such letters of credit; (c)
declare that any unutilised portion of the
facility is cancelled; and (d) give a notice
of non-extension to Lloyd’s in respect of
any letter of credit.
Annual general meeting
The AGM of the company will be held at
14.30 on Wednesday 25 March 2020 at
Plantation Place South, 60 Great Tower
Street, London EC3R 5AD. The notice of
the AGM details the business to be put
to shareholders.
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www.beazley.com
Directors’ report continued
Greenhouse gas emissions
Beazley Group report 2018 UK and
European GHG emissions of 5,412.43
tonnes CO2 equivalent (tCO2e) a decrease
of 11% relative to 2017, 5% higher than
2016 emissions. 2018 Scope 1 and 2
emissions (611.39 tCO2e) continuing the
downwards trend, 15% lower than those
reported for 2017.
2018 GHG emissions for Beazley Group’s
four principal North American offices are
reported as 2,032.23 tCO2, 7% lower
than those reported for 2017, which had
an expanded scope of reporting relative
to 2016. 2018 Scope 1 and 2 emissions
(195.59 tCO2) are 9% lower than those
reported for 2017 – due to a combination
of reduced electricity consumption and
lower carbon intensity grid electricity.
Beazley’s corporate GHG emissions are summarised in the table below:
Beazley Group’s greenhouse gas
emission intensity ratio (reported Scope
1-3 emissions/employee/year) fell
from 7.7 tCO2e/employee in 2017 to
6.8 tCO2e/employee in 2018.
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
Total
tCO2e/employee/year
i)
ii)
Beazley’s European office reporting covers activity
associated with our principal UK office and Dublin
data centre. These sites collectively accounted for
86% of Beazley’s European employees in 2018.
Beazley’s US office reporting covers activity
associated with our four principal US offices,
Farmington, New York, Chicago Atlanta office.
These sites collectively accounted for 75% of
Beazley’s US employees in 2018.
iii) The scope of reporting for Beazley Group’s
European activities is the same as that used for
reporting 2017 GHG emissions. The 2018 scope
of reporting for the US offices expanded from
that for 2017 to include emissions associated
with personal car use for business travel.
iv) Greenhouse gas emissions are calculated
and presented in accordance with DEFRA
Environmental Reporting Guidelines, using the
UK Government’s GHG Conversion Factors for
Company Reporting where possible.
Auditor
EY LLP has indicated its willingness
to continue in office. Accordingly a
resolution to reappoint EY LLP as the
auditor of the company will be proposed
at the 2020 AGM.
European offices
2016: 51.48
2017: 39.47
2018: 34.17
2016: 886.83
2017: 683.63
2018: 577.22
2016: 4,235.00
2017: 5,380.06
2018: 4,801.04
2016: 5,173.31
2017: 6,103.16
2018: 5,412.43
North American offices
2016: data not available
2017: data not available
2018: data not available
2016: 170.21
2017: 214.91
2018: 195.59
2016: 1,483.74
2017: 1,977.05
2018: 1,836.64
2016: 1,653.95
2017: 2,191.96
2018: 2,032.23
2016: 7.1
2017: 7.7
2018: 6.8
vi) Reporting is based on operational control.
Beazley Group does not have operational
control over the building infrastructure and
plant at its offices due to the presence of facility
management companies and shared tenancy; as
a result, emissions primarily fall within Scope 2
and 3 of the Greenhouse Gas Protocol.
vii) Reported Scope 1 sources are: company cars,
fuel use in back-up generators and fugitive
refrigerant losses from AC systems. Emissions
associated with electricity used in Beazley’s
offices and Dublin data centre are reported as
Scope 2 emissions. Scope 3 sources include
business travel by air, rail, taxi and leased cars.
viii) UK and European office reporting covers activity
associated with our principal UK office, Plantation
Place South and our Dublin office. These sites
collectively accounted for 90% of Beazley’s UK/
European permanent and contracted staff in 2017.
By order of the board, covering the
strategic report from pages 1 to 70 and
the directors’ report from pages 67 to 70.
C P Oldridge
Company secretary
Plantation Place South
60 Great Tower Street
London
EC3R 5AD
5 February 2020
v)
GHG emissions are, where possible, calculated
using the BEIS conversion factors for ‘kgCO2e’
the sum of carbon dioxide, methane and nitrous
oxide emission factors. The exceptions to this
are emissions associated with:
• Refrigerants (Scope 1 emissions), which are
reported as carbon dioxide equivalent (CO2e)
emissions;
• Dublin office electricity use which is based on
information reported by the Sustainable Energy
Authority of Ireland (SEAI) and reported as tCO2 only.
• US office electricity use (Scope 2), where the
EPA ‘US Average’ emission factor for CO2 + CH4
+ N2O is used;
• US grid electricity transmission and distribution
(Scope 3) where the UK Government emission
factor is for carbon dioxide only (tCO2).
• US office business travel by rental car, personal
car and rail (Scope 3) where the US Environment
Protection Agency (EPA, 2018) emission factors
are used.
Disclosure of information
to auditor
The directors who held office at the
date of approval of this directors’
report confirm that, so far as they are
each aware, there is no relevant audit
information of which the company’s
auditors are unaware; and each director
has taken all the steps that he or she
ought to have taken as a director to
make himself or herself aware of
any relevant audit information and to
establish that the company’s auditors
are aware of that information.
www.beazley.com
Beazley Annual report 2019
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Letter from our chair
74
Board of directors
78
Investor relations
79
Statement of corporate governance
94
Letter from the chair of our remuneration committee
96
Directors’ remuneration report
125 Statement of directors’ responsibilities
126
Independent auditor’s report
Governance 72
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Letter from our chair
On behalf of the board of directors, I am pleased to present
the governance report in which we describe our governance
arrangements, the operation of the board and its committees
and how the board discharged its responsibilities throughout
the year.
Company purpose
The company has had a long established vision, and in addition, the board this
year discussed how to articulate the company’s purpose in the most appropriate
way. The board established the company’s purpose as follows:
“ To provide innovative risk transfer solutions and deliver excellent claims
service to our clients by creating a sustainable business for the benefit
of all our stakeholders.”
Board changes
I am pleased to report that your board remains highly engaged in fulfilling its principal tasks of leading the company and
overseeing the governance of the group. As mentioned on page 81, the board has continued to evolve with a number of
changes during the year and further developments planned for the forthcoming year. Martin Bride retired from the board on
23 May 2019 after having served as an executive director since 2009. Martin was succeeded on the board by Sally Lake
who was appointed on 23 May 2019. The board would like to express their thanks to Martin for the immense contribution
he made to the development of the group.
In accordance with the group’s policy on director independence and rotation, non-executive directors George Blunden (senior
independent director) and Angela Crawford-Ingle (chair of the audit and risk committee) stepped down from the board on
21 March 2019 and 31 May 2019 respectively. The board is immensely grateful to both George and Angela for being such
tremendous servants to the company during their tenure. The board welcomed John Reizenstein and Nicola Hodson who
were appointed as directors on 10 April 2019. John became chair of the audit and risk committee succeeding Angela on
31 May 2019. Nicola became a member of the audit and risk committee and brings to the board expertise in technology,
operations and data which we reported last year were additional skills that we were seeking. The board will be commencing
a search for an individual with relevant insurance expertise to enhance and complement the board’s skills. Following the
recommendations from the Parker Review the board is committed to increasing ethnic diversity and this will be a specific
consideration in future appointments.
Christine LaSala succeeded George Blunden in the role of senior independent director from 21 March 2019. Christine also
joined the nomination and remuneration committees from the same date. We have increased diversity across all of the board’s
committees during the year.
The company has an open culture where there is regular communication with the workforce. These mechanisms are well
embedded in the organisation and were enhanced this year when the board appointed non-executive director Bob Stuchbery
to bring workforce feedback into the boardroom. In addition to the regular engagement that the executive team has with
staff in all jurisdictions, the non-executive directors periodically travel to Beazley’s offices to meet with staff. Each year there
is an employee roadshow that showcases a number of presentations on strategy and interactive sessions on areas such as
inclusion and diversity. In May 2019, the board held some of its meetings, including the board strategy day, in the US. During
this visit, the board hosted a social event with all employees from our Farmington, CT office. The board also received a number
of presentations from US employees which gave them a broader view of the US succession pipeline. The board were also able
to meet with a number of employees working in the New York City offices during their time there. The US now has over 600
employees and the US is an important market for the group.
The board is well supported through continuous group development and training as well as individual development programs.
The board continues to devote significant attention to developing robust succession plans for both the board and senior
management. This will be increasingly important to ensure the optimum balance of expertise, skills and experience is available
across the group in a fast changing marketplace.
www.beazley.com
Beazley Annual report 2019
73
Board evaluation
In 2018, we appointed Boardroom Review Limited to undertake the triennial externally facilitated board evaluation.
As reported last year, the review concluded that the board, its committees and its individual members continue to
operate effectively. The review highlighted the following key areas that the board focused on in the coming year:
• reviewing the group’s governance structure;
• discussing whether to divide the audit and risk committee into separate committees;
• development of the role of internal audit within the organisation;
• non-executive director participation in a crisis simulation; and
• improving visibility and understanding of the changing competitive landscape.
Further details of the actions taken this year to improve the board’s performance can be found in the corporate governance
section of the report on page 83. The 2019 board and committee effectiveness reviews were carried out by way of internal
questionnaires. The board and its committees continue to operate effectively, but will be agreeing the actions that will be taken
forward in 2020 to further enhance performance. We will report on the progress in implementing the recommendations made in
the 2020 annual report.
Company culture
An update on culture is provided to the board on an annual basis, and it was also a topic of discussion at the board strategy day.
A number of information sources are used to gauge the company’s culture and these include: the employee engagement and
leadership surveys, grievances raised, feedback from leavers and customer complaints. During 2019, the communications, culture
and engagement team also ran informal sessions with employees across a number of locations to solicit anecdotal feedback on
the way employees perceive the culture of Beazley. An integral component of our culture is to empower our people to find the best
way to deliver results for the business, without confining them to a ‘one size fits all’ mentality. Beazley’s values - professionalism,
integrity, effectiveness and dynamic - support Beazley’s culture.
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Governance
The company continues to be committed to the highest standards of governance and I am pleased to confirm that the company
has complied with the principles and provisions that are set out in the 2018 UK Corporate Governance Code throughout the
year ended 31 December 2019. Details of the activities of the board and its committees are also set out on pages 79 to 93.
All directors will attend this year’s AGM, either in person or via teleconference, which will again provide an opportunity for all
shareholders to hear more about our performance and to ask questions of the board.
I would like to thank all of my colleagues on the board for their contribution during the year.
David Roberts
Chair
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www.beazley.com
Board of directors
www.beazley.com
Beazley Annual report 2019
75
An effective board of directors made
up of diverse and experienced members
Our committees and
committee chairs
The audit and risk committee assists the board of directors
in fulfilling its oversight responsibilities for the financial
reporting process, the system of internal control, the
audit process, and the company’s process for monitoring
compliance with laws and regulations and the code of
conduct. It also ensures that an effective risk management
process exists in the major regulated subsidiaries and that
the Beazley group has an effective framework and process
for managing its risks.
The remuneration committee ensures that remuneration
arrangements support the strategic aims of the business
and enable the recruitment, motivation and retention of
senior executives while complying with the requirements
of regulatory and governance bodies, satisfying the
expectations of shareholders and remaining consistent
with the expectations of the wider employee population.
The nomination committee is focused on evaluating
the board of directors, ensuring an appropriate balance
of skills, considering and recommending board and
committee candidates and considering board succession.
Governance framework
Board of directors
Audit and risk committee
The audit and risk committee is chaired
by John Reizenstein.
Nomination committee
The nomination committee is chaired
by David Roberts.
Remuneration committee
The remuneration committee is chaired
by Sir Andrew Likierman.
Executive committee
The executive committee is chaired
by Andrew Horton and acts under
delegated authority from the board.
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Beazley Annual report 2019
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Board of directors continued
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David Roberts
Chair
Appointed: 1 November 2017
Experience: David joined Beazley
on 1 November 2017 and
became chair on 22 March 2018.
He is chair of Nationwide
Building. Society and vice chair
of NHS England. He has over
30 years’ experience in financial
services and was previously
chair and CEO of Bawag PSK AG,
Austria’s second largest retail
bank, and an executive director
and member of the group
executive committee at Barclays
plc, where he was responsible
for the international retail and
commercial banking business.
Prior to joining Nationwide he
was group deputy chair at Lloyds
Banking Group. His previous
non-executive directorships
include Absa Group SA and
BAA plc.
Committee: Nomination
committee (chair)
Skills: governance, strategy,
board leadership and regulation.
Andrew Horton
Chief executive officer
Appointed: 12 June 2003*
Experience: Andrew joined
Beazley in June 2003 as finance
director and became chief
executive officer in September
2008. Prior to that he held
various financial positions within
ING, NatWest and Lloyds Bank
and was the chief financial officer
for the UK wholesale banking
division of ING immediately prior
to joining Beazley. He qualified as
a chartered accountant with
Coopers and Lybrand in 1987.
He joined the board of Man Group
plc in 2013 as a non-executive
director. Andrew currently chairs
the London Market Group.
Committee: Executive
committee (chair)
Skills: strategy, investment,
finance, mergers and acquisitions,
leadership and people
management.
N
N
Sally Lake
Group finance director
Appointed: 23 May 2019
Experience: A Fellow of the
Institute of Actuaries since 2004.
Sally joined Beazley in 2006
initially working with the specialty
lines division, the largest
underwriting division, for six
years. This gave her a breadth of
exposure to many aspects of the
business at Beazley, especially
focusing on claims analytics and
reserving. In 2012 Sally became
reserving manager and then
group actuary in 2014. As group
actuary Sally covered both pricing
and reserving, as well as capital
model validation. She became
group finance director in May
2019. Prior to joining Beazley,
Sally held financial positions
within Lane Clark & Peacock
where she qualified as an actuary
and PwC where she gained
experience in pensions.
Committee: Executive committee
Skills: reserving and actuarial
pricing, capital model validation,
leadership and people
management, inclusion and
diversity.
Adrian Cox
Chief underwriting officer
Appointed: 6 December 2010*
Experience: Adrian began his
career at Gen Re in 1993 writing
short tail facultative reinsurance
before moving to the treaty
department in 1997, where he
wrote both short and long tail
business specialising in financial
lines. He joined specialty lines
at Beazley in 2001 where he
performed a variety of roles
including underwriting manager,
building the long tail treaty
account, managing the private
enterprise teams and the
large risk teams before taking
responsibility for specialty lines in
2008. He took on the role of chief
underwriting officer in January
2019. Adrian was appointed to
the boards of Beazley Furlonge
Limited in 2008 and Beazley plc
in 2011.
Committee: Executive committee
Skills: insurance, management,
international business
development and governance.
John Reizenstein
Non-executive director
Appointed: 10 April 2019
Experience: John joined Beazley
in April 2019 as chair of the audit
and risk committee. He has more
than 30 years experience in
financial services, most recently
as chief financial officer of Direct
Line Insurance Group plc, from
which he retired in 2018. Prior
to that he held senior positions
in insurance and banking at
Co-operative Financial Services
and in investment banking at
Goldman Sachs and UBS. He is
a member of the Takeover Panel,
chair of Farm Africa and a trustee
of Nightingale Hammerson.
Committee: Audit and risk
committee (chair)
Skills: finance, strategy,
leadership, investment, and
mergers & acquisitions.
Nicola Hodson
Non-executive director
Appointed: 10 April 2019
Experience: Nicola joined the board
in April 2019. Nicola is vice
president field transformation,
for Microsoft Global Sales and
Marketing and was previously chief
operating officer for Microsoft UK.
She is a non-executive director
on the board of Drax Group plc
and is chair of its remuneration
committee. Nicola was formerly a
non-executive director at Ofgem,
a board member at the UK
Council for Child Internet Safety
and at the Child Exploitation
and Online Protection group.
Committee: Audit and risk
committee
Skills: strategy, leadership
and management. digital
transformation, sales & marketing.
change leadership and IT.
www.beazley.com
Beazley Annual report 2019
77
N
N
N
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Executive directors
Non-executive directors
* Where the appointment date of a
director pre-dates 13 April 2016
(being the date that Beazley plc
became the holding company of
Beazley Group) this appointment
date refers to their representation
on the Beazley Ireland Holdings plc
board (formerly Beazley plc).
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Catherine Woods
Non-executive director
Appointed: 1 January 2016*
Experience: Catherine has 35
years experience in financial
services as well as significant
governance experience. Her
executive career was with JP
Morgan in the City of London,
specialising in European financial
institutions. She is a former vice
president and head of the JP
Morgan European Banks equity
research team. She currently is
a non-executive director of
BlackRock Asset Management
(Ireland) and joins the Lloyds
Banking Group Board on 1 March
2020. She was previously
appointed by the Irish
Government to the Electronic
Communications Appeals Panel
and the Adjudication Panel to
oversee the rollout of the
National Broadband scheme.
Catherine is a former deputy
chair of AIB Group plc, former
chair of EBS DAC and former
non-executive director of AIB
Mortgage Bank and An Post.
Committees: Audit and risk
committee, remuneration
committee, nomination committee
Skills: insurance, strategy,
stakeholder management,
finance, governance, leadership
and management.
Christine LaSala
Non-executive director
Appointed: 1 July 2016
Experience: Based in New York,
Christine retired as chair of Willis
Towers Watson North America.
She has over 40 years of
management, client leadership
and financial experience in the
insurance industry including work
as an underwriter and 27 years
as an insurance broker working
with large corporate and public
institution clients. Christine’s
experience includes board and
leadership roles at Johnson &
Higgins and Marsh and 10 years
as CEO of the WTC Captive.
Committees: Audit and risk
committee, nomination
committee and remuneration
committee
Skills: insurance, strategy, risk
management, client leadership,
regulatory, governance and talent
and leadership development.
Sir Andrew Likierman
Non-executive director
Appointed: 25 March 2015*
Experience: Andrew is professor
of management practice at the
London Business School having
served as Dean from 2009-2017.
His career has spanned the
public and private sectors as
well as academic life, including
10 years as head of the UK
Government Accountancy
Service. He has had many
non-executive director
appointments, including at the
Bank of England, and is currently
also a non-executive director of
Times Newspapers Holdings Ltd
and Monument Corporation Ltd.
Committees: Remuneration
committee (chair),
nomination committee
Skills: accountancy, financial
services, and governance.
N
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Robert Stuchbery
Non-executive director and
employee voice of the board
Appointed: 11 August 2016
Experience: Bob had previously
been appointed as a non-executive
director to the board of Beazley
Furlonge Ltd, the group’s Lloyd’s
managing agency, where he
chairs the risk committee.
He brings extensive Lloyd’s
experience, having been chief
executive officer of Chaucer until
2015, and a deep knowledge
of the Lloyd’s market and
distribution and operational
strategies.
Committee: Audit and
risk committee
Skills: insurance, risk
management and strategy.
John Sauerland
Non-executive director
Appointed: 5 May 2016
Experience: John is chief financial
officer of the Progressive
Corporation, a US based
insurance holding company.
Prior to his current role, he was
Progressive’s personal lines
group president for eight years,
responsible for the company’s
primary business unit with $17bn
in revenues. During his tenure as
personal lines group president,
he led the introduction of many
innovations such as Name Your
Price® and Snapshot®, the
industry-leading pay-as-you-drive
offering. He also oversaw
significant growth of the
company’s direct marketing
efforts and consumer-facing
web and mobile technology.
Committee: Remuneration
committee
Skills: finance, pricing,
marketing and distribution.
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Investor relations
We place great importance on communication with shareholders. The annual report and accounts and the interim report are
available to shareholders on the company’s website (www.beazley.com). A mailed copy of the accounts is also available on
request. The company responds to individual letters from shareholders and maintains a separate investor relations centre
within the existing www.beazley.com website, as a repository for all investor relations matters.
Financial reporting for insurance companies can seem to be complex. In order to help shareholders and potential investors better
understand the key drivers of the business and its prospects, we have endeavoured to provide increasing levels of transparency
and explanation in our communications. As a result, in addition to enhancing the information contained in the annual and interim
reports, the investor relations centre on the company website contains a substantial amount of relevant information for investors,
including key corporate data and news, presentations to analysts, information for the names of syndicates 623 and 5623 and
special purpose syndicate 6107, analyst estimates and a financial calendar. The website also gives investors the opportunity to
sign up for an alert service as new information becomes available.
There is regular dialogue with institutional shareholders, as well as general presentations after the preliminary and interim results.
The board is advised of any specific comments from institutional investors to enable it to develop an understanding of the views
of major shareholders. All shareholders have the opportunity to put questions at the company’s annual general meeting.
The company’s shares are listed on the London Stock Exchange. Prices are given daily in newspapers including the
Financial Times, The Times, the Daily Telegraph, the Daily Mail and the Evening Standard.
Shareholding by type of investor
Mutual Funds
Retail
Pensions
SWF
Insurance
Investment Trusts
Trading
ETF
Directors
Charities
Hedge funds
54%
13%
9%
7%
6%
4%
2%
2%
1%
1%
1%
There are currently 13 analysts publishing research notes on the group. In addition to research coverage from Numis and
JP Morgan, the company’s joint corporate broker, coverage is provided by Autonomous, Credit Suisse, Investec, Jefferies,
Keefe Bruyette & Woods, Morgan Stanley, Peel Hunt, Shore Capital, Exane Paribas, UBS and RBC.
Share price performance
800
700
600
500
400
300
200
100
0
Jan
2006
Jan
2007
Jan
2008
Jan
2009
Jan
2010
Jan
2011
Jan
2012
Jan
2013
Jan
2014
Jan
2015
Jan
2016
Jan
2017
Jan
2018
Jan
2019
Jan
2020
Beazley
MCX Index
ASX Index
FTSE 350 Index
Financial calendar
28 February 2020
25 March 2020
30 March 2020
23 July 2020
Second interim dividend record date
Annual general meeting
Second interim dividend payment date for the six months ended 31 December 2019
First interim dividend announcement for the six months ended 30 June 2020
www.beazley.com
Beazley Annual report 2019
79
Statement of corporate governance
Compliance with Code provisions
The board confirms that the company and the group have complied with the provisions set out in the 2018 version of the Financial
Reporting Council’s UK Corporate Governance Code (the Code) throughout the year ended 31 December 2019.
The Code can be viewed on the www.frc.org.uk website. The governance section, together with the directors’ and remuneration
reports, describes how we have applied the main principles of the Code and complied with its detailed provisions.
The board considers that the annual report and accounts, taken as a whole, are fair, balanced and understandable; and that
they provide the information necessary for shareholders to assess the company’s performance, business model and strategy.
The company’s auditors have reviewed the company’s compliance to the extent required by the UK listing rules for review by
auditors of UK listed companies.
The board is accountable to the company’s shareholders for good governance and the statements set out below describe how
the main principles identified in the Code have been applied by the group.
Governance framework
The company operates through the main board, the managing agent board, the board of the Irish insurance company (that accepts
non-life reinsurance premiums ceded by the corporate member, Beazley Underwriting Limited), the board of the US admitted
insurance companies and their board committees. The group has established properly constituted audit and risk, remuneration,
nomination and disclosure committees of the board. There are terms of reference for each committee and details of their main
responsibilities and activities in 2019 are set out on pages 80 to 93. Andrew Horton as the chief executive officer, has also
constituted an executive committee that he chairs and which acts under delegated authority from the board. The executive
committee meets on a monthly basis and is responsible for managing all activities of the operational group. The governance
framework of the main board and its committees is shown in the diagram on the following page.
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The roles of the chair and chief executive are separate, with each having clearly defined responsibilities. They maintain a close
working relationship to ensure the integrity of the board’s decision making process and the successful delivery of the group’s
strategy. The board evaluates the membership of its individual board committees on an annual basis and the board committees
are governed by terms of reference which detail the matters delegated to each committee and for which they have authority to
make decisions. The terms of reference for the board committees can be found on www.beazley.com.
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Statement of corporate governance continued
Company secretary
Christine Oldridge
Key responsibilities
The company secretary’s responsibilities
include ensuring good information flows within
the board and its committees and between
senior management and non-executive
directors, as well as advising the board
through the chair on all governance matters.
Shareholders
Chair
David Roberts
Key responsibilities
The chair leads the board, managing constructive dialogue
between executive and non-executive directors. He is
responsible for ensuring that the board discharges its
duties effectively.
The board
Key responsibilities
Leadership, strategic aims, risks, values and standards.
Christine LaSala
Sir Andrew Likierman
John Reizenstein
John Sauerland
Robert Stuchbery
Catherine Woods
Chief executive
Andrew Horton
Key responsibilities
The chief executive
is responsible for the
implementation and delivery
of the strategy agreed by
the board and the day to
day management of the
business.
Chair
David Roberts
Members
Adrian Cox
Nicola Hodson
Andrew Horton
Sally Lake
Audit and risk
committee
Chair
John Reizenstein
Members
Nicola Hodson
Christine LaSala
Robert Stuchbery
Catherine Woods
Key responsibilities
The audit and risk
committee assists the board
of directors in fulfilling its
oversight responsibilities
for the financial reporting
process, the system of
internal control, the audit
process and the company’s
process for monitoring
compliance with laws and
regulations and the Beazley
Code of Conduct. It also
ensures that an effective
risk management process
exists in the major regulated
subsidiaries and that the
Beazley group has an
effective framework
and process for managing
its risks.
Nomination
committee
Chair
David Roberts
Remuneration
committee
Disclosure
committee
Executive
committee
Chair
Sir Andrew Likierman
Chair
Sally Lake (or her nominee)
Chair
Andrew Horton
Members
Christine LaSala
Sir Andrew Likierman
Catherine Woods
Members
Christine LaSala
John Sauerland
Catherine Woods
Key responsibilities
The nomination committee
is focused on evaluating the
board of directors, ensuring
an appropriate balance of
skills, considering and
recommending board and
committee candidates and
considering board
succession.
Key responsibilities
The remuneration
committee ensures that
remuneration arrangements
support the strategic aims
of the business and enable
the recruitment, motivation
and retention of senior
executives while complying
with the requirements of
regulatory and governance
bodies, satisfying the
expectations of shareholders
and remaining consistent
with the expectations of the
wider employee population.
Members
Andrew Horton
(or his nominee)
Andrew Pryde
Christine Oldridge
Key responsibilities
The disclosure committee
has responsibility to oversee
the implementation of the
governance and procedures
associated with the
assessment, control
and disclosure of inside
information in relation to
the company.
Members
Adrian Cox
Beth Diamond
Mike Donovan
James Eaton
Ian Fantozzi
Patrick Hartigan
Sally Lake
Lou Ann Layton
Richard Montminy
Andrew Pryde
Jerry Sullivan
Christian Tolle
Tim Turner
Pippa Vowles
Key responsibilities
The executive committee
manages all operational
activities of the group and
acts under the powers
delegated by the board.
It has responsibility for
proposing strategic
initiatives and group/
syndicate business plans
to the board as well as
for reviewing the risk
management framework
and oversight of the group’s
sub-committees and
business functions.
The information above is as at 5 February 2020.
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Beazley Annual report 2019
81
The board
The board has a schedule of matters reserved for its decision. This includes inter alia: strategic matters; statutory matters
intended to generate and preserve value over the longer term acquisitions; approval of financial statements and dividends;
appointments and terminations of directors, officers and auditors; and appointments of committees and setting of their terms
of reference. It is responsible for: reviewing group performance against budgets; approving material contracts; determining
authority levels within which management is required to operate; reviewing the group’s annual forecasts; and approving the
group’s corporate business plans, including capital adequacy and the Own Risk and Solvency Assessment (ORSA). The board
is responsible for determining the nature and extent of the principal risks it is willing to take in pursuing its strategic objectives.
To this end, the board is responsible for the capital strategy, including the group’s Solvency II internal model.
The board consists of a non-executive chair, David Roberts, together with seven independent non-executive directors, of whom
Christine LaSala is the senior independent non-executive director, and three executive directors, of whom Andrew Horton is chief
executive officer. The non-executive directors, who have been appointed for specified terms, are considered by the board to be
independent of management and free of any relationship which could materially interfere with the exercise of their independent
judgement.
George Blunden stepped down from the board on 21 March 2019 and was replaced as senior independent non-executive director
by Christine LaSala. As senior independent director Christine will, if required, deputise for the chair. She is available to talk to
shareholders if they have any issues or concerns or if there are any unresolved matters that shareholders believe should be
brought to her attention. Angela Crawford-Ingle also stepped down from the board and as chair of the audit and risk committee
on 31 May 2019. On 10 April 2019, the board appointed Nicola Hodson and John Reizenstein as non-executive directors.
John Reizenstein was also appointed as chair of the audit and risk committee following Angela Crawford-Ingle’s retirement.
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Martin Bride retired as an executive director on 23 May 2019 and was replaced by Sally Lake, as group finance director on the
same date.
In accordance with the Code, the board has recommended that all directors should submit themselves for election or re-election
on an annual basis and as such all directors will stand for election or re-election at the forthcoming AGM.
Biographies of current board members appear in the board of directors section of this report. The biographies indicate the high
level and wide range of business experience that are essential to manage a business of this size and complexity. A well defined
operational and management structure is in place and the roles and responsibilities of senior executives and key members of staff
are clearly defined.
Board meeting attendance
The full board meets at least five times each year and more frequently where business needs require. In 2019, in addition to
the five regular board meetings, there were further meetings to consider the Q1 and Q3 2019 interim trading statements. All the
directors also attend an annual strategy day. The nomination, audit and risk committees had additional ad hoc meetings with full
attendance. The chair holds regular meetings with the non-executive directors without the executive directors being present.
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Statement of corporate governance continued
Attendance at the regular board and committee meetings is set out in the table below:
Director
George P Blunden 1
Martin L Bride 2
Adrian P Cox
Angela D Crawford-Ingle3
Nicola Hodson4,5
D Andrew Horton
Sally M Lake6
Christine LaSala7
Sir J Andrew Likierman
A John Reizenstein4
David L Roberts
John P Sauerland
Robert A Stuchbery
Catherine M Woods8
Board
Audit and risk
committee
Remuneration
committee
Nomination
committee
No. of
meetings
1
2
5
2
4
5
3
5
5
4
5
5
5
5
No.
attended
1
2
5
2
4
5
3
5
5
4
5
5
5
5
No. of
meetings
2
–
–
3
4
–
–
6
–
4
–
–
6
6
No.
attended
2
–
–
3
3
–
–
6
–
4
–
–
6
6
No. of
meetings
2
–
–
–
–
–
–
4
6
–
–
6
–
6
No.
attended
2
–
–
–
–
–
–
4
6
–
–
6
–
5
No. of
meetings
1
–
–
–
–
–
–
4
5
–
5
–
–
5
No.
attended
1
–
–
–
–
–
–
4
5
–
5
–
–
4
1 George Blunden resigned as a director on 21 March 2019.
2 Martin Bride resigned as a director on 23 May 2019.
3 Angela Crawford-Ingle resigned as a director on 31 May 2019.
4 Nicola Hodson and John Reizenstein were appointed to the board and audit and risk committee on 10 April 2019.
5 Nicola Hodson was unable to attend her first meeting of the audit and risk committee due to a scheduling clash.
6 Sally Lake was appointed to the board on 23 May 2019.
7 Christine LaSala was appointed to the remuneration and nomination committees with effect from 21 March 2019.
8 Catherine Woods was unable to attend the nomination and remuneration committee meetings in September 2019 due to a longstanding schedule clash.
Where a director joined or stood down from the board or board committee during the year only the number of meetings
following appointment or before standing down are shown.
Board discussions during the year
At each scheduled meeting the board receives reports from the chief executive officer and group finance director on the
performance and results of the group and also receives reports from the chief underwriting officer and the chief risk officer and
any board committees following their meetings. In addition the board receives updates from the group operating functions on
major projects and corporate governance matters.
There is an annual schedule of rolling agenda items to ensure that all matters are given due consideration and are reviewed
at the appropriate point in the financial and regulatory cycle. Meetings are structured to ensure that there is sufficient time for
consideration and debate of all matters.
During the year, the board has spent time particularly on:
• review of strategic initiatives;
• review of the competitive landscape;
• discussing the actions arising from the board effectiveness review, and in particular the subsequent governance review and
whether the audit and risk committee should be divided into two separate committees;
• climate change and the risks and opportunities associated with it;
• engagement with the workforce and key stakeholders;
• reviewing the letter of credit facility and debt issuance by subsidiary Beazley Insurance dac;
• discussing the prioritisation of investment expenditure;
• Solvency II reporting;
• review of risk management framework, including risk appetite;
• continued monitoring of developments and responding to requirements for Brexit;
• review of the Own Risk and Solvency Assessment (ORSA);
• cyber product development and cyber security; and
• review of developments in corporate governance and receipt of key legal and regulatory updates.
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Beazley Annual report 2019
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Beazley continues its support for the Inclusion Behaviours Pledge. This is a public commitment made by members of the
insurance sector, which reinforces Beazley’s promise to challenge inappropriate behaviour and create increasingly welcoming
and inclusive workplaces in our sector. Beazley also remains a member of the Women in Banking & Finance forum to share best
practice and offer networking and development opportunities to our female talent through their programme.
Beazley is signed up to HM Treasury’s Women in Finance Charter. The aim of the Charter is to help build a more balanced and fair
financial services industry, by working together with other signatories to see gender balance at all levels across the sector. We are
also a member of the 30% Club, which further demonstrates our commitment to gender diversity.
The Beazley inclusion and diversity steering group provides inclusion and diversity support for all employees and aims to foster open
dialogue about gender, social, ethnicity, LGBT+, disability and parental/carer inclusion. Beazley currently has an LGBT+ network and
young professionals network in place. In late 2019, Beazley launched an internal/external network, Beazley SHE, to support Successful,
High potential, Empowered women in insurance, providing them opportunities for personal and professional development.
Beazley continues to work with Stonewall and the Business Disability Forum. Both organisations work closely with Beazley to
identify the best support for our colleagues in the LGBT+ community, and for those living with disabilities, to help Beazley become
a more inclusive and supportive place to work.
Training, information and support
New directors receive appropriate induction training when they join the board of Beazley plc. They are asked to complete a skills
and knowledge assessment and the company secretary, in conjunction with talent management, arranges and coordinates the
appropriate training. There are a number of modules available to the directors which are regularly reviewed to ensure they meet
best practice and the changing business environment. Where appropriate, mentoring is provided to new directors by an external
provider. Annual training is provided for all directors. The training sessions include business and industry specific topics and
information on changes to director duties and responsibilities and to legal, accounting, information security and tax matters.
Bespoke training will also be provided if requested by any director.
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To enable the board to function effectively and directors to discharge their responsibilities, full and timely access is given to all
relevant information. In the case of board meetings, this consists of a comprehensive set of papers, including regular business
progress reports and discussion documents regarding specific matters. Directors have access to an electronic information
repository to support their activities. During 2019, the board continued to support the maintenance and development of Beazley’s
information security programme to address changing and emerging cyber security threats. Director training included sessions
on governance, investments and on the capital model. All directors allocate sufficient time to the company to enable them to
discharge their responsibilities effectively. The terms and conditions of appointment for all the non-executive directors set out the
expected time commitment and they agree that they have sufficient time to provide what is expected of them.
There is an agreed principle that directors may take independent professional advice if necessary at the company’s expense,
assuming that the expense is reasonable. This is in addition to the access which every director has to the company secretary.
The company secretary is charged by the board with ensuring that board procedures are followed.
Board performance evaluation
Under the UK Corporate Governance Code, the board is required to undertake formal and rigorous evaluation of its own
performance and that of its committees and individual directors and this should be externally facilitated every three years.
The board and its committees consider their effectiveness regularly. An assessment was externally facilitated in 2018 by
Boardroom Review Limited and an internal review was conducted in 2019. The recommendations from the 2018 review were
progressed and discussed with the board throughout the year. One of the actions was to conduct a review the group’s governance
structure to explore credible options and alternatives for information flows and agendas, and to identify any potential vulnerabilities.
A number of recommendations were adopted as a result of the review, including a number of amendments to the matters reserved
for the board. A further recommendation from the external assessment was to consider the division of the audit and risk committee
into separate committees. After some robust discussions, the board decided to reformat the way the committee operated, placing
an increased focus on risk. The board will continue to keep a watching brief during the following year as to how effective the change
has been. The board agreed at its last meeting of the year that the other actions from the review had been completed. The board
will agree an action plan from the 2019 internally facilitated assessment in early 2020 and report on the action taken in the 2020
annual report. The reviews concluded that the board and its committees continue to operate effectively.
Audit and internal control
Following the audit tender carried out in 2018, EY have been appointed as the new external auditor for the 2019 accounting year,
as approved by the shareholders at the 2019 AGM. Further details of the transition of the audit from KPMG to EY can be found in
the audit and risk committee report.
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Statement of corporate governance continued
The respective responsibilities of the directors and the auditors in connection with the accounts are explained in the statement
of directors’ responsibilities and the independent auditor’s report, together with the statement of the directors on going concern
in the directors’ report.
The board confirms that there is a continuous process for identifying, evaluating and managing any significant compliance issues
and risks facing the group. All significant known risks are captured in the Beazley risk register and monitored on a monthly basis.
The risk register and the related internal capital assessment process are subject to review, challenge and approval by the board.
The board agreed the 2019 risk appetite for the group at the end of 2018 and, throughout 2019, the board has considered and
acted upon the information presented to it in order to make risk based decisions against the 2019 risk appetite. Key components
of the risk management framework include monthly control self assessments and six monthly risk assessments, with ad hoc
risk assessments being conducted when required. These matters have been considered by the executive risk and regulatory
committee each month and the audit and risk committee and board quarterly. In addition, the board has considered the quarterly
Own Risk and Solvency Assessment report in the past year. This risk management framework has provided the board with an
ongoing process for identifying, assessing, monitoring and managing the risks to the company, and accords with the UK Financial
Reporting Council’s ‘Guidance on Risk Management, Internal Control and Related Financial Business Reporting’ document.
The board is responsible for the group’s system of internal control and for reviewing its effectiveness. However, such a system
can only provide reasonable, not absolute, assurance against material misstatement or loss. The system is designed to manage,
rather than eliminate, the risk of failure to achieve business objectives within the risk appetite set by the board.
The key procedures that the board has established to ensure that internal controls are effective and commensurate with a group
of Beazley’s size include:
• day-to-day supervision of the business by the executive directors;
• review and analysis by the various group committees of standard monthly, quarterly and periodic reporting, as prescribed by the board;
• review of financial, operational and assurance reports from management; and
• review of any significant issues arising from internal and external audits.
The board therefore confirms that it has, during 2019, reviewed the effectiveness of the group’s risk management and internal
controls (including financial, operational and compliance controls), which have been in place throughout the year under review
and continue to operate up to the date of approval of the annual report and accounts.
The chair of the audit and risk committee also had regular contact with external and internal auditors during 2019 and members
of the audit and risk committee met individually with the Central Bank of Ireland and the Prudential Regulation Authority.
Further information on the role of the audit and risk committee is set out on page 85 and further information on risk management
at Beazley is set out in the risk management report.
Shareholder engagement
The company places great importance on communication with shareholders. The annual report and accounts and the interim
report are available from www.beazley.com and, where elected or on request, will be mailed to shareholders and to stakeholders
who have an interest in the group’s performance. The company responds to individual letters from shareholders and maintains a
separate investor relations centre within the existing www.beazley.com website, as a repository for all investor relations matters.
There is regular dialogue with institutional shareholders, as well as general presentations attended by executive directors, after
the preliminary and interim results. The board is advised of any specific comments from institutional investors, to enable it to
develop an understanding of the views of major shareholders. All shareholders have the opportunity to put forward questions at
the company’s annual general meeting.
The company has the authority within its articles to communicate with its shareholders using electronic and website
communication and to allow for electronic proxy voting.
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Beazley Annual report 2019
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Statement of corporate governance continued
Audit and risk committee
The role of the committee is to assist the
board of directors in fulfilling its oversight
duties for the financial reporting process,
the system of internal control, the audit
process and the company’s process for
monitoring compliance with laws and
regulations and the Code of Conduct.
This role is unchanged from previous
years and in order to perform this role
effectively the committee works with
management and key stakeholders
to ensure that the risk and control
framework within Beazley remains
robust and appropriate for the group
in the current environment. In addition
to assessing the risk and control
framework, in 2019 the committee
also considered a number of specific
topics such as monitoring of changes in
regulatory and tax environments, and
continued to assess the risks associated
with Brexit.
The board has delegated
oversight of audit and risk
matters to the audit and risk
committee which currently
comprises John Reizenstein
(chair), Catherine Woods,
Nicola Hodson, Christine LaSala
and Robert Stuchbery.
In 2019 the audit
and risk committee
discussed a wide range
of topics against the
changing landscape
John Reizenstein
Non-executive director
Membership and attendance – audit and risk committee
Angela Crawford-Ingle
George Blunden
John Reizenstein
Nicola Hodson
Christine LaSala
Robert Stuchbery
Catherine Woods
Appointment
27 March 2013
resigned 31 May 2019
1 October 2010
resigned 21 March 2019
10 April 2019
10 April 2019
1 July 2016
11 August 2016
11 March 2016
Attendance at full
meetings during 2019
3/3
2/2
4/4
3/4
6/6
6/6
6/6
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As part of the appointments process
the nomination committee reviewed the
membership of the committee during the
year. Taken as a whole, the committee
has an appropriate balance of skills
specific to the industry within which the
group operates, including recent and
relevant financial experience, as required
by the UK Corporate Governance
Code. Details of the members’ relevant
financial experience are given in their
biographies under ‘board of directors’
on pages 76 and 77. All committee
members are independent non-
executives.
There is regular attendance by plc audit
and risk committee members at the
group’s regulated subsidiary audit and/
or risk committees. The committee
also receive regular updates from
the audit and risk committees of the
group’s regulated subsidiaries. This
further demonstrates our proactive
approach to understanding our control
and risk environment at all levels of the
organisation.
Only members of the committee have
the right to attend meetings; however
standing invitations are extended to the
chair, chief executive officer, the group
finance director, the chief risk officer,
the head of internal audit and the head
of compliance. Other non-members may
be invited to attend all or part of any
meeting as and when appropriate.
The company secretary acts as secretary
to the committee.
The audit and risk committee is required
to meet at least quarterly, with meetings
scheduled at appropriate intervals in
the reporting and audit cycle. Additional
meetings are held as required. In 2019
there were a total of 6 meetings in the
year compared to 7 meetings in 2018.
The internal and external auditors attend
committee meetings and regularly meet
in private with the committee. In addition
the chair of the audit and risk committee
has regular contact with the external
and internal auditors throughout the
year and members of the committee met
individually with the Central Bank
of Ireland and the Prudential Regulation
Authority during 2019.
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Statement of corporate governance continued
Audit and risk committee continued
Responsibilities of
the committee
The committee’s main audit-related
responsibilities are broadly unchanged
from the prior year and are detailed in
the section below.
The primary role of the audit and risk
committee in relation to financial
reporting is to monitor the integrity of
the financial statements of the group
and any formal announcements relating
to the group’s financial performance,
and to review significant financial
reporting judgements. The committee
has continued to approach its review of
the annual report as a whole with focus
on behalf of the board on considering
the concept of ‘fair, balanced and
understandable’.
We have challenged ourselves to ensure
the key messages about the performance
of the business are delivered in a manner
consistent with our own understanding
and interpretation of the information
we receive.
The committee also monitors the integrity
of the group’s Solvency II reporting and
financial statements. The committee
receives reports annually for review and
recommendation to the board.
Specific committee responsibilities are
set out below:
Audit and financial reporting
a) Financial and narrative reporting
• monitor the integrity of the company’s
financial statements and any other
formal announcements relating to the
company’s financial performance;
• review the annual report before
submission to, and approval by, the
board, and before clearance by the
external auditors. This covers critical
accounting policies, significant
financial reporting judgements, the
going concern assumption, compliance
with accounting standards and other
requirements under applicable law
and regulations and governance codes
applicable to the financial statements;
• advise the board on whether, taken
as a whole, the annual report is fair,
balanced and understandable and
provides the information necessary for
shareholders to assess the company’s
performance, business model and
strategy; and
• review the Solvency and Financial
Condition Report and Regular
Supervisory Report as required.
b) Internal audit
• recommend the appointment or
termination of appointment of the
head of internal audit;
• monitor and review the effectiveness of
the company’s internal audit function;
• receive a report on the results of
the internal auditor’s work, review
internal audit reports and make
recommendations to the board on a
periodic basis; and
• review and approve the internal audit
plan, charter and ensure the function
has the necessary resources and
access to information.
c) External audit
• recommend to the board, to be put
to the shareholders for approval, the
appointment, reappointment and
removal of the external auditors;
• oversee the relationship with the
external auditor including planning,
reviewing of findings and assessing
overall effectiveness;
• approve auditor’s remuneration
for audit, assurance and non-audit
services;
• review and approve the annual audit
plan to ensure that it is consistent with
the scope of the audit engagement,
having regard to the seniority,
expertise and experience of the audit
team; and
• review the findings of the audit with
the external auditor.
d) Actuaries
• recommend to the board the
appointment and termination of any
firm of consulting actuaries used for
the provision of Syndicate Actuarial
Opinions (SAO) and/or review of
insurance reserving. In 2019, the
committee appointed EY to provide the
SAO report; and
• monitor performance, determine
independence and approve fees.
Risk management and compliance
a) Internal control and risk
management systems
• review the company’s internal financial
controls and the company’s internal
control and risk management systems;
• advise the board on the company’s
risk management framework, which
includes the risk management
objectives, risk appetite, risk culture
and assignment of risk management
responsibilities;
• review risk reports and management
information to enable a clear
understanding of the key risks and
controls in the business;
• review any breaches of risk appetite
and the adequacy of proposed action;
• review the identification of future risks,
including considering emerging trends
and future risk strategy; and
• review the remit of the risk
management function and ensure it has
adequate resources and appropriate
access to information to enable it to
perform its function effectively.
b) Compliance
• review the arrangements by which
employees of the company may, in
confidence, raise concerns about
possible improprieties in matters of
financial reporting or other areas;
• review procedures and systems
relating to fraud detection, prevention
of bribery and money laundering; and
• review the regular reports from the
compliance officer and keep under
review the adequacy and effectiveness
of the group’s compliance function.
Full details of the terms of reference
of the committee are available at
www.beazley.com
Principal activities
The principal activities undertaken
by the committee in discharging its
responsibilities in 2019 are
described below:
a) Significant financial statement
reporting issues
The significant financial statement
reporting issues, along with the
significant matters and accounting
judgements that the committee
considered during the year under
review, are set out below:
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i) Valuation of insurance liabilities
As further explained in note 1 to the
financial statements, the group’s policy
is to hold sufficient provisions, including
those to cover claims which have been
incurred but not reported (IBNR) to
meet all liabilities as they fall due. The
reserving for these claims represents
the most critical estimate in the group’s
financial statements. In both 2017
and 2018, we observed a significant
amount of natural catastrophe activity
which impacted many lines of business
underwritten by Beazley. The impact of
the 2018 catastrophes continued to
be seen during 2019 with adjustments
required to the valuation of the insurance
liabilities held for these events. We have
also seen a rise in cyber and liability
claims during 2019 in line with the wider
market. While there remains uncertainty
around the final cost of these events to
the company, the committee notes that
Beazley continues to adopt a prudent
approach where uncertainty exists as to
the final cost of settlement.
The audit and risk committee receives
regular reports from both the internal
group actuary and the external audit
team (including the SAO), as the output
of independent projections are reviewed
at key reporting quarters. In the latter
part of the year, the group actuary has
reported on the results of the third
quarter reserving process, which the
committee considers to be a key control
as this process provides a level of
informed independent challenge for the
reserve position. To support the year
end view, the committee has received a
detailed paper in support of the level
of margin held within technical reserves
in the group’s statement of financial
position. Management confirmed
that they remain satisfied that the
outstanding claims reserves included
in the financial statements provide
an appropriate margin over projected
ultimate claims costs to allow for the
risks and uncertainties within the
portfolio, and the committee was
satisfied that there were no errors or
inconsistencies that were material in the
context of the financial statements as
a whole.
As with the prior years, the committee
also considers the report of the external
auditor following its re-projection of
reserves using its own methodologies.
On the basis of the work the auditor
undertook, it reported no material
misstatements in respect of the level
of reserves held by the group at the
balance sheet date.
On the basis of the information provided
by the group actuary throughout the year
and at the year end and the consistent
application of Beazley’s reserving
philosophy, the committee was satisfied
that the reserves held on the group
statement of financial position at 31
December 2019 were appropriate.
ii) Financial close process
The audit and risk committee continues
to focus on the group’s close and
estimation processes generally, and
the related controls carried out by the
business and specifically the finance
team. The close process is particularly
important in the current environment
where insurers are being required to
adhere to increasingly tight regulatory
reporting timelines and the audit and
risk committee remains committed to
ensuring that the robust nature of our
control environment is not compromised
during this period of change.
During the year and at year end, the
committee received updates from
management on the level of estimations
used in the close process and the
controls carried out to review these
estimates retrospectively. The main
areas of estimation and judgement
remain materially consistent with prior
years, with IBNR representing the most
crucial estimate within the group’s
financial statements. The committee
also reviews the process and controls
related to actuarial and underwriting
estimates of written premium. The
committee continued to receive periodic
reporting from both the finance and
actuarial functions on our estimation
process, and the related controls, in
respect of claims reserves, premium
income estimates and other key financial
statement captions. The committee was
satisfied that, based on the information
provided to them, the estimates used
in the financial close process are
appropriate.
On the basis of the reporting received
and reviewed during the last 12 months,
the audit and risk committee remains
satisfied that the estimation and control
processes deployed by the group are
appropriate.
iii) Valuation of financial assets
at fair value
The board is responsible for setting the
investment strategy, defining the risk
appetite and overseeing the internal
and outsourced providers via the chief
investment officer. As the group’s
business model is to predominantly issue
insurance contracts, the group has taken
the option to defer the effective date of
IFRS 9 until January 2021, as per the
amendment to IFRS 4. As such the group
continues to report its financial assets at
fair value.
The committee notes that the overall
investment strategy is broadly
unchanged from prior periods. The
committee receives updates from the
group finance director and/or the chief
investment officer and it has reported
for 2019 that the investment portfolio
is in line with the board approved risk
appetite, that carrying values of the
portfolio as at 31 December 2019
are appropriate and that the valuation
methodologies applied to each hierarchy
level are consistent with the accounting
policies. Committee members are invited
to and regularly attend the investment
committee.
No misstatements that were material
in the context of the financial statements
as a whole were identified and the
committee was satisfied with the
approach employed by management
in valuing the financial assets at
fair value on the balance sheet at
31 December 2019.
iv) Recoverability of insurance receivables
Following a review of the group’s year
end debtor position, the committee is
comfortable that the level of insurance
receivables on the group’s balance
sheet are appropriate and do not require
adjustment.
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Statement of corporate governance continued
Audit and risk committee continued
viii) Intangible asset valuation
The audit and risk committee received
an overview of management’s valuation
of intangible assets. The committee was
satisfied that management’s approach in
respect of the carrying value of all of the
group’s intangible assets is reasonable.
Function updates
The Beazley plc board has delegated a
number of oversight responsibilities
to the audit and risk committee in
relation to the risk management
framework, compliance, internal audit
and external audit.
b) Other updates
During 2019, in addition to the financial
reporting matters mentioned above,
the following items were key topics of
discussion for the committee:
• oversight of the reporting and control
processes and procedures relating to
Solvency II reporting requirements;
• overview of key reporting and
regulatory updates, including updates
on accounting standards, changes in
tax legislation, changes in regulatory
requirements and the issuance
of changes to the UK Corporate
Governance Code in particular;
• compliance, financial crime and
assurance reporting including risk
incident information;
• the group’s appointment of EY as
external auditors (discussed
further below);
• quarterly reserving and actuarial data;
• the consideration of strategic,
emerging and heightened risks
identified by management and the
group’s risk management team,
alongside the processes and controls
in place to mitigate these risks; and
• the impact of Brexit was discussed and
monitored during the year. Potential
outcomes were considered and
actions taken to mitigate the impact
where possible. The impact on the
estimates and judgements contained
within this report were considered and
deemed immaterial.
Committee meetings are scheduled to
ensure that they support the financial
and regulatory reporting timetables and
the internal audit and risk cycle.
The work undertaken and key matters
considered during the year in these areas
are set out below:
Audit and financial reporting
a) Internal audit
The group’s internal audit function
reports directly, and is accountable to,
the committee and the head of internal
audit has direct access to the committee
chair. In 2019, John Beauchamp was
appointed to lead the internal audit
function. The committee has reviewed
the effectiveness of the function and
remains satisfied that the internal audit
function had sufficient resources during
the year to undertake its duties.
During 2019 the committee:
• considered the results of all internal
audit reports, and the findings and
themes emerging from them;
• monitored the implementation of the
2019 internal audit plan;
• reviewed and approved the basis for
internal audit planning. This included
reviewing and approving the group’s
risk-based audit universe and the
internal audit plan, and reviewing
other business developments which
could also potentially be the subject
of internal audit work in the coming
year. It also included challenging the
frequency of audits in certain areas
of the business and challenging the
balance between thematic reviews and
full end-to-end audits;
• reviewed and approved the internal
audit charter;
• reviewed and approved the internal
audit budget for 2019;
• received information relating to
the internal audit functions quality
assurance activities;
v) Recoverability of reinsurance assets
The committee received confirmation
from management that over 90% of
Beazley’s reinsurance receivables
are due from highly rated institutions.
During the year, the committee has
not noted any instances where poor
quality reinsurers have led to a material
financial loss and is comfortable with the
monitoring processes management have
described and put in place to ensure this
continues.
Considering management updates
and supported by the external auditor’s
report on the output of their work
over assessing the recoverability of
the group’s reinsurance assets, the
committee was satisfied that the
judgements applied by management
in making provision for bad debts are
appropriate.
vi) Dividends, going concern and viability
During key reporting periods,
management outlined to the committee
in detail their support for the basis of
preparation adopted in the financial
statements and any statements around
the future viability of the group.
The committee reviews detailed
projections of future cash flows, profit
forecasts and capital requirements
under various scenarios, including
scenarios stressed in terms of claims
frequency and liquidity. In the current
year, we considered the group’s capital
position with regards to the group’s
£75m retail bond maturing and the
issuance of new debt of $300m. We
also consider the appropriateness of
management’s viability statement and
the period over which this analysis is
performed. The committee was satisfied
by the level of analysis presented during
the year and the related approach taken
and statements made in the group’s key
external reporting.
vii) Tax
The committee continues to monitor
the evolving tax environment and in
particular considered management’s
approach to Diverted Profits Tax in the
UK and BEAT in the US. The committee
is of the view that the approach taken by
management, as outlined in note 9 to the
financial statements, is reasonable.
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• reviewed how the internal audit,
risk management and compliance
functions contributed information
and assurance relating to the group’s
control effectiveness;
• received and reviewed an overall
summary assessment of 2019 internal
audit activity;
• monitored the timely implementation
of agreed management actions and
reviewed the status of the same;
• requested and reviewed a report
regarding the group’s control
environment as a whole; and
• reviewed the output of the external
quality assessment carried out during
the year on internal audit.
During the course of 2019 a number
of internal audit recommendations were
made to management in relation to
its systems of control which have been
subsequently implemented. Overall
the internal audit function was able to
report that for those areas it reviewed,
the design and operation of our risk
management framework, controls and
processes have supported the group in
operating within its risk appetite.
b) External audit
i) Appointment of EY
As disclosed in the group’s annual report
for the year ended 31 December 2018,
EY were appointed Beazley’s external
auditor for financial periods commencing
on or after 1 January 2019 after
receiving shareholder approval at the
group’s AGM in 2019.
The committee oversaw the transition
from KPMG to EY during the year and
considered the transition to be effective.
ii) Assessing the effectiveness of
the external auditor
The committee places great emphasis
on ensuring there are high standards of
quality and effectiveness in the external
audit process. Audit quality is assessed
throughout the year, with a focus on
strong audit governance and the quality
of the team.
The effectiveness of the audit
is assessed through discussion
throughout the year, taking into account
considerations such as:
• reviewing the quality and scope of the
audit planning and its responsiveness
to changes in the business;
• monitoring of the auditor’s
independence; and
• considering the level of challenge
evidenced in discussions and
reporting.
These considerations are taken into
account by the committee when
determining whether to reappoint the
external auditor.
iii) Non-audit services
The audit and risk committee’s
responsibility to monitor and review
the objectivity and independence of the
external auditor is supported by a policy
that we have developed in relation to
the provision of non-audit services by
the auditor. During 2019, our non-audit
services policy was updated, enhanced
and reviewed by the committee.
The objective is to ensure that the
provision of such services does not
impair the external auditor’s objectivity.
The policy specifically disallows certain
activities from being provided by the
auditor, such as bookkeeping and
accounting services, internal actuarial
services and executive remuneration
services. The policy requires
consideration and pre-approval for all
other material services such as due
diligence assistance, tax services and
advice on accounting and audit matters.
The committee reviews the terms of such
proposed services to ensure they have
been robustly justified. The committee
receives a report from the external
auditors three times a year setting out
all non-audit services undertaken, so
that it can monitor the types of services
being provided, and the fees incurred
for that work.
The split between audit and non-
audit fees for the year under review
is disclosed in note 6 to the financial
statements.
In the year the audit fees and audit
related services for 2019 were $1.9m
(2018: $1.6m). Fees for non-audit and
assurance services include work related
to the accounts and regulatory reporting
of the syndicates managed by Beazley,
work which would commonly be carried
out by the external auditor.
None of the non-audit services provided
are considered by the audit and risk
committee to affect the auditor’s
independence or objectivity.
Fair, balanced and understandable
assessment
It is a key compliance requirement of
the group’s financial statements to be
fair, balanced and understandable.
The annual report is prepared following
a well-documented process and is
performed in parallel with the formal
process undertaken by the external
auditor. The committee has reviewed
a report presenting the approach
taken during the preparation of the
annual report. Following its review,
the committee is satisfied that the
annual report is fair, balanced and
understandable, and provides the
information necessary for shareholders
and other stakeholders to assess the
company’s position and performance,
business model and strategy, and has
advised the board accordingly.
Solvency II reporting
During 2019 the committee has
reviewed and approved the group’s
2018 Solvency and Financial Condition
Report and Regular Supervisory Report
as well as approving the Solvency II policy
documentation for the group.
The committee also reviewed the
Solvency II technical provisions on
an adhoc basis.
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Statement of corporate governance continued
Audit and risk committee continued
Risk management and compliance
a) Risk management
To assist the board, the committee,
supported by the risk committees of the
subsidiary boards, receives and reviews
reports from the risk management
function focusing on the following areas:
• risk appetite: the committee has
monitored the actual risk profile
against risk appetite throughout 2019
and can confirm that Beazley plc has
been operating within risk appetite as
at 31 December 2019. The committee
has also reviewed the proposed 2020
risk appetite;
• risk assessment: the committee has
performed a review of the group’s
risk profile to assess its coverage of
the universe of risk and that major
underlying risks are visible and are
being monitored;
• risk profiles: the committee and the
risk committees of the subsidiary
boards have reviewed Beazley’s
risk profiles, which are focused risk
assessments of specific topics. In
2019 the committee received a
review of insured’s cyber risk aimed at
ensuring our suite of realistic disaster
scenarios are appropriate. There was
also a number of other operational risk
profiles presented, including exposure
management, life sciences and the
IT platforms, which supported the
committee’s oversight of the on-going
business processes;
• emerging risk: the committee
supported the identification of
strategic and emerging risks which
were discussed at the board
meeting in May 2019 and have been
subsequently monitored and reported
in the quarterly Own Risk and Solvency
Assessment (ORSA);
• oversight of the control environment:
the committee has received a
quarterly consolidated assurance
report which provides commentary on
the status of the control environment
with perspective from the business,
risk management, compliance and
internal audit. It also includes entries
from the risk incident log;
• reverse stress testing: the committee
has received the results of the reverse
stress testing exercise, which explores
what would have to happen for the
group to be unviable and has been
able to provide assurance to the board
that this work has been performed
with the appropriate level of depth and
expertise;
• heightened risk: the committee
consider the heightened risk register
quarterly. A risk is considered
heightened if the likelihood or the
impact of occurrence was higher
than usual;
• oversight of the internal model: the
committee and the risk committees
of the subsidiary boards have
reviewed regular reports associated
with the internal model. These have
included a standing report on internal
model output, and a validation
report featuring both internal and
independent validation and themed
reviews, for example, on the approach
used to aggregate risk in individual
entities which consolidate up to the
group level. These assessments have
supported the boards’ use of the
internal model; and
• quarterly ORSA: the committee has
received a quarterly ORSA report
and has reviewed it as part of the
quality assurance process before
commending it to the board.
b) Compliance
The group head of compliance has
direct access to the committee members
and attends all committee meetings.
To assist the board the committee
receives reports and updates from the
compliance function on various issues
including, but not limited to, regulatory
developments, routine and non-routine
interactions with the group’s regulators,
any significant instances of non-
compliance with regulatory or internal
compliance requirements.
During 2019, the committee:
• monitored the implementation of the
2019 compliance plan;
• reviewed and approved the 2020
annual compliance plan, including the
compliance monitoring programme;
• reviewed changes in the regulatory
environment applicable to Beazley;
• received updates on relationships with
key group regulators, and oversight of
regulatory requests;
• provided oversight to regulatory
responses to corporate developments;
• reviewed updates from the money
laundering reporting officer on the
adequacy and effectiveness of the
company’s anti-money laundering
systems and controls;
• provided oversight of the progress of
the business in addressing identified
enhancements to compliance
requirements;
• approved the group policies and
controls in respect of anti-bribery and
corruption and anti-fraud;
• received updates on the structure
and effectiveness of the company’s
compliance function; and
• received updates on the framework,
training and policy put in place
regarding whistleblowing.
In reviewing the effectiveness of the
function the audit and risk committee
remained satisfied that the compliance
function had sufficient resources during
the year to undertake its duties.
In addition, the risk committees and/
or boards of the group’s regulated
subsidiaries receive more locally-focused
compliance reports which are specific to
those entities.
Competition and Markets Authority Order
2014 statement of compliance
The committee confirms that during
2019 the group complied with the
mandatory audit processes and audit
committee responsibilities provisions of
the Competition and Markets Authority
Statutory Audit Services Order 2014
as presented in this report.
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Statement of corporate governance continued
Remuneration committee
Currently the membership of
the remuneration committee
comprises Sir Andrew Likierman
(chair), Christine LaSala,
John Sauerland and
Catherine Woods.
The committee
continued to ensure
remuneration was
appropriate within
Beazley.
Sir Andrew Likierman
Non-executive director
Responsibilities of
the committee
The committee’s main responsibilities
are to, inter alia:
• set the remuneration policy for the
group for approval at the annual
general meeting. The objective of such
policy shall be to ensure that members
of the executive management of the
company are provided with appropriate
incentives to encourage enhanced
performance and are, in a fair and
responsible manner, rewarded for their
individual contributions to the success
of the company;
• recommend and where appropriate
approve targets for performance
related pay schemes and seek
shareholder approval for any long term
incentive arrangements;
• recommend and approve the
remuneration of the chair of the
company;
• recommend the remuneration of the
chief executive, the other executive
directors, the direct reports to the chief
executive, the company secretary and
such other members of the executive
management as it is designated to
consider. No director or manager shall
be involved in any decisions as to his
or her own remuneration;
Membership and attendance – remuneration committee
Sir Andrew Likierman
George Blunden
(resigned 21 March 2019)
Christine LaSala
John Sauerland
Catherine Woods
Appointment
25 March 2015
1 January 2011
21 March 2019
11 May 2016
1 October 2018
Attendance at full
meetings during 2019
6/6
2/2
4/4
6/6
5/6
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• obtain reliable, up-to-date information
about remuneration in other
companies; and
• appoint and review the performance of
remuneration committee consultants,
currently Deloitte LLP.
Key activities in 2019
During 2019 the committee:
• reviewed the key aspects of the
remuneration policy, and oversaw
its implementation and application;
• satisfied itself that the current
remuneration structure is appropriate
to attract and retain talented people;
• considered the chief risk officer’s
report which confirmed that the design
of remuneration promotes appropriate
risk behaviour throughout the
organisation. In addition, the analysis
considered the performance of the
control environment, profit related pay
targets, calculation of the bonus pool,
share awards, a suite of risk metrics
for each Solvency II member of staff
and any individual who has created
a higher than expected level of risk;
• ensured incentives continued to
be appropriate to align company
and shareholders;
• reviewed methodology of reporting
of bonus disclosures with the objective
of improving transparency;
• approved the grant of share awards
under the group’s deferred, retention
and LTIP plans;
• considered the salary and bonus
awards for 2019 for executive
directors, heads of control functions,
material risk takers and other officers;
• approved the gender pay gap report;
• approved the chair’s fees;
• reviewed the executive director
employment contracts;
• implemented the 2018 UK Corporate
Governance Code requirements as
appropriate; and
• considered what changes would be
proposed to the remuneration policy in
2020 and consulted with over twenty
of our largest shareholders and three
proxy advisory agencies.
Further information on the work of the
remuneration committee is set out in
the directors’ remuneration report.
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Statement of corporate governance continued
Nomination committee
The nomination committee
is chaired by David Roberts,
and currently also comprises
Christine LaSala, Sir Andrew
Likierman and Catherine Woods.
The committee
had a busy 2019
overseeing the
changes to Beazley’s
management.
David Roberts
Chair
The nomination committee meets at
least twice annually and at such other
times during the year as are necessary
to discharge its duties. In 2019, there
were five scheduled meetings, reflecting
the workload of the committee during
the year. Only members of the committee
have the right to attend meetings;
however, other individuals, such as the
chief executive and external advisers,
may be invited to attend for all or part
of any meeting.
The specific responsibilities and
duties of the committee are set out
in its terms of reference, which were
updated in September 2019, and
reflect the requirements set out in the
UK Corporate Governance Code 2018.
These requirements include specific
responsibility to keep under review the
leadership needs of the organisation,
both executive and non-executive,
with a view to ensuring the continued
ability of the organisation to compete
effectively in the marketplace. The terms
of reference are available to download
from the company’s website.
Responsibilities of
the committee
The committee’s main responsibilities
are to, inter alia:
• regularly review the structure, size
and composition (including the skills,
knowledge, experience and diversity)
required by the board compared to
its current and projected position;
• give full consideration to succession
planning for executive and non-
executive directors and in particular
for the key roles of chair and
chief executive, senior executives
and any other member of the senior
management that it is relevant to
consider whilst considering a diverse
pipeline of talent;
• ensure the directors have the required
skills and competencies;
• review annually the time required
from non-executive directors;
• review the results of the board
performance evaluation process that
relate to the composition and skills
and competencies of the board and
ensure an appropriate response to
development needs;
• recommend to the board appointments
to the role of senior independent
director and chair as well as
membership of board committees; and
• recommend, if appropriate, all directors
for re-election by shareholders under
the annual re-election provisions of the
UK Corporate Governance Code.
Policy on gender, inclusion and diversity
We believe having a diverse and inclusive
workplace will support our vision for
growth and outperforming the market.
We continually review our approach to
diversity and our aim is to have nurtured
diverse employees across the business
who are given the tools and opportunities
to progress their career within Beazley.
We believe employing individuals with
wider perspectives and from a broader
skill base will lead to a more dynamic,
innovative, responsive organisation in
touch with changes and developments
in our business environment.
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• assess the collective skills and
competency of the board and consider
the proposed reappointment of
directors;
• ensure that director development
plans were implemented and that the
board collectively received relevant
training;
• ensure board members were able to
allocate sufficient time to the company
to discharge their responsibilities
effectively;
• consider the wider executive
management succession; and
• consider and approve proposals for
individuals to be included in the new
Senior Managers and Certification
Regime.
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We have a defined policy and strategy
that will enable us to:
• nurture diverse individuals across all
areas of the business and encourage
them to grow into senior positions
within our organisation;
• develop plans on how to best support
diversity in a way that is both locally
relevant and globally impactful;
• support, mentor and encourage
individuals from diverse backgrounds
to grow and develop within Beazley;
• have leadership and sponsorship of
our vision at the most senior level
of our organisation;
• regularly review our employment
policies and practices. We expect
our people to work with us to further
enhance our diversity objectives; and
• ensure all employees receive equality
of opportunity in recruitment,
training, development, promotion and
remuneration.
The committee has agreed the
establishment of goals for gender
diversity for both the board and the
broader organisation. The board
achieved its goals for gender diversity
for the Beazley plc board of two female
members by AGM 2016, and a third
female member by AGM 2017. Female
representation on the board went from
zero to three in five years and has
increased in 2019 with the appointments
of Nicola Hodson and Sally Lake to the
board. With the resignation of Angela
Crawford-Ingle during the year, this
brings the representation of females on
the board to four or 44%. The committee
reviewed progress against the group’s
2020 goals for there being a minimum of
35% female senior managers within the
organisation by 2020 and 33% female
board members at group level by 2021.
The 2019 board effectiveness review
was carried out internally and the board
will agree an action plan from this review,
early in 2020. A report on the plan and
actions taken will be included in the
2020 annual report.
In addition to the formal board evaluation,
the board chair met with each individual
director during the year to discuss their
contribution to the board. The senior
independent director met with the chair
to discuss his performance.
Key activities in 2019
Tasks which the committee carried
out in 2019 were to:
• carry out the search process for
a new group finance director.
The appointment of Sally Lake as
group finance director following the
conclusion of 2018 accounting year
was announced in January 2019.
For the recruitment process the
committee was assisted by Russell
Reynolds Associates recruitment
consultants;
• carry out the search for a non-
executive director with expertise
in technology, operations and data.
This resulted in the appointment of
Nicola Hodson in April 2019. For the
recruitment process the committee
was assisted by Audeliss Executive
Search;
• review the performance of
management by inviting all
non-executive directors to attend
a nomination committee meeting
to review the performance of the
executive management team;
• consider the board and committee
succession plans;
Membership and attendance – nomination committee
David Roberts
Christine LaSala
Sir Andrew Likierman
George Blunden
(resigned 21 March 2019)
Catherine Woods
Appointment
22 March 2018
21 March 2019
25 March 2015
1 January 2011
1 October 2018
Attendance at full
meetings during 2019
5/5
4/4
5/5
1/1
4/5
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Letter from the chair of our
remuneration committee
Dear shareholder
On behalf of the board, I am pleased to present the 2019 directors’
remuneration report. I would like to take this opportunity to thank
shareholders for the strong level of support we received last year
when our 2018 directors’ remuneration report was approved by
nearly 98% of shareholders.
Remuneration policy
In accordance with the normal three-year cycle, our shareholders will have an
opportunity to vote on a revised remuneration policy at the 2020 AGM. Over the last
12 months the remuneration committee has undertaken a full review of the policy
to ensure that it supports our strategy, promotes Beazley’s long-term success and is
aligned with our purpose. During our review we also took into account the changes to
the UK Corporate Governance Code and evolving shareholder views on remuneration.
Following our review we concluded that our existing policy was fit for purpose and well aligned to our purpose, culture and values.
The basis of our policy will continue to be, to attract and keep those who are among the best in the world in specialist insurance,
rewarding sustained performance and keeping the company competitive. The committee does, however, think that a number of
minor changes are appropriate to reflect emerging views on executive pay and to meet the new requirements of the UK Corporate
Governance Code. Immediately following this letter we have set out further details on how our policy aligns with good UK corporate
governance. The changes we are proposing include the introduction of a post-employment shareholding requirement, alignment
of executive directors pension contributions to the level available to the majority of the UK workforce (currently 12.5% of salary)
and increased bonus deferral. We have also taken into account the views of our shareholders and are proposing to enhance
our disclosure to provide additional information on our approach to determining bonus awards. Further detail on the proposed
changes can be found in the policy itself and we have set out an explanation of the strategic rationale for the policy in the
directors’ remuneration report.
Business performance and incentive out-turns
As you will have seen from the results, the commercial background to this year’s remuneration report is double digit premium
growth and increased profit before income tax, despite a combined ratio of 100%, driven by a very strong investment return.
The increase in average director’s bonus from 49% to 59% of the maximum reflects higher profits.
Directors will receive the second tranche (instalment) of the 2015 LTIP and the first tranche of the LTIP for 2017. The tranches
are due to vest (pay out) at 55.0% and 0% of the maximum respectively. These percentages reflect sustained growth in net asset
value per annum of 13.7% and 9.5% respectively for the five and three year performance periods.
The committee believes that the remuneration policy operated as intended during 2019 and considers that out-turns are well
aligned with company and individual performance. As such we did not find it necessary to apply further discretion.
Executive salaries for 2020
The average executive director salary increase for 2020 was 2.7%, which was below the average increase for the wider workforce.
LTIP targets
Since 2012 the vesting of our LTIP has been based on growth in net asset value per share (NAVps). NAVps is Beazley’s central KPI
and is a key item supporting increases in share price. As such its use strongly aligns the interest of participants with the interests
of our shareholders. Threshold vesting of our LTIP requires sustained growth of 7.5% p.a. in excess of the risk-free rate whilst full
vesting requires growth of 15% p.a. in excess of the risk-free rate. In order to receive the entire award this level of performance
must be sustained for five years. During the review of our policy the committee considered the use of alternative measures
and target ranges and concluded that NAVps was the most appropriate measure and that our target ranges were appropriately
stretching.
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Director changes
As announced last year, Martin Bride stepped down from the board at the conclusion of its meeting on 23 May 2019 and retired
on 31 August 2019. Martin remained eligible for a pro-rated bonus for the year and his outstanding share awards subsist to their
normal release/vesting date subject to performance where applicable. Following Martin’s departure from the board we were
pleased to announce Sally Lake’s promotion from group actuary to be the new group finance director, effective from 23 May 2019.
Sally’s compensation was set in line with our remuneration policy. In recognition of the UK Corporate Governance Code Sally’s
pension was set at the level available to the majority of the UK workforce.
Consideration of the wider workforce
This year we have disclosed information on our CEO to employee pay ratio. The committee takes our pay ratios into account when
considering remuneration policies and frameworks for the group and will continue to monitor them as they develop over time. In
addition, the committee reviews the firm-wide remuneration policy and is presented with updates on arrangements for the wider
workforce.
In August 2019, Beazley published its third gender pay gap analysis. We were encouraged to see that both our gender pay and
bonus gaps have decreased year-on-year. We remain focused on improving our position through various initiatives and targets, for
example we have a goal of having at least 35% female senior managers within the organisation. Our report, which can be found
on our website, provides additional analyses we have undertaken to better understand the causes of our pay gap as well as more
information on our initiatives.
Shareholders
I would like to thank those shareholders who took the time to discuss the proposed changes to our policy during the year. We value
the views of our shareholders highly and hope to receive your support for both the new policy and the directors’ remuneration
report at the 2020 AGM.
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Sir Andrew Likierman
Remuneration committee chair
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Directors’ remuneration report
Remuneration in brief
Remuneration policy
During the review of our directors’ remuneration policy the remuneration committee took into account a wide range of factors
including guidance from institutional shareholders, the requirements of Solvency II and the provisions of the UK Corporate
Governance Code. The main aim of Beazley’s remuneration policy is to ensure that management and staff are remunerated fairly
and in such a manner as to facilitate the recruitment, retention and motivation of suitably qualified personnel. The committee
considers that the policy supports our strategy and promotes the long-term success of Beazley.
The following table summarises how the committee addressed the factors set out in the UK Corporate Governance Code when
determining the remuneration policy:
Factor
Clarity
Remuneration arrangements should
be transparent and promote effective
engagement with shareholders and the
workforce
Simplicity
Remuneration structures should avoid
complexity and their rationale and
operation should be easy to understand
Details
At Beazley performance-related remuneration is an essential motivation to management
and staff and is structured to ensure that executives’ interests are aligned with those of
our shareholders.
The committee is mindful that we operate an atypical bonus with awards to individuals
made from a profit pool and determined taking into account financial, corporate/
strategic and individual performance. A key principle is that the committee exercises its
judgement in determining individual awards. We have expanded our disclosure to provide
shareholders with further clarity on the way in which we determine annual bonuses.
In determining our remuneration framework the committee was mindful of avoiding
complexity and making arrangements easy to understand for both participants and our
shareholders.
Risk
Remuneration arrangements should
ensure reputational and other risks
from excessive rewards, and
behavioural risks that can arise from
target-based incentive plans, are
identified and mitigated
We believe reward at Beazley is appropriately balanced in light of risk considerations.
The committee receives an annual report from the chief risk officer on remuneration
policy to ensure that it is consistent with, and promotes, effective risk management.
Our framework has a number of features which align remuneration out-turns with risk,
including a five year time horizon on the LTIP, deferral of bonus into shares and personal
shareholding requirements which, from 2020, extend post departure. Further details of
the link between risk and remuneration are set out on page 116.
Predictability
The range of possible values of rewards
to individual directors and any other
limits or discretions should be identified
and explained at the time of approving
the policy
Page 104 provides four illustrations of the application of our remuneration policy
including the key elements of remuneration: base salary, pension, benefits and
incentives. Payments at Beazley are directly aligned to the group’s performance and
the graph set out on page 110 demonstrates how historic annual bonus out-turns have
reflected profit and ROE performance.
Proportionality
The link between individual awards, the
delivery of strategy and the long-term
performance of the company should be
clear. Outcomes should not reward poor
performance
Individual remuneration reflects group objectives but is dependent on the profitability of
the group and is appropriately balanced against risk considerations. Potential rewards
are market-competitive and the committee is comfortable that the range of potential
out-turns are appropriate and reasonable. In addition the remuneration committee has
discretion to adjust incentive outturns where they are not considered to appropriately
reflect the underlying financial or non-financial performance of the individual or the
company.
Alignment to culture
Incentive schemes should drive
behaviours consistent with company
purpose, values and strategy
The remuneration committee considers that the structure of remuneration packages
supports meritocracy, which is an important part of Beazley’s culture. All employees
at Beazley are eligible to participate in a defined contribution pension plan and a
bonus plan. Bonuses are funded by a pool approach which reflects our commitment to
encourage teamwork at every level, which is one of our key cultural strengths.
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Beazley Annual report 2019
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Performance in 2019
Beazley delivered double digit premium growth and increased profit before income tax, despite a combined ratio of 100%,
driven by a very strong investment return.
Profit before tax ($m)
350
300
250
200
150
100
50
0
168
2017
76
2018
268
2019
Return on equity (%)
20
15
10
5
0
9
2017
5
2018
15
2019
Net assets and cumulative dividend per share (p)
Share price (p)
310.9
56.3
39.3
215.3
326.5
56.3
50.6
219.6
400
350
300
250
200
150
100
50
0
2017
■ Special dividend
■ Interim and second interim dividend
■ Net asset per share
2018
353.8
56.3
62.5
235.0
2019
600
500
400
300
200
100
0
130.3
434.3
268.9
295.7
2015 award
2017 award
■ Share price at grant
■ Share price appreciation
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The group’s performance over the longer term was strong in terms of NAVps growth and total shareholder return, as illustrated
in the charts below.
LTIP performance 2016-2019 NAV and TSR growth
100%
75%
50%
25%
0%
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
■ NAV target range (RFR +7.5% p.a. to RFR +15% p.a.)
■ TSR growth (1 month average)
■ NAV growth (including dividends)
LTIP performance 2014-2019 NAV and TSR growth
200%
175%
150%
125%
100%
75%
50%
25%
0%
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
■ NAV target range (RFR +7.5% p.a. to RFR +15% p.a.)
■ TSR growth (1 month average)
■ NAV growth (including dividends)
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Directors’ remuneration report continued
Outcomes for 2019 and implementation for 2020
Element
Base salary
Overview of policy
Salaries are set at a level to appropriately
recognise responsibilities and to be broadly
market competitive.
Any salary increases will generally reflect our
standard approach to all-employee salary
increases across the group.
Benefits
To provide market levels of benefits.
Pension
To provide market levels of pension provision
through contributions to a defined contribution
pension plan.
Implementation and
outcomes during 2019
Salaries for 2019 were as follows:
• D A Horton:
• M L Bride:
• A P Cox:
• S M Lake:
£482,500
£340,000
£380,000
£340,000
Benefits include private medical
insurance, travel insurance, and
company car or monthly car
allowance.
Executive directors appointed prior
to 2019 (D A Horton and A P Cox)
receive a cash payment in lieu of
pension of 13.2% of base salary.
Directors appointed from 2019 (S M
Lake) receive a pension contribution
or cash payment in lieu of pension
of 12.5% of base salary, aligned with
the rate available for the majority of
the UK workforce.
Implementation for 2020
The executive directors received
salary increases of 2.6% to 2.9%,
below the average for the wider
workforce.
Salaries for 2020 will be as follows:
£495,000
• D A Horton:
£390,000
• A P Cox:
£350,000
• S M Lake:
In line with policy.
In line with policy.
Contribution rates for Executive
Directors will be reduced
from 13.2% to 12.5% of salary, in line
with the rate available to the wider
UK workforce.
Annual
bonus
Discretionary annual bonus determined by
reference to both financial and individual
performance.
Maximum bonus opportunity for
executive directors was 400% of
salary.
A portion is generally deferred into shares for
three years dependent on level of bonus.
ROE in the year was 15%.
Profit for the year was $267.7m.
In line with policy.
From 2020 the portion of the bonus
that can be deferred into shares will
be increased from 0%-37.5% of
bonus to 20%-40% of bonus.
Long term
incentive plan
(LTIP)
Vesting of LTIP awards is dependent on net asset
value per share (NAVps) performance against the
risk-free rate of return.
50% of awards are subject to performance over
three years and 50% over five years.
NAVps performance
< average risk-free rate +7.5% p.a.
= average risk-free rate +7.5% p.a.
= average risk-free rate +10% p.a.
= average risk-free rate +15% p.a.
Straight-line vesting between points
% of award vesting
0%
10%
25%
100%
Since 2019 the first tranche of the LTIP is subject
to a further two year holding period taking the
total time frame for the entire award to five years.
Shareholding
guidelines
Executive directors are expected to build up and
maintain a shareholding of 150% of salary (200%
for the CEO).
From 2020 the requirement for all executive
directors will be 200% of salary.
LTIP awards may be forfeited if shareholding
requirements are not met.
Bonus outcomes range from
49% to 59% of maximum.
The first tranche of the 2017 LTIP
award vested at 0% of maximum
following three year NAVps
performance of 9.5% p.a.
The second tranche of the 2015
LTIP award vested at 55.0% of
maximum following five year
NAVps performance of 13.7%p.a.
In 2019, the following grants as
a percentage of base salary were
made, subject to the usual NAVps
performance condition:
• D A Horton:
• A P Cox:
• S Lake:
200%
150%
150%
The CEO and CUO met their
shareholding guidelines. The CFO
was appointed during the year and
has made progress towards meeting
her guideline.
In line with policy.
In 2020, the following grants as a
percentage of base salary will be
made, subject to the usual NAVps
performance condition
• D A Horton:
• A P Cox:
• S Lake:
200%
150%
150%
In line with policy.
From 2020, we have introduced
post-employment shareholding
guidelines. Executive directors are
expected to maintain 100% of their
shareholding requirement for the first
year post-departure and 50% of their
shareholding requirement for the
second year post-departure.
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Beazley Annual report 2019
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Directors’ remuneration policy
This part of the report sets out
Beazley’s directors’ remuneration
policy which will be subject to a
binding vote at the 2020 AGM.
Changes to the remuneration policy
The remuneration committee followed
a robust decision-making process
to determine the new remuneration
policy, including an in-depth review of
the current policy taking into account
input from management and our
independent advisors. The committee
also sought the views of the group’s
major shareholders and took these into
account in determining the final policy.
The key changes between this policy
and the policy which was approved by
shareholders at Beazley’s 2017 AGM are
as follows:
• From 2020 the disclosure of our
approach used to determine annual
bonuses will be enhanced by providing
additional information on financial,
corporate/strategic and individual
performance. An incentive pool
will continue to be calculated as a
percentage of profit with reference to
return on equity.
• The minimum and maximum
proportion of annual bonus that can be
deferred into shares will be increased
from 0%-37.5% of bonus to 20%-40%
of the bonus. The deferral level will
continue to depend on the level
of bonus.
• Shareholding requirements, which
have operated for a number of years,
will now form part of the policy. The
shareholding requirement for the chief
executive will continue to be 200% of
salary and the requirement for other
executive directors will be increased
from 150% of salary to 200% of salary.
• The holding period that was introduced
to the three year portion of the LTIP in
2019 will now form part of the policy.
• Post-employment shareholding
requirements will be introduced
whereby executives are expected
to maintain a shareholding in the
company for two years following
cessation.
• Pension contribution rates for
executive directors will be reduced
from 13.2% to 12.5% of salary in line
with the level available to the majority
of the UK workforce.
Other minor amendments have been
made to aid the administration of
the new policy, to reflect the changes
referred to above and to reflect changes
in practice since 2017.
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Remuneration policy table
The following tables set out descriptions of each component of director remuneration packages comprised in the Beazley
directors’ remuneration policy.
Executive directors
Element
Base salary
Purpose and link to
strategy
Operation
Salaries are set at a
level to appropriately
recognise
responsibilities and
to be broadly market
competitive.
Salaries are normally reviewed
annually.
Salaries for 2020 will be
as follows:
D A Horton:
A P Cox:
S M Lake:
£495,000
£390,000
£350,000
Maximum
Performance conditions
None, although performance
in role is taken into account
in determining any salary
increase.
There is no maximum
salary opportunity. Any
salary increases will
generally reflect our
standard approach to
all-employee salary
increases across the
group. Higher increases
may be made in a
range of circumstances
where the committee
considers that a larger
increase is appropriate,
including (but not
limited to):
• a new appointment;
• a change in role or
adoption of additional
responsibilities;
• development of the
individual in the role;
• increased size, scope
or complexity of the
organisation; and
• alignment to
market levels.
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Directors’ remuneration policy continued
Element
Purpose and link to
strategy
Operation
Maximum
Performance conditions
Annual bonus To link reward to
short term financial
performance
and individual
contribution.
Additional alignment
with shareholders’
interests through the
operation of bonus
deferral.
LTIP
To align the senior
management team’s
interests to the long
term performance
of the group by
linking reward to
performance over
the longer term.
An individual overall cap
of 400% of salary will
apply. Cash bonuses
will normally be capped
at 240% of salary with
any amount above this
deferred into shares.
Awards of up to 200%
of salary in respect of
any financial year.
An incentive pool will be
calculated as a percentage
of profit and by reference
to group return on equity,
subject to a minimum return
on equity and risk adjustment.
While bonus awards are
determined by reference to
the profit pool, the bonus
plan is discretionary and the
committee may take into
account any other factors it
considers appropriate.
Individual payouts to
executive directors are
discretionary and take into
account broader corporate
objectives, the individual’s
contribution and, where
relevant, the performance
of their division.
Solvency II requires that
performance measures
for incentives are based
on a combination of group,
business unit and individual
performance.
The committee may make
year-on-year adjustments to
the performance framework,
in particular to take into
account developments in
Solvency II requirements.
Vesting of LTIP awards is
dependent on performance
measures selected by the
committee. Awards made
in 2020 vesting will be
dependent on net asset
value per share (NAVps)
performance against the risk-
free rate of return.
No more than 25% of the
award may vest for threshold
performance.
A portion of the award is
subject to performance over
three years and a portion over
five years.
Discretionary annual
bonus to individuals. Bonuses
are determined by reference to
financial, corporate/strategic
and individual performance.
A portion of the bonus is
deferred into shares for three
years (between 20% and 40%
of bonus) dependent on the
level of bonus.
Deferred shares may have
dividend equivalents as
described below this table.
In certain circumstances
deferred share awards may
be subject to malus provisions
and annual bonus payments
may be subject to clawback, as
described below.
Additional amounts may be
voluntarily deferred into the
investment in underwriting
arrangements described below.
Awards of shares with
performance conditions.
Awards are normally in the form
of nil-cost options with a ten-
year term, but may also be in
the form of a conditional award.
LTIP awards made after
1 January 2019 which have
a three year performance
period will be subject to an
additional two year holding
period following the date on
which the award vests.
LTIP shares may have dividend
equivalents, as described below
this table.
In certain circumstances LTIP
awards may be subject to malus
and clawback provisions, as
described below.
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Beazley Annual report 2019
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Operation
Maximum
Performance conditions
Element
Investment in
underwriting
Purpose and link to
strategy
To align personal
capital with
underwriting
performance.
Benefits
To provide market
levels of benefits.
Under the plan, executive
directors and selected staff
may voluntarily defer part of
their bonus into an underwriting
syndicate. Capital commitments
can be lost if underwriting
performance is poor.
Benefits include, but are not
limited to, a company car or car
allowance, season ticket, private
medical insurance, death in
service benefit and income
protection insurance. Further
benefits may be provided, if
the committee considers it
appropriate.
Executive directors may
participate in Beazley’s all-
employee share plans on the
same basis as other employees.
Tax equalisation policies
may apply.
Relocation
benefits
To support
Beazley’s growth
as an international
business.
Benefits in the event of
relocation may include, but
are not limited to, relocation
allowance, housing allowance
and school fees.
Pension
To provide market
levels of pension
provision.
Current policy is to contribute to
a defined contribution pension
plan. An equivalent cash
alternative may be offered.
Legacy defined benefit pension
arrangements are in place for A
P Cox. Further service accruals
ceased on 31 March 2006.
The plan mirrors investment
in an underwriting syndicate.
None.
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Payments are limited
to the returns on the
investment in the
underwriting syndicate.
The level of capital
commitment is
limited by the bonus
opportunity.
There is no overall
maximum as the cost
of insurance benefits
will vary depending
on the individual’s
circumstances and the
cost of relocation will
vary depending upon
the jurisdiction.
The limits on
participation in
all-employee share
plans reflect the rules
of those plans and
any limits imposed
by applicable tax
legislation from time
to time.
None.
For defined contribution
plans, maximum
company contribution
of 12.5% of salary.
The maximum pension
contribution for any
executive director may
be increased to reflect
any increase in the
pension available to
the UK workforce.
Legacy defined benefit
pension arrangements
will be honoured.
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Directors’ remuneration policy continued
Shareholding requirements
The committee has adopted shareholding requirements which apply during employment and, with effect from 25 March 2020,
post-employment. During employment, executive directors are expected to build up and maintain a shareholding of 200% of salary
and LTIP awards may be forfeited if the requirement is not met. Post-employment, executive directors will ordinarily be expected to
maintain a shareholding post-departure: the shareholding requirement 200% of salary will apply for the first year post-departure
and 50% of the requirement (100% of salary) will apply for the second year post departure, or in either case, the number of shares
owned at departure if lower.
Non-executive directors
Non-executive directors’ fees comprise payment of an annual basic fee and additional fees to reflect specific responsibilities,
where applicable. No non-executive director participates in the group’s incentive arrangements or pension plan.
As a result of developments in regulation, the degree of autonomy in the operation of each board has increased in recent years,
with a consequent increase in time commitment and scope of the role we have introduced a membership fee for representation
on audit and risk committee, remuneration committee and employee voice.
Basic fee
Payment of a basic annual fee
Additional
fees
Additional fees are paid to reflect additional responsibilities of certain non-executive directors, as follows:
• senior independent director fee
• audit and risk committee chair fee
• remuneration committee chair fee
• subsidiary board membership and chair fees
• membership fee for non-executive directors on the audit and risk committee
• membership fee for non-executive directors on the remuneration committee
• fee for non-executive director representing employee voice
Non-executive directors may receive additional fees in the future if in the view of the board this was considered
appropriate, including in circumstances of additional committees, other non-executive director positions, or to
reflect additional time commitments in appropriate circumstances.
Expenses incurred in the performance of non-executive duties for the company may be reimbursed or paid for
directly by the company, including any tax due on the expenses. Non-executive directors do not normally receive any
benefits however these may be provided in the future if in the view of the board this was considered appropriate.
Total fees paid to non-executive directors will remain within the limit stated in the Articles of Association.
For future incentive awards the committee
may adjust the performance measures
to take into account developments in
Solvency II remuneration requirements,
or, in the event of a significant event or
changing business circumstance. Major
shareholders would be consulted prior to
any significant changes.
Notes to the remuneration
policy table
Recovery provisions (clawback and
malus) apply as follows to awards
granted from 1 January 2020 onwards
(provisions applying to previous awards
are described in previous Directors’
remuneration reports).
Malus
Annual bonuses are discretionary and
may be reduced or cancelled before
payment. LTIP awards and deferred
bonus awards may be reduced or
cancelled in the event of conduct
which justifies summary dismissal,
an exceptional development which
has a material adverse impact on the
company (including extreme financial
loss which has a significant impact on
the company’s share price, reputational
damage, material failure of risk
management, material restatement
of group accounts, significant sanction
from any regulatory authority, material
corporate failure, and other similar
events) or to comply with a law or
regulatory requirement.
Clawback
Annual bonuses paid in cash may
be clawed back for up to three years
following payment and LTIP awards may
be clawed back for two years following
vesting. Clawback may be applied in
the event of material misstatement of
results in respect of the bonus year or a
year in the performance period for the
LTIP award (as the case may be), gross
misconduct, factual error in calculating
vesting or award, reputational damage,
material corporate failure, and other
similar events.
The committee may increase the
proportion of bonus deferred into
shares at any time.
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Beazley Annual report 2019
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LTIP and deferred share awards will be
operated in accordance with the rules
of the relevant plan. In accordance with
those rules the committee has discretion
in the following areas:
• in the event of a variation of Beazley’s
share capital or a demerger, delisting,
special dividend, rights issue or
other similar event, which may, in the
committee’s opinion, affect the current
or future value of shares, the number
of shares subject to an award and/or
any performance condition attached
to awards, may be adjusted. Awards
under Beazley’s other share plans
have similar adjustment provisions;
• the committee may determine that
awards may be settled, in whole or in
part, in cash, but would only do so in
exceptional circumstances such as
where there is a regulatory restriction
on the delivery of shares;
• the committee may substitute or
amend a performance condition
if one or more events occur which
cause the committee to consider that
a substituted or amended condition
would be more appropriate and would
not be materially more or less difficult
to satisfy;
• the committee may in its discretion,
adjust the vesting level of LTIP awards,
including to reflect underlying financial
or non-financial performance or if the
vesting level would otherwise not be
appropriate in the circumstances;
• the committee may determine the
treatment of awards on a winding up,
a change of control or similar event
in accordance with the rules of the
relevant plan; and
• the committee may determine the
basis on which dividend equivalents
will be calculated, which may include
notional reinvestment.
Legacy commitments
The committee reserves the right to
make any remuneration payments and
payments for loss of office (including
exercising any discretions available to
it in connection with such payments)
notwithstanding that they are not in
line with the policy set out in this report
where the terms of the payment were
agreed (i) before 26 March 2014 AGM
(the date Beazley’s first shareholder-
approved directors’ remuneration policy
came into effect); (ii) before the policy
set out in this report comes into effect,
provided that the terms of the payment
were consistent with the shareholder-
approved directors’ remuneration
policy in force at the time they were
agreed or were otherwise approved by
shareholders; or (iii) at a time when the
relevant individual was not a director of
Beazley (or other person to whom this
policy applies) and, in the opinion of
the committee, the payment was not in
consideration for the individual becoming
a director of Beazley or such other
person. For these purposes ‘payments’
includes the committee satisfying
awards of variable remuneration and,
in relation to an award over shares, the
terms of the payment are ‘agreed’ at the
time the award is granted. This policy
applies equally to any individual who is
required to be treated as a director under
the applicable regulations.
Performance measures and targets
The following table provides further detail on why performance measures are chosen and how targets are set.
Incentive plan
Performance measures
Why performance measures were chosen and target setting
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Annual bonus
plan
Financial performance
(including profit and
ROE), corporate/strategic
performance (including risk
adjustment) and individual
performance.
Long term
incentive plan
Growth in net asset value
per share (NAVps) over three
years (as regards a portion
of the award) and five years
(as regards the balance of
the award).
• The committee believes the approach to the determination of bonuses creates
alignment to shareholders’ interests and ensures that bonuses are affordable,
while the ROE targets increase the performance gearing and the risk adjustment is
consistent with and promotes effective risk management.
• The committee reviews the bonus pool framework each year to ensure that
it remains appropriate and targets are set taking into account the prevailing
environment, interest rates and expected investment returns, headcount and any
other relevant factors.
• A key principle of the process is that the committee exercises its judgement in
determining individual awards taking into account the individual’s contribution and
performance.
• Creates alignment to Beazley’s central key performance indicator, and recognises
that NAVps is a key item supporting increases in share price and shareholder
returns.
• Vesting of a portion of the award requires sustained growth in NAVps over a five
year time period.
• The committee reviews the NAVps targets periodically to ensure they remain
appropriate with reference to the internal business plan, the external environment
and market practice.
• In the event that NAVps were to become unsuitable as a performance measure
in the opinion of the committee (for example due to a change in accounting
standards) the committee would substitute a measure which followed broadly
similar principles.
Investment in
underwriting
The plan mirrors investment
in an underwriting syndicate.
• The Beazley staff underwriting plan provides for participants to contribute personal
capital to Beazley syndicates. Selected staff are invited to participate through
bonus deferral with an element of cash incentives ‘at risk’ as capital commitments.
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Directors’ remuneration policy continued
Differences in policy from
broader employee population
The policy for executive directors follows
the same broad principles in place for
all employees in Beazley. Differences
in policy for executive directors and
senior management as compared to the
broader employee population reflect
different market levels for seniority,
as well as their group responsibilities.
For example, incentive performance
conditions for executive directors and
senior management are more closely
aligned to group performance, whereas
underwriters participate in incentive
plans linked to the performance of their
business area.
All employees in the group may
participate in a defined contribution
pension plan, and are offered benefits
such as private medical insurance and
permanent health insurance. Beazley
also operates all-employee share plans
to create staff alignment and promote a
sense of ownership.
Illustrations of application of remuneration policy
The charts below set out an illustration of the operation of the remuneration policy for the current executive directors in respect of
2020 and includes base salary, pension, benefits, and incentives. Other than as regards the fourth scenario (“Maximum + share
price appreciation”), the illustrations do not reflect potential share price increases. Dividends and, dividend equivalents and any
deferral of bonus into the Investment in underwriting arrangements are disregarded for the purposes of these charts.
Chief executive officer (£’000)
1,000
500
0
1,500
2,000
2,500
3,000
3,500
4,000
Maximum +
share price
appreciation
Maximum
On-plan
14%
16%
37%
49%
56%
47%
16%
£1,525k
Minimum
100%
£560k
Group finance director (£’000)
25%
28%
12%
£3,937k
£3,455k
■ Minimum remuneration
■ Annual variable remuneration
■ Long term remuneration
■ Share price appreciation
0
500
1,000
1,500
2,000
2,500
3,000
Maximum +
share price
appreciation
Maximum
On-plan
15%
17%
38%
54%
60%
20%
10%
£2,513k
23%
£2,258k
50%
12%
£1,026k
■ Minimum remuneration
■ Annual variable remuneration
■ Long term remuneration
■ Share price appreciation
Minimum
100%
£388k
Chief underwriting officer (£’000)
0
500
1,000
1,500
2,000
2,500
3,000
Maximum +
share price
appreciation
Maximum
On-plan
16%
17%
38%
54%
60%
20%
23%
10%
£2,815k
£2,530k
■ Minimum remuneration
■ Annual variable remuneration
■ Long term remuneration
■ Share price appreciation
49%
12%
£1,152k
Minimum
100%
£440k
Assumptions used for the illustrations of the policy
Element
‘Minimum’
‘On-plan’
‘Maximum’
‘Maximum + share
price appreciation’
Fixed remuneration
Annual variable remuneration
(cash and deferred shares)
Long term remuneration (LTIP)
Base salary
Pension
Benefits
Annual base salary for 2020
12.5% of base salary
Taxable value of annual benefits provided in 2019
0% of salary
150% of salary
400% of salary1
400% of salary1
0% vesting
25% vesting
100% vesting
100% vesting +
assumed 50% share
price appreciation
1 An individual overall cap of 400% of salary applies to the annual bonus depending on financial, corporate/strategic and individual performance.
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Beazley Annual report 2019
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Subject to notice requirements, there is
no provision in the service agreements
for compensation to be payable on
early termination of the contract. The
committee has discretion to structure
any compensation payments in such a
way as it deems appropriate taking into
account the circumstances of departure.
Any payments of compensation will be
subject to negotiation, and the group
policy is to consider whether mitigation
and phasing of payments is appropriate.
The committee reserves the right to
make any other payments in connection
with a director’s cessation of office
or employment where the payments
are made in good faith in discharge
of an existing legal obligation (or by
way of damages for breach of such an
obligation) or by way of a settlement
of any claim arising in connection with
the cessation of a director’s office or
employment. Any such payments may
include amounts in respect of accrued
leave, paying any fees for outplacement
assistance and/or the director’s legal or
professional advice fees in connection
with his or her cessation of office or
employment.
In the event of a director’s departure any
outstanding share awards will be treated
in accordance with the relevant plan
rules.
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• all buyout awards would normally
be liable to forfeiture or ‘clawback’
on early departure. For executive
directors early departure is defined
as being within the first two years of
employment;
• the maximum level of variable
remuneration which may be granted in
the first year (excluding buyouts) is in
line with the aggregate maximums set
out in the policy table. The committee
retains the flexibility to determine that
for the first year of appointment any
annual bonus award will be subject to
such conditions as it may determine;
and
• where an executive is appointed
from within the organisation, the
normal policy of the company is that
any legacy arrangements would be
honoured in line with the original
terms and conditions (except that any
pension arrangements will be provided
in line with the remuneration policy
table). Similarly, if an executive director
is appointed following Beazley’s
acquisition of or merger with another
company, legacy terms and conditions
would be honoured.
Service contracts and loss
of office payment policy
It is company policy that service
contracts with executive directors
contain notice periods, from the
company or employee, of not more than
12 months. The company may at its
absolute discretion elect to terminate
an executive director’s employment by
making a payment in lieu of notice of the
individual’s salary for that period.
Approach to recruitment
remuneration
The committee would have regard to the
following principles when agreeing the
components of a remuneration package
upon the recruitment of a new director:
• in order to facilitate the future success
of the company it is important that
we are able to recruit directors of the
calibre required to deliver our strategic
priorities. Although the company
operates in a highly competitive
market for executive talent, the
committee remains conscious of the
need to avoid paying more than is
necessary on recruitment;
• the committee will, so far as practical,
seek to align the remuneration
package for any incoming executive
with the remuneration policy table set
out above;
• on recruitment, salaries will be
set to take into account role and
responsibilities. For interim positions
a cash supplement may be paid
rather than salary (for example a
non-executive director taking on an
executive function on a short term
basis);
• the committee may, on appointing an
executive director, need to ‘buy out’
remuneration arrangements forfeited
on joining the company;
• any buyout would take into account the
terms of the arrangements (e.g. form
of award, performance conditions,
timeframe) being forfeited in the
previous package. The form of any
award would be determined at the time
and the committee could if necessary
make use of LR 9.4.2 of the Listing
Rules (for the purpose of buyout
awards only). The committee would
seek to structure buyout awards to be
in line with Beazley’s remuneration
framework so far as practical. The
overriding principle will be that any
replacement buyout awards would be
of comparable commercial value to the
awards which had been forfeited;
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Directors’ remuneration report continued
Directors’ remuneration policy continued
The following principles apply for the treatment of remuneration elements following loss of office for a director:
Remuneration element
Treatment upon loss of office
Bonus
Deferred shares
There is no automatic entitlement to annual bonus. Taking into account the circumstances of leaving,
the committee retains the discretion to award a bonus in respect of performance in the financial year
with appropriate consideration of time pro-rating.
If a director ceases office or employment with the group any unvested awards will lapse unless the
individual is a good leaver.
Good leaver circumstances are cessation by reason of injury, ill-health, permanent disability or
retirement (with the agreement of the employing company) and, if the committee so determines,
redundancy, the sale of the individual’s employing company or business out of the group, or such other
circumstances as the committee may determine. In these good leaver circumstances awards may vest
in full or be time pro-rated, and be delivered on cessation or at the normal time.
If a director dies his or her awards will vest in full.
Staff underwriting
participation plan
For leavers, profit results are payable in respect of years of account commencing before cessation. A
participant receives repayment of notional capital invested reduced by any loss result for the relevant
year of account.
LTIP
Pension
HMRC approved all-
employee plans (or
equivalent overseas
plans)
Recruitment awards
If a director ceases office or employment with the group any unvested awards will lapse unless the
individual is a good leaver.
An individual is a good leaver if employment ceases because of death, ill-health, injury, disability, the
sale of the individual’s employing company or business out of the group or for any other reason at the
committee’s discretion (except where a participant is dismissed lawfully without notice). Awards will
vest on the normal vesting date, unless the committee determines that awards should vest at the
time the individual ceases employment. Any applicable holding period will ordinarily continue to apply,
although the committee may bring the holding period to an end early in exceptional circumstances (for
example in the event of termination due to ill health). If the participant dies awards will vest as soon as
practicable after the date of death and the holding period will cease to apply.
Awards will vest taking into account the satisfaction of any performance condition and, unless the
committee determines otherwise, the period of time that has elapsed since the award was granted until
the date of cessation of employment.
The director will be eligible to receive the standard contribution to the defined contribution pension plan
during the notice period, or cash equivalent.
Under the Beazley Furlonge Limited Final Salary Pension Scheme, on early retirement the director
receives a pension which is reduced to reflect early payment in accordance with the rules of the
scheme.
Leavers will be treated in accordance with the approved plan rules.
Were a buyout award to be made under LR 9.4.2 (or in other circumstances outside of the existing
share plan rules) then the leaver provisions would be determined at the time of award.
In the event of a change of control or winding up of the company, treatment of share awards will be in accordance with the relevant
plan rules. In these circumstances unvested LTIP awards and deferred shares may vest early. The extent to which unvested LTIP
vest would be determined by the committee taking into account the satisfaction of any performance conditions, the period of
time that has elapsed since the award was granted until the date of the event and any other factors the committee considers
relevant. Deferred shares will vest to the extent determined by the committee taking into account any factors it considers relevant.
Alternatively, the committee may determine that LTIP awards or deferred shares may be exchanged for equivalent awards on
such terms as agreed with the acquiring company. If there is a demerger, delisting or other event which may materially affect the
company’s share price, LTIP awards may vest on the same basis as for a takeover. In the event of a change of control or other
relevant event during the holding period applying to an LTIP award, the holding period will come to an end.
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Non-executive directors’ fee
policy and service contracts
With effect from 2012 the standard
approach for non-executive director
appointment is that the appointment
expires at the AGM following the end of
the three year term, notwithstanding
the fact that each director is subject
to annual re-election at each AGM.
Although there is currently no intention
to do so, the board reserves the right
to introduce notice periods for non-
executive directors in the future. Details
of the non-executive directors’ current
contracts are set out on page 118.
Consideration of conditions
elsewhere in the company
As part of the regular cycle, the
committee is informed of pay and
employment conditions of wider
employees in the group and takes these
into account when determining the
remuneration for executive directors.
While the review includes various
statistics on the outcome of the wider
employee pay review, the review does not
currently include any direct comparison
measures between executive directors
and wider employee pay. The company
does not consult with employees on
executive director remuneration.
Consideration of
shareholders views
Following the committee’s review of the
remuneration policy we wrote to our
major shareholders with the proposed
changes in order to gather their views.
A number of shareholders provided
feedback on the proposals for which we
are very grateful. We were pleased to
find that the majority of shareholders
were supportive of our new policy and
its continued alignment with our long-
term strategic priorities. The committee
carefully considered the feedback
received and made certain adjustments
to our proposals to take into account the
views of our shareholders.
The remuneration committee also
regularly reviews guidance from
shareholder advisory bodies such as the
Investment Association, ISS and Glass
Lewis, as well as the specific policies of
our shareholders. These guidelines and
policies were also carefully considered in
developing the policy.
Minor changes
The committee may make minor
amendments to the policy set out above
(for regulatory, exchange control, tax,
or administrative purposes, or to take
account of a change in legislation)
without obtaining shareholder approval
for such amendments.
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Beazley Annual report 2019
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Directors’ remuneration report continued
Annual remuneration report
The symbol ▪ by a heading indicates that the information in that section has been audited. This part of the report, the annual
remuneration report, sets out the remuneration out-turns for 2019 (and how these relate to our performance in the year) and
details of the operation of our policy for 2020.
Single total figure of remuneration ▪
The tables below set out the single figure of total remuneration for executive directors and non-executive directors for the financial
years ending 31 December 2019 and 31 December 2018.
Executive directors
£
Martin L Bride3
Adrian P Cox
D Andrew Horton
Sally M Lake4
Fixed pay
Pay for performance
2019
2018
2019
2018
2019
2018
2019
2018
Salary
134,275
330,000
380,000
351,000
482,500
468,500
207,487
–
Benefits
4,593
11,949
12,030
10,602
16,853
16,762
2,241
–
Total
annual
bonus1
275,000
200,000
900,000
300,000
1,100,000
350,000
371,000
–
Long term
incentives
Total
Remuneration 2
(LTI)
689,364
257,796
328,175
913,621
304,286 1,646,404
353,195 1,061,062
2,193,726
530,775
627,856 1,524,600
669,991
–
65,731
–
Pension
17,698
43,497
50,088
46,265
63,598
61,753
23,532
–
1 A portion of the bonus awards shown in the table above is deferred into shares for three years. Details of the deferral in respect of 2019 awards can be found on page 113.
2 A significant portion of the single figure values shown arises from the substantial share price appreciation over the period. For 2019 the share price at the time
LTI awards were made was, 295.73p for the 2015 award and 434.33p for the 2017 award, while the average share price in the last three months of 2019 was
564.6p. For 2019 the proportion of the LTI figures shown attributable to share price appreciation was £116,000 for Martin L Bride, £135,000 for Adrian P Cox,
£238,000 for D Andrew Horton and £28,000 for Sally M Lake.
3 Martin L Bride stepped down from the board on 23 May 2019.
4 Sally M Lake was appointed to the board on 23 May 2019. Further details of her remuneration arrangements are set out on page 117.
The figures in the preceding table reflect the following:
• salaries for 2019 increased by an average of 4.6%;
• annual bonus out-turns were higher than last year, commensurate with group performance; and
• LTI out-turns reflect that the second tranche of the 2015 LTI award vested at 55.0% of maximum and that the first tranche
of the 2017 LTI award vested at 0% of maximum. Beazley achieved sustained NAV growth of 13.7% per annum and 9.5% per
annum over the three and five year periods respectively. Beazley also achieved significant share price appreciation as detailed
in the notes to the table.
Non-executive directors
George P Blunden2
Angela D Crawford-Ingle3
Nicola Hodson4
Christine LaSala 5
Sir J Andrew Likierman
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Total fees £1
20,563
87,750
41,042
95,000
44,548
–
78,313
67,192
78,500
76,000
David L Roberts
John P Sauerland6
Robert A Stuchbery
A John Reizenstein7
Catherine M Woods8
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Total fees £1
257,500
211,462
69,767
67,192
89,500
86,250
71,349
–
80,134
76,788
1 Other than for the chair, fees include fees paid
for chair of the audit and risk and remuneration
committees, and for the role of senior independent
director, as well as fees, where relevant, for
membership of the subsidiary boards of Beazley
Furlonge Limited (BFL) and Beazley Insurance dac,
the chair of the BFL risk committee and Beazley
Insurance Company, Inc. (BICI).
2 George P Blunden stepped down from the plc board
and as senior independent director (SID) effective
21 March 2019.
3 Angela D Crawford-Ingle stepped down from the plc
board and as chair of the audit and risk committee
effective 31 May 2019.
4 Nicola Hodson joined the plc board on 10 April 2019
and the figure in the table above represents her fees
from this date.
5 Christine LaSala received fees of $10,500 for her role
on the BICI board which are represented in the table
above. The fees for this role have been converted at
an exchange rate of 1.27. Christine also joined the
remuneration committee and nomination committee as
well as becoming the SID on 21 March 2019.
7 John Reizenstein joined the plc board on
10 April 2019 and became chair of the audit
committee on 31 May 2019. The figure in the table
above represents his fees from these dates.
8 Catherine M Woods’ non-executive director fee was
based on €89,750 (2018: €87,000) and has been
converted into sterling for this table at the average
exchange rate of 1.12 (2018: the fee was converted
into £76,788 at the average exchange rate of 1.13).
6 John P Sauerland received fees of $10,500 for his
role on the BICI board which are represented in
the table above. The fees for this role have been
converted at an exchange rate of 1.27.
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Beazley Annual report 2019
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Salary ▪
The committee reviews salaries annually taking into consideration any changes in role and responsibilities, development of the
individual in the role, and levels in comparable positions in similar financial service companies. It also considers the performance
of the group and the individual as well as the average salary increase for employees across the whole group. Salary reviews take
place in December of each year, with new salaries effective from 1 January.
For 2020, the average salary increase was 2.7%, which was below the average salary increase across the group.
The base salaries for the executive directors in 2019 and 2020 are as set out below:
Martin L Bride1
Adrian P Cox
D Andrew Horton
Sally M Lake2
1 Martin L Bride stepped down from the board on 23 May 2019.
2 Sally M Lake was appointed to the board on 23 May 2019.
2019
base salary
£
340,000
380,000
482,500
340,000
2020
base salary
£
n/a
390,000
495,000
350,000
Increase
%
n/a
2.6
2.6
2.9
Benefits ▪
Benefits include private medical insurance for the director and their immediate family, income protection insurance, death in
service benefit at four times annual salary, travel insurance, health-club membership, season ticket and the provision of either a
company car or a monthly car allowance.
Pension ▪
Beazley operates a defined contribution scheme arranged through Fidelity. The legacy contribution for executive directors was
15% of salary.
Following changes to pension tax legislation that came into force from April 2011, if an individual exceeds the lifetime or annual
allowance, an equivalent cash alternative is offered. For the directors that were in place prior to 2019, Andrew Horton and Adrian
Cox, the cash alternative is equal to 13.2% of salary.
Following her appointment to the board in 2019 Sally Lake’s pension level was set at 12.5% of salary, which is aligned with the
rate available to the majority of the UK workforce.
Prior to 31 March 2006 the company provided pension entitlements to directors that are defined benefit in nature, based on
its legacy policy under the Beazley Furlonge Limited Final Salary Pension Scheme. Future service accruals ceased on 31 March
2006. Only base salary is pensionable, subject to an earnings cap. The normal retirement age for pension calculation purposes
is 60 years. A spouse’s pension is the equivalent of two-thirds of the member’s pension (before any commutation) payable on
the member’s death after retirement.
Details of the defined benefit entitlements of those who served as directors during the year are as follows:
Accrued
benefit at
31 Dec
2019
£
13,904
Increase
in accrued
benefits
excluding
inflation (A)
£
–
Increase
in accrued
benefits
including
inflation
£
322
Transfer value
of (A) less
directors’
contributions
£
–
Transfer
value
of accrued
benefits at
31 Dec
2019
£
500,832
Transfer
value less
directors’
contributions
£
Normal
retirement date
82,260 12 Mar 2031
Adrian P Cox
Under the Beazley Furlonge Limited Final Salary Pension Scheme, on early retirement the director receives a pension which is
reduced to reflect early payment in accordance with the rules of the scheme.
No other pension provisions are made.
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Directors’ remuneration report continued
Annual remuneration report continued
Annual bonus ▪
The annual bonus plan is a discretionary
plan in which all employees are eligible to
participate. The annual bonus is funded
by a bonus pool. The pool is calculated
as a percentage of profit subject to a
minimum group ROE. The size of the
pool as a percentage of profit increases
for higher levels of ROE. This ensures
that outcomes are strongly aligned with
shareholders’ interests.
The operation of an annual bonus pool
approach reflects Beazley’s commitment
to encourage teamwork at every level,
which, culturally, is one of its key
strengths. A broad senior management
team, beyond executive directors,
participate in the bonus pool, reinforcing
the company’s collegiate culture.
taking into consideration corporate/
strategic achievements and individual
achievements. The bonus is
discretionary and, rather than adopting
a prescriptive formulaic framework, the
committee considers wider factors in
its deliberations at the end of the year:
for example quality of profit and risk
considerations.
In determining awards, the committee
will not necessarily award the bonus pool
in aggregate (i.e. the sum of the bonus
awards may be less than the bonus pool).
The approach to the calculation of
bonuses is aligned to shareholders’
interests and ensures that bonuses
are affordable, while the ROE targets
increase the performance gearing.
Once the annual bonus pool has
been calculated the committee
determines individual allocations
2019 ROE hurdles and guideline bonus awards
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s
u
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l
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n
i
l
i
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d
u
G
100
80
60
40
20
m
u
m
i
x
a
m
f
o
%
a
s
a
0
0.0%
2.5%
5.5%
12.5%
20.0%
27.5%
30.0%
ROE performance
The committee reviews the bonus
pool framework each year to ensure it
remains appropriate, taking into account
the prevailing environment, interest
rates and expected investment returns,
headcount and any other relevant
factors.
Annual bonus out-turn for 2019
The process for determining 2019
bonuses is described below, including full
details of the ROE targets underpinning
our bonus approach along with the
guideline levels which are used by the
committee in its determination for each
executive director.
Annual bonus pool calculation
At the beginning of the financial year,
the risk-free return (RFR) was set at
2.5% taking into account the yield on US
treasuries of two to five year maturities.
This resulted in the following ROE hurdles
and guideline bonus awards:
ROE performance hurdles
ROE performance
Guideline/illustrative bonus award as a % of maximum
Threshold
2.5%
0%
5.5%
12.5%
12.5%
37.5%
20.0%
75%
Maximum
27.5%
100%
These percentages are indicative only and based on broad corporate results. Within the pool framework bonus out-turns may be
higher or lower taking into account corporate achievements and individual performance (see next page).
ROE for 2019 was 15% and the overall bonus pool (in which executive directors as well as other senior employees participate) was
calculated based on this.
The annual bonus pool outcome is considered by the committee taking into account the outcome of the group’s ROE/profit. The
framework is used by the committee as a broad guideline rather than being formulaic and applies to a broader group of executives
than board directors. A key principle of the process is that the committee exercises its judgement in determining individual awards
taking into account the corporate/strategic objectives, individual’s contribution and performance. In particular, there may be
a diverse spread of returns earned across the various divisions within the business which will be reflected in bonus out-turns
achieved. The table therefore provides full retrospective disclosure of all the group financial targets and corporate/strategic
performance which the committee considers when determining the annual bonuses.
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Assessment of corporate achievements
In determining annual bonuses for 2019 the committee took into account a range of financial and strategic elements as set
out below.
Element
Achievements
Financial
performance
• The delivery of a profit after tax of $234.1m and the return of $83.2m to shareholders by way of dividend as a
result of strong investment returns and rates responding sharply to heightened claims activity in many lines of
business.
• Delivery of growth in our gross premiums written of 15%.
• Reducing the expense ratio in line with our long term plan.
US performance
• Locally underwritten US premiums grew 13% during the year.
• Beazley Benefits, our renamed accident and health team in the US, leveraged growth in the market with
premiums rising by 20%.
• Launched new admitted insurance company, Beazley America Insurance Company, Inc.
• Extended the growth of our market leading products in the US, such as cyber, healthcare liability, accident and
health, and environmental liability.
• Launched new products including the Site Lender Environment Asset Protection, to protect lenders from
pollution risks that could impair the value of property used as collateral for commercial loans.
• Opened offices in Seattle, Denver and Phoenix as part of expanding our presence in the US.
• Moved to a new Activity Based Working (ABW) office in New York. ABW is being rolled out across the business
as we move or open new offices, giving employees greater options for working in the most productive way.
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Investment
performance
• Achieved a portfolio return of 4.8%.
International growth • Continued demand for many of our specialist products in Canada, Europe and Asia, and significant growth
potential in financial institutions business.
• 17% European growth, with all platforms future-proofed post Brexit.
• Growing demand for newer lines of business internationally, for example our cyber business grew by 26%
outside the US in 2019.
• Expanded our specialty treaty, property and mergers and acquisitions offering in Singapore.
• Launched new products including marine cyber, reputational risk, virtual care and a myBeazley management
liability cyber package across the UK and Europe.
Strategic Initiatives
• Strong progress made against all four strategic initiatives, which were identified as areas having the potential
to make a considerable difference to the business.
• Beazley Digital has successfully trialled across several product lines new ways to maximise use of technology
to give seamless and efficient solutions to clients and brokers.
• Faster, Smarter Underwriting has focused on larger more complex risks and is increasing our efficiency and
quality of complex risk underwriting and claims settlement.
• Closer to the Client has identified a group of clients to pilot a new way of working with and has increased
cross-selling and client retention across the business.
• London Market has focused on promoting London as a great place to write specialist insurance and is working
on improving the efficiency of the London market.
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Directors’ remuneration report continued
Annual remuneration report continued
Assessment of individual contributions
While a number of the specific individual objectives of the executive directors are considered commercially sensitive, the following
provides details of executive director achievements which the committee took into account.
Executive
Objectives
Achievements
Adrian P Cox
(chief underwriting
officer)
• Deliver 2019 business plan KPI’s.
• Strengthen capabilities in third party capital
management.
• Co-sponsor the Faster, Smarter Underwriting
strategic initiative.
• Build effective relationships with key stakeholders,
focusing on US and UK initially.
• Continue to oversee growth of Syndicate 5623.
• Ensure action is taken on underperforming classes
of business.
• Exceeded business KPI’s including in rate change (6.3%
v 0.9%), premiums (£2.8b to £2.7b 2019 YOA) and,
increased reserve surplus over actuarial (from 5.1%
to 6.8%).
• Capabilities strengthened including capital raising for
5623, 6107 and cyber reinsurance.
• Good progress made on Faster, Smarter Underwriting with
new tools launched to aid underwriting.
• Stakeholder relationships being enhanced and has a key
role on the Lloyd’s Market Association.
• Syndicate 5623 plan for 2019 delivered with 330%
growth in premium from $8m to $36m.
• Focus on underperforming classes of business saw
Beazley exit US trucking, construction and engineering
and UK cargo and freight portfolio, along with the fishing
vessels and UK commercial hull.
D Andrew Horton
(chief executive officer)
• Ensure considerable progress made on group
• All strategic initiatives are now gaining momentum, resulting
strategic initiatives.
• Ensure Beazley is supporting a more efficient
in productivity improvements and improved outputs.
• Strong relationship built with Lloyd’s and chairs the
London market.
London Market Group.
• Develop and support new executive committee
• Development plans in place and being implemented for
members.
all executive committee members.
• Determine five year plan for syndicate 5623.
• Rebuild succession plans given recent
• Delivered five year plan for syndicate 5623
• Strong succession plans delivered during 2019, with
management changes.
Group finance director
(Martin L Bride to
May 2019
Sally M Lake from
May 2019)
• Active capital management, including $300.0m of
debt raised.
• Deliver strong investment return.
• Pursue expense improvement and containment of
expense ratio.
• Ensure smooth transition to new group finance
director.
• Ensure focus on agreed elements of Women in
Finance Charter.
• Ensure the business is prepared for IFRS 17.
three internal successors for five executive committee
roles. New succession plans have been created and
development plans now being implemented for individuals
identified.
• Strong capital management, with debt raised as planned.
• Competitive investment return delivered.
• Good focus across the business on expense
management.
• Handover to new group finance director executed
professionally, with 90 day plan implemented.
• Achieved the 2020 Women in Finance Charter target.
Beazley were the first Lloyd’s managing agent and
specialist insurer to sign up to increasing female
representation in the group’s leadership to at least 35%
by 2020. We moved from 29% in 2018 to 37% at the start
of 2020 and a new target is now being set.
• IFRS 17 planning underway and project on track.
Annual bonus award outcomes for 2019
Within the framework of the annual bonus, in respect of individual performance and achievements, awards are dependent on a
profit pool and minimum level of ROE performance. The resultant bonuses were as follows:
Martin L Bride1
Adrian P Cox
D Andrew Horton
Sally M Lake2
Bonus (delivered as
a mix of cash and
deferred shares) % of maximum
51%
59%
57%
45%
£275,000
£900,000
£1,100,000
£371,000
% of salary
205%
237%
228%
179%
1 Martin L Bride stepped down from the board on 23 May 2019. He remained eligible for a bonus in respect of the period of the year worked.
2 Sally M Lake was appointed to the board on 23 May 2019.
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Beazley Annual report 2019
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The following graph and table set out the out-turn for 2019 against performance and illustrate the way in which bonuses over time
reflect profit and ROE performance.
Average executive director bonus (% of salary)
$m
350
300
250
200
150
100
50
0
2011
2012
2013
2014 2015
2016 2017 2018
2019
■ Pre tax profit
Average director bonus as a percentage of salary
%
350
300
250
200
150
100
50
0
Pre-tax profit
Post-tax ROE
Average executive director bonus
as a percentage of salary
2011
2012
2019
2015
$63m $251m $313m $262m $284m $293m $168m $76m $268m
15%
19%
18%
19%
21%
17%
2018
2013
2014
2016
2017
6%
9%
5%
c.64% c.272% c.333% c.294% c.291% c.272% c.150%
c.73% c.212%
Bonus deferral ▪
A portion of the bonus will generally be deferred into shares for three years. For 2019 the deferral will range from 0% to 37.5%
dependent on the level of bonus. Deferred shares are generally subject to continued employment.
A portion of bonus may also be deferred under the investment in underwriting plan, and this capital can be lost if underwriting
performance is poor. No such deferral was made in 2019 (see investment in underwriting section on page 115 for further details).
For 2019, the portion of each director’s annual bonus deferred into shares was as follows:
Martin L Bride
Adrian P Cox
D Andrew Horton
Sally M Lake
Deferred
into shares
£110,000
£270,000
£330,000
£111,300
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Annual remuneration report continued
Bonus awards for 2020
The annual bonus for 2020 will operate within a similar framework as set out above however we will enhance the disclosure of
our approach by providing additional information on financial, corporate/strategic and individual performance. In addition, a 20%
minimum deferral in to shares will be in operation with the maximum portion of the bonus that can be deferred into shares will be
increased from 37.5% of the bonus to 40% of the bonus. The level of deferral will continue to depend on the level of the bonus.
Long term incentive plan (LTIP) ▪
Under the LTIP executive directors, senior management and selected underwriters receive awards of shares subject to the
achievement of stretching performance conditions measured over three and five years.
The key features of the plan are as follows:
• 50% of the award is measured after three years and 50% after five years;
• awards are in the form of nil-cost options with a 10-year term;
• participants are expected to build a shareholding in Beazley equal to their annual award level. For example the CEO has
a shareholding requirement of 200% of salary. Participants have three years to build this shareholding. LTIP awards may be
forfeited if shareholding requirements are not met; and
• in accordance with the updated UK Corporate Governance Code, since 2019, the first tranche of LTIP awards has been subject
to a further two year holding period taking the total time frame for the entire award to five years.
Vesting of awards is based on growth in net asset value per share (NAVps), one of Beazley’s key performance indicators.
The committee considers the LTIP NAVps growth targets to be very stretching, particularly taking into account that growth
must be over a sustained three and five year period.
Growth in NAVps is calculated taking into account any payment of dividends by the company. In line with our reporting to
shareholders, NAVps is denominated in US dollars.
LTIP awards vesting in respect of the year ▪
The LTIP awards shown in the single total figure of remuneration for 2019 include:
• the second tranche of awards granted on 10 February 2015. These are due to vest on 10 February 2020, subject to the
achievement of a NAVps growth performance condition over the five years ended 31 December 2019; and
• the first tranche of awards granted on 8 February 2017. These are due to vest on 8 February 2020, subject to the achievement
of a NAVps growth performance condition over the three years ended 31 December 2019.
The results were independently calculated by Deloitte LLP.
The NAVps performance conditions for both these awards are as follows:
NAVps performance
NAVps growth < average risk-free rate +7.5% p.a.
NAVps growth = average risk-free rate +7.5% p.a.
NAVps growth = average risk-free rate +10% p.a.
NAVps growth = average risk-free rate +15% p.a.
Straight-line vesting between points
% of
award vesting
0%
10%
25%
100%
Actual NAVps growth achieved in the five years to 31 December 2019 was 13.7% p.a. which resulted in 55.0% of the second
tranche of the 2015 awards vesting.
Actual NAVps growth achieved in the three years to 31 December 2019 was 9.5% p.a. which resulted in 0% of the first tranche
of the 2017 awards vesting.
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LTIP awards for 2019 ▪
During 2019 LTIP awards with a face value equal to 200% of salary for the CEO and 100% to 150% of salary were granted to
executive directors. The awards were as shown in the table below.
Share awards granted during the year ▪
Basis
on which
award made
Type of interest
Individual
LTIP
Nil cost option (LTIP) 150% of salary
Martin L Bride
Adrian P Cox
Nil cost option (LTIP) 150% of salary
D Andrew Horton Nil cost option (LTIP) 200% of salary
Sally M Lake
Nil cost option (LTIP) 100% of salary
Deferred bonus (in respect of 2019 bonus)
Deferred shares
Martin L Bride
Deferred shares
Adrian P Cox
D Andrew Horton Deferred shares
Deferred shares
Sally M Lake
n/a
n/a
n/a
n/a
Number
of shares
awarded
–
111,729
189,156
37,243
–
8,820
10,290
3,430
Face value of
shares (£)1
% vesting
at threshold
Three years (50%)
Five years (50%)
Performance period end
–
570,000
965,000
190,000
–
45,000
52,500
17,500
10% 31/12/2021 31/12/2023
10% 31/12/2021 31/12/2023
10% 31/12/2021 31/12/2023
10% 31/12/2021 31/12/2023
–
–
–
–
–
–
–
–
–
–
–
–
1 The face value of shares awarded was calculated using the three day average share price prior to grant, which was 510.16p.
NAVps performance
NAVps growth < risk-free rate +7.5% p.a.
NAVps growth = risk-free rate +7.5% p.a.
NAVps growth = risk-free rate +10% p.a.
NAVps growth = risk-free rate +15% p.a.
Straight-line vesting between points
% of
award vesting
0%
10%
25%
100%
LTIP awards for 2020
It is intended that the performance conditions for the LTIP awards for 2020 will be in line with those granted in 2019 (see table
above). The remuneration committee may adjust the vesting level of the LTIP awards if it considers that they do not reflect the
underlying financial or non-financial performance of the individual or the Company. LTIP awards will be 200% of salary for the CEO
and 150% for other executive directors.
Dilution
The share plans permit 10% of the company’s issued share capital to be issued pursuant to awards under the LTIP, SAYE and
option plan in a 10-year period.
The company adheres to a dilution limit of 5% in a 10 year period for executive schemes.
Investment in underwriting ▪
Traditionally, Lloyd’s underwriters contributed their personal capital to syndicates in which they worked. With the move to
corporate provision of capital, individual membership of Lloyd’s has declined significantly. The committee feels that having
personal capital at risk in the syndicate is an important part of the remuneration policy and provides a healthy counterbalance to
incentivisation through bonuses and long term incentive awards. The company has operated the Beazley staff underwriting plan
for this purpose since 2004 and executive directors and other selected staff are invited to participate through bonus deferral with
an element of their cash incentives ‘at risk’ as capital commitments. These capital commitments can be lost in full if underwriting
performance is poor.
The group funds the capital for the plan. The individual capital commitment is then funded through individual’s bonus deferral.
The aim is for individuals to fund their capital within three years.
To date over 300 employees of the group have committed to put at risk £16.0m of bonuses to the underwriting results of
syndicate 623. Of the total at risk, £11.9m has already been deferred from the bonuses awarded.
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Directors’ remuneration report continued
Annual remuneration report continued
The following executive directors participated in syndicate 623 through Beazley Staff Underwriting Limited:
Adrian P Cox
D Andrew Horton
Sally M Lake1
1 Sally M Lake was appointed to the board on 23 May 2019.
Total
bonuses
deferred
£
191,600
191,600
–
2018
year of
account
underwriting
capacity
£
400,000
400,000
n/a
2019
year of
account
underwriting
capacity
£
400,000
400,000
n/a
2020
year of
account
underwriting
capacity
£
400,000
400,000
100,000
The executive directors who are participating in the 2018 and 2019 year of account, are currently fully funded in the plan and no
further bonus deferral was made in 2019. Sally Lake will be participating in the plan for the first time for the 2020 year of account.
Malus and clawback
Recovery provisions (malus and clawback) have applied to incentives for a number of years. Further detail on the recovery
provisions, including the circumstances and timeframe for which they can be applied are set out in the remuneration policy.
Risk and reward at Beazley
The committee regularly reviews developing remuneration governance in the context of Solvency II remuneration guidance,
other corporate governance developments and institutional shareholders’ guidance. The chief risk officer reports annually to the
remuneration committee on risk and remuneration as part of the regular agenda. The committee believes the group is adopting an
approach which is consistent with, and takes account of, the risk profile of the group.
We believe reward at Beazley is appropriately balanced in light of risk considerations, particularly taking into account the
following features:
Features aligned with risk considerations
Share deferral
A portion of bonus is normally deferred into shares for three years. These deferred shares, together with
shares awarded under the LTIP, mean that a significant portion of total remuneration is delivered in the form of
shares deferred for a period of years.
LTIP holding period
For awards made from 2019 the first tranche of the LTIP is subject to a further two-year holding period.
Extended performance periods
A portion of the LTIP has performance measured over an extended five-year period.
Shareholding requirements
Executive directors are expected to build up and maintain a shareholding of 200% of salary. LTIP awards may
be forfeited if shareholding requirements are not met.
From 2020 executive directors are expected to maintain a shareholding post-departure.
Investment in underwriting
Management and underwriters may defer part of their bonuses into the Beazley staff underwriting plan,
providing alignment with capital providers. Capital commitments can be lost if underwriting performance is poor.
Underwriters’ remuneration
aligned with profit achieved
Under the profit related bonus plan payments are aligned with the timing of profits achieved on the account.
For long tail accounts this may be in excess of six years.
If the account deteriorates then payouts are ‘clawed back’ through adjustments to future payments. Since
2012 profit related pay plans may be at risk of forfeiture or reduction if, in the opinion of the remuneration
committee, there has been a serious regulatory breach by the underwriter concerned, including in relation to
the group’s policy on conduct risk.
Clawback and malus
provisions for annual
bonus and LTIP shares
For deferred share awards and LTIP awards from 2012 malus provisions were introduced. For LTIP awards
from 2015 and annual bonus in respect of 2015 and onwards, clawback provisions also apply for executive
directors.
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Service contracts and payments for loss of office
No loss of office payments have been made in the year.
Martin Bride stepped down from the board at the conclusion of its meeting on 23 May 2019 and retired on 31 August 2019.
The remuneration committee determined that Martin would be treated as a good leaver for the purposes of his incentives.
Martin remained eligible for a pro-rated bonus for the year as shown on page 108. Martin’s outstanding share awards subsist
to their normal release/vesting date subject to performance where applicable.
There is no unexpired term as each of the executive directors’ contracts is on a rolling basis.
Remuneration arrangements for Sally Lake
As announced last year, Sally Lake was promoted from group actuary to group finance director, effective from 23 May 2019.
Sally’s remuneration arrangements are in-line with our remuneration policy:
• Sally was appointed on a salary of £340,000, in-line with the level received by her predecessor.
• Her pension level was set at 12.5% of salary, which is aligned with the rate available to the wider workforce.
• Sally is eligible for a maximum bonus opportunity of 400% of salary and was awarded an LTIP award with a maximum value
of 100% of salary during 2019.
External appointments
Andrew Horton has been a non-executive director of Man Group plc since 3 August 2013, and he retains the fees in respect of this
appointment. Fees for the year 2019 were £100,000.
Non-executive directors’ fees
The fees of non-executive directors are determined by the board and are reviewed annually. When setting fee levels consideration
is given to levels in comparable companies for comparable services and also to the time commitment and responsibilities of the
individual non-executive director. No non-executive director is involved in the determination of their fees.
A review of non-executive director time commitments was undertaken during the year and in recognition of a significant increase
in workload and time commitment over the past few years, an additional fee for committee membership has been introduced for
2020. This includes further fees for the designated non-executive director representing employee voice and those non-executive
directors who are members of the audit and risk and remuneration committees. Details of the non-executive directors’ fees
payable for plc board responsibilities are set out below:
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Chair of board fee
Basic fee
Senior independent director fee (additional)
Chair of audit and risk committee fee (additional)
Chair of remuneration committee fee (additional)
Membership fee for non-executive directors on the audit and risk committee (additional)
Membership fee for non-executive directors on the remuneration committee (additional)
Fee for designated non-executive director representing employee voice (additional)
2019 fee
£206,000
£61,500
£11,000
£18,500
£17,000
–
–
–
2020 fee
£211,150
£63,100
£11,300
£19,000
£17,500
£7,500
£5,000
£5,000
Beazley operates across Lloyd’s, Europe and the US markets through a variety of legal entities and structures. Non-executive
directors, in addition to the plc board, typically sit on either one of our key subsidiary boards, namely Beazley Furlonge Ltd,
our managing agency at Lloyd’s, or Beazley Insurance dac, our Irish insurance company. Non-executive directors may receive
additional fees for sitting on subsidiary boards. As a result of developments in regulation, the degree of autonomy in the operation
of each board has increased in recent years, with a consequent increase in time commitment and scope of the role.
No non-executive director participates in the group’s incentive arrangements or pension plan.
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Directors’ remuneration report continued
Annual remuneration report continued
Non-executive directors are appointed for fixed terms, normally for three years, and may be reappointed for future terms.
Non-executive directors are typically appointed through a selection process that assesses whether the candidate brings the
desired competencies and skills to the group. The board has identified several key competencies for non-executive directors
to complement the existing skill-set of the executive directors. These competencies may include:
• insurance sector expertise;
• asset management skills;
• public company and corporate governance experience;
• risk management skills;
• finance skills; and
• IT and operations skills.
Non-executive directors’ service contracts ▪
Details of the non-executive directors’ terms of appointment are set out below:
Christine LaSala
Sir J Andrew Likierman
David L Roberts
John P Sauerland
Robert A Stuchbery
Catherine M Woods
A John Reizenstein
Nicola Hodson
Commencement
of appointment
Expires
1 Jul 2016 AGM 2020
AGM 2021
25 Mar 2015
1 Nov 2017
AGM 2021
5 May 2016 AGM 2020
11 Aug 2016 AGM 2020
1 Jan 2016 AGM 2022
10 Apr 2019 AGM 2022
10 Apr 2019 AGM 2022
The standard approach for non-executive director appointments is that the appointment expires at the AGM following the end
of a three year term, notwithstanding the fact that each non-executive director is subject to annual re-election at each AGM.
Approach to remuneration for employees other than directors
The committee also has oversight of remuneration arrangements elsewhere in the group. The following tables set out the
additional incentive arrangements for other staff within the organisation.
Other incentive arrangements at Beazley (not applicable to executive directors):
Element
Profit related pay plan To align underwriters’ reward with
Objective
the profitability of their account.
Support bonus plan
To align staff bonuses with individual
performance and achievement of objectives.
Retention shares
To retain key staff.
Summary
Profit on the relevant underwriting account as measured at three years
and later.
Participation is limited to staff members not on the executive or in receipt
of profit related pay bonus. The support bonus pool may be enhanced by a
contribution from the enterprise bonus pool.
Used in certain circumstances. Full vesting dependent on continued
employment over six years.
Underwriter bonus plan – profit related pay plan
Underwriters participate in a profit related pay plan based upon the profitability of their underwriting account. Executive directors
do not participate in this plan.
The objective of the plan is to align the interests of the group and the individual through aligning an underwriter’s reward to the
long term profitability of their portfolio. Underwriters who have significant influence over a portfolio may be offered awards under
the plan. There is no automatic eligibility. Profit related pay is awarded irrespective of the results of the group. Awards are capped.
This bonus is awarded as cash and is based upon a fixed proportion of profit achieved on the relevant underwriting account as
measured at three years and later. Any movements in prior years are reflected in future year payments as the account develops
after three years. For long-tail accounts the class is still relatively immature at the three-year stage and therefore payments will be
modest. Underwriters may receive further payouts in years four, five and six (and even later) as the account matures. Therefore
each year they could be receiving payouts in relation to multiple underwriting years.
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If the account deteriorates as it develops any payouts are ‘clawed back’ through reductions in future profit related pay bonuses.
From 2012 onwards any new profit related pay plans may be at risk of forfeiture or reduction if, in the opinion of the remuneration
committee, there has been a serious regulatory breach by the underwriter concerned, including in relation to the group’s policy on
conduct risk.
The fixed proportion is calculated based upon profit targets which are set through the business planning process and reviewed by
a committee formed of executive committee members and functional specialists including the group actuary. Underwriting risk is
taken into account when setting profit targets.
In addition to profit related pay, underwriters are also eligible to receive a discretionary bonus, based upon performance, from the
enterprise bonus pool. A proportion of this bonus may be paid in deferred shares, which vest after three years subject to continued
employment.
Support bonus plan
Employees who are not members of the executive and who do not participate in the underwriters’ profit related pay plan
participate in a discretionary bonus pool. This pool provides employees with a discretionary award of an annual performance
bonus that reflects overall individual performance including meeting annual objectives.
A proportion of this award may also be dependent on the group’s ROE and therefore allocated from the enterprise bonus pool.
A proportion of this bonus may be paid in deferred shares, which vest after three years subject to continued employment.
UK SAYE
The company operates an HMRC-approved SAYE scheme for the benefit of UK-based employees. The scheme offers a three-year
savings contract period with options being offered at a 20% discount to the share price on grant. Monthly contributions are made
through a payroll deduction on behalf of participating employees. The UK SAYE scheme has been extended to eligible employees
in Singapore, Ireland, Canada, France, Germany and Spain. The Irish SAYE scheme has been approved by the Irish Revenue.
US SAYE
The Beazley plc savings-related share option plan for US employees permits all eligible US-based employees to purchase shares
of Beazley plc at a discount of up to 15% to the shares’ fair market value. Participants may exercise options after a two-year
period. The plan is compliant with the terms of section 423 of the US Internal Revenue Code and is similar to the SAYE scheme
operated for UK-based Beazley employees.
Retention shares
The retention plan may be used for recruitment or retention purposes. Any awards vest at 25% per annum over years three to six.
Policy going forward is that existing executive directors do not participate in this plan and no executive directors have subsisting
legacy awards outstanding.
CEO pay increase in relation to all employees
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All employees
Percentage change in remuneration
from 31 Dec 2018 to 31 Dec 2019
Percentage change
in benefits %
2.47%
5.96%
Percentage change
in annual bonus %
214.3%
42.4%
Percentage change
in base salary %
3.00%
4.01%
Note: Salary and bonus are compared against all employees of the group. Benefits (including pension) are compared against all UK employees, reflecting the group’s
policy that benefits are provided by reference to local market levels.
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Directors’ remuneration report continued
Annual remuneration report continued
Statement of directors’ shareholdings and share interests ▪
LTIP participants are expected to build a shareholding in Beazley equal to their annual award level. The CEO has a shareholding
requirement of 200% of salary and other executive directors have a shareholding requirement of 150% of salary. LTIP awards
may be forfeited if shareholding requirements are not met. The CEO and CUO met their shareholding guidelines. The group finance
director was appointed during the year and has made progress towards meeting her guideline (see chart below).
Directors’ shareholdings (% of salary)
2,500
2,000
1,500
1,000
500
0
A Horton
A Cox
S Lake
■ Actual holding as % of salary
■ Holding requirement as % of salary
The table below shows the total number of directors’ interests in shares as at 31 December 2019 or date of cessation
as a director.
Name
George P Blunden1
Martin L Bride2
Adrian P Cox
Sally M Lake3
D Andrew Horton
Angela D Crawford-Ingle4
Christine LaSala
Sir J Andrew Likierman
David L Roberts
John P Sauerland
Robert A Stuchbery
Catherine M Woods
A John Reizenstein5
Nicola Hodson
Unvested awards
Vested awards
Number of
shares owned
(including by
connected
persons)
40,000
169,643
905,082
50,000
1,834,136
34,207
40,000
10,000
50,750
30,000
62,500
30,000
10,000
–
Conditional shares
not subject to
performance conditions
(deferred shares and
retention shares)
–
73,329
111,907
13,160
127,352
–
–
–
–
–
–
–
–
–
Nil cost options
subject to
performance
conditions (LTIP
awards)
–
344,216
499,746
149,675
844,100
–
–
–
–
–
–
–
–
–
Options over
shares subject
to savings
contracts
(SAYE)
–
–
4,202
4,662
4,603
–
–
–
–
–
–
–
–
–
Unexercised
nil cost options
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Options
exercised in
the year
–
131,107
159,500
4,230
231,451
–
–
–
–
–
–
–
–
–
1 George P Blunden ceased to be a director on 21 March 2019.
2 Martin L Bride ceased to be a director on 23 May 2019.
3 Sally M Lake was appointed as a director on 23 May 2019.
4 Angela D Crawford-Ingle ceased to be a director on 31 May 2019.
5 John Reizenstein and Nicola Hodson were appointed as directors on 10 April 2019.
No changes in the interests of directors have occurred between 31 December 2019 and 5 February 2020.
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CEO pay versus performance
The following graph sets out Beazley’s 10 year total shareholder return performance to 31 December 2019, compared with the
FTSE All Share and FTSE 350 Non-Life Insurance indices. These indices were chosen as comparators as they comprise companies
listed on the same exchange and, in the case of the Non-Life Insurance index, the same sector as Beazley.
Total shareholder return performance
Value of £100 invested on 31 December 2009
1,000
800
600
400
200
0
09
10
11
12
13
14
15
16
17
18
19
■ Beazley ■ FTSE All Share ■ FTSE 350 Non-Life Insurance
Historical CEO payouts
Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
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CEO single
figure of total
remuneration
£1,525,102
£1,008,669
£2,339,573
£2,922,392
£3,745,989
£3,711,647
£3,715,146
£3,140,145
£1,524,600
£2,193,726
Annual
variable
award
(% of maximum
opportunity)1
63%
14%
71%
93%
74%
73%
70%
38%
19%
57%
Long term
incentives
vesting
(% of maximum
opportunity)
50%
99%
84%
100%
100%
100%
100%
98%
41%
37%
1 An individual overall cap of 400% of salary was introduced from 2013. Prior to this date and in line with industry practice, there was no formal limit on individual
bonuses. To enable comparison, the above table assumes that a maximum annual variable award of 400% of salary also applied for years prior to 2013.
Pay ratio data
The following table provides pay ratio data in respect of the CEO’s total remuneration compared to the 25th, median and 75th
percentile UK employees.
Financial year
2019
Method
Option A
25th percentile pay ratio
42:1
Median pay ratio
25:1
75th percentile pay ratio
15:1
The employees used for the purposes of the table above were identified on a full-time equivalent basis as at 31 December 2019.
Option A was chosen as it is considered to be the most accurate way of identifying the relevant employees. This captures all
relevant pay and benefits and aligns to how the single figure table is calculated.
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Directors’ remuneration report continued
Annual remuneration report continued
The following table provides salary and total remuneration information in respect of the employees at each quartile.
Financial year
Element of pay
Salary
Total remuneration
25th percentile employee
£38,500
£52,500
Median employee
£63,650
£89,500
75th percentile employee
£95,300
£148,300
2019
Note: Salary and bonus are compared against all employees of the UK group.
Relative importance of spend on pay
The following table shows the relative spend on pay compared to distributions to shareholders:
2018
2019
Directors’ share plan interests ▪
Details of share plan interests of those directors who served during the period are as follows:
Overall
expenditure
on pay
$208.8m
$218.8m
Shareholder
distributions
(dividends
in respect of
the year)
$79.5m
$83.2m
Martin L Bride
Deferred bonus:
LTIP (see notes):
SAYE:
Adrian P Cox
Deferred bonus:
LTIP (see notes):
SAYE:
D Andrew Horton
Deferred bonus:
LTIP (see notes):
SAYE:
Sally M Lake
Deferred bonus:
LTIP (see notes):
SAYE:
Outstanding
options at
1 Jan 20191
Options
granted
Options
exercised
Lapsed
unvested
Outstanding
options at
31 Dec 20192
140,399
493,867
–
186,925
548,962
6,742
226,052
940,913
4,603
13,160
162,465
4,662
–
–
–
8,820
111,729
4,202
10,290
189,156
–
–
–
–
67,070
64,037
–
83,838
68,920
6,742
–
85,614
–
–
92,025
–
108,990
122,461
–
–
163,508
–
–
–
–
–
–
–
73,329
344,216
–
111,907
499,746
4,202
127,352
844,100
4,603
13,160
162,465
4,662
1 Sally M Lake’s interest is shown from her date of appointment to the board, 23 May 2019.
2 Martin L Bride’s interest is shown until his date of resignation from the board, 23 May 2019.
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Notes to share plan interests table
Deferred bonus
LTIP 2014 – 3/5 year Awards were made on 11 February 2014 at a mid-market share price of 273.13p.
Deferred bonus awards are made in the form of conditional shares that normally vest three years after the date of award.
Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period
and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates
to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with
straight-line pro-rated vesting between these points.
Awards expire in February 2024.
LTIP 2015 – 3/5 year Awards were made on 10 February 2015 at a mid-market share price of 295.73p.
Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period
and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates
to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with
straight-line pro-rated vesting between these points.
Awards expire in February 2025.
LTIP 2016 – 3/5 year Awards were made on 9 February 2016 at a mid-market share price of 354.1p.
Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period
and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates
to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with
straight-line pro-rated vesting between these points.
Awards expire in February 2026.
LTIP 2017 – 3/5 year Awards were made on 8 February 2017 at a mid-market share price of 434.33p.
Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period
and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates
to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with
straight-line pro-rated vesting between these points.
Awards expire in February 2027.
LTIP 2018 – 3/5 year Awards were made on 13 February 2018 at a mid-market share price of 553.33p.
Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period
and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates
to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with
straight-line pro-rated vesting between these points.
Awards expire in February 2028.
LTIP 2019 – 3/5 year Awards were made on 12 February 2019 at a mid-market share price of 510.16p.
Performance conditions: all of the award is subject to NAVps performance, with 50% measured over a three year period
and 50% measured over a five year period. NAVps < RFR+7.5% p.a. equates to 0% vesting, NAVps = RFR+7.5% p.a. equates
to 10% vesting, NAVps = RFR+10% p.a. equates to 25% vesting, NAVps = or > RFR+15% p.a. equates to 100% vesting, with
straight-line pro-rated vesting between these points.
Awards expire in February 2029.
Share prices
The market price of Beazley ordinary shares at 31 December 2019 (the last trading day of the year) was 556p and the range
during the year was 494p to 628p.
Remuneration committee
The committee consists of only non-executive directors and during the year the members were Sir Andrew Likierman (chair),
John Sauerland, Catherine Woods and Christine LaSala. George Blunden also served on the committee until he stepped down
in March 2019. The board views each of the committee members as independent.
The committee considers the individual remuneration packages of the chief executive, executive directors and executive
committee members. It also has oversight of the salary and bonus awards of individuals outside the executive committee who
either directly report to executive committee members or who have basic salaries over £200,000, as well as the overall bonus
pool and total incentives paid by the group. The terms of reference of the committee are available on the company’s website. The
committee met six times during the year. Further information on the key activities of the committee for 2019 can be found within
the statement of corporate governance on page 91.
During the year the committee was advised by remuneration consultants from Deloitte LLP. Total fees in relation to executive
remuneration consulting were £91,800. Deloitte LLP also provided advice in relation to share schemes, tax, internal audit and
compliance support.
Deloitte LLP was appointed by the committee. Deloitte LLP is a member of the Remuneration Consultants’ Group and as such
voluntarily operates under a code of conduct in relation to executive remuneration consulting in the UK. The committee agrees
each year the protocols under which Deloitte LLP provides advice, to support independence. The committee is satisfied that the
advice received from Deloitte LLP has been objective and independent.
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Directors’ remuneration report continued
Annual remuneration report continued
Input was also received by the committee during the year from the chief executive, head of talent management, company
secretary and chief risk officer. However, no individual plays a part in the determination of their own remuneration.
Engagement with the workforce
As part of the regular cycle, the committee is informed of pay and employment conditions of wider employees in the group
and takes these into account when determining the remuneration for executive directors.
Statement of shareholder voting
The voting outcomes of the 2018 annual remuneration report and 2016 remuneration policy were as follows:
2018 annual remuneration report
2016 remuneration policy
Votes for
396,690,818
382,443,087
% for
97.71
94.63
Votes against
9,293,687
21,721,581
% against
Total votes cast
2.29 405,984,505
5.37 404,164,668
Votes withheld
(abstentions)
1,089,238
103,464
Annual general meeting
At the forthcoming annual general meeting to be held on 25 March 2020, a binding resolution will be proposed to approve the
directors’ remuneration policy and an advisory resolution will be proposed to approve this annual remuneration report.
I am keen to encourage an ongoing dialogue with shareholders. Accordingly, please feel free to contact me if you would like to
discuss any matter arising from this report or remuneration issues generally, either by writing to me at the company’s head office
or by email through Christine Oldridge at christine.oldridge@beazley.com.
By order of the board
J A Likierman
Chair of the remuneration committee
5 February 2020
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Statement of directors’ responsibilities in respect
of the annual report and financial statements
The directors are responsible for preparing the annual report and the group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that
law they are required to prepare the group financial statements in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent company
financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the
group and parent company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and
enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal
control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard
the assets of the group and to prevent and detect fraud and other irregularities.
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Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors’ report,
directors’ remuneration report and corporate governance statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the directors in respect of the annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation
taken as a whole; and
• the strategic report/directors’ report includes a fair review of the development and performance of the business and the
position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the group’s position and performance, business model and strategy.
D Roberts
Chair
S M Lake
Group finance director
5 February 2020
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Independent Auditors report
to the members of Beazley plc
Opinion
In our opinion;
• Beazley plc’s consolidated financial statements and parent company financial statements (the ‘Financial Statements’) give a
true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2019 and of the Group’s
profit for the year then ended;
• the consolidated financial statements have been properly prepared in accordance with International Financial Report Standards
(‘IFRSs’) as adopted by the European Union (‘EU’);
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU as
applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards
the group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of Beazley plc and its subsidiaries (collectively ‘the group’) and the parent company
financial statements which comprises:
Group
Consolidated statement of profit and loss for the year then ended
Statement of comprehensive income for the year then ended
Statement of changes in equity for the year then ended
Statement of financial position as at 31 December 2019
Statement of cash flows for the year then ended
Related notes 1 to 34 to the financial statements, including
a summary of significant accounting policies (except for note 2
where it is marked as unaudited)
Parent company
Statement of comprehensive income for the year then ended
Statement of changes in equity for the year then ended
Statement of financial position as at 31 December 2019
Statement of cash flows for the year then ended
Related notes 1 to 34 to the financial statements including
a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report below. We are independent of the group and parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs(UK) require us
to report to you whether we have anything material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 155 to 168 that describe the principal risks and explain how they are
being managed or mitigated;
• the Directors’ confirmation set out on page 48 in the Annual Report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would threaten its business model, future performance, solvency or
liquidity;
• the Directors’ statement set out on page 67 in the Annual Report about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability
to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation on page 48 in the annual report as to how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
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Overview of our audit approach
Key audit matters • Valuation of insurance liabilities
Audit scope
• Valuation of estimated premium income
• Valuation of level 3 financial investments
• We performed an audit of the complete financial information of one component (Syndicate 2623), and
audit procedures on specific balances for a further 4 components. (Syndicate 3623, Beazley Insurance
DAC (‘BIDAC’), Beazley Insurance Company Inc (‘BICI’) and Group Function)
• The components where we performed full or specific audit procedures accounted for 97% of Profit before
income tax, 98% Gross Written Premium and 99% Total assets.
Materiality
• Overall group materiality of $10.8m which represents 5% of pre-tax profits on a 5 year average.
First year audit considerations
In the preparation for our first year audit of the 31 December 2019 financial statements, we performed a number of transitional
procedures. Following our selection, we undertook procedures to establish our independence of the Group, including ensuring that
all staff who work on the audit worldwide are independent of the Group. We used time prior to commencing any audit work to gain
an understanding of the business issues and meet with key management.
We were appointed by the audit committee in May 2019, and were independent from 1 January 2019.
Our transition activities included shadowing the former auditor KPMG LLP (‘KPMG’) at key meetings with management, such as
meetings of the Audit and Risk Committee. We reviewed KPMG’s 2018 audit work papers and gained an understanding of their
risk assessment and key judgements. We held a number of meetings with management to understand the key judgements being
made for the 31 December 2018 year end.
In May 2019, we held our global team planning event attended by the audit partners and senior staff responsible for auditing the
main business function and significant overseas components of the Group. This provided the opportunity for the entire team to
prepare themselves for the audit including the alignment of our audit approach. Our global audit team has deep knowledge of the
insurance industry and has been involved in the audits of large International financial services companies.
We used the understanding the audit team had formed to establish our audit base and assist in the formalisation of our audit
strategy for the 2019 Group audit. This involved gaining an understanding of the Group’s key processes and controls over financial
reporting through walkthroughs of the processes.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of
our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on
these matters.
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Independent Auditors report
to the members of Beazley plc continued
Key observations communicated to the Audit and
Risk Committee
Our response to the risk
Risk
Valuation of claims liabilities (Gross: $4,460.3m, Net of reinsurance : $3,391.5m, PY comparative Gross:$4,040.7m, Net of reinsurance:
$3,089.0m)
Refer to the Audit and Risk Committee Report (pages 85 to 90); Accounting policies (pages 146 and 149); and Note 24 of the Consolidated
Financial Statements (pages 189 to 198).
One of the most significant financial statement risk areas from both a business and an audit perspective is the valuation and adequacy of the
claims liabilities held by the Group. Gross and net of reinsurance claims liabilities are inherently uncertain and subjective by nature and therefore
are more susceptible to fraud or error than other financial statement balances. A small manipulation of an assumption could have a significant
impact on the result for the year. This could lead to claims liabilities not falling within a reasonable range of estimates, resulting in a misstatement
in the financial statements. Additionally, the valuation process is conditional upon the accuracy and completeness of the data.
We have split the risk relating to the valuation of claims liabilities into the following component parts:
• Actuarial assumptions; and
• data
We determined that the actuarial
assumptions as a whole, which are used by
management, are reasonable based on our
analysis of the experience to date, industry
practice and the financial and regulatory
requirements. We therefore conclude that
reserves lie within our reasonable range of
possible outcomes.
Actuarial assumptions
The assumptions used to develop the incurred
but not yet reported (‘IBNR’) loss reserves,
which make up a significant component of the
claims liabilities (gross and net of reinsurance),
involve a significant degree of judgement.
As a result we focused on this area as the
valuation can be materially impacted by
various factors including:
• The risk of inappropriate assumptions used
in determining current year gross and net of
reinsurance loss reserves. Given that
limited data is available, especially on
newer or growing classes of business such
as CyEx, as there is a greater reliance on
expert judgement in management’s
estimates due to the significant areas of
uncertainty.
• The risk that IBNR loss reserve estimates
in respect of catastrophe and large claims
losses as well as classes which are
inherently uncertain such as Speciality
lines are accurate, particularly as they are
often estimated based on limited data.
• The areas we consider as key areas of
judgement include the tail development
and consistency of case reserves,
allowance of social inflation and other
inflationary trends at a reserving class level
which are key assumptions used in
management’s projections.
To obtain sufficient audit evidence to
conclude on the appropriateness of actuarial
assumptions, we engaged our actuaries as
part of our audit team and performed the
following procedures:
• Obtained an understanding and tested the
design and operating effectiveness of key
controls over management’s process in
respect of the valuation of claims liabilities
on a gross and net of reinsurance basis
including the setting and updating of
actuarial assumptions.
• Assessed and challenged the reserving
methodology on both a gross and net of
reinsurance basis. This has also involved
comparing the Group’s reserving
methodology with industry practice and
understanding the rationale for key
differences.
• Performed independent re-projections of
IBNR applying our own assumptions,
across all classes of business for attritional
claims on a net and gross basis and
compared these to management’s results
as at 31 December 2019.
• Challenged and assessed whether the
assumptions, such as inflationary trends,
applied to key areas of uncertainties were
appropriate based on our knowledge of the
Group, industry practice and regulatory and
financial reporting requirements.
• Benchmarking catastrophe and large
losses, and assumptions used in inherent
uncertain classes and new growing
classes, against other comparable industry
participants to challenge and assess the
reserving assumptions.
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Key observations communicated to the Audit and
Risk Committee
We determined, based on our audit work, that
the data used for the actuarial model inputs
was materially consistent and accurate to
data tested for completeness in respect of
case claims, reinsurance and premiums.
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Based on the results of the procedures
performed we concluded that premium
estimates had been recorded appropriately.
Risk
Data
The valuation of claims liabilities depends on
complete and accurate data used since they
are used to form expectations about future
claims. The valuation of claims liabilities is
therefore conditional upon the accuracy and
completeness of the data used.
Valuation of estimated premium within Gross
Written Premiums income (Gross Written
Premium $3,003.9m , PY comparative
$2,615.3m)
Refer to Accounting policies (pages 147
and 148).
For certain contracts, premium is initially
recognised based on estimates of ultimate
premium.
This occurs where pricing is based on
variables which are not known with certainty
at the point of binding the policy. Subsequent
adjustments to those estimates arise as
updated information relating to those pricing
variables becomes available, and are
recorded in the period in which they are
determined. These estimates are judgemental
and therefore could result in misstatements
of revenue recognised in the financial
statements.
Our response to the risk
To obtain sufficient audit evidence to assess
the integrity of premium and case gross and
net of reinsurance claims data we performed
the following procedures:
• Obtained an understanding of the process
and tested the design and operating
effectiveness of key controls over
management’s data collection, extraction
and validation process.
• Tested the completeness and accuracy of
the claims, reinsurance and premium data
used within the reserving process by
reconciling the data used in the actuarial
projections to the underlying policy
administration and finance systems.
• For a sample of paid and outstanding
claims we corroborated to underlying
supporting evidence. For paid claims this
included authorisation requests and bank
statements. For a sample of outstanding
claims we held discussions with claims
handlers to further understand the
background of the claims. We also
obtained supporting evidence including
claims handler reports performed by third
parties handlers to corroborate the year
end balances.
Our procedures included:
• Obtained an understanding of the process
and testing the design effectiveness of
key controls.
• Performing independent re-projections of
ultimate premium per underwriting year for
the 2018 and prior underwriting years,
applying our own assumptions and
comparing these to the Group’s booked
ultimate premium. Where there were
significant variances we challenged
management’s assumption.
• For a sample of policy estimates in respect
of the 2019 underwriting year, we
corroborated the estimated premium to
third party supporting evidence such as
signed slips. Additionally to corroborate
estimates where similar policies have been
written previously, we performed back
testing against historic experience of
estimated premium income compared to
actual premium signed.
• Performing analytical review procedures at
a class of business level, comparing actual
premium to management’s business
forecasts.
• Reviewing and testing the completeness
and accuracy of premium data to
underlying policy and finance systems.
This was performed through substantively
testing key reconciliations to external
sources such as external service
organisations reports.
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Independent Auditors report
to the members of Beazley plc continued
Risk
Valuation of level 3 investments ($216.6m,
PY comparative $186.6m)
Refer to the Audit and Risk Committee Report
(pages 85 to 90); Accounting policies (pages
150 to 151); and Note 16 of the Consolidated
Financial Statements (pages 179 to 184).
Investments in level 3 assets predominantly
comprise illiquid credit asset funds managed
by third party managers (generally closed end
limited partnerships or open ended funds).
The investments themselves are in many
cases private and unquoted. These assets are
inherently harder to value due to the inability
to obtain a market price of these assets as at
the balance sheet date. Therefore, there is
judgement in both deriving the price and the
timeliness of receiving the information from
the third party managers, either of which
could result in misstatements of the asset
value recognised in the financial statements.
Our response to the risk
To obtain sufficient audit evidence to
conclude on the appropriateness of valuation
of level 3 investments, we performed the
following procedures for a sample of key
investments:
• Obtained an understanding of the process
and tested the design and operating
effectiveness of key controls.
• Obtained net assets valuation (‘NAV’)
statements provided by third party
administrators in respect of investments
and compared these to management’s
valuations. We assessed management’s
valuations by performing independent
back testing of recent realisations, to
confirm that NAV is an appropriate proxy
for fair value.
• With support from our valuation specialists
we assessed the need for their input in the
valuation of level 3 investments.
Key observations communicated to the Audit and
Risk Committee
Based on our procedures performed we are
satisfied that the valuation of level 3
investments was reasonable.
Prior year comparison
In the prior year, KPMG identified ‘recoverability of insurance and reinsurance debtors’ and ‘recoverability of parent company’s
investment in subsidiaries’ as key audit matters. Based on our risk assessment procedures, we did not consider either to be key
audit matters due to the amount of insurance and reinsurance debtors greater than one year outstanding as at 31 December
2019, and we deem that there is limited risk of impairment in respect of the parent company’s investment in subsidiaries as
we deem there are no impairment indicators present.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit
scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial
statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls,
changes to the business environment and other factors when assessing the level of work to be performed at each reporting
component.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, we identified 33 legal entities within the group. Of the 33 legal
entities within the group we selected four entities covering entities within UK, Ireland and US which represent the material
business units within the Group. One full scope entity (Syndicate 2623) and three specific scope components (Syndicate 3623,
Beazley Insurance Company Inc (‘BICI’) and Beazley Insurance DAC (‘BIDAC’)). Our work on specific scope components covers
area such as cash, investments, financial liabilities and reinsurance on outstanding claims. Furthermore, we performed specific
scope procedures over a further 11 legal entities over group wide processes and functions and denoted this as one reporting unit
(‘Group Function’). The Group Function and process consists of entities primarily which hold the pension scheme, intangibles,
leases, expenses, cash and investments for the group.
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Beazley Annual report 2019
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Details of the five reporting components are set out below:
Component
Syndicate 2623
Syndicate 3623
BICI
BIDAC
Group function
Scope
Full
Specific
Specific
Specific
Specific
Auditor
EY Primary Team
EY Primary Team
EY New York
EY Primary Team
EY Primary Team
Of the 5 components selected, we performed an audit of the complete financial information of one component (“full scope
components”) which was selected based on its size or risk characteristics. For the remaining 4 components (“specific scope
components”), we performed audit procedures on specific accounts within that component that we considered had the potential
for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their
risk profile.
The reporting components where we performed audit procedures accounted 97% of the Group’s Profit before Income Tax measure
used to calculate materiality, 98% of the Group’s Gross Written Premium and 99% of the Group’s Total assets. For the current year,
the full scope component contributed 61% of the Group’s Profit before Income Tax, 79% of the Group’s Gross Written Premium and
8% of the Group’s Total assets. The specific scope components contributed 36% of the Group’s PBT measure used to calculate
materiality, 19% of the Group’s Gross written Premium and 91% of the Group’s Total assets. The audit scope of these components
may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant
accounts tested for the Group.
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Of the remaining 18 legal entities that together represent 3% of the Group’s Profit before Income Tax, none are individually greater
than 3% of the Group’s Profit before Income Tax. For these components, we performed other procedures, including analytical
review, testing of significant balances, review of consolidation journals and intercompany eliminations to respond to any potential
risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Profit before tax
Gross Written Premium
Total assets
Full scope component: Syndicate 2623
Specific scope components: BICI, BIDAC,
Syndicate 3623 and Group Function
Other procedures
61%
36%
3%
Full scope component: Syndicate 2623
Specific scope components: BICI, BIDAC,
Syndicate 3623 and Group Function
Other procedures
79%
19%
2%
Full scope component: Syndicate 2623
Specific scope components: BICI, BIDAC,
Syndicate 3623 and Group Function
Other procedures
8%
91%
1%
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Beazley Annual report 2019
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Independent Auditors report
to the members of Beazley plc continued
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each
of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms
operating under our instruction.
The primary audit team provided detailed audit instructions to the component teams which included guidance on areas of focus,
including the relevant risks of material misstatement detailed above, and set out the information required to be reported to the
primary audit team.
For the one full scope component (Syndicate 2623) and 3 specific scope components (Syndicate 3623, BIDAC, and Group
function), audit procedures were performed directly by the primary audit team whilst the other specific scope component (BICI)
was audited by an overseas component audit team. For other companies, where the work was performed by component auditors,
we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence has been obtained as
a basis for our opinion on the Group as a whole.
The primary audit team followed a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor
visits each component where the Group audit scope was focused at least once every year. For the specific scope component
where we instructed an EY network firm, the primary audit team have reviewed the audit procedures performed by the component
team on the specific accounts and attended key Audit Committee meetings at the component.
The work performed on the components, together with the additional procedures performed at Group level, gave us appropriate
evidence for our opinion on the consolidated financial statement as a whole.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and
extent of our audit procedures.
We determined materiality for the Group to be $11 million, which is 5% of average profit before income tax over the last 5 years.
We considered that profit before income tax is the most relevant performance measure used by investors, regulators and other
stakeholders when assessing the Group. Given the level of large losses in 2017 and 2018 and fluctuation in investment return,
average profit before tax over the last 5 years is reflective of the Group’s profitability.
We determined materiality for the Parent Company to be $7 million, which is 1% of net assets. The Parent company primarily holds
the investment in Group entities and, therefore, net assets is considered to be the key focus for users of the financial statements.
We calculated materiality at the planning stage of the audit and then during the course of our audit, we reassessed initial
materiality based on average of profit before tax over a 5 year period taking into account the year ended 31 December 2019.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement
was that performance materiality was 50% of our planning materiality, namely $5.5m, this is our normal practice for a first
year audit.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based
on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that
component. In the current year, the range of performance materiality allocated to components was $4.5m to $1.4m.
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Beazley Annual report 2019
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Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of $0.5m,
which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the Annual Report set out on pages 1 to 125, other than the financial
statements and our auditor’s report thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report that fact.
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We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items
meet the following conditions:
• Fair, balanced and understandable set out on page 79 – the statement given by the Directors that they consider the Annual
Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
• Audit and Risk Committee reporting set out on pages 85 to 90– the section describing the work of the Audit and Risk
committee does not appropriately address matters communicated by us to the Audit and Risk committee or is materially
inconsistent with our knowledge obtained in the audit; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 79 – the parts of the directors’
statement required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance Code.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
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Independent Auditors report
to the members of Beazley plc continued
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit
Responsibilities of directors
As explained more fully in the Directors’ responsibilities statement set out on page 125, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the group and parent company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial
statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement
due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both
those charged with governance of the Group and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and its subsidiaries
and determined that the relevant laws and regulations related to elements of company law and tax legislation, and the
financial reporting framework. Our considerations of other laws and regulations that may have a material effect on the financial
statements included permissions and supervisory requirements of the Prudential Regulation Authority (‘PRA’) and the Financial
Conduct Authority (‘FCA’). We obtained a general understanding of how Beazley plc is complying with those frameworks by
making enquiries of management and those responsible for legal and compliance matters. We also reviewed correspondence
between the Company and regulatory bodies, reviewed minutes of the Board and Executive Committee, and gained an
understanding of the Company’s approach to governance demonstrated by the Board’s approval of the Company’s governance
framework.
• For direct laws and regulations, we considered the extent of compliance with those laws and regulations as part of our
procedures on the related financial statement items.
• For both direct and other laws and regulations, our procedures involved: making enquiry of those charged with governance and
senior management for their awareness of any non-compliance of laws or regulations; inquiring about the policies that have
been established to prevent non-compliance with laws and regulations by officers and employees; inquiring about the Group’s
methods of enforcing and monitoring compliance with such policies; and inspecting significant correspondence with the FCA
and PRA.
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Beazley Annual report 2019
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• The Group operates in the insurance industry which is a highly regulated environment. As such the Senior Statutory Auditor
considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence
and capabilities, which included the use of specialists where appropriate.
• We assessed the susceptibility of the consolidated financial statements to material misstatement, including how fraud might
occur by considering the controls that the Group has established to address risks identified by the entity, or that otherwise
seek to prevent, deter or detect fraud. We also considered areas of significant judgement, including complex transactions,
performance targets, external pressures and the impact these have on the control environment. Where this risk was considered
to be higher we performed audit procedures to address each identified fraud risk (valuation of insurance liabilities). These
procedures included journal entry testing, with a focus on manual journals and were designed to provide reasonable assurance
that the financial statements were free from fraud or error.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• We were appointed by the Company Directors on 23 May 2019 to audit the financial statements for the year ending
31 December 2019 and subsequent financial periods. Our appointment as auditor was approved by shareholders at the
Annual General Meeting on 21 March 2019.
• The period of total uninterrupted engagement including previous renewals and reappointments is one year.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company
and we remain independent of the Group and the parent company in conducting the audit.
• The audit opinion is consistent with the additional report to the Audit and Risk committee.
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Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Stuart Wilson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
5 February 2020
Notes:
1 The maintenance and integrity of the Beazley plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration
of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially
presented on the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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137 Consolidated statement of profit or loss
138 Statements of comprehensive income
139 Statements of changes in equity
141 Statements of financial position
142 Statements of cash flows
143 Notes to the financial statements
207 Glossary
Financial statements www.beazley.com
Beazley Annual report 2019
137
Consolidated statement of profit or loss
for the year ended 31 December 2019
Gross premiums written
Written premiums ceded to reinsurers
Net premiums written
Change in gross provision for unearned premiums
Reinsurer’s share of change in the provision for unearned premiums
Change in net provision for unearned premiums
Net earned premiums
Net investment income
Other income
Revenue
Insurance claims
Insurance claims recoverable from reinsurers
Net insurance claims
Expenses for the acquisition of insurance contracts
Administrative expenses
Foreign exchange (gain)/loss
Operating expenses
Expenses
Impairment of investment in associate
Results of operating activities
Finance costs
Profit before income tax
Income tax expense
Profit for the year attributable to equity shareholders
Earnings per share (cents per share):
Basic
Diluted
Earnings per share (pence per share):
Basic
Diluted
Notes
3
3
3
4
5
3
3
3
3
3
14
8
9
10
10
10
10
2019
$m
3,003.9
(500.4)
2,503.5
(184.5)
28.0
(156.5)
2018
$m
2,615.3
(366.8)
2,248.5
(167.6)
3.7
(163.9)
2,347.0
2,084.6
263.7
25.8
289.5
41.1
33.7
74.8
2,636.5
2,159.4
1,842.5
(390.0)
1,452.5
1,463.9
(236.1)
1,227.8
645.4
244.3
(1.1)
888.6
561.9
250.7
13.2
825.8
2,341.1
2,053.6
–
295.4
(7.0)
98.8
(27.7)
(22.4)
267.7
76.4
(33.6)
234.1
(8.2)
68.2
44.6
44.0
35.0
34.5
13.0
12.8
9.7
9.5
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Statement of comprehensive income
for the year ended 31 December 2019
Group
Profit for the year attributable to equity shareholders
Other comprehensive income
Items that will never be reclassified to profit or loss:
Gain/(loss) on remeasurement of retirement benefit obligations
Income tax on defined benefit obligation
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
Total other comprehensive income
Total comprehensive income recognised
Statement of comprehensive income
for the year ended 31 December 2019
Company
Profit for the year attributable to equity shareholders
Total comprehensive income recognised
2019
$m
2018
$m
234.1
68.2
6.6
(0.4)
1.8
8.0
242.1
(1.5)
–
(2.1)
(3.6)
64.6
2019
$m
75.7
75.7
2018
$m
81.7
81.7
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Beazley Annual report 2019
139
Statement of changes in equity
for the year ended 31 December 2019
Group
Balance at 1 January 2018
Total comprehensive income
recognised
Dividends paid
Issue of shares
Equity settled share based
payments
Acquisition of own shares in trust
Tax on share option vestings
Transfer of shares to employees
Balance at 31 December 2018
Impact of adoption of IFRS 16
Balance at 1 January 2019
Total comprehensive income
recognised
Dividends paid
Issue of shares
Equity settled share based
payments
Acquisition of own shares in trust
Tax on share option vestings
Transfer of shares to employees
Balance at 31 December 2019
Foreign
currency
translation
reserve
$m
Share
premium
$m
Other
reserves
$m
Retained
earnings
$m
Total
$m
–
(93.8)
32.0
1,522.9
1,498.9
–
–
1.6
–
–
–
–
1.6
–
1.6
–
–
1.6
–
–
–
–
3.2
(2.1)
–
–
–
–
–
–
(95.9)
–
(95.9)
1.8
–
–
–
–
–
–
(94.1)
–
–
–
18.7
(44.9)
4.1
6.6
16.5
–
16.5
–
–
–
4.7
(13.8)
1.0
(4.8)
3.6
66.7
(80.5)
–
–
–
6.1
(8.5)
1,506.7
0.3
1,507.0
240.3
(79.5)
–
–
–
2.6
4.1
1,674.5
64.6
(80.5)
1.8
18.7
(44.9)
10.2
(1.9)
1,466.9
0.3
1,467.2
242.1
(79.5)
1.7
4.7
(13.8)
3.6
(0.7)
1,625.3
Share
capital
$m
37.8
–
–
0.2
–
–
–
–
38.0
–
38.0
–
–
0.1
–
–
–
–
38.1
Notes
11
21
22
22
9
22
11
21
22
22
9
22
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Beazley Annual report 2019
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Statement of changes in equity
for the year ended 31 December 2019
Company
Balance at 1 January 2018
Total comprehensive income recognised
Dividends paid
Issue of shares
Equity settled share based payments
Acquisition of own shares in trust
Transfer of shares to employees
Balance at 31 December 2018
Total comprehensive income recognised
Dividends paid
Issue of shares
Equity settled share based payments
Acquisition of own shares in trust
Transfer of shares to employees
Balance at 31 December 2019
Share
capital
$m
Share
premium
$m
Merger
reserve1
$m
Notes
Foreign
currency
translation
reserve
$m
37.8
–
–
0.2
–
–
–
38.0
–
–
0.1
–
–
–
38.1
11
21
22
22
22
11
21
22
22
22
–
55.4
–
–
1.6
–
–
–
1.6
–
–
1.6
–
–
–
3.2
–
–
–
–
–
–
55.4
–
–
–
–
–
–
55.4
0.7
–
–
–
–
–
–
0.7
–
–
–
–
–
–
0.7
Other
reserves
$m
Retained
earnings
$m
Total
$m
24.2
628.3
746.4
–
–
–
18.7
(44.9)
6.6
4.6
–
–
–
4.7
(13.8)
(4.8)
(9.3)
81.7
(80.5)
–
–
–
(8.5)
621.0
75.7
(79.5)
–
–
–
4.1
621.3
81.7
(80.5)
1.8
18.7
(44.9)
(1.9)
721.3
75.7
(79.5)
1.7
4.7
(13.8)
(0.7)
709.4
1 A merger reserve was created through a scheme of arrangement on 13 April 2016, in which Beazley plc became the parent company of the group.
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Beazley Annual report 2019
141
Statements of financial position
as at 31 December 2019
Assets
Intangible assets
Plant and equipment
Right of use assets
Deferred tax asset
Investment in subsidiaries
Investment in associates
Deferred acquisition costs
Retirement benefit asset
Reinsurance assets
Financial assets at fair value
Insurance receivables
Other receivables
Current income tax asset
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Merger reserve
Foreign currency translation reserve
Other reserves
Retained earnings
Total equity
Liabilities
Insurance liabilities
Financial liabilities
Lease liabilities
Deferred tax liability
Current income tax liability
Retirement benefit liability
Other payables
Total liabilities
Total equity and liabilities
Notes
12
13
29
28
31
14
15
27
19, 24
16, 17
18
20
21
22
24
16, 17, 25
29
28
27
26
2019
Group
$m
Company
$m
2018
Group
$m
Company
$m
122.2
8.9
35.9
41.0
–
0.1
350.7
5.4
1,338.2
5,572.8
1,048.0
72.0
–
278.5
8,873.7
38.1
3.2
–
(94.1)
3.6
1,674.5
1,625.3
6,059.0
554.8
39.4
19.5
9.3
–
566.4
7,248.4
8,873.7
–
–
–
–
724.6
–
–
–
–
–
–
–
1.1
–
725.7
38.1
3.2
55.4
0.7
(9.3)
621.3
709.4
–
–
–
–
–
–
16.3
16.3
725.7
126.5
4.9
–
28.9
–
–
307.4
–
1,192.8
4,716.3
943.3
58.5
19.0
336.3
7,733.9
38.0
1.6
–
(95.9)
16.5
1,506.7
1,466.9
5,456.2
356.7
–
9.1
–
2.4
442.6
6,267.0
7,733.9
–
–
–
–
724.6
–
–
–
–
–
–
–
0.3
2.4
727.3
38.0
1.6
55.4
0.7
4.6
621.0
721.3
–
–
–
–
–
–
6.0
6.0
727.3
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No income statement is presented for the parent company as permitted by Section 408 of the Companies Act 2006. The profit after tax of the parent company
for the period was $75.7m (2018: $81.7m).
The financial statements were approved by the board of directors on 5 February 2020 and were signed on its behalf by:
D Roberts
Chair
S M Lake
Group finance director
5 February 2020
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Statements of cash flows
for the year ended 31 December 2019
Cash flow from operating activities
Profit before income tax
Adjustments for:
Amortisation of intangibles
Equity settled share based compensation
Net fair value (gain)/loss on financial assets
Impairment of investment in associate
Depreciation of plant and equipment
Depreciation of right of use assets
Impairment of reinsurance assets recognised/(written back)
Increase in insurance and other payables1
(Increase)/decrease in insurance, reinsurance and other receivables
Increase in deferred acquisition costs
Financial income
Financial expense
Foreign exchange on financial liabilities
Income tax paid
Net cash generated from operating activities
Cash flow from investing activities
Purchase of plant and equipment
Expenditure on software development
Purchase of investments
Proceeds from sale of investments
Interest and dividends received
Net cash (used in)/from investing activities
Cash flow from financing activities
Acquisition of own shares in trust
Payment of lease liabilities
Repayment of borrowings
Issuance of debt
Finance costs
Issuance of shares
Dividend paid
Net cash from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
2019
Group
$m
Company
$m
Notes
267.7
74.7
2018
Group
$m
76.4
12
22
4
14
13
6
4
8
13
12
4
22
25
25
8
20
14.1
4.7
(151.6)
–
2.4
10.1
1.5
722.8
(265.0)
(43.3)
(120.9)
27.7
(3.2)
(6.8)
460.2
(6.3)
(12.3)
(4,824.5)
4,125.3
112.0
(605.8)
(13.8)
(10.8)
(92.6)
297.8
(25.8)
1.7
(79.5)
77.0
(68.6)
336.3
10.8
278.5
–
4.7
–
–
–
–
–
0.1
10.3
–
(80.2)
1.9
–
–
11.5
–
–
–
–
80.2
80.2
(13.8)
–
–
–
(1.9)
1.7
(79.5)
(93.5)
(1.8)
2.4
(0.6)
–
12.6
18.7
53.7
7.0
2.1
–
(1.0)
216.7
23.9
(26.0)
(102.6)
22.4
(4.1)
(21.1)
278.7
(2.6)
(7.2)
(2,686.2)
2,376.9
102.6
(216.5)
(44.9)
–
(18.0)
–
(22.0)
1.8
(80.5)
(163.6)
(101.4)
440.5
(2.8)
336.3
Company
$m
81.2
–
18.7
–
–
–
–
–
5.6
19.8
–
(82.9)
0.9
–
–
43.3
–
–
–
–
82.9
82.9
(44.9)
–
–
–
(0.9)
1.8
(80.5)
(124.5)
1.7
0.7
–
2.4
1 2018 increase in insurance and other payables is net of $1.9m of dividend accruals on share schemes settled through equity.
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Beazley Annual report 2019
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Notes to the financial statements
1 Statement of accounting policies
Beazley plc (registered number 09763575) is a company incorporated in England and Wales and is resident for tax purposes
in the United Kingdom. The company’s registered address is Plantation Place South, 60 Great Tower Street, London EC3R 5AD,
United Kingdom. The group financial statements for the year ended 31 December 2019 comprise the parent company, its
subsidiaries and the group’s interest in associates. The principal activity of the company and its subsidiaries (the ‘group’) is to
participate as a specialist insurer which transacts primarily in commercial lines of business through its subsidiaries and through
Lloyd’s syndicates.
The financial statements of the parent company, Beazley plc, and the group financial statements have been prepared and
approved by the directors in accordance with IFRSs as adopted by the EU (‘Adopted IFRSs’) and the Companies Act 2006.
On publishing the parent company financial statements together with the group financial statements, the company is taking
advantage of the exemption in s408 of the Companies Act 2006 not to present its individual statement of profit or loss and
related notes that form a part of these approved financial statements.
In the current year, the group has applied amendments to IFRSs issued by the IASB that are mandatorily effective for an
accounting period that begins on or after 1 January 2019. The new effective requirements are:
• IFRS 16: Leases (EU effective date: 1 January 2019);
• IFRIC 23: Uncertainty over Income Tax Treatments (EU effective date: 1 January 2019);
• IAS 28: Amendment: Long-term Interests in Associates and Joint Ventures (EU effective date: 1 January 2019);
• IAS 19: Amendment: Plan Amendment, Curtailment or Settlement (EU effective date: 1 January 2019); and
• Annual Improvements to IFRS Standards 2015-2017 Cycle (EU effective date: 1 January 2019).
Apart from IFRS 16, these amendments did not result in a material impact on the financial statements of the group.
A number of new standards and interpretations adopted by the EU which are not mandatorily effective, as well as standards and
interpretations issued by the IASB but not yet adopted by the EU, have not been applied in preparing these financial statements.
The group does not plan to adopt these standards early; instead it expects to apply them from their effective dates as determined
by their dates of EU endorsement. The group is still reviewing the upcoming standards to determine their impact:
• IFRS 9: Financial Instruments (EU effective date: 1 January 2018, deferred in line with implementation of IFRS 17);
• IFRS 3: Amendment: Definition of a business (IASB effective date: 1 January 2020);1
• IAS 1 and IAS 8: Amendment: Definition of Material (IASB effective date: 1 January 2020);1
• IFRS 9, IFRS 7 and IAS 39: Amendment: Interest Rate Benchmark Reform (IASB effective date: 1 January 2020);
• IFRS 9: Amendment: Prepayment Features with Negative Compensation (EU effective date: 1 January 2019, deferred in line
with implementation of IFRS 17);
• IFRS 17: Insurance Contracts (IASB effective date: 1 January 2022);1
• IFRS 10 and IAS 28: Amendment: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
(IASB effective date: optional);1 and
• Amendments to References to the Conceptual Framework in IFRS Standards (IASB effective date: 1 January 2020);1
1 Have not been endorsed by EU.
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Notes to the financial statements continued
1 Statement of accounting policies continued
Of the upcoming accounting standard changes that we are aware of, we anticipate that IFRS 17 and IFRS 9 will have the most
material impact on the financial statements’ presentation and disclosures. The accounting developments and implementation
timelines of IFRS 17 and IFRS 9 are being closely monitored and the impacts of the standards themselves are being assessed
and prepared for. A brief overview of each of these standards is provided below:
• IFRS 17 will fundamentally change the way insurance contracts are accounted for and reported. Revenue will no longer be
equal to premiums written but instead reflect a change in the contract liability on which consideration is expected. On initial
assessment the major change will be on the presentation of the statement of profit or loss, with premium and claims figures
being replaced with insurance contract revenue, insurance service expense and insurance finance income and expense. It is not
currently known what impact the new requirements will have on the group’s profit and financial position, but it is expected that
the timing of profit recognition will be altered. During 2019, the group continued to undertake a number of tasks in preparation
for IFRS 17. These tasks included completing various modelling exercises to understand the data requirements needed under
IFRS 17. As part of this process various decisions have also been made such as unit of account and the model to use for
recognising insurance contracts. A more detailed update will be provided after the full assessment has been completed.
• As was stated in the 2017 annual report, the group chose to apply the temporary exemption permitted by IFRS 4 from applying
IFRS 9: Financial Instruments. The group qualifies for this exemption because, as at 31 December 2015, $5,040.7m or
95% of its total liabilities were connected with insurance. There has been no material change in the group’s activities since
31 December 2015, therefore the exemption still remains. The group has also disclosed information in relation to specific
types of financial instruments to ensure the comparability with the entities applying IFRS 9. As such, fair values are disclosed
separately for the group’s financial assets which are managed and evaluated on a fair value basis and those which meet the
solely payments of principal and interest (SPPI) test under IFRS 9. Beazley plc as a standalone company adopted IFRS 9 from
1 January 2018. However, as the standalone company has no financial investments the adoption had an immaterial impact
on its financial statements. Below is a table outlining the fair value of assets which are managed and evaluated on a fair value
basis and those which meet the SPPI test under IFRS 9. The information on credit exposures can be found in note 2 to the
financial statements on page 164.
On 27 June 2019 the International Accounting Standards Board (IASB) published an exposure draft proposing limited
amendments to IFRS 17, including an extension of the effective date of IFRS 17 and IFRS 9 to 1 January 2022.
Financial assets managed and evaluated on a fair value basis
Fixed and floating rate debt securities:
– Government issued
– Quasi-government
– Corporate bonds
– Investment grade
– High yield
– Senior secured loans
Equity funds
Hedge funds
Illiquid credit assets
Derivative financial assets
Total financial assets managed and evaluated on a fair value basis
Financial assets meeting the SPPI test
Cash and cash equivalent
Insurance receivables
Other receivables
Total financial assets meeting the SPPI test
2019
$m
2018
$m
1,870.9
–
1,384.2
25.9
2,706.4
235.8
–
163.6
354.0
216.6
25.5
5,572.8
278.5
1,048.0
72.0
1,398.5
2,525.3
32.7
132.1
85.4
337.2
186.6
6.9
4,716.3
336.3
943.3
58.5
1,338.1
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1 Statement of accounting policies continued
IFRS 16
The group has applied, for the first time, IFRS 16 Leases. As required by IAS 8, the nature and effect of these changes are
disclosed below.
• IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-
Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the
principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all
leases under a single on-balance sheet model; and
• The group adopted IFRS 16 using the modified retrospective method with a date of initial application of 1 January 2019.
Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard
recognised at the date of initial application. The group elected to use the practical expedient on transition allowing the
standard to be applied only to contracts that were previously identified as leases under IAS 17 and IFRIC 4 at the date of
initial application. The group also elected to use the recognition exemptions for lease contracts where the underlying asset
is of low value (‘low-value assets’).
The effect of adopting IFRS 16 as at 1 January 2019 is as follows:
Assets
Right of use assets
Total assets
Liabilities
Other payables
Lease liabilities
Deferred tax liabilities
Total liabilities
Total adjustment on equity:
Retained earnings
$m
31.2
31.2
(2.4)
33.2
0.1
30.9
0.3
Nature of the effect of adoption of IFRS 16
The group has lease contracts for various items of property, vehicles and IT equipment. Before the adoption of IFRS 16, the group
classified each of its leases at the inception date as either a finance lease or an operating lease. As at 1 January 2019, the group
held operating leases only. The operating lease payments were recognised as rent expense in profit or loss on a straight-line basis
over the lease term. Any prepaid rent and accrued rent were recognised under other payables.
Upon adoption of IFRS 16, the group applied a single recognition and measurement approach for all leases, except for leases
of low-value assets. The standard provides specific transition requirements and practical expedients, which have been applied
by the group.
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Leases previously accounted for as operating leases
The group recognised right of use assets and lease liabilities for all leases, except for leases of low-value assets. Lease liabilities
were recognised based on the present value of the remaining lease payments, discounted using the weighted average incremental
borrowing rate at initial application. The right of use assets were recognised based on the amount equal to the lease liabilities,
adjusted for any related prepaid and accrued lease payments previously recognised.
The group also applied the available practical expedients wherein it:
• used a weighted average incremental borrowing rate as the discount rate to a portfolio of leases with similar characteristics;
• relied on its assessment of whether leases are onerous immediately before the date of initial application;
• used hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
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Notes to the financial statements continued
1 Statement of accounting policies continued
Based on the above, as at 1 January 2019:
• right of use assets of $31.2m were recognised and presented separately in the statement of financial position;
• lease liabilities of $33.2m were recognised and presented separately in the statement of financial position. This includes an
adjustment of $6.3m for right of use assets, which were previously not included in property operating leases;
• other payables of $2.4m related to previous operating leases were derecognised;
• deferred tax liabilities increased by $0.1m due to the impact of changes in assets and liabilities; and
• the net effect of these adjustments was adjusted in retained earnings.
Leases not qualifying under IFRS 16 were included in short-term leases.
The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:
Property operating lease commitments reported as at 31 December 2018
Less:
Commitments relating to assets not qualifying as leases under IFRS 16
Add:
Adjustments on adoption of IFRS 16
Total lease commitments under IFRS 16 as at 31 December 2018
Weighted average incremental borrowing rate as at 1 January 2019
Lease liabilities as at 1 January 2019
$m
32.9
(1.2)
6.3
38.0
4.6%
33.2
Basis of presentation
The group financial statements are prepared using the historical cost convention, with the exception of financial assets and
derivative financial instruments which are stated at their fair value. All amounts presented are in US dollars and millions, unless
stated otherwise.
The financial statements of Beazley plc have been prepared on a going concern basis. The directors of the company have
a reasonable expectation that the group and the company have adequate resources to continue in operational existence for
the foreseeable future. In accordance with the requirements of IAS 1 the financial statements’ assets and liabilities have been
presented in order of liquidity which provides information that is more reliable and relevant for a financial institution.
Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
a) Estimates
Estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate
is revised and in any future periods affected.
The most critical estimate included within the group’s financial position is the estimate for insurance losses incurred but not
reported, which is included within total insurance liabilities and reinsurance assets in the statement of financial position and in
note 24. This estimate is critical as it outlines the current liability for future expenses expected to be incurred in relation to claims.
If this estimation was to prove inadequate then an exposure would arise in future years where a liability has not been provided
for. The total estimate for insurance losses incurred but not reported gross of reinsurers’ share as at 31 December 2019 is
$3,196.6m (2018: $2,869.5m). The total estimate for insurance losses incurred but not reported net of reinsurers’ share as at
31 December 2019 is $2,351.5m (2018: $2,149.7m) and is included within total insurance liabilities and reinsurance assets
in the statement of financial position and in note 24.
The claims handling expense provision is based on a set percentage of IBNR which is reviewed on an annual basis.
The best estimate of the most likely ultimate outcome is used when calculating notified claim. This estimate is based upon the
facts available at the time, in conjunction with the claims manager’s view of likely future developments.
Another significant area of estimation is the group’s financial assets and liabilities. Information about estimation uncertainty
related to the group’s financial assets and liabilities is described in this statement of accounting policies and note 16: financial
assets and liabilities (valuations based on models and unobservable inputs).
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1 Statement of accounting policies continued
Other key estimates contained within our close process are premium estimates and the earning pattern of recognising premium
over the life of the contract. In the syndicates the premium written is initially based on the estimated premium income (EPI) of
each contract. Where premium is sourced through binders, the binder EPI is pro-rated across the binder period. This is done on
a straight-line basis unless the underlying writing pattern from the prior period indicates the actual underlying writing pattern is
materially different. The underwriters adjust their EPI estimates as the year of account matures. As the year of account closes
premiums are adjusted to match the actual signed premium. An accrual for estimated future reinstatement premiums is retained.
Premiums are earned on a straight-line basis over the life of each contract. At a portfolio level this is considered to provide a
reasonable estimate for the full year of the pattern of risk over the coverage period.
Another estimate used by Beazley is the assumptions underlying the recoverable amounts used in assessing the impairment of
goodwill as per note 12.
b) Judgements
Information about significant areas of critical judgements in applying accounting policies that have the most significant effect on
the amounts recognised in the financial statements are described in this statement of accounting policies and also specifically in
the following notes:
• note 1a: accounting treatment for the group’s interest in managed syndicates
• note 1: Leases: determination of a lease term.
Consolidation
a) Subsidiary undertakings
Subsidiary undertakings are entities controlled by the group. The group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
In assessing control, the group takes into consideration potential voting rights that are currently exercisable. The acquisition
date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable
to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-
controlling interests to have a deficit balance.
The group has used the acquisition method of accounting for business combinations arising on the purchase of subsidiaries.
Under this method, the cost of acquisition is measured as the fair value of assets given, shares issued or liabilities undertaken at
the date of acquisition directly attributable to the acquisition. The excess of the cost of an acquisition over the net fair value of the
identifiable assets, liabilities and contingent liabilities of the subsidiary acquired is recorded as goodwill.
For all business combinations:
(i)
transaction costs, other than those associated with the issue of debt or equity securities, that the group incurs in connection
with a business combination, are expensed as incurred;
(ii) in addition, any consideration transferred does not include amounts related to the settlement of pre-existing relationships.
Such amounts are recognised in profit or loss; and
(iii) any contingent consideration is measured at fair value at the acquisition date.
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Equity financial investments made by the parent company in subsidiary undertakings and associates are stated at cost in its
separate financial statements and are reviewed for impairment when events or changes in circumstances indicate the carrying
value may be impaired.
Certain group subsidiaries underwrite as corporate members of Lloyd’s on syndicates managed by Beazley Furlonge Limited.
In view of the several and direct liability of underwriting members at Lloyd’s for the transactions of syndicates in which they
participate, only attributable shares of transactions, assets and liabilities of those syndicates are included in the group financial
statements. The group continues to conclude that it remains appropriate to consolidate its share of the result of these syndicates
and accordingly, as the group is the sole provider of capacity on syndicates 2623, 3622 and 3623, these financial statements
include 100% of the economic interest in these syndicates. For the following syndicates to which Beazley is appointed managing
agent, being syndicates 623, 6107, and 6050, for which the capacity is provided entirely by third parties to the group, these
financial statements reflect Beazley’s economic interest in the form of agency fees and profit commission to which it is entitled.
In 2018 and 2019, Beazley also consolidated 33.85% of the business written through syndicate 5623 on the 2018 year of
account, which is aligned with Beazley Corporate Member No.3 Limited’s participation in the syndicate. There is no participation
on the 2019 year of account.
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Notes to the financial statements continued
1 Statement of accounting policies continued
b) Associates
Associates are those entities over which the group has power to exert significant influence but which it does not control.
Significant influence is generally presumed if the group has between 20% and 50% of voting rights.
Investments in associates are accounted for using the equity method of accounting. Under this method the investments are
initially measured at cost and the group’s share of post-acquisition profits or losses is recognised in the statement of profit or
loss. Therefore the cumulative post-acquisition movements in the associates’ net assets are adjusted against the cost of the
investment.
When the group’s share of losses equals or exceeds the carrying amount of the associate, the carrying amount is reduced to
nil and recognition for the losses is discontinued except to the extent that the group has incurred obligations in respect of the
associate. Equity accounting is discontinued when the group no longer has significant influence over the investment.
c) Intercompany balances and transactions
All intercompany transactions, balances and unrealised gains or losses on transactions between group companies are eliminated
in the group financial statements. Transactions and balances between the group and associates are not eliminated.
Foreign currency translation
a) Functional and presentational currency
Items included in the financial statements of the parent and the subsidiaries are measured using the currency of the primary
economic environment in which the relevant entity operates (the functional currency). The group financial statements are
presented in US dollars, being the functional and presentational currency of the parent and its main trading subsidiaries, as the
majority of trading assets and insurance premiums are denominated in US dollars.
b) Transactions and balances
Foreign currency transactions are translated into the functional currency using average exchange rates applicable to the period in
which the transactions take place and where the group considers these to be a reasonable approximation of the transaction rate.
Foreign exchange gains and losses resulting from the settlement of such transactions and from translation at the period end of
monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss. Non-monetary
items recorded at historical cost in foreign currencies are translated using the exchange rate on the date of the initial transaction.
c) Foreign operations
The results and financial position of the group companies that have a functional currency different from the group presentational
currency are translated into the presentational currency as follows:
• assets and liabilities are translated at the closing rate as at the statement of financial position date;
• income and expenses for each statement of profit or loss are translated at average exchange rates for the reporting period
where this is determined to be a reasonable approximation of the actual transaction rates; and
• all resulting exchange differences are recognised in other comprehensive income and as a separate component of equity.
On disposal of foreign operations, cumulative exchange differences previously recognised in other comprehensive income are
recognised in the statement of profit or loss as part of the gain or loss on disposal.
Insurance contracts
Insurance contracts (including inwards reinsurance contracts) are defined as those containing significant insurance risk.
Insurance risk is considered significant if, and only if, an insured event could cause Beazley to pay significant additional benefits in
any scenario, excluding scenarios that lack commercial substance. Such contracts remain insurance contracts until all rights and
obligations are extinguished or expire.
Net earned premiums
a) Premiums
Gross premiums written represent premiums on business commencing in the financial year together with adjustments to
premiums written in previous accounting periods and estimates for premiums from contracts entered into during the course of the
year. Gross premiums written are stated before deduction of brokerage, taxes, duties levied on premiums and other deductions.
b) Unearned premiums
A provision for unearned premiums (gross of reinsurance) represents that part of the gross premiums written that it is estimated
will be earned in the following financial periods. It is calculated using the daily pro-rata method, under which the premium is
apportioned over the period of risk.
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1 Statement of accounting policies continued
Deferred acquisition costs (DAC)
Acquisition costs comprise brokerage, premium levy and staff-related costs (excluding performance related pay) of the
underwriters acquiring new business and renewing existing contracts. The proportion of acquisition costs in respect of
unearned premiums is deferred at the reporting date and recognised in later periods when the related premiums are earned.
Claims
These include the cost of claims and claims handling expenses paid during the period, together with the movements in provisions
for outstanding claims, claims incurred but not reported (IBNR) and claims handling provisions. The provision for claims comprises
amounts set aside for claims advised and IBNR, including claims handling expenses.
The IBNR amount is based on estimates calculated using widely accepted actuarial techniques which are reviewed quarterly by
the group actuary and annually by Beazley’s independent syndicate reporting actuary. The techniques generally use projections,
based on past experience of the development of claims over time, to form a view on the likely ultimate claims to be experienced.
For more recent underwriting years, attention is paid to the variations in the business portfolio accepted and the underlying terms
and conditions. Thus, the critical assumptions used when estimating provisions are that past experience is a reasonable predictor
of likely future claims development and that the rating and business portfolio assumptions are a fair reflection of the likely level
of ultimate claims to be incurred for the more recent years.
Liability adequacy testing
At each reporting date, liability adequacy tests are performed by segment to ensure the adequacy of the claims liabilities net of
DAC and unearned premium reserves. In performing these tests, current best estimates of future contractual cash flows, claims
handling and administration expenses, and investment income from the assets backing such liabilities are used. Any deficiency
is immediately charged to the statement of profit or loss, initially by writing off DAC and subsequently by establishing a provision
for losses arising from liability adequacy tests (‘unexpired risk provision’). There is currently no unexpired risk provision.
Ceded reinsurance
These are contracts entered into by the group with reinsurers under which the group is compensated for losses on contracts
issued by the group that meet the definition of an insurance contract. Insurance contracts entered into by the group under which
the contract holder is another insurer (inwards reinsurance) are included within insurance contracts.
Any benefits to which the group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These
assets consist of balances due from reinsurers and include reinsurers’ share of provisions for claims. These balances are based
on calculated amounts of outstanding claims and projections for IBNR, net of estimated irrecoverable amounts, having regard to
the reinsurance programme in place for the class of business, the claims experience for the period and the current security rating
of the reinsurer involved. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as
an expense when due.
The group assesses its reinsurance assets for impairment. If there is objective evidence of impairment, then the carrying amount
is reduced to its recoverable amount and the impairment loss is recognised in the statement of profit or loss.
Revenue
Revenue consists of net earned premiums, net investment income and other income (made up of commissions received from
Beazley service companies, profit commissions, managing agent’s fees and service fees). Profit commissions are recognised as
profit is earned. Commissions received from service companies and managing agent’s fees are recognised as the services are
provided.
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Dividends paid
Dividend distributions to the shareholders of the group are recognised in the period in which the dividends are paid, as a first
interim dividend, second interim dividend or special dividend. The second and special dividends are approved by the group’s
shareholders at the group’s annual general meeting.
Plant and equipment
All plant and equipment is recorded at cost less accumulated depreciation and any impairment losses. Depreciation is calculated
using the straight-line method to allocate the cost of the assets to their residual values over their estimated useful lives as follows:
Fixtures and fittings
Computer equipment
Three to ten years
Three years
These assets’ residual values and useful lives are reviewed at each reporting date and adjusted if appropriate.
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Notes to the financial statements continued
1 Statement of accounting policies continued
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that
the carrying value may be impaired. If any such condition exists, the recoverable amount of the asset is estimated in order to
determine the extent of impairment and the difference is charged to the statement of profit or loss.
Intangible assets
a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the fair value of the
identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of acquisition. Goodwill is carried at
cost less accumulated impairment losses.
Goodwill has an indefinite life and is annually tested for impairment. Goodwill is allocated to each cash-generating unit (CGU, being
the group’s operating segments) for the purpose of impairment testing. Goodwill is impaired when the net carrying amount of the
relevant CGU exceeds its recoverable amount, being the higher of its value in use or fair value less costs to sell. Value in use is
defined as the present value of the future cash flows expected to be derived from the CGU.
In respect of equity accounted associates, the carrying amount of any goodwill is included in the carrying amount of the associate,
and any impairment is allocated to the carrying amount of the associate as a whole.
b) Syndicate capacity
The syndicate capacity represents the cost of purchasing the group’s participation in the combined syndicates. The capacity
is capitalised at cost in the statement of financial position. It has an indefinite useful life and is carried at cost less accumulated
impairment. It is annually tested for impairment by reference to the latest auction prices provided by Lloyd’s.
c) Licences
Licences have an indefinite useful life and are initially recorded at fair value. Licences are annually tested for impairment and
provision is made for any impairment when the recoverable amount, being the higher of its value in use and fair value, is less
than the carrying value.
d) IT development costs
Costs that are directly associated with the development of identifiable and unique software products and that are anticipated
to generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs include external
consultants’ fees, certain qualifying internal staff costs and other costs incurred to develop software programs. These costs
are amortised over their estimated useful life (three years) on a straight-line basis and subject to impairment testing annually.
Other non-qualifying costs are expensed as incurred.
e) Renewal rights
Renewal rights comprise future profits relating to insurance contracts acquired and the expected renewal of those contracts.
The costs directly attributable to acquire the renewal rights are recognised as intangible assets where they can be measured
reliably and it is probable that they will be recovered by directly related future profits. These costs are subject to an impairment
review annually and are amortised on a straight-line basis, based on the estimated useful life of the assets, which is estimated
to be between five and 10 years.
Financial instruments
Financial instruments are recognised in the statement of financial position at such time as the group becomes a party to the
contractual provisions of the financial instrument. Purchases and sales of financial assets are recognised on the trade date,
which is the date the group commits to purchase or sell the asset. A financial asset is derecognised when the contractual
rights to receive cash flows from the financial assets expire, or where the financial assets have been transferred, together with
substantially all the risks and rewards of ownership. Financial liabilities are derecognised if the group’s obligations specified in
the contract expire, are discharged or are cancelled.
a) Financial assets
On acquisition of a financial asset, the group is required to classify the asset into one of the following categories: financial assets
at fair value through the statement of profit or loss, loans and receivables, assets held to maturity and assets available for sale.
The group does not make use of the held to maturity and available for sale categories.
b) Financial assets at fair value through profit or loss
Except for derivative financial instruments and other financial assets listed in policies (f) and (g) below, all financial assets are
designated as fair value through the statement of profit or loss upon initial recognition because they are managed and their
performance is evaluated on a fair value basis. Information about these financial assets is provided internally on a fair value basis
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1 Statement of accounting policies continued
to the group’s key management. The group’s investment strategy is to invest and evaluate their performance with reference to
their fair values.
c) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. Loans and receivables are carried at amortised cost less any impairment losses.
d) Fair value measurement
Fair value is the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market
participants at the measurement date.
When available, the group measures the fair value of an instrument using quoted prices in an active market for that instrument.
A market is regarded as active if quoted prices are readily and regularly available as well as representing actual and regularly
occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the group establishes fair value using a valuation technique. Valuation
techniques include using recent orderly transactions between market participants (if available), reference to the current fair
value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The
chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the group,
incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic
methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and
measures of the risk return factors inherent in the financial instrument. The group calibrates valuation techniques and tests
them for validity using prices from observable current market transactions in the same instrument or based on other available
observable market data.
Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. These prices
are monitored and deemed to approximate exit price. Where the group has positions with offsetting risks, mid-market prices are
used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as
appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the
group entity and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors,
such as liquidity risk or model uncertainties, to the extent that the group believes a third-party market participant would take them
into account in pricing a transaction.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the
consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current
market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose
variables include only data from observable markets. When the transaction price provides the best evidence of fair value at initial
recognition, the financial instrument is initially measured at the transaction price and any difference between this price and
the value initially obtained from a valuation model is subsequently recognised in profit or loss depending on the individual facts
and circumstances of the transaction but before the valuation is supported wholly by observable market data or the transaction
is closed out.
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Upon initial recognition, attributable transaction costs relating to financial instruments at fair value through profit or loss are
recognised in the statement of profit or loss when incurred. Financial assets at fair value through profit or loss are continuously
measured at fair value, and changes therein are recognised in the statement of profit or loss. Net changes in the fair value
of financial assets at fair value through profit or loss exclude interest and dividend income, as these items are accounted for
separately as set out on the next page.
e) Hedge funds, equity funds and illiquid credit assets
The group invests in a number of hedge funds, equity funds and illiquid credit assets for which there are no available quoted
market prices. The valuation of these assets is based on fair value techniques as described above. The fair value of our hedge
fund portfolio is calculated by reference to the underlying net asset values (NAVs) of each of the individual funds. Consideration
is also given to adjusting such NAV valuations for any restriction applied to distributions, the existence of side pocket provisions
and the timing of the latest available valuations. At certain times, we will have uncalled unfunded commitments in relation to our
illiquid credit assets. These uncalled unfunded commitments are actively monitored by the group and are disclosed in the notes 2
and 16 to the financial statements. The additional investment into our illiquid credit asset portfolio is recognised on the date that
this funding is provided by the group.
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Notes to the financial statements continued
1 Statement of accounting policies continued
f) Insurance receivables and payables
Insurance receivables and payables are recognised when due. These include amounts due to and from agents, brokers and
insurance contract holders. Insurance receivables are classified as ‘loans and receivables’ as they are non-derivative financial
assets with fixed or determinable payments that are not quoted on an active market. Insurance receivables are measured at
amortised cost less any impairment losses. Insurance payables are stated at amortised cost.
g) Other receivables
Other receivables categorised as loans and receivables are carried at amortised cost less any impairment losses.
h) Investment income
Investment income consists of dividends, interest, realised and unrealised gains and losses and foreign exchange gains and
losses on financial assets at fair value through the statement of profit or loss. Dividends on equity securities are recorded as
revenue on the ex-dividend date. Interest is recognised on an effective rate basis for financial assets at fair value through the
statement of profit or loss. The realised gains or losses on disposal of an investment are the difference between the proceeds
and the original cost of the investment. Unrealised investment gains and losses represent the difference between the carrying
value at the reporting date, and the carrying value at the previous period end or purchase value during the period.
i) Borrowings
Borrowings are initially recorded at fair value less transaction costs incurred. Subsequently borrowings are stated at amortised
cost and interest is recognised in the statement of profit or loss over the period of the borrowings using the effective interest
method.
Finance costs comprise interest, fees paid for the arrangement of debt and letter of credit facilities, and commissions charged for
the utilisation of letters of credit. These costs are recognised in the statement of profit or loss using the effective interest method.
In addition, finance costs include gains on the early redemption of the group’s borrowings. These gains are recognised in the
statement of profit or loss, being the difference between proceeds paid plus related costs and the carrying value of the borrowings
redeemed.
j) Other payables
Other payables are stated at amortised cost determined according to the effective interest rate method.
k) Hedge accounting and derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured at their fair value. The best evidence of fair value of a derivative at initial recognition is the transaction price. The
method of recognising the resulting fair value gains or losses depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged. Fair values are obtained from quoted market prices in active markets,
recent market transactions, and valuation techniques which include discounted cash flow models. All derivatives are carried as
assets when fair value is positive and as liabilities when fair value is negative.
Derivative assets and liabilities are offset and the net amount reported in the statement of financial position when there is
a legally enforceable right to set off the recognised amounts and the parties intend to settle on a net basis, or realise the assets
and settle the liability simultaneously.
The group has not designated any derivatives as fair value hedges, cash flow hedges or net investment hedges and therefore all
fair value movements are recorded through profit or loss.
l) Impairment of financial assets
The group considers evidence of impairment for financial assets measured at amortised cost at both a specific asset and a
collective level. The group assesses at each reporting date whether there is objective evidence that a specific financial asset
measured at amortised cost is impaired. A financial asset is impaired and impairment losses are incurred only if there is
objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the assets
and that event has an impact on the estimated cash flows of the financial asset that can be reliably estimated. Assets that are
not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics.
If there is objective evidence that impairment exists, the amount of the loss is measured as the difference between the asset’s
carrying amount and the value of the estimated future cash flows discounted at the financial asset’s original effective interest
rate. The amount of the loss is recognised in the statement of profit or loss.
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1 Statement of accounting policies continued
In assessing collective impairment, the group uses historical trends of the probability of default, the timing of recoveries and the
amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such
that the actual losses are likely to be greater or lesser than those suggested by historical trends.
m) Cash and cash equivalents
Cash and cash equivalents consist of cash held at bank, cash in hand, deposits held at call with banks, cash held in Lloyd’s trust
accounts and other short term highly liquid investments that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value. These investments have less than three months maturity from the date of
acquisition. Cash and cash equivalents are measured at fair value through the profit and loss account.
n) Unfunded commitment capital
Unfunded committed capital arising in relation to certain financial asset investments is not shown on the statement of financial
position as unfunded committed capital represents a loan commitment that is scoped out of IAS 39.
Leases
Summary of new accounting policies
Set out below are the new accounting policies of the group upon adoption of IFRS 16, which have been applied from the date
of initial application:
• Right of use assets
The group recognises right of use assets at the commencement date of the lease (i.e., the date the underlying asset is available
for use). Right of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
Unless the group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, recognised right of
use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right of use
assets are subject to impairment.
• Lease liabilities
At the commencement date of the lease, the group recognises a lease liability measured at the present value of the lease
payments to be made over the lease term.
In calculating the present value of lease payments, the group uses the weighted average incremental borrowing rate at the
lease commencement date. After the commencement date, the amount of lease liabilities is increased to reflect the accretion
of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there
is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment
to purchase the underlying asset.
• Short-term leases and leases of low-value assets
The group applies the short-term lease recognition exemption to its short-term leases of property (i.e., those leases that have a
lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease
of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and
leases of low-value assets are recognised as an expense in the profit or loss on a straight-line basis over the lease term.
• Significant judgement in determining the lease term of contracts with renewal options
The group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option
to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
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The group has the option, under some of its leases to lease the assets for various additional terms. The group applies
judgement in evaluating whether it is reasonably certain to exercise the option to renew. After the commencement date, the
group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affect
its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
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Notes to the financial statements continued
1 Statement of accounting policies continued
Employee benefits
a) Pension obligations
The group operates a defined benefit pension plan that is now closed to future service accruals. The scheme is generally funded
by payments from the group, taking account of the recommendations of an independent qualified actuary. All employees now
participate in defined contribution pension arrangements, to which the group contributes.
A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement,
usually dependent on one or more factors such as age, years of service and compensation. The pension costs are assessed using
the projected unit credit method. Under this method the costs of providing pensions are charged to the statement of profit or
loss so as to spread the regular costs over the service lives of employees in accordance with the advice of the qualified actuary,
who values the plans annually. The net pension obligation is measured at the present value of the estimated future net cash
flows and is stated net of plan assets.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets
(excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other
comprehensive income.
The group also determines the net interest income/expense for the period on the net defined benefit asset/liability by applying
the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit
asset/liability at the beginning of the annual period, taking into account any changes in the net defined benefit asset/liability
during the period as a result of contributions and benefit payments. Consequently, the net interest on the defined benefit asset/
liability comprises:
• interest cost on the defined benefit obligation;
• interest income on plan assets; and
• interest on the effect of the asset ceiling.
Net interest income/expense is recognised in the statement of profit or loss.
Past service costs are recognised as an expense at the earlier of the date when a plan amendment or curtailment occurs and
the date when an entity recognises any termination benefits.
For the defined contribution plan, the group pays contributions to a privately administered pension plan. Once the contributions
have been paid, the group has no further obligations. The group’s contributions are charged to the statement of profit or loss in
the period to which they relate.
b) Share based compensation
The group offers option plans over Beazley plc’s ordinary shares to certain employees, including the save-as-you-earn (SAYE) scheme.
The grant date fair value of share based payment awards granted to employees is recognised as an employee expense, with
a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount
recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance
conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards
that meet the related service and non-market performance conditions at the vesting date. For share based payment awards with
non-vesting conditions, the grant date fair value of the share based payment is measured to reflect such conditions and there
is no true-up for differences between expected and actual outcomes.
When the options are exercised and new shares are issued to cover SAYE vestings, the proceeds received, net of any transaction
costs, are credited to share capital (nominal value) with the excess amount going to share premium. For other plans, when no
proceeds are received, the nominal value of shares issued is to share capital and debited to retained earnings. When the options
are exercised and the shares are granted from the employee share trust, the proceeds received, net of any transaction costs, and
the value of shares held within the trust, are credited to retained earnings.
Income taxes
Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the statement of
profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which
case it is recognised respectively in other comprehensive income or directly in equity.
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Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the
year end reporting date and any adjustments to tax payable in respect of prior periods.
Deferred tax is provided, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively
enacted at the reporting date.
Deferred tax assets are recognised in the statement of financial position to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilised.
Earnings per share
Basic earnings per share are calculated by dividing profit after tax available to shareholders by the weighted average number of
ordinary shares in issue during the period.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of
all dilutive potential ordinary shares such as share options granted to employees. Share options with performance conditions
attaching to them have been excluded from the weighted average number of shares to the extent that these conditions have
not been met at the reporting date.
The shares held in the employee share options plan (ESOP) and treasury shares are excluded from both the calculations, until
such time as they vest unconditionally with the employees.
Provisions and contingencies
Provisions are recognised when the group has a present legal or constructive obligation as a result of a past event, it is probable
that an outflow of resources or economic benefits will be required to settle the obligation, and a reliable estimate of the obligation
can be made. Where the group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but
only when the reimbursement is virtually certain.
Contingent liabilities are present obligations that are not recognised because it is not probable that an outflow of resources will be
required to meet the liabilities or because the amount of the obligation cannot be measured with sufficient reliability.
2 Risk management
The group has identified the risks arising from its activities and has established policies and procedures to manage these items
in accordance with its risk appetite. The group categorises its risks into eight areas: insurance, strategic, market, operational,
credit, regulatory and legal, liquidity and group risk. The sections below outline the group’s risk appetite and explain how it defines
and manages each category of risk.
The eight categories of risk have also been considered in the context of the company (Beazley plc). The following areas are
applicable to the company: market, operational, regulatory and legal, and liquidity. The following disclosures cover the company to
the extent that these areas are applicable.
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The symbol † by a heading indicates that the information in that section has not been audited.
2.1 Insurance risk †
The group’s insurance business assumes the risk of loss from persons or organisations that are directly exposed to an underlying
loss. Insurance risk arises from this risk transfer due to inherent uncertainties about the occurrence, amount and timing of
insurance liabilities. The four key components of insurance risk are underwriting, reinsurance, claims management and reserving.
Each element is considered below.
a) Underwriting risk
Underwriting risk comprises four elements that apply to all insurance products offered by the group:
• cycle risk – the risk that business is written without full knowledge as to the (in)adequacy of rates, terms and conditions;
• event risk – the risk that individual risk losses or catastrophes lead to claims that are higher than anticipated in plans and pricing;
• pricing risk – the risk that the level of expected loss is understated in the pricing process; and
• expense risk – the risk that the allowance for expenses and inflation in pricing is inadequate.
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2 Risk management continued
We manage and model these four elements in the following three categories: attritional claims, large claims and catastrophe events.
The group’s underwriting strategy is to seek a diverse and balanced portfolio of risks in order to limit the variability of outcomes.
This is achieved by accepting a spread of business over time, segmented between different products, geographies and sizes.
The annual business plans for each underwriting team reflect the group’s underwriting strategy, and set out the classes of
business, the territories and the industry sectors in which business is to be written. These plans are approved by the board of
each underwriting entity and the group and monitored by the underwriting committee.
Our underwriters calculate premiums for risks written based on a range of criteria tailored specifically to each individual risk.
These factors include but are not limited to financial exposure, loss history, risk characteristics, limits, deductibles, terms and
conditions and acquisition expenses.
The group also recognises that insurance events are, by their nature, random, and the actual number and size of events during
any one year may vary from those estimated using established statistical techniques.
To address this, the group sets out the exposure that it is prepared to accept in certain territories to a range of events such
as natural catastrophes and specific scenarios which may result in large industry losses. This is monitored through regular
calculation of realistic disaster scenarios (RDSs). The aggregate position is monitored at the time of underwriting a risk, and
reports are regularly produced to highlight the key aggregations to which the group is exposed.
The group uses a number of modelling tools to monitor its exposures against the agreed risk appetite set and to simulate
catastrophe losses in order to measure the effectiveness of its reinsurance programmes. Stress and scenario tests are also run
using these models. The range of scenarios considered includes natural catastrophe, cyber, marine, liability, political, terrorism
and war events.
One of the largest types of event exposure relates to natural catastrophe events such as windstorm or earthquake. Where
possible the group measures geographic accumulations and uses its knowledge of the business, historical loss behaviour and
commercial catastrophe modelling software to assess the expected range of losses at different return periods. Upon application
of the reinsurance coverage purchased, the key gross and net exposures are calculated on the basis of extreme events at a range
of return periods.
The group’s high level catastrophe risk appetite is set by the board and the business plans of each team are determined within
these parameters. The board may adjust these limits over time as conditions change. In 2019 the group operated to a catastrophe
risk appetite for a probabilistic 1-in-250 years US event of $416.0m (2018: $416.0m) net of reinsurance. This remains unchanged
since 2018.
Lloyd’s has also defined its own specific set of RDS events for which all syndicates with relevant exposures must report. Of these
the three largest, net of reinsurance, events which could have impacted Beazley in 2018 and 2019 are:
Unaudited †
2019
Lloyd’s prescribed natural catastrophe event (total incurred losses)
San Francisco quake (2019: $78.0bn)
Los Angeles quake (2019: $78.0bn)
US Northeast windstorm (2019: $78.0bn)
Unaudited †
Lloyd’s prescribed natural catastrophe event (total incurred losses)
San Francisco quake (2018: $78.0bn)
Gulf of Mexico windstorm (2018: $112.0bn)
Los Angeles quake (2018: $78.0bn)
1 Probable market loss.
Modelled
PML1 (before
reinsurance)
$m
727.9
748.2
554.6
Modelled
PML1 (after
reinsurance)
$m
222.8
218.8
205.3
2018
Modelled
PML1 (before
reinsurance)
$m
704.4
595.1
697.2
Modelled
PML1 (after
reinsurance)
$m
236.9
199.0
235.9
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2 Risk management continued
The tables on the previous page show each event independent of each other and considered on their own. The impacts would be
different if all three occurred within the same year.
Net of reinsurance exposures for the two California quakes have reduced in 2019, which is being driven by the property division
reducing exposures in this region and buying additional reinsurance. The increase in gross exposures is being driven by the
reinsurance division, who have increased their writings in this region but this had not lead to an increase in net as the additional
exposure is contained within the reinsurance programme. Windstorm exposures have reduced in the Gulf of Mexico during 2019,
which has resulted in the US Northeast windstorm scenario replacing the Gulf of Mexico windstorm scenario as being the third
largest scenario. The natural catastrophe risk appetite has remained unchanged in 2019.
The net exposure of the group to each of these modelled events at a given point in time is a function of assumptions made about
how and where the event occurs, its magnitude, the amount of business written that is exposed to each event and the reinsurance
arrangements in place.
The group also has exposure to man-made claim aggregations, such as those arising from terrorism and data breach events.
Beazley chooses to underwrite data breach insurance within the cyber and executive risk and specialty lines division using our
team of specialist underwriters, claims managers and data breach services managers. Other than for data breach, Beazley’s
preference is to exclude cyber exposure where possible.
To manage the potential exposure, the board has established a risk budget for the aggregation of data breach related claims
which is monitored by reference to the largest of ten realistic disaster scenarios that have been developed internally. These
scenarios include the failure of a data aggregator, the failure of a shared hardware or software platform and the failure of a cloud
provider. Whilst it is not possible to be precise, as there is sparse data on actual aggregated events, these severe scenarios are
expected to be very infrequent. The largest net realistic disaster scenario is currently similar to the US Northeast windstorm event
shown above for the group as at 31 December 2019. The reinsurance programmes that protect the cyber and executive risk and
specialty lines divisions would partially mitigate the cost of most, but not all, data breach catastrophes.
Beazley also reports on cyber exposure to Lloyd’s using the three largest internal realistic disaster scenarios and three prescribed
scenarios which include both data breach and property damage related cyber exposure. Given Beazley’s risk profile, the quantum
from the internal data breach scenarios is larger than any of the cyber property damage related scenarios.
To manage underwriting exposures, the group has developed limits of authority and business plans which are binding upon all
staff authorised to underwrite and are specific to underwriters, classes of business and industry. In 2019, the maximum line that
any one underwriter could commit the managed syndicates to was $100m. In most cases, maximum lines for classes of business
were much lower than this.
These authority limits are enforced through a comprehensive sign-off process for underwriting transactions including dual sign-off
for all line underwriters and peer review for all risks exceeding individual underwriters’ authority limits. Exception reports are also
run regularly to monitor compliance.
All underwriters also have a right to refuse renewal or change the terms and conditions of insurance contracts upon renewal.
Rate monitoring details, including limits, deductibles, exposures, terms and conditions and risk characteristics are also captured
and the results are combined to monitor the rating environment for each class of business.
Binding authority contracts
A proportion of the group’s insurance risks are transacted by third parties under delegated underwriting authorities. Each third
party is thoroughly vetted by our coverholder approval group before it can bind risks, and is subject to monitoring to maintain
underwriting quality and confirm ongoing compliance with contractual guidelines.
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Notes to the financial statements continued
2 Risk management continued
Operating divisions
In 2019, the group’s business consisted of six operating divisions. The following table provides a breakdown of gross premiums
written by division, and also provides a geographical split based on placement of risk.
2019
Cyber & executive risk
Marine
Political, accident & contingency
Property
Reinsurance
Specialty lines
Total
20181
Cyber & executive risk
Marine
Political, accident & contingency
Property
Reinsurance
Specialty lines
Total
UK
(Lloyd’s)
18%
10%
8%
14%
7%
27%
84%
UK
(Lloyd’s)
17%
11%
8%
16%
8%
23%
83%
US
(Non-Lloyd’s)
9%
–
1%
–
–
5%
15%
US
(Non-Lloyd’s)
10%
–
1%
–
–
6%
17%
Europe
(Non-Lloyd’s)
–
–
–
–
–
1%
1%
Europe
(Non-Lloyd’s)
–
–
–
–
–
–
–
Total
27%
10%
9%
14%
7%
33%
100%
Total
27%
11%
9%
16%
8%
29%
100%
1 From 1 January 2019, the specialty lines division has been split into two. The prior year comparative has been re-presented to allow comparison.
b) Reinsurance risk
Reinsurance risk to the group arises where reinsurance contracts put in place to reduce gross insurance risk do not perform as
anticipated, result in coverage disputes or prove inadequate in terms of the vertical or horizontal limits purchased. Failure of a
reinsurer to pay a valid claim is considered a credit risk which is detailed in the credit risk section on page 163.
The group’s reinsurance programmes complement the underwriting team business plans and seek to protect group capital from
an adverse volume or volatility of claims on both a per risk and per event basis. In some cases the group deems it more economic
to hold capital than purchase reinsurance. These decisions are regularly reviewed as an integral part of the business planning
and performance monitoring process.
The reinsurance security committee examines and approves all reinsurers to ensure that they possess suitable security.
The group’s ceded reinsurance team ensures that these guidelines are followed, undertakes the administration of reinsurance
contracts and monitors and instigates our responses to any erosion of the reinsurance programmes.
c) Claims management risk
Claims management risk may arise within the group in the event of inaccurate or incomplete case reserves and claims
settlements, poor service quality or excessive claims handling costs. These risks may damage the group brand and undermine
its ability to win and retain business, or incur punitive damages. These risks can occur at any stage of the claims life cycle.
The group’s claims teams are focused on delivering quality, reliability and speed of service to both internal and external clients.
Their aim is to adjust and process claims in a fair, efficient and timely manner, in accordance with the policy’s terms and
conditions, the regulatory environment, and the business’s broader interests. Case reserves are set for all known claims liabilities,
including provisions for expenses, as soon as a reliable estimate can be made of the claims liability.
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d) Reserving and ultimate reserves risk
Reserving and ultimate reserves risk occurs within the group where established insurance liabilities are insufficient through
inaccurate forecasting, or where there is inadequate allowance for expenses and reinsurance bad debts in provisions.
To manage reserving and ultimate reserves risk, our actuarial team uses a range of recognised techniques to project gross
premiums written, monitor claims development patterns and stress-test ultimate insurance liability balances. The group aims to
hold reserves within a range of 5-10% above the actuarial estimates, which themselves include some margin for uncertainty.
The objective of the group’s reserving policy is to produce accurate and reliable estimates that are consistent over time and
across classes of business. The estimates of gross premiums written and claims prepared by the actuarial department are used
through a formal quarterly peer review process to independently test the integrity of the estimates produced by the underwriting
teams for each class of business. These meetings are attended by senior management, senior underwriters, and actuarial, claims,
and finance representatives.
2.2 Strategic risk
This is the risk that the group’s strategy is inappropriate or that the group is unable to implement its strategy. Where events
supersede the group’s strategic plan this is escalated at the earliest opportunity through the group’s monitoring tools and
governance structure.
a) Senior management performance
Management stretch is the risk that business growth might result in an insufficient or overly complicated management team
structure, thereby undermining accountability and control within the group. As the group expands its worldwide business in the
UK, North America, Europe, South America and Asia, management stretch may make the identification, analysis and control
of group risks more complex.
On a day-to-day basis, the group’s management structure encourages organisational flexibility and adaptability, while ensuring
that activities are appropriately coordinated and controlled. By focusing on the needs of their customers and demonstrating both
progressive and responsive abilities, staff, management and outsourced service providers are expected to excel in service and
quality. Individuals and teams are also expected to transact their activities in an open and transparent way. These behavioural
expectations reaffirm low group risk tolerance by aligning interests to ensure that routine activities, projects and other initiatives
are implemented to benefit and protect resources of both local business segments and the group as a whole.
2.3 Market risk †
Market risk arises where the value of assets and liabilities or future cash flows changes as a result of movements in foreign
exchange rates, interest rates and market prices. Efficient management of market risk is key to the investment of group assets.
Appropriate levels of investment risk are determined by limiting the proportion of forecast group earnings which could be at risk
from lower than expected investment returns, using a 1 in 10 confidence level as a practical measure of such risk. In 2019, this
permitted variance from the forecast investment return was set at $150.0m (unaudited). For 2020, the permitted variance is likely
to be at the same level. Investment strategy is developed to be consistent with this limit and investment risk is monitored on an
ongoing basis, using outputs from our internal model.
Changes in interest rates also impact the present values of estimated group liabilities, which are used for solvency and capital
calculations. Our investment strategy reflects the nature of our liabilities, and the combined market risk of investment assets
and estimated liabilities is monitored and managed within specified limits.
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Notes to the financial statements continued
2 Risk management continued
a) Foreign exchange risk
The functional currency of Beazley plc and its main trading entities is US dollars and the presentational currency in which
the group reports its consolidated results is US dollars. The effect of this on foreign exchange risk is that the group is mainly
exposed to fluctuations in exchange rates for non-dollar denominated transactions and to net asset translation risk on non-dollar
functional currency entities.
The group operates in four main currencies: US dollars, sterling, Canadian dollars and euros. Transactions in all currencies are
converted to US dollars on initial recognition with any resulting monetary items being translated to the US dollar spot rate at the
reporting date. If any foreign exchange risk arises it is actively managed as described below.
In 2019, the group managed its foreign exchange risk by periodically assessing its non-dollar exposures and hedging these to
a tolerable level while targeting to have net assets that are predominantly denominated in US dollar. As part of this hedging
strategy, exchange rate derivatives were used to rebalance currency exposure across the group. Details of foreign currency
derivative contracts entered into with external parties are disclosed in note 17. On a forward looking basis an assessment is
made of expected future exposure development and appropriate currency trades put in place to reduce risk.
The group’s underwriting capital is matched by currency to the principal underlying currencies of its written premiums. This helps
to mitigate the risk that the group’s capital required to underwrite business is materially affected by any future movements in
exchange rates.
The group also has foreign operations with functional currencies that are different from the group’s presentational currency.
The effect of this on foreign exchange risk is that the group is exposed to fluctuations in exchange rates for US dollar denominated
transactions and net assets arising in those foreign currency operations. It also gives rise to a currency translation exposure
for the group to sterling, euro, Norwegian krone, Canadian dollars, Singapore dollars and Australian dollars on translation to
the group’s presentational currency. These exposures are minimal and are not hedged.
The following table summarises the carrying value of total assets and total liabilities categorised by the group’s main currencies:
31 December 2019
Total assets
Total liabilities
Net assets
31 December 2018
Total assets
Total liabilities
Net assets
UK £
$m
546.2
(549.2)
(3.0)
UK £
$m
506.3
(511.8)
(5.5)
CAD $
$m
165.5
(165.2)
0.3
CAD $
$m
131.6
(138.9)
(7.3)
EUR €
$m
364.3
(348.7)
15.6
EUR €
$m
290.3
(305.6)
(15.3)
Subtotal
$m
1,076.0
(1,063.1)
12.9
Subtotal
$m
928.2
(956.3)
(28.1)
US $
$m
7,797.7
(6,185.3)
1,612.4
US $
$m
6,805.7
(5,310.7)
1,495.0
Total
$m
8,873.7
(7,248.4)
1,625.3
Total
$m
7,733.9
(6,267.0)
1,466.9
Sensitivity analysis
Fluctuations in the group’s trading currencies against the US dollar would result in a change to profit after tax and net asset
value. The table below gives an indication of the impact on profit after tax and net assets of a percentage change in the relative
strength of the US dollar against the value of sterling, the Canadian dollar and the euro, simultaneously. The analysis is based on
information on net asset positions as at the balance sheet date.
Change in exchange rate of sterling, Canadian dollar and euro relative to US dollar
Dollar weakens 30% against other currencies
Dollar weakens 20% against other currencies
Dollar weakens 10% against other currencies
Dollar strengthens 10% against other currencies
Dollar strengthens 20% against other currencies
Dollar strengthens 30% against other currencies
Impact on profit after
tax for the year ended
Impact on net assets
2019
$m
3.4
2.3
1.1
(1.1)
(2.3)
(3.4)
2018
$m
(7.5)
(5.0)
(2.5)
2.5
5.0
7.5
2019
$m
(1.0)
(0.6)
(0.3)
0.3
0.6
1.0
2018
$m
(11.5)
(7.7)
(3.8)
3.8
7.7
11.5
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b) Interest rate risk
Some of the group’s financial instruments, including cash and cash equivalents, certain financial assets at fair value and
borrowings, are exposed to movements in market interest rates.
The group manages interest rate risk by primarily investing in short duration financial assets along with cash and cash
equivalents. The investment committee monitors the duration of these assets on a regular basis.
The group also entered into bond futures contracts to manage the interest rate risk on bond portfolios.
The following table shows the modified duration at the reporting date of the financial instruments that are exposed to movements
in market interest rates. Duration is a commonly used measure of volatility and we believe gives a better indication than maturity
of the likely sensitivity of our portfolio to changes in interest rates.
Duration
31 December 2019
Fixed and floating rate debt securities
Cash and cash equivalents
Derivative financial instruments
Borrowings
Total
31 December 2018
Fixed and floating rate debt securities
Cash and cash equivalents
Derivative financial instruments
Borrowings
Total
<1 yr
$m
1,530.8
278.5
25.5
–
1,834.8
<1 yr
$m
1,566.0
336.3
6.9
(95.6)
1,813.6
1-2 yrs
$m
1,650.5
–
–
–
1,650.5
1-2 yrs
$m
831.0
–
–
–
831.0
2-3 yrs
$m
898.0
–
–
–
898.0
2-3 yrs
$m
963.8
–
–
–
963.8
3-4 yrs
$m
327.7
–
–
–
327.7
3-4 yrs
$m
467.4
–
–
–
467.4
4-5 yrs
$m
304.2
–
–
–
304.2
4-5 yrs
$m
188.2
–
–
–
188.2
5-10 yrs
$m
87.6
–
–
(546.8)
(459.2)
5-10 yrs
$m
83.8
–
–
(248.7)
(164.9)
>10 yrs
$m
14.3
–
–
–
14.3
>10 yrs
$m
–
–
–
–
–
Total
$m
4,813.1
278.5
25.5
(546.8)
4,570.3
Total
$m
4,100.2
336.3
6.9
(344.3)
4,099.1
Borrowings consist of two items as at 31 December 2019. The first is $250m of subordinated tier 2 debt raised in November
2016. This debt is due in 2026 and has annual interest of 5.875% payable in May and November of each year. The second
comprises $300m of subordinate tier 2 debt raised in September 2019. This debt is due in 2029 and has annual interest of 5.5%
payable in March and September each year.
As at 31 December 2018, borrowings included £75m of sterling denominated 5.375% notes which were redeemed in September
2019. Due to this redemption, it is not included in any of the categories in the 31 December 2019 table (2018: <1 yr category).
Sensitivity analysis
Changes in yields, with all other variables constant, would result in changes in the capital value of debt securities as well as
subsequent interest receipts and payments. This would affect reported profits and net assets as indicated in the table below:
Shift in yield (basis points)
150 basis point increase
100 basis point increase
50 basis point increase
50 basis point decrease
100 basis point decrease
Impact on profit after
income tax for the year
Impact on net assets
2019
$m
(112.7)
(75.1)
(37.6)
37.6
75.1
2018
$m
(93.8)
(62.6)
(31.3)
31.3
62.6
2019
$m
(112.7)
(75.1)
(37.6)
37.6
75.1
2018
$m
(93.8)
(62.6)
(31.3)
31.3
62.6
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Notes to the financial statements continued
2 Risk management continued
c) Price risk
Financial assets and derivatives that are recognised in the statement of financial position at their fair value are susceptible to
losses due to adverse changes in prices. This is referred to as price risk.
Financial assets include fixed and floating rate debt securities, hedge funds, illiquid credit assets, equity investments and
derivative financial assets. The price of debt securities is affected by interest rate risk, as described above, and also by issuer’s
credit risk. The sensitivity to price risk that relates to the group’s hedge fund, illiquid credit and equity investments is presented
below.
Listed investments that are quoted in an active market are recognised in the statement of financial position at quoted bid price,
which is deemed to be approximate exit price. If the market for the investment is not considered to be active, then the group
establishes fair value using valuation techniques (refer to note 16). This includes comparison of orderly transactions between
market participants, reference to the current fair value of other investments that are substantially the same, discounted cash flow
models and other valuation techniques that are commonly used by market participants.
Change in fair value of hedge funds, equity funds and illiquid credit assets
30% increase in fair value
20% increase in fair value
10% increase in fair value
10% decrease in fair value
20% decrease in fair value
30% decrease in fair value
Impact on profit after
income tax for the year
2019
$m
2018
$m
Impact on net assets
2019
$m
2018
$m
192.5
128.3
64.2
(64.2)
(128.3)
(192.5)
163.2
108.8
54.4
(54.4)
(108.8)
(163.2)
192.5
128.3
64.2
(64.2)
(128.3)
(192.5)
163.2
108.8
54.4
(54.4)
(108.8)
(163.2)
d) Investment risk
The value of our investment portfolio is impacted by interest rate and market price risks, as described above. Managing the
group’s exposures to these risks is an intrinsic part of our investment strategy.
Beazley uses an Economic Scenario Generator (ESG) to simulate multiple simulations of financial conditions, to support stochastic
analysis of market risk. Beazley uses these outputs to assess the value at risk (VAR) of its investments, at different confidence
levels, including ‘1 in 200’, which reflects Solvency II modelling requirements, and ‘1 in 10’, reflecting scenarios which are more
likely to occur in practice. Risk is typically considered to a 12 month horizon. It is assessed for investments in isolation and also in
conjunction with the present value of our liabilities, to help us monitor and manage market risk for solvency and capital purposes.
By its nature, stochastic modelling does not provide a precise measure of risk, ESG outputs are regularly validated against actual
market conditions, and Beazley also uses a number of other, qualitative, measures to support the monitoring and management of
investment risk. These include stress testing and scenario analysis.
Beazley’s investment strategy is developed by reference to an investment risk budget, set annually by the board as part of the
overall risk budgeting framework of the business. The Solvency II internal model is used to monitor compliance with the budget,
which limits the amount by which our reported annual investment return may deviate from a predetermined target, at the 1 in 10
confidence level. In 2019, the permitted deviation was $150.0m (unaudited). Additionally, a limit is specified for the net interest
rate sensitivity of assets and liabilities combined and investments are managed to ensure that this limit is not exceeded.
2.4 Operational risk
Operational risk arises from the risk of losses due to inadequate or failed internal processes, people, systems, service providers
or external events.
There are a number of business activities for which the group uses the services of a third-party company, such as investment
management, IT systems, data entry and credit control. These service providers are selected against rigorous criteria and formal
service level agreements are in place, and regularly monitored and reviewed.
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The group also recognises that it is necessary for people, systems and infrastructure to be available to support our operations.
Therefore we have taken significant steps to mitigate the impact of business interruption which could follow a variety of events,
including the loss of key individuals and facilities. We operate a formal disaster recovery plan which, in the event of an incident,
allows the group to move critical operations to an alternative location within 24 hours.
The group actively manages operational risks and minimises them where appropriate. This is achieved by implementing and
communicating guidelines to staff and other third parties. The group also regularly monitors the performance of its controls
and adherence to these guidelines through the risk management reporting process.
Key components of the group’s operational control environment include:
• modelling of operational risk exposure and scenario testing;
• management review of activities;
• documentation of policies and procedures;
• preventative and detective controls within key processes;
• contingency planning; and
• other systems controls.
2.5 Credit risk
Credit risk arises where counterparties fail to meet their financial obligations in full as they fall due. The primary sources of credit
risk for the group are:
• reinsurers – reinsurers may fail to pay valid claims against a reinsurance contract held by the group;
• brokers and coverholders – counterparties fail to pass on premiums or claims collected or paid on behalf of the group;
• investments – issuer default results in the group losing all or part of the value of a financial instrument or a derivative financial
instrument; and
• cash and cash equivalents.
The group’s core business is to accept significant insurance risk and the appetite for other risks is low. This protects the group’s
capital from erosion so that it can meet its insurance liabilities.
The group limits exposure to a single counterparty or a group of counterparties and analyses the geographical locations of
exposures when assessing credit risk.
An approval system also exists for all new brokers, and broker performance is carefully monitored. Regular exception reports
highlight trading with non-approved brokers, and the group’s credit control function frequently assesses the ageing and
collectability of debtor balances. Any large, aged items are prioritised and where collection is outsourced incentives are in place
to support these priorities.
The investment committee has established comprehensive guidelines for the group’s investment managers regarding the type,
duration and quality of investments acceptable to the group. The performance of investment managers is regularly reviewed
to confirm adherence to these guidelines.
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The group has developed processes to formally examine all reinsurers before entering into new business arrangements.
New reinsurers are approved by the reinsurance security committee, which also reviews arrangements with all existing
reinsurers at least annually. Vulnerable or slow-paying reinsurers are examined more frequently.
To assist in the understanding of credit risks, A.M. Best, Moody’s and Standard & Poor’s (S&P) ratings are used. These ratings
have been categorised below as used for Lloyd’s reporting:
Tier 1
Tier 2
Tier 3
Tier 4
A.M. Best
A++ to A-
B++ to B-
C++ to C-
D, E, F, S
Moody’s
Aaa to A3
S&P
AAA to A-
Baa1 to Ba3 BBB+ to BB-
B+ to CCC
R, (U,S) 3
B1 to Caa
Ca to C
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Notes to the financial statements continued
2 Risk management continued
The following tables summarise the group’s concentrations of credit risk:
31 December 2019
Financial assets at fair value
– fixed and floating rate debt securities
– equity funds
– hedge funds
– illiquid credit assets
– derivative financial instruments
Insurance receivables
Reinsurance assets
Other receivables
Cash and cash equivalents
Total
31 December 2018
Financial assets at fair value
– fixed and floating rate debt securities
– equity funds
– hedge funds
– illiquid credit assets
– derivative financial instruments
Insurance receivables
Reinsurance assets
Other receivables
Cash and cash equivalents
Total
Tier 1
$m
Tier 2
$m
Tier 3
$m
Tier 4
$m
Unrated
$m
3,544.0
–
–
–
–
–
1,338.2
72.0
278.5
5,232.7
1,269.1
–
–
–
–
–
–
–
–
1,269.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
163.6
354.0
216.6
25.5
1,048.0
–
–
–
1,807.7
Tier 1
$m
Tier 2
$m
Tier 3
$m
Tier 4
$m
Unrated
$m
3,041.2
–
–
–
–
–
1,192.8
58.5
336.3
4,628.8
1,059.0
–
–
–
–
–
–
–
–
1,059.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
85.4
337.2
186.6
6.9
943.3
–
–
–
1,559.4
Total $m
4,813.1
163.6
354.0
216.6
25.5
1,048.0
1,338.2
72.0
278.5
8,309.5
Total $m
4,100.2
85.4
337.2
186.6
6.9
943.3
1,192.8
58.5
336.3
7,247.2
The largest counterparty exposure within tier 1 is $1,599.9m of US treasuries (2018: $1,106.5m).
Financial investments falling within the unrated category comprise hedge funds and illiquid credit assets for which there is no
readily available market data to allow classification within the respective tiers. Additionally, insurance receivables are classified as
unrated, due to premium debtors not being credit rated.
Insurance receivables and other receivables balances held by the group have not been impaired, based on all evidence available,
and no impairment provision has been recognised in respect of these assets. Insurance receivables in respect of coverholder
business are credit controlled by third-party managers. We monitor third party coverholders’ performance and their financial
processes through the group’s coverholder management team. These assets are individually impaired after considering
information such as the occurrence of significant changes in the counterparties’ financial position, patterns of historical
payment information and disputes with counterparties.
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An analysis of the overall credit risk exposure indicates that the group has reinsurance assets that are impaired at the reporting
date. The total impairment in respect of the reinsurance assets, including reinsurer’s share of outstanding claims, at 31 December
2019 was as follows:
Balance at 1 January 2018
Impairment loss written back
Balance at 31 December 2018
Impairment loss recognised
Balance at 31 December 2019
Individual
impairment
$m
2.9
(0.1)
2.8
0.3
3.1
Collective
impairment
$m
10.3
(0.9)
9.4
1.2
10.6
Total
$m
13.2
(1.0)
12.2
1.5
13.7
The group has insurance receivables and reinsurance assets that are past due at the reporting date. An aged analysis of these
is presented below:
31 December 2019
Insurance receivables
Reinsurance assets
31 December 2018
Insurance receivables
Reinsurance assets
Up to 30 days
past due
$m
59.2
3.0
Up to 30 days
past due
$m
49.6
1.0
30-60 days
past due
$m
26.0
5.6
30-60 days
past due
$m
13.9
2.3
60-90 days
past due
$m
8.6
0.9
60-90 days
past due
$m
5.3
0.3
Greater than
90 days
past due
$m
31.9
7.3
Greater than
90 days
past due
$m
18.8
3.4
Total
$m
125.7
16.8
Total
$m
87.6
7.0
The total impairment provision in the statement of financial position in respect of reinsurance assets past due (being reinsurance
recoverables due on paid claims) by more than 30 days at 31 December 2019 was $3.1m (2018: $3.1m). This $3.1m provision
in respect of overdue reinsurance recoverables is included within the total provision of $13.7m shown in the table at the top of
the page.
The group believes that the unimpaired amounts that are past due more than 30 days are still collectable in full, based on historic
payment behaviour and analyses of credit risk.
2.6 Regulatory and legal risk
Regulatory and legal risk is the risk arising from not complying with regulatory and legal requirements. The operations of the group
are subject to legal and regulatory requirements within the jurisdictions in which it operates and the group’s compliance function
is responsible for ensuring that these requirements are adhered to.
2.7 Liquidity risk
Liquidity risk arises where cash may not be available to pay obligations when due at a reasonable cost. The group is exposed
to daily calls on its available cash resources, principally from claims arising from its insurance business. In the majority of the
cases, these claims are settled from the premiums received.
The group’s approach is to manage its liquidity position so that it can reasonably survive a significant individual or market loss
event (details of the group’s exposure to realistic disaster scenarios are provided on page 157). This means that the group
maintains sufficient liquid assets, or assets that can be converted into liquid assets at short notice and without any significant
capital loss, to meet expected cash flow requirements. These liquid funds are regularly monitored using cash flow forecasting
to ensure that surplus funds are invested to achieve a higher rate of return. The group also makes use of loan facilities and
borrowings, details of which can be found in note 25. Further information on the group’s capital resources is contained on
pages 39 to 40.
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Notes to the financial statements continued
2 Risk management continued
The following is an analysis by business segment of the estimated timing of the net cash flows based on the net claims liabilities1
balance held at 31 December:
31 December 2019
Cyber & executive risk
Marine
Political, accident & contingency
Property
Reinsurance
Specialty lines
Net claims liabilities
31 December 2018
Cyber & executive risk
Marine
Political, accident & contingency
Property
Reinsurance
Specialty lines
Net claims liabilities
Within
1 year
$m
263.2
112.2
69.9
159.5
106.8
246.3
957.9
Within
1 year
$m
164.3
116.3
59.5
179.9
88.4
267.0
875.4
1-3 years
$m
431.0
100.5
51.1
129.0
93.8
483.4
1,288.8
1-3 years
$m
301.4
97.3
44.2
111.9
71.5
429.8
1,056.1
3-5 years
$m
177.8
35.1
13.1
31.9
26.0
341.4
625.3
3-5 years
$m
190.1
28.6
12.2
29.0
22.8
281.8
564.5
Greater than
5 years
$m
58.4
16.5
12.2
20.9
19.4
392.1
519.5
Greater than
5 years
$m
108.5
21.8
16.8
27.0
21.3
397.6
593.0
Weighted
average term
to settlement
(years)
2.2
1.8
1.9
1.7
1.9
3.8
Weighted
average term
to settlement
(years)
2.9
2.0
2.4
1.8
2.2
3.7
Total
$m
930.4
264.3
146.3
341.3
246.0
1,463.2
3,391.5
Total
$m
764.3
264.0
132.7
347.8
204.0
1,376.2
3,089.0
1 For a breakdown of net claims liabilities refer to note 24.
The following table is an analysis of the net contractual cash flows based on all the liabilities held at 31 December:
31 December 2019
Net claims liabilities
Borrowings
Other payables
31 December 2018
Net claims liabilities
Borrowings
Other payables
Within 1 year
957.9
–
566.4
Within 1 year
875.4
95.6
442.6
1-3 years
1,288.8
–
–
1-3 years
1,056.1
–
–
3-5 years
625.3
–
–
3-5 years
564.5
–
–
Greater than
5 years
519.5
546.8
–
Greater than
5 years
593.0
248.7
–
Total
3,391.5
546.8
566.4
Total
3,089.0
344.3
442.6
The group makes additional interest payments for borrowings. Further details are provided in notes 8 and 25.
The next two tables summarise the carrying amount at reporting date of financial instruments analysed by maturity date.
Maturity
31 December 2019
Fixed and floating rate debt securities
Derivative financial instruments
Cash and cash equivalents
Insurance receivables
Other receivables
Other payables
Borrowings
Total
<1 yr
$m
1,229.5
25.5
278.5
1,048.0
72.0
(566.4)
–
2,087.1
1-2 yrs
$m
1,686.6
–
–
–
–
–
–
1,686.6
2-3 yrs
$m
954.2
–
–
–
–
–
–
954.2
3-4 yrs
$m
410.2
–
–
–
–
–
–
410.2
4-5 yrs
$m
471.2
–
–
–
–
–
–
471.2
5-10 yrs
$m
27.5
–
–
–
–
–
(546.8)
(519.3)
>10 yrs
$m
33.9
–
–
–
–
–
–
33.9
Total
$m
4,813.1
25.5
278.5
1,048.0
72.0
(566.4)
(546.8)
5,123.9
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2 Risk management continued
31 December 2018
Fixed and floating rate debt securities
Derivative financial instruments
Cash and cash equivalents
Insurance receivables
Other receivables
Other payables
Borrowings
Total
<1 yr
$m
1,114.0
6.9
336.3
943.3
58.5
(442.6)
(95.6)
1,920.8
1-2 yrs
$m
909.1
–
–
–
–
–
–
909.1
2-3 yrs
$m
1,050.2
–
–
–
–
–
–
1,050.2
3-4 yrs
$m
516.6
–
–
–
–
–
–
516.6
4-5 yrs
$m
322.1
–
–
–
–
–
–
322.1
5-10 yrs
$m
188.2
–
–
–
–
–
(248.7)
(60.5)
>10 yrs
$m
–
–
–
–
–
–
–
–
Total
$m
4,100.2
6.9
336.3
943.3
58.5
(442.6)
(344.3)
4,658.3
Borrowings consist of two items as at 31 December 2019. The first is $250m of subordinated tier 2 debt raised in November
2016. This debt is due in 2026 and has annual interest of 5.875% payable in May and November of each year. The second
comprises $300m of subordinate tier 2 debt raised in September 2019. This debt is due in 2029 and has annual interest of 5.5%
payable in March and September each year.
As at 31 December 2018, borrowings included £75m of sterling denominated 5.375% notes which were redeemed in September
2019. Due to this redemption, it is not included in any of the categories in the 31 December 2019 table (2018: <1 yr category).
Illiquid credit assets, hedge funds and equity funds are not included in the maturity profile because the basis of maturity profile
cannot be determined with any degree of certainty.
2.8 Group risk
Group risk occurs where business units fail to consider the impact of their activities on other parts of the group, as well as the
risks arising from these activities. There are two main components of group risk which are explained below.
a) Contagion
Contagion risk is the risk arising from actions of one part of the group which could adversely affect any other part of the group.
As the two largest components of the group, this is of particular relevance for actions in any of the US operations, which could
adversely affect the UK operations, and vice versa. The group has limited appetite for contagion risk and minimises the impact
of this occurring by operating with clear lines of communication across the group to ensure all group entities are well informed
and working to common goals.
b) Reputation
Reputation risk is the risk of negative publicity as a result of the group’s contractual arrangements, customers, products, services
and other activities. Key sources of reputation risk include operation of a Lloyd’s franchise, interaction with capital markets since
the group’s IPO during 2002, and reliance upon the Beazley brand in North America, Europe, South America and Asia. The group’s
preference is to minimise reputation risks but where it is not possible or beneficial to avoid them, we seek to minimise their
frequency and severity by management through public relations and communication channels.
2.9 Capital management †
The group follows a risk-based approach to determine the amount of capital required to support its activities. Recognised stochastic
modelling techniques are used to measure risk exposures, and capital to support business activities is allocated according to risk
profile. Stress and scenario analysis is regularly performed and the results are documented and reconciled to the board’s risk
appetite where necessary.
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The group has several requirements for capital, including:
• to support underwriting at Lloyd’s through the syndicates in which it participates, being 2623, 3623, 3622 and 5623.
This is based on the group’s own individual capital assessment. It may be provided in the form of either the group’s cash
and investments or debt facilities;
• to support underwriting in Beazley Insurance Company, Inc. in the US and Beazley America Insurance Company, Inc.;
• to support underwriting in Beazley Insurance dac in Europe; and
• to make acquisitions of insurance companies or managing general agents (MGAs) whose strategic goals are aligned
with our own.
For more detail on the value of capital managed, please see pages 39 to 40.
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Notes to the financial statements continued
2 Risk management continued
The Internal Model Solvency Capital Requirement is a dedicated quantitative review of syndicate models and it sets outs to be
a key input to the Lloyd’s Internal Model.
The board’s strategy is to grow the dividend (excluding special dividend) by between 5% and 10% per year. Our capital
management strategy is to carry some surplus capital to enable us to take advantage of growth opportunities which may arise.
At 31 December 2019 we have surplus capital of 22% of ECR (unaudited, on a Solvency II basis). Following payment of the second
interim dividend of 8.2p per share, the surplus reduces to 19% (unaudited) compared to our current target range of 15% to 25%
of ECR.
2.10 Company risk
The company is exposed to the same interest rate and liquidity risk exposure experienced on its mutual borrowings with the group.
The group’s exposure can be seen in sections 2.3b and 2.7. The company also experiences operational, regulatory and legal risks
as defined in section 2.4 and 2.6.
3 Segmental analysis
a) Reporting segments
Segment information is presented in respect of reportable segments. These are based on the group’s management and internal
reporting structures and represent the level at which financial information is reported to the board, being the chief operating
decision-maker as defined in IFRS 8.
The operating segments are based upon the different types of insurance risk underwritten by the group, as described below:
Cyber & executive risk
This segment underwrites management liabilities such as employment practices risks and directors and officers, alongside cyber
and technology, media and business services.
Marine
This segment underwrites a broad spectrum of marine classes including hull, energy, cargo and specie, piracy, satellite, aviation,
kidnap & ransom and war risks.
Political, accident & contingency
This segment underwrites terrorism, political violence, expropriation and credit risks as well as contingency and risks associated
with contract frustration. In addition, this segment underwrites life, health, personal accident, sports and income protection risks.
Property
The property segment underwrites commercial and high-value homeowners’ property insurance on a worldwide basis.
Reinsurance
This segment specialises in writing property catastrophe, property per risk, casualty clash, aggregate excess of loss and
pro-rata business.
Specialty lines
This segment underwrites a wide portfolio of business, including architects and engineers, healthcare, lawyers and environmental
liability, market facilities business and international financial institutions.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on
a reasonable basis. The reporting segments do not cross-sell business to each other. There are no individual policyholders who
comprise greater than 10% of the group’s total gross premiums written.
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3 Segmental analysis continued
b) Segment information
2019
Gross premiums written
Net premiums written
Net earned premiums
Net investment income
Other income
Revenue
Net insurance claims
Expenses for the acquisition
of insurance contracts
Administrative expenses
Foreign exchange gain
Expenses
Segment result
Finance costs
Profit before income tax
Income tax expense
Profit for the year attributable to
equity shareholders
Claims ratio
Expense ratio
Combined ratio
Segment assets and liabilities
Segment assets
Segment liabilities
Net assets
Additional information
Capital expenditure
Amortisation and depreciation
Net cash flow
Cyber &
executive risk
$m
823.0
712.2
644.5
76.8
6.2
727.5
Political,
accident &
contingency
$m
272.7
245.8
Property
$m
428.7
365.6
Reinsurance
$m
206.0
123.0
237.4
13.0
1.7
252.1
361.8
28.7
5.1
395.6
123.0
17.0
1.2
141.2
Marine
$m
306.4
222.1
222.2
21.8
1.3
245.3
Specialty
lines
$m
967.1
834.8
758.1
106.4
10.3
874.8
Total
$m
3,003.9
2,503.5
2,347.0
263.7
25.8
2,636.5
395.7
126.8
110.5
207.3
144.6
467.6
1,452.5
143.2
62.2
(0.2)
600.9
82.4
27.8
(0.1)
236.9
76.4
24.1
(0.1)
210.9
110.3
34.9
(0.2)
352.3
30.6
14.3
(0.1)
189.4
202.5
81.0
(0.4)
750.7
645.4
244.3
(1.1)
2,341.1
126.6
8.4
41.2
43.3
(48.2)
124.1
61%
32%
93%
57%
50%
107%
47%
42%
89%
57%
40%
97%
118%
36%
154%
62%
37%
99%
295.4
(27.7)
267.7
(33.6)
234.1
62%
38%
100%
2,481.2
(1,980.5)
500.7
633.3
(560.8)
72.5
479.0
(385.0)
94.0
976.5
(772.2)
204.3
767.5
(630.5)
137.0
3,536.2
(2,919.4)
616.8
8,873.7
(7,248.4)
1,625.3
5.7
(2.6)
(17.8)
0.8
(1.9)
(2.6)
1.1
(0.5)
(3.3)
2.3
(1.0)
(7.3)
1.6
(7.5)
(4.9)
7.1
(3.0)
(21.9)
18.6
(16.5)
(57.8)
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Notes to the financial statements continued
3 Segmental analysis continued
2018
Gross premiums written
Net premiums written
Net earned premiums
Net investment income
Other income
Revenue
Cyber &
executive risk1
$m
713.5
615.3
545.8
12.7
5.6
564.1
Marine
$m
284.8
255.0
249.5
3.3
2.9
255.7
Political,
accident &
contingency
$m
238.7
212.7
Property
$m
415.4
360.2
Reinsurance
$m
207.4
137.3
194.3
2.3
3.8
200.4
344.1
3.1
6.4
353.6
139.5
1.8
1.7
143.0
Specialty
lines
$m
755.5
668.0
611.4
17.9
13.3
642.6
Total
$m
2,615.3
2,248.5
2,084.6
41.1
33.7
2,159.4
Net insurance claims
Expenses for the acquisition of insurance
contracts
Administrative expenses
Foreign exchange loss
Expenses
306.9
134.0
90.2
289.4
97.7
309.6
1,227.8
122.1
62.1
3.3
494.4
74.5
25.1
1.6
235.2
63.3
21.5
1.2
176.2
103.5
38.9
2.2
434.0
33.2
13.0
0.9
144.8
165.3
90.1
4.0
569.0
561.9
250.7
13.2
2,053.6
Impairment of associate2
–
–
–
–
–
(7.0)
(7.0)
Segment result
Finance costs
Profit before income tax
Income tax expense
Profit for the year attributable to equity
shareholders
Claims ratio
Expense ratio
Combined ratio
Segment assets and liabilities
Segment assets
Segment liabilities
Net assets
Additional information
Impairment of associate2
Capital expenditure
Amortisation and depreciation
Net cash flow
69.7
20.5
24.2
(80.4)
(1.8)
66.6
56%
34%
90%
54%
40%
94%
46%
44%
90%
84%
41%
125%
70%
33%
103%
50%
42%
92%
98.8
(22.4)
76.4
(8.2)
68.2
59%
39%
98%
2,177.4
(1,774.6)
402.8
689.7
(571.9)
117.8
445.4
(347.2)
98.2
882.1
(726.1)
156.0
666.4
(505.8)
160.6
2,872.9
(2,341.4)
531.5
7,733.9
(6,267.0)
1,466.9
–
2.7
(1.8)
(28.6)
–
0.8
(2.1)
(8.3)
–
0.7
(0.4)
(7.0)
–
1.0
(0.6)
(11.1)
–
1.1
(0.6)
(11.4)
(7.0)
3.5
(9.2)
(37.8)
(7.0)
9.8
(14.7)
(104.2)
1 From 1 January 2019, the speciality lines division has been split into two. The prior year comparative has been re-presented to allow comparison.
2 In 2018, management received information which led them to conclude that the recoverable amount of the group’s investment in Capson was lower than its
carrying value. In March 2018 the group took the decision to write down its investment in Capson Corp., Inc to $2.8m. In December the group took the further
decision to fully write down its investment in Capson Corp., Inc to nil. This is deemed to be an appropriate value for Beazley’s share in Capson.
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3 Segmental analysis continued
c) Information about geographical areas
The group’s operating segments are also managed geographically by placement of risk. UK earned premium in the analysis below
represents all risks placed at Lloyd’s; US earned premium represents all risks placed at the group’s US insurance company,
Beazley Insurance Company, Inc; and Europe earned premium represents all risks placed at the group’s European insurance
company, Beazley Insurance dac. An analysis of gross premiums written split geographically by placement of risk and by
reportable segment is provided in note 2 on page 158.
Net earned premiums
UK (Lloyd’s)
US (Non-Lloyd’s)1
Europe (Non-Lloyd’s)
Segment assets
UK (Lloyd’s)
US (Non-Lloyd’s)1
Europe (Non-Lloyd’s)
2019
$m
2018
$m
1,974.3
346.3
26.4
2,347.0
1,821.8
260.2
2.6
2,084.6
2019
$m
2018
$m
8,046.5
762.4
64.8
8,873.7
7,213.2
482.1
38.6
7,733.9
1 Increase in US net earned premiums and assets is driven by a change of internal reinsurance contract. As a result of this, more premiums are retained in the US.
Segment assets are allocated based on where the assets are located.
Capital expenditure
Non-US
US
4 Net investment income
Interest and dividends on financial investments at fair value through profit or loss
Interest on cash and cash equivalents
Net realised gains on financial investments at fair value through profit or loss
Net unrealised fair value gains/(losses) on financial investments at fair value through profit or loss
Investment income from financial investments
Investment management expenses
2019
$m
13.7
4.9
18.6
2019
$m
120.6
0.3
21.5
130.1
272.5
(8.8)
263.7
2018
$m
9.5
0.3
9.8
2018
$m
102.1
0.5
12.4
(66.1)
48.9
(7.8)
41.1
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Notes to the financial statements continued
5 Other income
Commissions received by Beazley service companies
Profit commissions from syndicates 623
Agency fees from 623
Other income
2019
$m
21.2
1.0
2.5
1.1
25.8
2018
$m
20.7
7.5
2.5
3.0
33.7
As at 31 December 2019 there was no accrued profit commission at risk of being reversed if there were to be an adverse impact
on syndicate 623’s profit (31 December 2018: nil). We have not experienced any deterioration to profits on these contracts
recognised previously.
6 Operating expenses
Operating expenses include:
Amounts receivable by the auditor1 and associates in respect of:
– audit services for the group and subsidiaries
– audit-related assurance services
– taxation compliance services
– other non-audit services
Impairment loss recognised/(written back) on reinsurance assets
1 In 2018 the group’s auditor was KPMG but for 2019 it is EY.
Other than the fees disclosed above, no other fees were paid to the company’s auditor.
7 Employee benefit expenses
Wages and salaries
Short term incentive payments
Social security
Share based remuneration
Pension costs 1
Recharged to syndicate 623
2019
$m
2018
$m
1.2
0.7
–
0.5
2.4
1.5
2019
$m
165.2
56.2
17.0
4.9
11.5
254.8
(36.0)
218.8
1.0
0.6
0.1
0.8
2.5
(1.0)
2018
$m
156.0
38.0
21.0
17.7
11.7
244.4
(35.6)
208.8
1 Pension costs refer to the contributions made under the defined contribution scheme. Further information on the defined benefit pension scheme can be found in
note 27.
The average number of employees for 2019 was 1,514.
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8 Finance costs
Interest expense on financial liabilities
Interest expense on lease liabilities
2019
$m
25.8
1.9
27.7
2018
$m
22.4
–
22.4
During 2019, Beazley redeemed debt with a nominal value of £75m and a market value of £75m in the form of sterling
denominated notes. No profit or loss was realised at redemption as there was no difference between the carrying value and
market value of the debt. Please refer to note 25 for further detail on subordinated debt.
9 Income tax expense
Current tax expense
Current year
Prior year adjustments
Deferred tax expense
Origination and reversal of temporary differences
Impact of change in UK/US tax rates
Prior year adjustments
Income tax expense
2019
$m
38.8
(4.0)
34.8
2.3
(0.5)
(3.0)
(1.2)
33.6
2018
$m
32.3
(5.3)
27.0
(14.6)
0.7
(4.9)
(18.8)
8.2
Reconciliation of tax expense
The weighted average of statutory tax rates applied to the profits earned in each country in which the group operates is
15.0% (2018: 18.6%), whereas the tax charged for the year 31 December 2019 as a percentage of profit before tax is 12.6%
(2018: 10.7%). The reasons for the difference are explained below:
Profit before tax
Tax calculated at the weighted average of statutory tax rates
Effects of:
– non-deductible expenses
– non-taxable losses on foreign exchange
– tax relief on share based payments – current and future years
– over provided in prior years
– change in UK/US tax rates 1
Tax charge for the period
2019
$m
267.7
40.3
1.5
–
(0.7)
(7.0)
(0.5)
33.6
2019
%
–
15.0
0.6
–
(0.3)
(2.6)
(0.1)
12.6
2018
$m
76.4
14.2
3.0
0.3
0.2
(10.2)
0.7
8.2
2018
%
–
18.6
3.9
0.4
0.3
(13.4)
0.9
10.7
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1 The Finance Act 2016, which provides for reduction in the UK Corporation tax rate down to 17% effective from 1 April 2020, was substantively enacted on
6 September 2016. This 17% tax rate will reduce the company’s future current tax charge and has been reflected in the calculation of the deferred tax balance
as at 31 December 2019.
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Notes to the financial statements continued
9 Income tax expense continued
As noted on page 36, the group has assessed the potential impact of the diverted profits tax (DPT) following the enactment of
new legislation in April 2015 and is of the view that no liability arises. The ultimate outcome may differ and any profits that did fall
within the scope of the DPT would potentially be taxed at a rate of 25% rather than 12.5% (the current rate of tax on corporate
earnings in Ireland). The earnings that would potentially be taxed at 25% are the relevant earnings from 2015 to 2019. The
relevant earnings are determined in relation to 75% of the profits and losses in Beazley’s syndicates potentially starting with a
proportion of the profits on the 2013, 2014 and 2015 years of account and 75% of all profits and losses in Beazley’s syndicates
on years of account from 2016 onwards.
A new Tax Act (the Tax Cuts and Jobs Act) was signed into law in the US in December 2017. The Tax Act includes base erosion
anti-avoidance tax provisions (the “BEAT”). We have performed an assessment for our intra-group transactions potentially in
scope of BEAT. The application of this new BEAT legislation is still uncertain for some types of transaction and we are keeping
developments under review. With support from external advisors, we believe that the BEAT impact on the group is not significant.
For the year 2019 $1.9m was provided in the group accounts for BEAT liabilities (for 2018 the group paid BEAT tax of $0.9m).
The ultimate outcome may differ and if any additional amounts did fall within the scope of the BEAT, incremental tax at 10%
might arise on some or all of those amounts.
Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period and not recognised in net profits or loss or other comprehensive
income but directly debited or credited to equity:
Current tax: share based payments
Deferred tax: share based payments
2019
$m
(2.6)
(1.0)
(3.6)
2018
$m
(6.1)
(4.1)
(10.2)
In addition, the group recognised deferred tax amounts directly in retained earnings as a result of the changes in accounting policy
in relation to leases (see note 1).
10 Earnings per share
Basic (cents)
Diluted (cents)
Basic (pence)
Diluted (pence)
2019
44.6c
44.0c
35.0p
34.5p
2018
13.0c
12.8c
9.7p
9.5p
Basic
Basic earnings per share are calculated by dividing profit after tax of $234.1m (2018: $68.2m) by the weighted average number
of shares in issue during the year of 525.1m (2018: 523.2m). The shares held in the Employee Share Options Plan (ESOP) of 4.8m
(2018: 4.7m) have been excluded from the calculation, until such time as they vest unconditionally with the employees.
Diluted
Diluted earnings per share are calculated by dividing profit after tax of $234.1m (2018: $68.2m) by the adjusted weighted average
number of shares of 532.4m (2018: 533.1m). The adjusted weighted average number of shares assumes conversion of dilutive
potential ordinary shares, being shares from the SAYE, retention and deferred share schemes. The shares held in the ESOP of
4.8m (2018: 4.7m) have been excluded from the calculation, until such time as they vest unconditionally with the employees.
www.beazley.com
Beazley Annual report 2019
175
11 Dividends per share
A second interim dividend of 8.2p per ordinary share (2018: 7.8p) will be payable on 30 March 2020 to Beazley plc shareholders
registered at 5.00pm on 28 February 2020 in respect of the six months ended 31 December 2019. No special dividend was
declared in 2019 (2018: nil). The company expects the total amount to be paid in respect of the second interim dividend
to be approximately £42.8m. These financial statements do not provide for the second interim dividend as a liability.
Together with the interim dividend of 4.1p (2018: 3.9p) this gives a total dividend for the year of 12.3p (2018: 11.7p).
12 Intangible assets
Cost
Balance at 1 January 2018
Other additions
Foreign exchange loss
Balance at 31 December 2018
Balance at 1 January 2019
Other additions
Foreign exchange gain
Balance at 31 December 2019
Amortisation and impairment
Balance at 1 January 2018
Amortisation for the year
Foreign exchange gain
Balance at 31 December 2018
Balance at 1 January 2019
Amortisation for the year
Foreign exchange loss
Balance at 31 December 2019
Carrying amount
31 December 2019
31 December 2018
Goodwill
$m
Syndicate
capacity
$m
Licences
$m
IT
development
costs
$m
Renewal
rights
$m
10.7
–
–
10.7
10.7
–
–
10.7
–
–
–
–
–
–
–
–
9.3
–
–
9.3
9.3
–
–
9.3
–
–
–
–
–
–
–
–
71.1
7.2
(3.3)
75.0
75.0
12.3
0.5
87.8
(54.8)
(3.8)
2.9
(55.7)
(55.7)
(5.6)
(3.6)
(64.9)
61.0
–
(2.0)
59.0
59.0
–
1.0
60.0
(25.8)
(8.8)
0.8
(33.8)
(33.8)
(8.5)
(0.4)
(42.7)
72.0
–
–
72.0
72.0
–
–
72.0
(10.0)
–
–
(10.0)
(10.0)
–
–
(10.0)
62.0
62.0
Total
$m
224.1
7.2
(5.3)
226.0
226.0
12.3
1.5
239.8
(90.6)
(12.6)
3.7
(99.5)
(99.5)
(14.1)
(4.0)
(117.6)
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F
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a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
10.7
10.7
9.3
9.3
22.9
19.3
17.3
25.2
122.2
126.5
176
Beazley Annual report 2019
www.beazley.com
Notes to the financial statements continued
12 Intangible assets continued
Impairment tests
Goodwill, syndicate capacity and US insurance authorisation licences are deemed to have indefinite life as they are expected
to have value in use that does not erode or become obsolete over the course of time. Consequently, they are not amortised
but annually tested for impairment. For the purpose of impairment testing, they are allocated to the group’s cash-generating units
(CGUs) as follows:
2019
Goodwill
Capacity
Licences
Total
2018
Goodwill
Capacity
Licences
Total
Cyber &
executive risk
$m
1.5
1.7
3.3
6.5
Cyber &
executive risk1
$m
1.5
1.7
3.3
6.5
Political,
accident &
contingency
$m
29.6
1.0
–
30.6
Political,
accident &
contingency
$m
29.6
1.0
–
30.6
Marine
$m
2.3
1.6
–
3.9
Marine
$m
2.3
1.6
–
3.9
Property
$m
24.9
2.5
1.9
29.3
Property
$m
24.9
2.5
1.9
29.3
Reinsurance
$m
0.8
0.8
–
1.6
Reinsurance
$m
0.8
0.8
–
1.6
Specialty
lines
$m
2.9
3.1
4.1
10.1
Specialty
lines
$m
2.9
3.1
4.1
10.1
Total
$m
62.0
10.7
9.3
82.0
Total
$m
62.0
10.7
9.3
82.0
1 From 1 January 2019, the speciality lines division has been split into two. The prior year comparative has been re-presented to allow comparison.
Value in use is defined as the present value of the future cash flows expected to be derived from the CGU and represents
recoverable amount for goodwill. It is estimated by discounting future cash flows sourced from financial budgets approved by
management which cover specific estimates for a five year period. A terminal growth rate of 0% has been used to extrapolate
projections beyond the covered five year period. The key assumptions used in the preparation of future cash flows are: premium
growth rates, claims experience, retention rates and expected future market conditions.
A discount rate, based on weighted average cost of capital (WACC) of 7% (2018: 9%) has been applied to projected future cash
flows. This has been calculated using independent measures of the risk-free rate of return and is indicative of the group’s risk
profile relative to the market. The impairment test for goodwill confirms that no impairment is required.
Significant changes in the economic and regulatory environment, such as US legislation and Brexit, could impact the amount of
premium written and investment income for each CGU. This could potentially have an impact on the carrying value of the CGU,
however this remains remote.
To test the segment’s sensitivity to variances (including those caused by the factors listed above) from forecast profits, the
discount rate has been flexed to 5% above and 5% below the central assumption. Within this range, the recovery of goodwill was
stress tested and remains supportable across all CGUs. Headroom was calculated in respect of the value in use of all the group’s
other intangible assets.
The group’s intangible asset relating to syndicate capacity is allocated across all CGUs. The fair value of syndicate capacity can
be determined from the latest Lloyd’s of London capacity auctions. Based upon the latest market prices, management concludes
that the fair value exceeds the carrying amount and as such no impairment is necessary.
US insurance authorisation licences represent the privilege to write insurance business in particular states in the US. Licences
are allocated to the relevant CGU. There is no active market for licences, therefore value in use is deemed to be fair value.
As described above, a WACC rate is applied to projected future cash flows sourced from management approved budgets.
Key assumptions are the same as those outlined above. Based upon all available evidence the results of the testing indicate
that no impairment is required.
www.beazley.com
Beazley Annual report 2019
177
13 Plant and equipment
Cost
Balance at 1 January 2018
Additions
Write off
Foreign exchange loss
Balance at 31 December 2018
Balance at 1 January 2019
Additions
Foreign exchange gain
Balance at 31 December 2019
Accumulated depreciation
Balance at 1 January 2018
Depreciation charge for the year
Write off
Foreign exchange gain
Balance at 31 December 2018
Balance at 1 January 2019
Depreciation charge for the year
Foreign exchange loss
Balance at 31 December 2019
Carrying amounts
31 December 2019
31 December 2018
Company
Fixtures &
fittings
$m
Fixtures &
fittings
$m
Group
Computer
equipment
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22.9
2.1
(1.2)
(0.4)
23.4
23.4
4.0
0.3
27.7
(19.3)
(1.5)
1.2
0.3
(19.3)
(19.3)
(1.6)
(0.2)
(21.1)
6.6
4.1
7.6
0.5
(0.1)
(0.1)
7.9
7.9
2.3
0.1
10.3
(6.8)
(0.6)
0.1
0.2
(7.1)
(7.1)
(0.8)
(0.1)
(8.0)
2.3
0.8
Total
$m
30.5
2.6
(1.3)
(0.5)
31.3
31.3
6.3
0.4
38.0
(26.1)
(2.1)
1.3
0.5
(26.4)
(26.4)
(2.4)
(0.3)
(29.1)
8.9
4.9
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a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
178
Beazley Annual report 2019
www.beazley.com
Notes to the financial statements continued
14 Investment in associates
Associates are those entities over which the group has power to exert significant influence but which it does not control.
Significant influence is generally presumed if the group has between 20% and 50% of voting rights.
Group
As at 1 January
Impairment of Capson Corp., Inc.
Investment in Pegasus Underwriting Ltd
Share of profit after tax
As at 31 December
The group’s investment in associates consists of:
2019
Falcon Money Management Holdings Limited (and subsidiaries)
Capson Corp., Inc. (and subsidiary)
Pegasus Underwriting Limited
1 259 St Paul Street, Valletta, Malta.
2 221 West 6th Street, Suite 301, Austin TX 78701, USA.
3 Suite 126, 12/F Somptuex Central, 52-54 Wellington Street, Hong Kong.
2019
$m
–
–
0.1
–
0.1
2018
$m
7.0
(7.0)
–
–
–
Country/region of
incorporation
% interest
held
Carrying value
$m
Malta1
USA2
Hong Kong3
25%
31%
33%
–
–
0.1
0.1
In March 2018, the group took the decision to write down its investment in Capson Corp., Inc. to $2.8m. In December 2018 the
group took the further decision to fully write down its investment in Capson Corp., Inc. to nil. This was deemed to be an appropriate
value for Beazley’s share in Capson.
The aggregate financial information for all associates (100%) held at 31 December 2019 is as follows:
Assets
Liabilities
Equity
Revenue
Profit after tax
Share of other comprehensive income
Share of total comprehensive income
2019
$m
4.0
3.7
0.3
4.3
–
–
–
2018
$m
36.7
24.6
12.1
18.8
0.9
–
0.9
All of the investments in associates are unlisted and are equity accounted using available financial information as at 31 December
2019. Falcon Money Management Holdings Limited is an investment management company which also acts in an intermediary
capacity.
15 Deferred acquisition costs
Balance at 1 January
Additions
Amortisation charge
Balance at 31 December
2019
$m
307.4
688.7
(645.4)
350.7
2018
$m
281.4
587.9
(561.9)
307.4
www.beazley.com
Beazley Annual report 2019
179
16 Financial assets and liabilities
Financial assets at fair value
Fixed and floating rate debt securities:
– Government issued
– Quasi-government
– Corporate bonds
– Investment grade
– High yield
– Senior secured loans
Total fixed and floating rate debt securities
Equity funds
Hedge funds
Illiquid credit assets
Total capital growth assets
Total financial investments at fair value through statement of profit or loss
Derivative financial assets
Total financial assets at fair value
2019
$m
2018
$m
1,870.9
–
1,384.2
25.9
2,706.4
235.8
–
4,813.1
163.6
354.0
216.6
734.2
5,547.3
2,525.3
32.7
132.1
4,100.2
85.4
337.2
186.6
609.2
4,709.4
25.5
5,572.8
6.9
4,716.3
Quasi-government securities include securities which are issued by non-sovereign entities but which have an explicit sovereign
guarantee. Supranational securities are issued by institutions sponsored by more than one sovereign issuer. Investment corporate
bonds are rated BBB-/Baa3 or higher by at least one major rating agency, while high yield corporate bonds have lower credit
ratings. Senior secured loans are tradeable, floating rate debt obligations of corporate issuers, with credit ratings of BB+/Ba1 or
below. Hedge funds are investment vehicles pursuing alternative investment strategies, structured to have minimal correlation to
traditional asset classes. Equity funds are investment vehicles which invest in equity securities and provide diversified exposure
to global equity markets. Illiquid credit assets are investment vehicles that predominantly target private lending opportunities,
often with longer investment horizons. The fair value of these assets at 31 December 2019 excludes an unfunded commitment
of $74.3m (2018: $81.8m).
The amounts expected to mature within and after one year are:
Within one year
After one year
Total
2019
$m
1,037.3
3,801.3
4,838.6
2018
$m
1,121.0
2,986.1
4,107.1
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c
i
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l
s
t
a
t
e
m
e
n
t
s
Our capital growth assets have no defined maturity dates and have thus been excluded from the above maturity table. However,
all $163.6m (2018: $85.4m) of equity funds could be liquidated within two weeks, $272.8m (2018: $256.5m) of hedge fund
assets within six months and the remaining $81.2m (2018: $80.7m) of hedge fund assets within 18 months, in normal market
conditions. Illiquid credit assets are not readily realisable and principal will be returned over the life of these assets, which may
be up to 12 years.
As noted on page 151 consideration is also given when valuing the hedge funds to the timing of the latest valuations, and the
impact of any significant market stress events. The adjustment to the underlying net asset value of the funds as a result of these
considerations was $nil at 31 December 2019 (2018: $nil).
180
Beazley Annual report 2019
www.beazley.com
Notes to the financial statements continued
16 Financial assets and liabilities continued
Financial liabilities
Retail bond
Tier 2 subordinated debt (2026)
Tier 2 subordinated debt (2029)
Derivative financial liabilities
Total financial liabilities
The amounts expected to mature before and after one year are:
Within one year
After one year
A breakdown of the group’s investment portfolio is provided on page 36.
A breakdown of derivative financial instruments is disclosed in note 17.
2019
$m
–
248.9
297.9
8.0
554.8
8.0
546.8
554.8
2018
$m
95.6
248.7
–
12.4
356.7
108.0
248.7
356.7
The retail bond was issued in 2012 and redeemed in 2019. The tier 2 subordinated debt (2029) was issued in 2019. Tier 2
subordinated debt (2026) was issued in 2016. Please refer to note 25 for further details of our borrowings and associated
repayment terms.
The group has given a fixed and floating charge over certain of its investments and other assets to secure obligations to Lloyd’s
in respect of its corporate member subsidiary. Further details are provided in note 32.
Valuation hierarchy
The table below summarises financial assets carried at fair value using a valuation hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy has the following levels:
Level 1 – Valuations based on quoted prices in active markets for identical instruments. An active market is a market in which
transactions for the instrument occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect
prices at which an orderly transaction would take place between market participants at the measurement date. Included within
level 1 are bonds, treasury bills of government and government agencies, corporate bonds and equity funds which are measured
based on quoted prices in active markets.
Level 2 – Valuations based on quoted prices in markets that are not active, or based on pricing models for which significant
inputs can be corroborated by observable market data (e.g. interest rates, exchange rates). Included within level 2 are government
bonds and treasury bills, equity funds and corporate bonds, which are not actively traded, hedge funds and senior secured loans.
Level 3 – Valuations based on inputs that are unobservable or for which there is limited market activity against which to measure
fair value.
The availability of financial data can vary for different financial assets and is affected by a wide variety of factors, including the
type of financial instrument, whether it is new and not yet established in the marketplace, and other characteristics specific to
each transaction. To the extent that valuation is based on models or inputs that are unobservable in the market, the determination
of fair value requires more judgement. Accordingly the degree of judgement exercised by management in determining fair value is
greatest for instruments classified in level 3. The group uses prices and inputs that are current as of the measurement date for
valuation of these instruments.
If the inputs used to measure the fair value of an asset or a liability can be categorised in different levels of the fair value
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest
level input that is significant to the entire measurement.
The group has an established control framework and valuation policy with respect to the measurement of fair values.
www.beazley.com
Beazley Annual report 2019
181
16 Financial assets and liabilities continued
Level 2 investments
For the group’s level 2 debt securities our fund administrator obtains the prices used in the valuation from independent pricing
vendors such as Bloomberg, Standard and Poor’s, Reuters, Markit and International Data Corporation. The independent pricing
vendors derive an evaluated price from observable market inputs. The market inputs include trade data, two-sided markets,
institutional bids, comparable trades, dealer quotes, and other relevant market data. These inputs are verified in their pricing
engines and calibrated with the pricing models to calculate spread to benchmarks, as well as other pricing assumptions such
as weighted average life (WAL), discount margins (DM), default rates, and recovery and prepayment assumptions for mortgage
securities. While such valuations are sensitive to estimates, it is believed that changing one or more of the assumptions to
reasonably possible alternative assumptions would not change the fair value significantly.
The group records the unadjusted price provided and validates the price through various tolerance checks such as comparison
with the investment custodians and the investment managers to assess the reasonableness and accuracy of the price to be
used to value the security. In the rare case that the price fails the tolerance test, it is escalated and discussed internally. We
would not override the price on a retrospective basis, but we would work with the administrator and pricing vendor to investigate
the difference. This generally results in the vendor updating their inputs. We also review the valuation policy on a regular basis to
ensure it is fit for purpose. No adjustments have been made to the prices obtained from the administrator at the current year end.
For our hedge funds and equity funds, the pricing and valuation of each fund is undertaken by administrators in accordance
with each underlying fund’s valuation policy. For the equity funds, the individual fund prices are published on a daily, weekly or
monthly basis via Bloomberg and other market data providers such as Reuters. For the hedge funds, the individual fund prices
are communicated by the administrators to all investors via the monthly investor statements. The fair value of the hedge fund
and equity fund portfolios are calculated by reference to the underlying net asset values of each of the individual funds.
Additional information is obtained from fund managers relating to the underlying assets within individual hedge funds.
We identified that 83% (2018: 83%) of these underlying assets were level 1 and the remainder level 2. This enables us to
categorise hedge funds as level 2.
Prior to any new hedge fund investment, extensive due diligence is undertaken on each fund to ensure that pricing and valuation
are undertaken by the administrators and that each fund’s valuation policy is appropriate for the financial instruments the
manager will be employing to execute the investment strategy. Fund liquidity terms are reviewed prior to the execution of any
investment to ensure that there is no mismatch between the liquidity of the underlying fund assets and the liquidity terms offered
to fund investors. As part of the monitoring process, underlying fund subscriptions and redemptions are assessed by reconciling
the increase or decrease in fund assets with the investment performance in any given period.
Level 3 investments
During 2019, the group’s investment committee approved additional allocations to an illiquid asset portfolio comprising
investments in funds managed by third party managers (generally closed end limited partnerships or open ended funds). While
the funds provide full transparency on their underlying investments, the investments themselves are in many cases private and
unquoted, and are therefore classified as level 3 investments.
These inputs can be subjective and may include a discount rate applied to the investment based on market factors and
expectations of future cash flows, the nature of the investment, local market conditions, trading values on public exchanges for
comparable securities, current and projected operating performance relative to benchmarks, financial condition, and financing
transactions subsequent to the acquisition of the investment.
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
We take the following steps to ensure accurate valuation of these level 3 assets. A substantial part of the preinvestment due
diligence process is dedicated to a comprehensive review of each fund’s valuation policy and the internal controls of the manager.
In addition to this, confirmation that the investment reaches a minimum set of standards relating to the independence of service
providers, corporate governance, and transparency is sought prior to approval. Post investment, unaudited capital statements
confirming the fair value of the limited partner interests are received and reviewed on a quarterly (or more frequent) basis.
Audited financial statements are received on an annual basis, with the valuation of each transaction being confirmed.
182
Beazley Annual report 2019
www.beazley.com
Notes to the financial statements continued
16 Financial assets and liabilities continued
The following table shows the fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy.
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
2019
Financial assets measured at fair value
Fixed and floating rate debt securities
– Government issued
– Corporate bonds
– Investment grade
– High yield
Equity funds
Hedge funds
Illiquid credit assets
Derivative financial assets
Total financial assets measured at fair value
Financial liabilities measured at fair value
Derivative financial liabilities
Financial liabilities not measured at fair value
Tier 2 subordinated debt (2029)
Tier 2 subordinated debt (2026)
Total financial liabilities not measured at fair value
2018
Financial assets measured at fair value
Fixed and floating rate debt securities
– Government issued
– Quasi-government
– Corporate bonds
– Investment grade
– High yield
– Senior secured loans
Equity funds
Hedge funds
Illiquid credit assets
Derivative financial assets
Total financial assets measured at fair value
Financial liabilities measured at fair value
Derivative financial liabilities
Financial liabilities not measured at fair value
Retail bond
Tier 2 subordinated debt (2026)
Total financial liabilities not measured at fair value
1,839.1
31.8
1,244.1
–
–
–
–
25.5
3,108.7
1,462.3
235.8
163.6
354.0
–
–
2,247.5
8.0
–
–
–
–
Level 1
$m
1,384.2
25.9
–
–
–
–
–
–
6.9
1,417.0
318.6
276.8
595.4
Level 2
$m
2,525.3
32.7
132.1
85.4
337.2
–
–
3,112.7
12.4
–
–
–
–
98.2
249.4
347.6
–
–
–
–
–
216.6
–
216.6
–
–
–
–
Level 3
$m
1,870.9
2,706.4
235.8
163.6
354.0
216.6
25.5
5,572.8
8.0
318.6
276.8
595.4
Total
$m
–
–
–
–
–
186.6
–
186.6
–
–
–
–
2,525.3
32.7
132.1
85.4
337.2
186.6
6.9
4,716.3
12.4
98.2
249.4
347.6
–
–
–
–
1,384.2
25.9
www.beazley.com
Beazley Annual report 2019
183
16 Financial assets and liabilities continued
The table above does not include financial assets and liabilities that are, in accordance with the group’s accounting policies,
recorded at amortised cost, if the carrying amount of these financial assets and liabilities approximates their fair values at the
reporting date. Cash and cash equivalents have not been included in the table above; however, the full amount of cash and cash
equivalents would be classified under level 2 in both the current and prior year.
Transfers
The group determines whether transfers have occurred between levels in the fair value hierarchy by assessing categorisation at
the end of the reporting period.
For the period ended 31 December 2019, enhanced understanding of vendor pricing methodologies and the purchase of a new
valuation tool have provided better quality data used in determining the fair value hierarchy classification, which has resulted in
the following transfers between levels 1 & 2 for the period ended 31 December 2019:
31 December 2018 vs 31 December 2019 transfer from level 1 to level 2
Fixed and floating rate debt securities
– Government issued
– Investment grade
31 December 2018 vs 31 December 2019 transfer from level 2 to level 1
Fixed and floating rate debt securities
– Investment grade
There were no transfers in either direction between Level 1, 2 and 3 in 2018.
Level 1
$m
Level 2
$m
(8.1)
(4.8)
8.1
4.8
Level 1
$m
Level 2
$m
866.5
(866.5)
Level 3 investment reconciliations
The table below shows a reconciliation from the opening balances to the closing balances of level 3 fair values.
As at 1 January
Purchases
Sales
Total net gains recognised in profit or loss
As at 31 December
2019
$m
186.6
68.9
(48.0)
9.1
216.6
2018
$m
180.4
46.3
(52.4)
12.3
186.6
Total unrealised gain on level 3 investments included into net gains above was $9.1m (2018: loss of $0.7m).
Unconsolidated structured entities
A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor in
deciding who controls the entity, such as when any voting rights relate to administrative tasks only, or when the relevant activities
are directed by means of contractual arrangements.
As part of its standard investment activities the group holds fixed interest investments in high yield bond funds, as well as capital
growth investments in equity funds, hedge funds and illiquid credit assets which in accordance with IFRS 12 are classified
as unconsolidated structured entities. The group does not sponsor any of the unconsolidated structured entities. The assets
classified as unconsolidated structured entities are held at fair value on the statement of financial position.
As at 31 December the investments comprising the group’s unconsolidated structured entities are as follows:
High yield bond funds
Equity funds
Hedge funds
Illiquid credit assets
Investments through unconsolidated structured entities
2019
$m
235.8
163.6
354.0
216.6
970.0
2018
$m
32.7
85.4
337.2
186.6
641.9
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Notes to the financial statements continued
16 Financial assets and liabilities continued
Apart from a relatively small exposure to high yield bond funds, our unconsolidated structured entity exposures fall within our
capital growth assets. The capital growth assets are held in investee funds managed by asset managers who apply various
investment strategies to accomplish their respective investment objectives. The group’s investments in investee funds are
subject to the terms and conditions of the respective investee fund’s offering documentation and are susceptible to market price
risk arising from uncertainties about future values of those investee funds. Investment decisions are made after extensive due
diligence on the underlying fund, its strategy and the overall quality of the underlying fund’s manager and assets.
All the investee funds in the investment portfolio are managed by portfolio managers who are compensated by the respective
investee funds for their services. Such compensation generally consists of an asset-based fee and a performance-based incentive
fee and is reflected in the valuation of the fund’s investment in each of the investee funds. The right to sell or request redemption
of investments in high yield bond funds, asset backed securities, equity funds and hedge funds ranges in frequency from daily
to semi-annually. The group did not sponsor any of the respective structured entities.
These investments are included in financial assets at fair value through profit or loss in the statement of financial position.
The group’s maximum exposure to loss from its interests in investee funds is equal to the total fair value of its investments
in investee funds and unfunded commitments. Once the group has disposed of its shares in an investee fund, it ceases to
be exposed to any risk from that investee fund.
As described in note 2 to the financial statements, the group monitors and manages its currency exposures to net assets and
financial assets held at fair value.
Currency exposures
The currency exposures of our financial assets held at fair value are detailed below:
2019
Financial assets at fair value
Fixed and floating rate debt securities
Equity funds
Hedge funds
Illiquid credit assets
Derivative financial assets
Total
2018
Financial assets at fair value
Fixed and floating rate debt securities
Equity funds
Hedge funds
Illiquid credit assets
Derivative financial assets
Total
UK £
$m
21.7
–
–
4.8
–
26.5
UK £
$m
6.6
–
–
–
–
6.6
CAD $
$m
198.8
–
–
–
–
198.8
CAD $
$m
184.5
–
–
–
–
184.5
EUR €
$m
–
28.1
–
25.9
–
54.0
EUR €
$m
–
22.2
–
16.2
–
38.4
Subtotal
$m
220.5
28.1
–
30.7
–
279.3
Subtotal
$m
191.1
22.2
–
16.2
–
229.5
US $
$m
Total
$m
4,592.6
135.5
354.0
185.9
25.5
5,293.5
4,813.1
163.6
354.0
216.6
25.5
5,572.8
US $
$m
Total
$m
3,909.1
63.2
337.2
170.4
6.9
4,486.8
4,100.2
85.4
337.2
186.6
6.9
4,716.3
The above qualitative and quantitative disclosure along with the risk management discussions in note 2 enable more
comprehensive evaluation of Beazley’s exposure to risks arising from financial instruments.
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17 Derivative financial instruments
In 2019 and 2018 the group entered into over-the-counter and exchange traded derivative contracts. The group had the right and
the intention to settle each contract on a net basis.
The assets and liabilities of these contracts at 31 December are detailed below:
Derivative financial instrument assets
Foreign exchange forward contracts
Bond futures contract
Derivative financial instrument liabilities
Foreign exchange forward contracts
Bond futures contract
2019
2018
Gross contract
amount
$m
427.3
222.8
650.1
Market value
of derivative
position
$m
25.3
0.2
25.5
Gross contract
amount
$m
365.1
–
365.1
Market value
of derivative
position
$m
6.9
–
6.9
2019
2018
Gross contract
amount
$m
323.2
–
323.2
Market value
of derivative
position
$m
8.0
–
8.0
Gross contract
amount
$m
205.6
189.2
394.8
Market value
of derivative
position
$m
9.6
2.8
12.4
Foreign exchange forward contracts
The group entered into over-the-counter foreign exchange forward agreements in order to economically hedge the foreign currency
exposure resulting from transactions and balances held in currencies that are different to the functional currency of the group.
Bond futures positions
The group entered in bond futures transactions for the purpose of efficiently managing the term structure of its interest rate
exposures. A negative gross contract amount represents a notional short position that generates positive fair value as interest
rates rise.
18 Insurance receivables
Insurance receivables
2019
$m
1,048.0
1,048.0
2018
$m
943.3
943.3
These are receivables due within one year and relate to business transacted with brokers and intermediaries. All insurance
receivables are classified as loans and receivables and their carrying values approximate fair value at the reporting date.
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Notes to the financial statements continued
19 Reinsurance assets
Reinsurers’ share of claims
Impairment provision
Reinsurers’ share of unearned premium reserve
Further analysis of the reinsurance assets is provided in note 24.
20 Cash and cash equivalents
Group
Cash at bank and in hand
Short term deposits and highly liquid investments
2019
$m
1,082.5
(13.7)
1,068.8
269.4
1,338.2
2018
$m
963.9
(12.2)
951.7
241.1
1,192.8
2019
$m
276.9
1.6
278.5
2018
$m
291.3
45.0
336.3
Total cash and cash equivalents include $9.8m (2018: $10.4m) held in Lloyd’s Singapore trust accounts. These funds are only
available for use by the group to meet local claim and expense obligations.
Company
Cash at bank and in hand
21 Share capital
Ordinary shares of 5p each
Issued and fully paid
Balance at 1 January
Issue of shares
Balance at 31 December
2019
$m
–
–
2019
No. of
shares (m)
2018
$m
No. of
shares (m)
529.7
38.1
527.8
527.8
1.9
529.7
38.0
0.1
38.1
525.8
2.0
527.8
2018
$m
2.4
2.4
$m
38.0
37.8
0.2
38.0
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22 Other reserves
Group
Balance at 1 January 2018
Share based payments
Acquisition of own shares held in trust
Tax on share option vestings
Transfer of shares to employees
Balance at 31 December 2018
Share based payments
Acquisition of own shares held in trust
Tax on share option vestings
Transfer of shares to employees
Balance at 31 December 2019
Company
Balance at 1 January 2018
Share based payments
Acquisition of own shares held in trust
Transfer of shares to employees
Balance at 31 December 2018
Share based payments
Acquisition of own shares held in trust
Transfer of shares to employees
Balance at 31 December 2019
Employee
share options
reserve
$m
Employee
share trust
reserve
$m
49.4
18.7
–
4.1
(25.5)
46.7
4.7
–
1.0
(16.8)
35.6
(17.4)
–
(44.9)
–
32.1
(30.2)
–
(13.8)
–
12.0
(32.0)
Employee
share options
reserve
$m
Employee
share trust
reserve
$m
19.9
18.7
–
(25.5)
13.1
4.7
–
(16.8)
1.0
4.3
–
(44.9)
32.1
(8.5)
–
(13.8)
12.0
(10.3)
Total
$m
32.0
18.7
(44.9)
4.1
6.6
16.5
4.7
(13.8)
1.0
(4.8)
3.6
Total
$m
24.2
18.7
(44.9)
6.6
4.6
4.7
(13.8)
(4.8)
(9.3)
The merger reserve is shown within the statement of changes in equity as a separate category and as such has been excluded
from the other reserves note.
The employee share options reserve is held in accordance with IFRS 2: Share-based payment. For more information refer to
note 23.2.
More information on the employee share trust reserve is included in note 23.
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Notes to the financial statements continued
23 Equity compensation plans
23.1 Employee share trust
Movements in employee share trust reserve
Balance at 1 January
Additions
Transfer of shares to employees
Balance at 31 December
2019
2018
Number (m)
$m
Number (m)
$m
4.7
2.0
(1.9)
4.8
30.2
13.8
(12.0)
32.0
3.8
6.0
(5.1)
4.7
17.4
44.9
(32.1)
30.2
The shares are owned by the employee share trust to satisfy awards under the group’s deferred share plan, retention plan, one-off
share incentive plan and long term incentive plan (LTIP). These shares are purchased on the market and carried at cost.
On the third anniversary of an award the shares under the deferred share plan are transferred from the trust to the employee.
Under the retention plan, on the third anniversary, and each year after that up to the sixth anniversary, 25.0% of the shares
awarded are transferred to the employee.
The deferred share plan is recognised in the statement of profit or loss on a straight-line basis over a period of three years, while
the retention share plan is recognised in the statement of profit or loss on a straight-line basis over a period of six years.
23.2 Employee share option plans
The group has a long term incentive plan (LTIP), one-off share incentive plan, deferred share plan, retention plan and save-as-you-
earn (SAYE) plan that entitle employees to purchase shares in the group.
The terms and conditions of the grants are as follows:
No. of options
Share option plan
One-off share incentive plan
LTIP
LTIP
SAYE (UK)
SAYE (US)
SAYE (Others)
Total share options outstanding
Grant date
10/02/2015
12/02/2019
13/02/2018
17/02/2017
09/02/2016
10/02/2015
12/02/2019
13/02/2018
17/02/2017
01/04/2019
04/04/2018
17/02/2017
03/06/2019
01/06/2018
13/04/2017
(m)
0.2
1.6
1.3
1.6
1.8
1.8
1.5
1.3
1.7
0.4
0.5
0.6
0.1
0.1
0.1
14.6
Vesting conditions
Five years’ service + ROE
Five years’ service + NAV +
minimum shareholding requirement
Contractual life
of options
10 years
10 years
Three years’ service + NAV +
minimum shareholding requirement
10 years
Three years’ service
N/A
Two years’ service
Three years’ service
N/A
N/A
Vesting conditions
In summary the vesting conditions are defined as:
• two years’ service – an employee has to remain in employment until the second anniversary from the grant date;
• three years’ service – an employee has to remain in employment until the third anniversary from the grant date;
• ROE – return on equity, based on the average marine divisional pre-tax return on equity (ROE) over the performance period; and
• NAV – the NAV growth, after adjusting for the effect of dividends, is greater than the risk-free rate of return plus a premium
per year.
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23 Equity compensation plans continued
Further details of equity compensation plans can be found in the directors’ remuneration report on pages 96 to 124. The total
gain on directors’ exercises of share-option plans during the period was £2.7m (2018: £6.3m).
The number and weighted average exercise prices of share options are as follows:
Outstanding at 1 January
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at 31 December
Exercisable at 31 December
2019
2018
Weighted
average exercise
price (pence
per share)
44.7
18.9
90.5
68.0
50.7
–
No. of
options
(m)
16.5
(3.7)
(2.1)
3.9
14.6
–
Weighted
average exercise
price (pence
per share)
34.6
122.0
28.5
80.0
44.7
–
No. of
options
(m)
18.0
(0.5)
(5.0)
4.0
16.5
–
The share option programmes allow group employees to acquire shares of the company. The fair value of options granted is
recognised as an employee expense with a corresponding increase in the employee share options reserve. The fair value of the
options granted is measured at grant date and spread over the period in which the employees become unconditionally entitled to
the options. The fair value of the options granted is measured using the Black Scholes model, taking into account the terms and
conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of
share options that vest.
The following is a summary of the assumptions used to calculate the fair value:
Share options charge to employee share options reserve
Weighted average share price (pence per option)
Weighted average exercise price (pence per option)
Average expected life of options
Expected volatility
Expected dividend yield
Average risk-free interest rate
The expected volatility is based on historic volatility over a period of at least two years.
24 Insurance liabilities and reinsurance assets
Gross
Claims reported and loss adjustment expenses
Claims incurred but not reported
Gross claims liabilities
Unearned premiums
Total insurance liabilities, gross
Recoverable from reinsurers
Claims reported and loss adjustment expenses
Claims incurred but not reported
Reinsurers’ share of claims liabilities
Unearned premiums
Total reinsurers’ share of insurance liabilities
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$m
4.9
445.0
50.7
4.4 yrs
22.8%
1.2%
0.8%
2018
$m
17.7
404.0
44.7
4.4 yrs
23.5%
1.3%
0.9%
2019
$m
2018
$m
1,263.7
3,196.6
4,460.3
1,598.7
6,059.0
223.7
845.1
1,068.8
269.4
1,338.2
1,171.2
2,869.5
4,040.7
1,415.5
5,456.2
231.9
719.8
951.7
241.1
1,192.8
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Notes to the financial statements continued
24 Insurance liabilities and reinsurance assets continued
Net
Claims reported and loss adjustment expenses
Claims incurred but not reported
Net claims liabilities
Unearned premiums
Total insurance liabilities, net
2019
$m
2018
$m
1,040.0
2,351.5
3,391.5
1,329.3
4,720.8
939.3
2,149.7
3,089.0
1,174.4
4,263.4
The gross claims reported, the loss adjustment liabilities and the liabilities for claims incurred but not reported are net of
recoveries from salvage and subrogation.
24.1 Movements in insurance liabilities and reinsurance assets
a) Claims and loss adjustment expenses
Claims reported and loss adjustment expenses
Claims incurred but not reported
Balance at 1 January
Gross
$m
1,171.2
2,869.5
4,040.7
2019
Reinsurance
$m
(231.9)
(719.8)
(951.7)
Net
$m
939.3
2,149.7
3,089.0
Gross
$m
1,056.3
2,852.3
3,908.6
2018
Reinsurance
$m
(219.4)
(773.8)
(993.2)
Net
$m
836.9
2,078.5
2,915.4
Claims paid
(1,439.5)
280.1
(1,159.4)
(1,301.1)
261.5
(1,039.6)
Increase in claims
– Arising from current year claims
– Arising from prior year claims
Net exchange differences
Balance at 31 December
Claims reported and loss adjustment expenses
Claims incurred but not reported
Balance at 31 December
b) Unearned premiums reserve
Balance at 1 January
Increase in the year
Release in the year
Balance at 31 December
1,860.6
(18.2)
16.7
4,460.3
1,263.7
3,196.6
4,460.3
(398.6)
8.7
(7.3)
(1,068.8)
(223.7)
(845.1)
(1,068.8)
1,462.0
(9.5)
9.4
3,391.5
1,040.0
2,351.5
3,391.5
1,844.7
(380.8)
(30.7)
4,040.7
1,171.2
2,869.5
4,040.7
(501.9)
265.8
16.1
(951.7)
(231.9)
(719.8)
(951.7)
Gross
$m
1,415.5
3,003.9
(2,820.7)
1,598.7
2019
Reinsurance
$m
(241.1)
(508.0)
479.7
(269.4)
Net
$m
1,174.4
2,495.9
(2,341.0)
1,329.3
Gross
$m
1,259.2
2,615.3
(2,459.0)
1,415.5
2018
Reinsurance
$m
(237.9)
(375.6)
372.4
(241.1)
1,342.8
(115.0)
(14.6)
3,089.0
939.3
2,149.7
3,089.0
Net
$m
1,021.3
2,239.7
(2,086.6)
1,174.4
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24 Insurance liabilities and reinsurance assets continued
24.2 Assumptions, changes in assumptions and claims reserve strength analysis
a) Process used to decide on assumptions
The peer review reserving process
Beazley uses a quarterly dual track process to set its reserves:
• the actuarial team uses several actuarial and statistical methods to estimate the ultimate premium and claims costs,
with the most appropriate methods selected depending on the nature of each class of business; and
• the underwriting teams concurrently review the development of the incurred loss ratio over time, work with our claims
managers to set reserve estimates for identified claims and utilise their detailed understanding of both risks underwritten
and the nature of the claims to establish an alternative estimate of ultimate claims cost, which is compared to the actuarially
established figures.
A formal internal peer review process is then undertaken to determine the reserves held for accounting purposes which, in totality,
are not lower than the actuarially established figure.
The group has a consistent reserving philosophy, with initial reserves being set to include risk margins which may be released
over time as uncertainty reduces.
Actuarial assumptions
Chain-ladder techniques are applied to premiums, paid claims and incurred claims (i.e. paid claims plus case estimates). The
basic technique involves the analysis of historical claims development factors and the selection of estimated development factors
based on historical patterns. The selected development factors are then applied to cumulative claims data for each underwriting
year that is not yet fully developed to produce an estimated ultimate claims cost for each underwriting year.
Chain-ladder techniques are most appropriate for classes of business that have a relatively stable development pattern.
Chain-ladder techniques are less suitable in cases in which the insurer does not have a developed claims history for a particular
class of business, or for underwriting years that are still at immature stages of development where there is a higher level of
assumption volatility.
The Bornhuetter-Ferguson method uses a combination of a benchmark/market-based estimate and an estimate based on claims
experience. The former is based on a measure of exposure such as premiums; the latter is based on the paid or incurred claims
observed to date. The two estimates are combined using a formula that gives more weight to the experience-based estimate as
time passes. This technique has been used in situations where developed claims experience was not available for the projection
(e.g. recent underwriting years or new classes of business).
The expected loss ratio method uses a benchmark/market-based estimate applied to the expected premium and is used for
classes with little or no relevant historical data.
The choice of selected results for each underwriting year of each class of business depends on an assessment of the technique
that has been most appropriate to observed historical developments. In certain instances, this has meant that different
techniques or combinations of techniques have been selected for individual underwriting years or groups of underwriting years
within the same class of business. As such, there are many assumptions used to estimate general insurance liabilities.
We also review triangulations of the paid/outstanding claim ratios as a way of monitoring any changes in the strength of the
outstanding claim estimates between underwriting years so that adjustments can be made to mitigate any subsequent over/(under)
reserving. To date, this analysis indicates no systematic change to the outstanding claim strength across underwriting years.
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Where significant large losses impact an underwriting year (e.g. the events of 11 September 2001, the hurricanes in 2004,
2005, 2008, 2012, 2017, 2018 and 2019, the typhoons in 2018 and 2019, or the earthquakes in 2010, 2011 and 2017), the
development is usually very different from the attritional losses. In these situations, the large loss total is extracted from the
remainder of the data and analysed separately by the respective claims managers using exposure analysis of the policies in force
in the areas affected.
Further assumptions are required to convert gross of reinsurance estimates of ultimate claims cost to a net of reinsurance
level and to establish reserves for unallocated claims handling expenses and reinsurance bad debt.
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Notes to the financial statements continued
24 Insurance liabilities and reinsurance assets continued
b) Major assumptions
The main assumption underlying these techniques is that the group’s past claims development experience (with appropriate
adjustments for known changes) can be used to project future claims development and hence ultimate claims costs. As such
these methods extrapolate the development of premiums, paid and incurred losses, average costs per claim and claim numbers
for each underwriting year based on the observed development of earlier years.
Throughout, judgement is used to assess the extent to which past trends may or may not apply in the future; for example, to reflect
changes in external or market factors such as economic conditions, public attitudes to claiming, levels of claims inflation, premium
rate changes, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy conditions and claims
handling procedures.
c) Changes in assumptions
As already discussed, general insurance business requires many different assumptions. The diagram below illustrates the main
categories of assumptions used for each underwriting year and class combination.
– Marine
– Political, accident & contingency
– Property
– Reinsurance
– Specialty lines
– Cyber & executive risk
Classes
Underwriting years
s
n
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p
m
u
s
s
A
– Premium rate change
– Claims inflation
– Mix of business
– Reporting patterns
– Settlement patterns
– Judicial decisions
– Professional judgement
1993 1994 ... 2018 2019
Given the range of assumptions used, the group’s profit or loss is relatively insensitive to changes to a particular assumption used
for an underwriting year/class combination. However, the group’s profit or loss is potentially more sensitive to a systematic change
in assumptions that affect many classes, such as judicial changes or when catastrophes produce more claims than expected.
The group uses a range of risk mitigation strategies to reduce such volatility including the purchase of reinsurance. In addition,
the group holds capital to absorb volatility.
d) Claims reserve strength analysis
The estimation of IBNR reserves for future claim notifications is subject to a greater degree of uncertainty than the estimation
of the outstanding claims already notified. This is particularly true for the specialty lines and executive risk business, which will
typically display greater variations between initial estimates and final outcomes as a result of the greater degree of difficulty in
estimating these reserves. The estimation of IBNR reserves for other business written is generally subject to less variability as
claims are generally reported and settled relatively quickly.
As such, our reserving assumptions contain a reasonable margin for prudence given the uncertainties inherent in the insurance
business underwritten, particularly on the longer tailed specialty lines and executive risk classes.
Since year end 2004, we have identified a range of possible outcomes for each class and underwriting year combination
directly from our internal model (previously our individual capital assessment (ICA)) process. Comparing these with our pricing
assumptions and reserving estimates gives our management team increased insight into our perceived reserving strength and
the relative uncertainties of the business written.
To illustrate the robustness of our reserves, the loss development tables below provide information about historical claims
development by the six segments – marine, political, accident & contingency, property, reinsurance, specialty lines and cyber
& executive risk. The tables are by underwriting year which in our view provides the most transparent reserving basis. We have
supplied tables for both ultimate gross claims and ultimate net claims.
The top part of the table illustrates how the group’s estimate of the claims ratio for each underwriting year has changed at
successive year ends. The bottom half of the table reconciles the gross and net claims to the amount appearing in the statement
of financial position.
While the information in the table provides a historical perspective on the adequacy of the claims liabilities established in previous
years, users of these financial statements are cautioned against extrapolating past redundancies or deficiencies on current claims
liabilities. The group believes that the estimate of total claims liabilities as at 31 December 2019 is adequate. However, due to
inherent uncertainties in the reserving process, it cannot be assured that such balances will ultimately prove to be adequate.
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193
24 Insurance liabilities and reinsurance assets continued
2009 ae
%
2012
%
2011
%
2010
%
Gross ultimate claims
Cyber & executive risk
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Marine
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Political, accident
& contingency
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Property
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
2019
%
62.2
2018
%
61.3
62.3
2017
%
59.7
61.5
56.9
2016
%
62.4
62.3
58.9
58.6
60.0
61.9
68.1
68.1
62.5
61.7
59.5
70.3
65.4
64.0
59.2
55.1
57.3
58.0
49.4
46.1
61.3
54.4
49.4
47.9
53.1
63.4
63.2
72.5
88.6
91.2
59.0
68.4
71.3
71.8
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
2015
%
64.9
64.9
59.6
55.0
56.8
56.7
54.0
47.4
45.5
43.3
59.9
58.9
57.2
57.9
53.9
54.9
49.0
45.9
44.9
43.7
2014
%
66.6
66.9
63.7
64.9
69.5
68.2
57.5
46.8
47.1
46.7
55.6
52.7
59.3
51.3
47.1
50.1
51.4
52.5
53.2
47.7
41.4
40.7
39.7
40.2
2013
%
71.4
71.7
71.4
69.1
66.8
63.3
63.4
56.4
52.0
44.3
42.6
42.0
41.3
40.1
59.2
49.5
45.0
44.0
46.1
45.7
45.5
55.2
49.2
45.8
45.8
45.6
47.3
46.7
72.0
72.2
69.4
64.1
62.0
59.7
59.0
58.0
55.9
46.3
34.8
32.2
31.5
30.7
30.0
29.8
60.0
54.5
51.4
49.0
46.0
45.3
44.3
44.3
55.5
47.5
39.8
36.7
36.2
35.6
35.5
36.8
75.3
74.6
79.6
77.6
78.6
71.0
74.4
76.8
78.9
54.7
47.4
39.0
33.7
35.4
31.7
30.9
29.4
29.4
57.5
44.6
44.4
39.7
37.9
35.8
35.3
35.4
35.4
58.3
50.5
48.0
46.2
45.3
44.1
43.6
43.3
43.2
73.6
72.3
72.1
72.4
65.5
62.2
61.0
57.1
54.7
54.7
50.5
49.8
44.1
42.4
40.4
40.2
42.3
40.8
41.2
40.9
57.8
44.9
39.1
32.7
31.7
30.5
29.5
29.7
27.7
26.7
57.9
60.5
58.5
55.8
53.1
52.1
51.2
51.0
51.0
51.0
194
Beazley Annual report 2019
www.beazley.com
Notes to the financial statements continued
24 Insurance liabilities and reinsurance assets continued
2010
%
2009 ae
%
2012
%
2013
%
2011
%
79.2
77.7
70.0
66.3
63.5
63.3
58.5
58.5
59.0
75.5
76.1
74.6
74.3
71.5
68.5
64.6
62.6
60.8
67.2
62.8
60.5
57.9
57.0
53.9
52.6
52.3
51.9
994.9
(906.2)
73.8
74.2
73.3
73.8
71.6
73.5
73.7
71.0
68.0
66.7
68.0
142.6
129.6
122.2
125.8
124.5
124.6
123.6
121.3
121.5
Gross ultimate claims
Reinsurance
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Specialty lines
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Total
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Estimated total
ultimate
losses ($m)
7,464.7 1,221.1
Less paid claims ($m) (7,243.0) (1,169.6)
Less unearned
portion of ultimate
losses ($m)
Gross claims
liabilities
(100% level) ($m)
Less non-group
share ($m)
Gross claims
liabilities, group
share ($m)
64.5
71.6
67.6
65.6
63.3
62.9
62.8
61.1
60.1
59.1
221.7
179.9
(41.8)
(10.0)
51.5
41.5
–
–
2017
%
2018
%
2019
%
101.4
96.1
124.8
124.1
117.1
130.0
2016
%
67.5
41.6
40.5
41.3
68.5
68.9
67.1
65.9
65.9
66.0
67.9
67.8
65.0
63.3
65.0
66.8
69.6
70.5
71.5
71.5
63.4
62.9
60.7
60.0
2015
%
65.7
33.6
25.7
25.5
25.3
69.6
70.1
68.9
68.1
70.0
62.7
58.4
54.5
52.5
52.8
2014
%
61.4
33.4
30.8
27.7
27.5
27.0
70.0
69.7
66.1
62.1
58.5
56.1
62.2
55.8
52.5
51.5
52.7
51.8
58.3
44.6
42.1
40.8
37.9
37.6
36.8
74.8
74.3
74.1
69.5
64.3
62.2
61.5
63.7
59.2
56.3
54.3
52.4
51.5
50.8
62.9
37.4
32.0
31.1
31.2
30.9
31.0
30.6
75.2
75.2
73.9
74.2
70.7
69.6
69.0
71.5
64.6
58.2
53.2
51.0
49.1
48.1
47.3
48.2
959.9 1,096.9 1,203.6 1,268.8 1,553.9 2,000.9 1,992.3 2,000.5 21,757.5
(15,657.7)
(981.7)
(860.2)
(941.6) (1,040.6)
(929.5)
(919.8)
(526.1)
(139.4)
–
–
–
–
–
–
–
(31.4)
(786.3)
(817.7)
88.7
99.7
155.3
163.0
349.0
572.2 1,071.4 1,434.8 1,074.8
5,282.1
(16.0)
(18.3)
(26.2)
(26.4)
(58.2)
(84.2)
(161.7)
(217.8)
(161.2)
(821.8)
72.7
81.4
129.1
136.6
290.8
488.0
909.7 1,217.0
913.6
4,460.3
www.beazley.com
Beazley Annual report 2019
195
24 Insurance liabilities and reinsurance assets continued
2009ae
%
2012
%
2011
%
2010
%
Net ultimate claims
Cyber & executive risk
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Marine
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Political, accident
& contingency
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Property
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
2019
%
60.3
2018
%
58.6
60.5
2017
%
58.2
59.2
55.6
2016
%
59.9
59.8
56.5
56.7
56.6
59.4
67.7
57.6
61.5
61.9
56.7
62.5
61.6
62.1
56.6
58.4
54.2
56.9
48.7
45.2
60.2
53.2
49.7
47.3
56.5
64.5
66.8
76.4
93.8
95.7
57.7
69.6
71.4
70.8
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
2015
%
61.3
61.1
57.0
51.2
52.5
56.7
52.6
47.2
46.8
45.5
57.6
56.2
55.3
54.6
51.7
55.0
50.3
46.9
44.8
44.5
2014
%
64.1
64.6
62.4
61.3
65.7
64.8
56.4
48.4
46.6
45.6
46.8
44.9
57.0
49.9
45.0
49.8
50.3
51.3
54.5
51.2
44.3
42.9
42.0
43.0
2013
%
67.3
67.0
65.8
62.3
60.0
57.4
57.2
56.0
53.1
47.3
45.7
45.2
44.6
42.5
58.7
51.1
47.5
45.0
45.4
45.5
45.6
56.7
56.3
52.3
50.2
49.9
51.6
51.7
69.2
68.0
65.1
59.7
58.6
56.2
55.6
55.3
55.4
46.1
37.4
35.1
34.0
33.2
32.9
32.7
58.7
52.5
49.9
47.0
43.8
43.0
42.5
42.8
58.6
53.0
46.0
41.3
40.7
40.2
40.0
41.5
72.9
72.1
72.9
70.5
71.4
67.6
70.0
71.8
74.7
55.6
47.6
38.6
34.4
35.5
32.2
31.3
30.2
30.1
54.9
45.2
45.7
42.5
40.5
38.3
37.8
37.9
38.0
60.2
57.6
53.6
50.4
49.0
47.9
47.6
47.4
47.3
71.5
70.5
72.2
68.1
62.9
61.0
59.9
57.5
55.1
55.2
52.1
49.2
44.7
42.7
41.1
40.2
42.5
40.8
41.3
40.9
54.4
43.8
39.7
33.5
32.5
31.4
29.9
30.4
28.5
27.6
58.8
65.2
65.8
59.9
57.7
56.7
56.2
55.9
55.9
55.9
196
Beazley Annual report 2019
www.beazley.com
Notes to the financial statements continued
24 Insurance liabilities and reinsurance assets continued
2009 ae
%
Net ultimate claims
Reinsurance
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Specialty lines
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Total
12 months
24 months
36 months
48 months
60 months
72 months
84 months
96 months
108 months
120 months
Estimated total
ultimate losses ($m)
Less paid claims ($m) (5,060.2)
Less unearned
portion of ultimate
losses ($m)
Net claims liabilities
(100% level) ($m)
Less non-group
share ($m)
Net claims liabilities,
group share ($m)
130.8
157.2
(26.4)
–
2010
%
76.7
127.1
117.6
111.8
121.2
115.9
116.0
115.4
112.2
112.6
70.9
71.2
69.8
70.1
71.5
72.4
72.7
70.3
67.4
66.8
64.2
68.7
66.3
63.2
63.1
62.1
62.1
60.8
59.2
58.9
2011
%
90.0
88.0
80.8
75.3
73.0
73.0
67.7
67.8
68.5
72.4
72.6
71.2
69.1
69.5
69.4
66.8
65.4
63.9
67.0
63.6
60.2
57.1
56.8
55.2
54.0
53.6
53.6
2015
%
61.3
34.1
24.2
24.0
24.3
65.7
66.2
64.1
59.3
59.6
60.1
56.5
52.8
49.8
49.6
2014
%
58.7
37.2
33.4
30.6
30.4
29.9
67.4
67.0
64.6
59.7
56.3
55.1
60.6
56.0
52.5
51.0
51.0
50.5
2013
%
56.3
51.2
47.8
46.5
43.0
42.7
41.8
70.9
70.3
70.4
64.5
59.5
58.1
57.8
62.1
60.1
57.3
54.2
52.1
51.5
50.9
2012
%
67.0
45.3
39.0
37.7
37.7
37.3
37.4
36.9
72.0
72.0
70.6
69.0
66.7
67.0
66.8
67.6
64.0
58.3
53.7
50.7
49.3
48.6
48.3
48.8
2017
%
2018
%
85.2
100.4
106.7
93.4
105.4
2019
%
86.9
2016
%
60.9
38.8
38.2
40.0
64.7
66.1
67.1
63.8
63.7
63.5
65.5
65.5
61.3
56.6
62.1
63.8
66.4
66.2
68.0
68.0
60.8
61.0
58.8
57.4
5,217.4 1,004.2
(956.2)
858.0
(787.8)
830.9
(745.6)
920.8
(811.2)
980.5 1,019.8 1,224.1 1,619.1 1,639.8 1,587.1 16,901.7
(151.8) (12,214.4)
(801.7)
(850.9)
(804.8)
(768.0)
(476.2)
–
–
–
–
–
–
–
–
(40.8)
(640.1)
(680.9)
48.0
70.2
85.3
109.6
129.6
251.8
419.3
817.4 1,122.8
795.2
4,006.4
(8.4)
(12.7)
(14.3)
(20.6)
(22.1)
(41.5)
(62.7)
(120.6)
(167.4)
(118.2)
(614.9)
39.6
57.5
71.0
89.0
107.5
210.3
356.6
696.8
955.4
677.0
3,391.5
www.beazley.com
Beazley Annual report 2019
197
24 Insurance liabilities and reinsurance assets continued
Analysis of movements in loss development tables
We have updated our loss development tables to show the ultimate loss ratios as at 31 December 2019 for each
underwriting year.
Cyber & executive risk
The employment practice liability book has seen deteriorations on the 2011 and 2015 underwriting years. The cyber book had
positive claims experience on the 2017 underwriting year.
Marine
All underwriting years of the US trucking liability book are now reinsured, impacting the 2016 to 2018 underwriting years. The
2018 underwriting year has also been affected by poor experience in marine hull, UK marine and energy. Releases continue on
older underwriting years as the risk expires.
Political, accident & contingency
Releases on the 2015 to 2018 underwriting years in terrorism, contingency and personal accident accounts were partially offset
by deterioration on the 2014 underwriting year following a claim on the political book and poor experience on the life book.
Property
The reserves on the recent underwriting years have been strengthened, with increases to the 2018 catastrophe estimates and
adverse claims development on the US coverholders book. Older underwriting years have seen strengthening following adverse
experience on the construction and engineering book. The impact of catastrophes on the 2019 underwriting year was less than
the two preceding years.
Reinsurance
The 2017 and 2018 underwriting years have experienced increases in the estimates for catastrophe, primarily in respect of
Typhoon Jebi, as well as poor experience on risk and aggregate excess of loss business. The 2019 underwriting year has been
impacted by Typhoon’s Faxai and Hagibis as well as Storm Dorian.
Specialty lines
Older underwriting years continue to release as claims mature. Strengthening on the 2012 underwriting year is driven by a specific
claim on the healthcare book and the deterioration seen on the 2018 underwriting year is driven by the US architects & engineers
business. The difference between the opening position in 2019 compared to 2018 is driven by mix changes between the more
traditional, cyber and market facilities businesses.
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
198
Beazley Annual report 2019
www.beazley.com
Notes to the financial statements continued
24 Insurance liabilities and reinsurance assets continued
Claim releases
The table below analyses our net claims between current year claims and adjustments to prior year net claims reserves.
These have been broken down by segment and underwriting year. Beazley’s reserving policy is to maintain catastrophe reserve
margins either until the end of the exposure period or until catastrophe events occur. Therefore margins have been released
from prior year reserves where risks have expired during 2019.
Reserve releases during the year totalled $9.5m (2018: $115.0m). The net of reinsurance estimates of ultimate claims costs
on the 2016 and prior underwriting years have improved by $41.9m during 2019, while 2017 and 2018 underwriting year
strengthened by $30.3m driven by the deterioration of catastrophe losses in our reinsurance division and poor performance
of US trucking and engineering within our marine and property divisions.
The movements shown on 2016 and earlier are absolute claim movements and are not impacted by any current year movements
in premium on those underwriting years.
2019
Current year
Prior year
– 2016 underwriting year
and earlier
– 2017 underwriting year
– 2018 underwriting year
Net insurance claims
2018
Current year
Prior year
– 2015 underwriting year
and earlier
– 2016 underwriting year
– 2017 underwriting year
Net insurance claims
Cyber &
executive risk
$m
405.1
4.3
(13.2)
(0.5)
(9.4)
395.7
Cyber &
executive risk
$m
329.5
(14.3)
(11.7)
0.3
(25.7)
303.8
Political,
accident &
contingency
$m
127.3
(6.6)
(7.8)
(2.4)
(16.8)
110.5
Political,
accident &
contingency
$m
105.0
Property
$m
190.2
Reinsurance
$m
114.5
9.3
8.4
(0.6)
17.1
207.3
(3.6)
17.4
16.3
30.1
144.6
Property
$m
242.1
Reinsurance
$m
121.5
0.4
(7.9)
(7.3)
(14.8)
90.2
(2.9)
7.4
42.8
47.3
289.4
(5.2)
(0.7)
(17.9)
(23.8)
97.7
Marine
$m
120.4
(11.1)
6.1
11.4
6.4
126.8
Marine
$m
146.5
(11.6)
(2.2)
1.3
(12.5)
134.0
Specialty
lines
$m
504.5
(34.2)
(3.4)
0.7
(36.9)
467.6
Specialty
lines
$m
398.2
(74.1)
(10.7)
(0.7)
(85.5)
312.7
Total
$m
1,462.0
(41.9)
7.5
24.9
(9.5)
1,452.5
Total
$m
1,342.8
(107.7)
(25.8)
18.5
(115.0)
1,227.8
www.beazley.com
Beazley Annual report 2019
199
25 Borrowings
The carrying amount and fair values of the non-current borrowings are as follows:
Carrying value
Balance at 1 January 2019
Issuance of new debt
Debt redemption
Amortisation of capitalised borrowing costs
Foreign exchange gain
Balance at 31 December 2019
Fair value
Balance at 1 January 2019
Debt issuance/(redemption)
Change in fair value
Balance at 31 December 2019
Carrying value
Balance at 1 January 2018
Debt redemption
Amortisation of capitalised borrowing costs
Foreign exchange gain
Balance at 31 December 2018
Fair value
Balance at 1 January 2018
Debt redemption
Change in fair value
Balance at 31 December 2018
Tier 2
subordinated
debt (2029)
$m
–
297.8
–
0.1
–
297.9
Tier 2
Subordinated
debt (2029)
$m
–
297.9
20.7
318.6
Tier 2
subordinated
debt (2018)
$m
18.0
(18.0)
–
–
–
Tier 2
Subordinated
debt (2018)
$m
18.0
Tier 2
subordinated
debt (2026)
$m
248.7
–
–
0.2
–
248.9
Tier 2
subordinated
debt (2026)
$m
249.4
–
27.4
276.8
Tier 2
subordinated
debt (2026)
$m
248.5
–
0.2
–
248.7
Tier 2
subordinated
debt (2026)
$m
266.6
(18.0)
–
–
–
(17.2)
249.4
Retail
bond
$m
95.6
–
(92.6)
0.2
(3.2)
–
Retail
bond
$m
98.2
(98.2)
–
–
Retail
bond
$m
99.5
–
0.2
(4.1)
95.6
Retail
bond
$m
104.1
–
(5.9)
98.2
Total
$m
344.3
297.8
(92.6)
0.5
(3.2)
546.8
Total
$m
347.6
199.7
48.1
595.4
Total
$m
366.0
(18.0)
0.4
(4.1)
344.3
Total
$m
388.7
(18.0)
(23.1)
347.6
The fair values of the subordinated debt, the tier 2 subordinated debt and the retail bond are based on quoted market prices.
In September 2012, the group issued £75m of sterling denominated 5.375% notes due 2019. Interest at a fixed rate of 5.375%
was payable in March and September each year. These notes were redeemed in September 2019.
In November 2016, the group issued $250m of subordinated tier 2 notes due in 2026. Annual interest, at a fixed rate of 5.875%,
is payable in May and November each year.
In September 2019, the group issued $300m of subordinated tier 2 notes due in 2029. Annual interest, at a fixed rate of 5.5% is
payable in March and September each year.
In addition to these borrowings we operate a syndicated short term banking facility, managed through Lloyds Banking Group
plc. In July 2019 we renewed our syndicated short term banking facility led by Lloyds Banking Group plc. The facility provides
potential borrowings up to $225m. The agreement is based on a commitment fee of 0.385% per annum and any amounts drawn
are charged at a margin of 1.1% per annum. The cash element of the facility will last for three years, expiring on 31 July 2021,
whilst letters of credit issued under the facility can be used to provide capital support for the group’s underwriting at Lloyd’s on
the 2019, 2020 and 2021 underwriting years. The facility is currently unutilised.
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Notes to the financial statements continued
26 Other payables
Group
Reinsurance premiums payable
Accrued expenses including staff bonuses
Other payables
Due to syndicate 623
Due to syndicate 6107
Due to syndicate 6050
Due to syndicate 5623
Company
Other payables
2019
$m
214.1
169.0
81.5
21.0
65.5
–
15.3
566.4
2019
$m
16.3
16.3
All other payables are payable within one year of the reporting date. The carrying value approximates fair values.
27 Retirement benefit obligations
Present value of funded obligations
Fair value of plan assets
Retirement benefit (asset)/liability in the statement of financial position
Amounts recognised in the statement of profit or loss
Interest cost
Expected return on plan assets
2019
$m
54.7
(60.1)
(5.4)
1.3
(1.3)
–
2018
$m
183.8
138.3
48.4
5.0
65.1
0.4
1.6
442.6
2018
$m
6.0
6.0
2018
$m
47.0
(44.6)
2.4
1.3
(1.3)
–
Beazley Furlonge Limited operates a defined benefit pension scheme (‘the Beazley Furlonge Limited Pension Scheme’).
The scheme provides the following benefits:
• an annual pension payable to the member from his or her normal pension age (60th birthday) of generally 1/60th of final
pensionable salary for each year of pensionable service up to 31 March 2006;
• a spouse’s pension of 2/3rds of the member’s pension payable on the member’s death after retirement;
• a lump sum of four times current pensionable salary for death in service at the date of death; and
• a pension of 2/3rds of the member’s prospective pension at the date of death, payable to the spouse until their death.
This pension is related to salary at the date of death.
The scheme is administered by a trust that is legally separated from the group. The trustees consist of both employee and
employer representatives and an independent chair, all of whom are governed by the scheme rules.
The scheme exposes the group to additional actuarial, interest rate and market risk.
Contributions to the scheme are determined by a qualified actuary using the projected unit credit method as set out in the scheme
rules and the most recent valuation was at 31 December 2019. According to the Schedule of Contributions, the group expects to
contribute approximately $1.3m in each of the next two years.
Trustees obligations
Under section 222 of the Pension Act 2004, every scheme is subject to the Statutory Funding Objective (SFO), which is
to have sufficient and appropriate assets to cover its technical provisions, which represent the present value of benefits
to which members are entitled based on pensionable service to the valuation date. This is assessed at least every three
years using assumptions agreed between the Trustees and the employer as set out in the Statement of Funding Principles
produced in accordance with the Occupational Pensions (Scheme Funding) Regulations 2005 (OP(SF)R 2005) Regulation 6.
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27 Retirement benefit obligations continued
The Trustees written Statement of Funding Principles is dated 27 December 2017 and it sets out their policy for securing that
the SFO is met (that the scheme will have sufficient assets to cover its technical provisions). In accordance with the OP(SF)R 2005
Regulation 5(2) trustees have chosen the Defined Accrued Benefit Method, a variant of the projected unit credit method where
accrual has ceased.
The most recently completed Actuarial Valuation of the Scheme was carried out at 1 January 2017 including a valuation carried
out in accordance with the Pensions Protection Fund (Valuation) Regulations 2005 and with appropriate section 179 guidance
and assumptions issued by the Board of the Pension Protection Fund.
A recovery plan was agreed between the Trustees and the employer on 27 December 2017 in accordance with OP(SF)R 2005
Regulation 8. These arrangements were formalised in a schedule of contributions which the scheme Actuary certified on
27 December 2017 in accordance with OP(SF)R 2005 Regulation 9.
Movement in present value of funded obligations recognised in the statement of financial position
Balance at 1 January
Interest cost
Actuarial loss/(gain)
Benefits paid
Foreign exchange loss/(gain)
Balance at 31 December
Movement in fair value of plan assets recognised in the statement of financial position
Balance at 1 January
Expected return on plan assets
Actuarial gain/(loss)
Employer contributions
Benefits paid
Foreign exchange gain/(loss)
Balance at 31 December
Plan assets are comprised as follows:
Equities
Cash
Total
The actual gain on plan assets was $13.2m (2018: gain of $6.8m).
Principal actuarial assumptions
Discount rate
Inflation rate
Expected return on plan assets
Future salary increases
Future pensions increases
Life expectancy for members aged 60 at 31 December
Life expectancy for members aged 40 at 31 December
2019
$m
47.0
1.3
5.3
(0.5)
1.6
54.7
2019
$m
44.6
1.3
11.9
1.3
(0.4)
1.4
60.1
59.9
0.2
60.1
2019
$m
2018
$m
55.9
1.3
(6.8)
(1.1)
(2.3)
47.0
2018
$m
53.6
1.3
(8.0)
1.0
(1.1)
(2.2)
44.6
44.4
0.2
44.6
2018
$m
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t
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m
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n
t
s
2.0%
3.4%
2.0%
3.4%
2.9%
89 years
91 years
2.8%
3.5%
2.8%
3.5%
3.0%
90 years
93 years
At 31 December 2019, the weighted-average duration of the defined benefit obligation was 22.5 years (2018: 23.2 years).
202
Beazley Annual report 2019
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Notes to the financial statements continued
27 Retirement benefit obligations continued
Sensitivity analyses
Changes in the relevant actuarial assumptions would result in a change in the value of the funded obligation as shown below:
31 December 2019
Discount rate (0.5% decrease)
Inflation rate (0.3% decrease)
Future salary changes (0.5% decrease)
Life expectancy (1 year increase)
31 December 2018
Discount rate (0.5% decrease)
Inflation rate (0.3% decrease)
Future salary changes (0.5% decrease)
Life expectancy (1 year increase)
28 Deferred tax
Deferred tax asset
Deferred tax liability
The movement in the net deferred income tax is as follows:
Balance at 1 January
Income tax charge
Amounts recorded through equity
Foreign exchange translation differences
Balance at 31 December
Plant and equipment
Intangible assets
Underwriting profits
Deferred acquisition costs
Tax losses carried forward
Share based payments
Other
Net deferred income tax account
Plant and equipment
Intangible assets
Underwriting profits
Deferred acquisition costs
Tax losses carried forward
Share based payments
Other
Net deferred income tax account
Increase
$m
6.8
–
–
2.1
Increase
$m
6.0
–
–
1.6
2019
$m
41.0
(19.5)
21.5
19.8
1.2
0.9
(0.4)
21.5
Balance
1 Jan 19
$m
0.1
(2.1)
(1.9)
(2.5)
10.0
13.9
2.3
19.8
Balance
1 Jan 18
$m
0.3
(1.1)
(16.7)
6.8
–
9.6
(1.9)
(3.0)
Recognised
in income
$m
0.6
0.2
17.4
(5.1)
(10.0)
(0.1)
(1.8)
1.2
Recognised
in income
$m
(0.2)
(1.0)
14.8
(9.3)
10.0
0.2
4.3
18.8
Recognised
in equity
$m
–
–
–
–
–
0.9
–
0.9
Recognised
in equity
$m
–
–
–
–
–
4.2
–
4.2
FX translation
differences
$m
–
–
–
–
–
(0.4)
–
(0.4)
FX translation
differences
$m
–
–
–
–
–
(0.1)
(0.1)
(0.2)
Decrease
$m
–
(2.4)
(0.4)
–
Decrease
$m
–
(2.2)
(0.5)
–
2018
$m
28.9
(9.1)
19.8
(3.0)
18.8
4.2
(0.2)
19.8
Balance
31 Dec 19
$m
0.7
(1.9)
15.5
(7.6)
–
14.3
0.5
21.5
Balance
31 Dec 18
$m
0.1
(2.1)
(1.9)
(2.5)
10.0
13.9
2.3
19.8
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Beazley Annual report 2019
203
28 Deferred tax continued
The group has tax adjusted losses carried forward giving rise to a deferred tax asset of $0.7m, measured at the UK corporation
tax rate of 17%. The deferred tax asset has not been recognised on the group statement of financial position in the current year
as losses are not expected to be utilised in the foreseeable future based on the current taxable profit estimates and forecasts
of the underlying entity in question.
29 Leases
Leases as lessee (IFRS 16)
The group leases offices, IT equipment and motor vehicles. The leased offices are in several locations and the leases of large
offices such as London and New York typically run for a period of 10 years with an option to renew the lease after that date or
continue on a rolling month by month basis. Lease payments are renegotiated as agreed in the lease contracts. Previously, all
office leases were classified as operating leases under IAS 17.
During 2019, the New York office was derecognised as the lease contract ended and was not renewed. Following the move to
a new office location, the group recognised the New York office lease, recognising a right of use asset of $14.3m and a liability
of $14.8m. Additionally, the office in Barcelona was recognised as a right of use asset of $1.0m and a liability of $1.1m.
During 2019, the lease of the San Francisco extension has been sub-let by the group. The lease and sub-lease expire in 2022.
The right of use asset was therefore recognised as an investment asset of $0.5m.
The leases of IT equipment and motor vehicles were previously recognised as operating leases in the statement of profit and loss.
The long term leases have been categorised as leases under IFRS 16.
Information about leases for which the group is a lessee is presented below.
Right of use assets
Right of use assets related to leased properties that do not meet the definition of investment property are presented as property,
plant and equipment.
Balance at 1 January 2019
Depreciation charge for the year
Additions of right of use assets
Disposals of right of use assets
Foreign exchange gain
Balance at 31 December 2019
Lease liabilities
Balance at 1 January 2019
Lease payments
Interest on lease liabilities
Additions to lease portfolio
Disposals from lease portfolio
Foreign exchange gain
Balance at 31 December 2019
Offices
$m
29.5
(9.1)
15.8
(1.3)
0.3
35.2
Offices
$m
31.6
(9.7)
1.8
15.3
(0.5)
0.3
38.8
IT equipment
$m
1.5
(0.9)
–
–
–
0.6
Motor vehicles
$m
0.2
(0.1)
0.1
(0.1)
–
0.1
IT equipment
$m
1.5
(1.0)
–
–
–
–
0.5
Motor vehicles
$m
0.1
(0.1)
–
0.1
–
–
0.1
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m
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s
Total
$m
31.2
(10.1)
15.9
(1.4)
0.3
35.9
Total
$m
33.2
(10.8)
1.8
15.4
(0.5)
0.3
39.4
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Beazley Annual report 2019
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Notes to the financial statements continued
29 Leases continued
Amounts recognised in profit or loss
Leases under IFRS 16
Interest on lease liabilities
Depreciation
Income from sub-leasing right of use assets
Expenses relating to low value leases
Expenses relating to short-term leases
Total recognised in profit/(loss)
Operating leases under IAS 17
Lease expense
Sub-lease income
Total lease commitments under IAS 17
Amounts recognised in statement of cash flows
Total cash outflow for leases
2019
$m
(1.8)
(10.1)
0.1
(0.4)
(0.2)
(12.4)
2018
$m
32.9
–
32.9
2019
$m
(10.8)
Extension options
Some property leases contain extension options exercisable by the group before the end of the non-cancellable contract period
or the option to continue with the lease on a monthly rolling basis. The group reassess whether it is reasonably certain to exercise
the options if there is a significant event or changes in circumstances within its control.
Should the group exercise all its extension options, the potential lease payments would result in an increase in lease liability of $1.9m.
Leases as lessor
The group sub-leases leased property, which is classified as a investment asset. The group recognised $0.5m in 2019.
The sub-lease contract ends in 2022.
30 Related party transactions
The group and company have related party relationships with syndicates 623, 6107, 6050, 5623, its subsidiaries, associates and
its directors.
30.1 Syndicates 623, 6107, 6050 and 5623
The group received management fees and profit commissions for providing a range of management services to syndicates 623,
6107 and 6050, which are all managed by the group. In addition, the group ceded portions or all of a group of insurance policies
to syndicates 6107, 5623 and 6050. The participants on syndicates 623, 6107 and 6050 are solely third party capital.
Details of transactions entered into and the balances with these syndicates are as follows:
Written premium ceded to syndicates
Other income received from syndicates
Services provided
Balances due:
Due to syndicate 623
Due to syndicate 6107
Due from/(to) syndicate 6050
Due to syndicate 5623
2019
$m
96.3
25.8
33.1
(21.0)
(65.5)
0.4
(15.3)
2018
$m
65.0
29.0
36.3
(5.0)
(65.1)
(0.4)
(1.6)
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Beazley Annual report 2019
205
30 Related party transactions continued
30.2 Key management compensation
Salaries and other short term benefits
Post-employment benefits
Share based remuneration
2019
$m
16.4
0.6
1.1
18.1
2018
$m
11.8
0.5
5.9
18.2
Key management include executive and non-executive directors and other senior management.
The total number of Beazley plc ordinary shares held by key management was 4.4m. Apart from the transactions listed in the
table above, there were no further related party transactions involving key management or a close member of their family. Further
details of directors’ shareholdings and remuneration can be found in the directors’ remuneration report on pages 96 to 124.
30.3 Other related party transactions
At 31 December 2019, the group had purchased services from Falcon Money Management Holdings Limited of $2.3m (2018:
$2.3m) throughout the year. All transactions with the associate and subsidiaries are priced on an arm’s length basis.
31 Parent company and subsidiary undertakings
Beazley plc, a company incorporated in England and Wales and resident for tax purposes in the United Kingdom, is the ultimate
parent and the ultimate controlling party within the group.
The following is a list of all the subsidiaries in the group as at 31 December 2019:
Beazley Ireland Holdings plc
Beazley Group Limited
Beazley Furlonge Holdings Limited
Beazley Furlonge Limited
Beazley Investments Limited
Beazley Underwriting Limited
Beazley Management Limited
Beazley Staff Underwriting Limited
Beazley Solutions Limited
Beazley Underwriting Services Limited
Beazley Corporate Member (No.2) Limited
Beazley Corporate Member (No.3) Limited
Beazley Corporate Member (No.6) Limited
Beazley Leviathan Limited
Beazley Canada Limited
Beazley Insurance dac
Beazley Solutions International Limited
Beazley Underwriting Pty Ltd
Beazley USA Services, Inc.*
Beazley Holdings, Inc.*
Beazley Holdings, Inc. Digital LLC
Beazley Group (USA) General Partnership**
Beazley Insurance Company, Inc.***
Beazley America Insurance Company, Inc.***
Lodestone Securities LLC****
Beazley Limited
Beazley Pte. Limited
Beazley Labuan Limited
Country/region of
incorporation
Jersey
England
England
England
England
England
England
England
England
England
England
England
England
England
Canada
Ireland
Ireland
Australia
USA
USA
USA
USA
USA
USA
USA
Hong Kong
Singapore
Malaysia
Ownership
interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Intermediate holding company
Intermediate holding company
Intermediate holding company
Lloyd’managing agents
Investment company
Underwriting at Lloyd’s
Management company
Underwriting at Lloyd’s
Insurance services
Insurance services
Underwriting at Lloyd’s
Underwriting at Lloyd’s
Underwriting at Lloyd’s
Underwriting at Lloyd’s
Insurance services
Insurance and reinsurance company
Insurance services
Insurance services
Insurance services
Holding company
Insurance services
General partnership
Underwriting admitted lines
Underwriting admitted lines
Consultancy services
Insurance services
Underwriting at Lloyd’s
Insurance services
Functional
currency
USD
USD
USD
GBP
USD
USD
GBP
USD
GBP
GBP
USD
USD
USD
GBP
CAD
USD
USD
AUD
USD
USD
USD
USD
USD
USD
USD
HKD
SGD
USD
Please see page 206 for registered addresses.
Beazley plc direct
investment in
subsidiary ($m)
724.6
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724.6
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Notes to the financial statements continued
31 Parent company and subsidiary undertakings continued
The following is a list of group registered office locations:
Address
United Kingdom and Continental Europe
60 Great Tower Street
2 Northwood Avenue
22 Grenville Street
North America
1209 Orange Street*
2711 Centerville Road Suite 400**
30 Batterson Park Road***
160 Greentree Drive, Suite 101****
55 University Avenue, Suite 550
Asia
138 Market Street, 03-04 Capita Green
36/F., Tower Two, Times Square,
1 Matheson Street, Causeway Bay
Kensington Gardens, No. I1317, Lot 7616,
Jalan Jumidar Buyong
Australia
Level 15, 1 O’Connell Street
City
Postcode
Country/region
London
Dublin
Saint Helier
Wilmington, Delaware
Wilmington, Delaware
Farmington, Connecticut
Dover, Delaware
Toronto, Ontario
Singapore
Hong Kong
Labuan
Sydney
EC3R 5AD
D09 X5N9
JE4 8PX
19801
19808
06032
19904
M5J 2HJ
048946
–
87000
NSW 2000
England
Ireland
Jersey
USA
USA
USA
USA
Canada
Singapore
Hong Kong
Malaysia
Australia
32 Contingencies
Funds at Lloyd’s
The following amounts are held in trust by Lloyd’s to secure underwriting commitments:
Debt securities and other fixed income securities
Underwriting
year
2020
£m
1,085.8
Underwriting
year
2019
£m
720.4
Underwriting
year
2018
£m
733.2
The funds are held in trust and can be used to meet claims liabilities should syndicates’ members fail to meet their claims liabilities.
The funds can only be used to meet claim liabilities of the relevant member.
These balances are included within financial assets at fair value on the statement of financial position.
33 Foreign exchange rates
The group used the following exchange rates to translate foreign currency assets, liabilities, income and expenses into US dollars,
being the group’s presentational currency:
Pound sterling
Canadian dollar
Euro
2019
2018
Average
0.79
1.33
0.89
Year end spot
0.76
1.32
0.90
Average
0.75
1.29
0.84
Year end spot
0.78
1.36
0.87
34 Subsequent events
There are no events that are material to the operations of the group that have occurred since the reporting date.
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207
Glossary
Aggregates/aggregations
Accumulations of insurance loss exposures
which result from underwriting multiple risks
that are exposed to common causes of loss.
Aggregate excess of loss
The reinsurer indemnifies an insurance
company (the reinsured) for an aggregate
(or cumulative) amount of losses in excess
of a specified aggregate amount.
Alternative performance measures (APMs)
The group uses APMs to help explain its
financial performance and position. These
measures, such as combined ratio, expense
ratio, claims ratio, investment return and
underwriting profit, are not defined under
IFRS. The group is of the view that the use
of these measures enhances the usefulness
of the financial statements. Definitions of
key APMs are included within the glossary.
A.M. Best
A.M. Best is a worldwide insurance-rating
and information agency whose ratings are
recognised as an ideal benchmark for
assessing the financial strength of insurance
related organisations, following a rigorous
quantitative and qualitative analysis of a
company’s statement of financial position
strength, operating performance and
business profile.
Binding authority
A contracted agreement between a managing
agent and a coverholder under which the
coverholder is authorised to enter into
contracts of insurance for the account of the
members of the syndicate concerned, subject
to specified terms and conditions.
Capacity
This is the maximum amount of premiums
that can be accepted by a syndicate. Capacity
also refers to the amount of insurance
coverage allocated to a particular policyholder
or in the marketplace in general.
Capital growth assets
These are assets that do not pay a regular
income and target an increase in value
over the long term. They will typically have
a higher risk and volatility than that of the
core portfolio. Currently these are the hedge
funds, equity funds and illiquid credit assets.
Catastrophe reinsurance
A form of excess of loss reinsurance which,
subject to a specified limit, indemnifies the
reinsured company for the amount of loss in
excess of a specified retention with respect
to an accumulation of losses resulting from
a catastrophic event or series of events.
Claims
Demand by an insured for indemnity under
an insurance contract.
Claims ratio
Ratio, in percentage terms, of net insurance
claims to net earned premiums. The
calculation is performed excluding the impact
of foreign exchange. In 2019, this ratio was
62% (2018: 59%). This represented total
claims of $1,452.5m (2018: $1,227.8m)
divided by net earned premiums of $2,347.0m
(2018: $2,084.6m).
Combined ratio
Ratio, in percentage terms, of the sum of net
insurance claims, expenses for acquisition
of insurance contracts and administrative
expenses to net earned premiums. This
is also the sum of the expense ratio and the
claims ratio. The calculation is performed
excluding the impact of foreign exchange. In
2019, this ratio was 100% (2018: 98%). This
represents the sum of net insurance claims of
$1,452.5m (2018: $1,227.8m), expenses for
acquisition of insurance contracts of $645.4m
(2018: $561.9m) and administrative expenses
of $244.3m (2018: $250.7m) to net earned
premiums of $2,347.0m (2018: $2,084.6m).
This is also the sum of the expense ratio 38%
(2018: 39%) and the claims ratio 62%
(2018: 59%).
Coverholder
A firm either in the United Kingdom or
overseas authorised by a managing agent
under the terms of a binding authority to enter
into contracts of insurance in the name of the
members of the syndicate concerned, subject
to certain written terms and conditions.
A Lloyd’s broker can act as a coverholder.
Deferred acquisition costs (DAC)
Costs incurred for the acquisition or the
renewal of insurance policies (e.g. brokerage,
premium levy and staff related costs) which
are capitalised and amortised over the term
of the contracts.
Earnings per share (EPS) – basic/diluted
Ratio, in pence and cents, calculated by
dividing the consolidated profit after tax by
the weighted average number of ordinary
shares issued, excluding shares owned by the
group. For calculating diluted earnings per
share the number of shares and profit or loss
for the year is adjusted for certain dilutive
potential ordinary shares such as share
options granted to employees.
Economic Capital Requirement (ECR)
The capital required by a syndicate’s
members to support their underwriting.
Calculated as the uSCR ‘uplifted’ by 35% to
ensure capital is in place to support Lloyd’s
ratings and financial strength.
Excess per risk reinsurance
A form of excess of loss reinsurance which,
subject to a specified limit, indemnifies the
reinsured company against the amount of
loss in excess of a specified retention with
respect to each risk involved in each loss.
Expense ratio
Ratio, in percentage terms, of the sum
of expenses for acquisition of insurance
contracts and administrative expenses to
net earned premiums. The calculation is
performed excluding the impact of foreign
exchange on non-monetary items. In 2019,
the expense ratio was 38% (2018: 39%). This
represents the sum of expenses for acquisition
of insurance contracts of $645.4m (2018:
$561.9m) and administrative expenses
of $244.3m (2018: $250.7m) to earned
premiums of $2,347.0m (2018: $2,084.6m).
Facultative reinsurance
A reinsurance risk that is placed by means of
a separately negotiated contract as opposed
to one that is ceded under a reinsurance treaty.
Gross premiums written
Amounts payable by the insured, excluding
any taxes or duties levied on the premium,
but including any brokerage and commission
deducted by intermediaries.
Hard market
An insurance market where prevalent prices
are high, with restrictive terms and conditions
offered by insurers.
Horizontal limits
Reinsurance coverage limits for
multiple events.
Incurred but not reported (IBNR)
These are anticipated or likely claims that may
result from an insured event but which have
not yet been reported.
International Accounting Standards Board
(IASB)
An independent accounting body responsible
for developing IFRS (see below).
International Accounting Standards (IAS)/
International Financial Reporting
Standards (IFRS)
Standards formulated by the IASB with the
intention of achieving internationally
comparable financial statements. Since
2002, the standards adopted by the IASB
have been referred to as International
Financial Reporting Standards (IFRS). Until
existing standards are renamed, they
continue to be referred to as International
Accounting Standards (IAS).
Investment return
Ratio, in percentage terms, calculated by
dividing the net investment income by the
average financial assets at fair value,
including cash. In 2019, this was calculated
as net investment income of $263.7m (2018:
$41.1m) divided by average financial assets
at fair value, including cash, of $5,452.0m
(2018: $4,791.4m).
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Rate change
The percentage change in premium income
charged relative to the level of risk on
renewals.
Soft market
An insurance market where prevalent prices
are low, and terms and conditions offered by
insurers are less restrictive.
Solvency Capital Requirement on an ultimate
basis (uSCR)
The capital requirement under Solvency II
calculated by Beazley’s internal model which
captures the risk in respect of the planned
underwriting for the prospective year of
account in full, covering ultimate adverse
development and all exposures.
Surplus lines insurer
An insurer that underwrites surplus lines
insurance in the US. Lloyd’s underwriters are
surplus lines insurers in all jurisdictions of the
US except Kentucky and the US Virgin Islands.
Total shareholder return (TSR)
The increase in the share price plus the value
of any first and second dividends paid and
proposed during the year.
Treaty reinsurance
A reinsurance contract under which the
reinsurer agrees to offer and to accept all
risks of a certain size within a defined class.
Unearned premiums reserve
The portion of premium income in the
business year that is attributable to periods
after the reporting date in the underwriting
provisions.
Underwriting profit
This is calculated as net earned premiums,
less net insurance claims, acquisition costs
and administrative expenses.
Glossary continued
Lead underwriter
The underwriter of a syndicate who is
responsible for setting the terms of an
insurance or reinsurance contract that is
subscribed by more than one syndicate and
who generally has primary responsibility
for handling any claims arising under such
a contract.
Line
The proportion of an insurance or reinsurance
risk that is accepted by an underwriter or
which an underwriter is willing to accept.
Managing agent
A company that is permitted by Lloyd’s to
manage the underwriting of a syndicate.
Managing general agent (MGA)
An insurance intermediary acting as an agent
on behalf of an insurer.
Reinsurance special purpose syndicate
A special purpose syndicate (SPS) created to
operate as a reinsurance ‘sidecar’ to
Beazley’s treaty account, capitalising on
Beazley’s position in the treaty reinsurance
market.
Reinsurance to close (RITC)
A reinsurance which closes a year of
account at Lloyd’s by transferring the
responsibility for discharging all the liabilities
that attach to that year of account (and any
year of account closed into that year), plus the
right to buy any income due to the closing year
of account, into an open year of account in
return for a premium.
Managed premiums
Managed premium refers to all gross
premiums written by Beazley’s underwriters.
In addition to gross premiums written on
behalf of the group managed premium
includes gross premiums written in syndicate
623 by Beazley’s underwriters on behalf of
third party capital providers.
Retention limits
Limits imposed upon underwriters for
retention of exposures by the group after the
application of reinsurance programmes.
Retrocessional reinsurance
The reinsurance of the reinsurance account.
It serves to ‘lay off’ risk.
Medium tail
A type of insurance where the claims may be
made a few years after the period of
insurance has expired.
Net assets per share
Ratio, in pence and cents, calculated by
dividing the net assets (total equity) by the
number of shares issued.
Net premiums written
Net premiums written is equal to gross
premiums written less outward reinsurance
premiums written.
Return on equity (ROE)
Ratio, in percentage terms, calculated by
dividing the consolidated profit after tax by
the average daily total equity. In 2019, this
was calculated as profit after tax of $234.1m
(2018: $68.2m) divided by average equity of
$1,538.6m (2018: $1,444.8m).
Risk
This term may refer to:
a) the possibility of some event occurring
which causes injury or loss;
b) the subject matter of an insurance
or reinsurance contract; or
c) an insured peril.
Private enterprise
The private enterprise team offers specialised
professional and general liability coverage
supported by a high service proposition,
focusing on meeting the needs of small
businesses with assets up to $35.0m and
up to 500 employees.
Short tail
A type of insurance where claims are
usually made during the term of the policy
or shortly after the policy has expired.
Property insurance is an example of
short tail business.
Provision for outstanding claims
Provision for claims that have already
been incurred at the reporting date but
have either not yet been reported or not
yet been fully settled.
Rate
The premium expressed as a percentage
of the sum insured or limit of indemnity.
Sidecar special purpose syndicate
Specialty reinsurance company designed
to provide additional capacity to a specific
insurance company. It operates by purchasing
a portion or all of a group of insurance
policies, typically catastrophe exposures.
These companies have become quite
prominent in the aftermath of Hurricane
Katrina as a vehicle to add risk-bearing
capacity, and for investors to participate
in the potential profits resulting from sharp
price increases.
If you have finished reading this report
and no longer wish to keep it, please
pass it on to other interested readers,
return it to Beazley or recycle it. Thank you.
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Beazley online annual report
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www.reports.beazley.com/2019
Beazley plc
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London
EC3R 5AD
United Kingdom
Phone: +44 (0)20 7667 0623
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