Beazley Furlonge Limited | Syndicate 4321 at Lloyd's Annual report and accounts 2023

Welcome to our Annual report 2023

Syndicate 4321 launched in 2022 to focus on offering additional capacity to clients that perform well against predefined ESG metrics, the first in the Lloyd's market to do so.

Contents

  • Highlights
  • Strategic report of the managing agent
  • Managing agent's report
  • Statement of managing agent's responsibilities

10 Independent auditor's report to the members of Syndicate 4321

  1. Statement of comprehensive income
  2. Statement of changes in members' balances
  3. Balance sheet
  4. Cash flow statement
  5. Notes to the syndicate annual accounts

32 Managing agent's corporate information

Highlights

Syndicate capacity

Claims ratio

Gross premiums written

£33.1m

66%

$20.4m

(2022: £29.0m)

(2022: 94%)

(2022: $10.5m)

Expense ratio

Earned premium

Combined ratio

38%

$18.7m

104%

(2022: 71%)

(2022: $4.9m)

(2022: 165%)

Loss for the financial year

Cash and investments

Rate increase on renewals

$0.3m

$22.2m

3.8%

(2022: $3.2m)

(2022: $8.0m)

(2022: nil)

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Beazley | Syndicate 4321 Annual report 2023

01

Strategic report of the managing agent

Overview

Syndicate 4321 (the 'syndicate') was established in 2022 to provide a choice of additional capacity for large corporate clients who meet the eligibility standards of the environmental, social and governance ('ESG') scoring criteria that have been developed with support from specialist, independent rating agencies. The syndicate follows the lead underwriting of syndicates 2623 and 623, also managed by Beazley Furlonge Limited ('BFL') to write business on a multi-line basis. From 1 January 2024, the syndicate will no longer write new follow capacity insurance business at Lloyd's and its ESG capacity will be moved to Syndicate 5623 in order to combine expertise and results into one syndicate.

The capacities of the syndicates managed by BFL are as follows:

2023

2022

£m

£m

2623

3,794.5

2,679.0

623

818.6

587.2

5623

339.8

204.4

6107

43.3

67.4

3623

-

41.2

3622

33.8

29.7

4321

33.1

29.0

Total

5,063.1

3,637.9

The result for the syndicate for the year ended 31 December 2023 is a loss of $296.0k (2022: loss of $3,156.5k).

Year of account results

The 2022 year of account ('YOA') is currently forecasting to break even. Although in the early stages of development, the 2023 YOA is expected to close with a positive return on capacity.

Rating environment

The syndicate started writing business in 2022. The premium rates charged for renewal business of these lines of business increased by 3.8% during 2023 (2022: nil).

Combined ratio

The combined ratio is a measure of operating performance and represents the ratio of the syndicate's total costs (excluding foreign exchange movements) to total net earned premium. The syndicate's combined ratio for 2023 was 104% (2022: 165%), demonstrating an improvement in profitability year on year. Premium growth and a more favourable claims environment contributed to this improved combined ratio.

Claims

The claims ratio is a measure of the syndicate's claims experience and represents the ratio of net insurance claims to net earned premium. The 2023 claims ratio for syndicate 4321 was 66% (2022: 94%). During its first year in operation the syndicate was impacted by claims activity arising from Hurricane Ian in the US. The claims environment during 2023 has been more favourable.

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Net operating expenses

Net operating expenses, including business acquisition costs and administrative expenses for 2023 were $7,063.3k (2022:$3,447.8k). The breakdown of these costs is shown below:

2023

2022

$'000

$'000

Brokerage costs

2,987.6

587.5

Other acquisition costs

152.1

220.3

Total acquisition costs

3,139.7

807.8

Administrative and other expenses

3,923.6

2,640.0

Net operating expenses1

7,063.3

3,447.8

  • A further breakdown of net operating expenses can be seen in note 4.

Brokerage costs as a percentage of net earned premium were approximately 16% (2022: 12%). Brokerage costs are deferred and expensed over the life of the associated premiums in accordance with accounting guidelines. 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. Administrative expenses comprise primarily IT costs, facilities costs, Lloyd's central costs and other support costs. These other acquisition and administration expenses are not incurred directly by the syndicate, but are recharged to it through the managing agent.

The expense ratio is a measure of the net operating expenses to net earned premium. The expense ratio for 2023 is 38% (2022: 71%). Administrative and other expenses increased over the year due to increased operational expenses associated with the growth of the syndicate and enhancement of the underlying business model.

Reinsurance

Syndicate 4321 did not purchase any outwards reinsurance during 2023 (2022: Nil).

Outlook

The syndicate will not write new business for 2024. However the managing agent will continue to manage the syndicate until the end of 2025.

A P Cox

Chief Executive Officer

27 February 2024

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Beazley | Syndicate 4321 Annual report 2023

03

Managing agent's report

The managing agent presents its report for the year ended 31 December 2023.

This annual report is prepared using the annual basis of accounting as required by Statutory Instrument No 1950 of 2008, the Insurance Accounts Directive (Lloyd's syndicate and Aggregate Accounts) Regulations 2008 and applicable United Kingdom Accounting Standards, including Financial Reporting Standard 102: The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland and Financial Reporting Standard 103: Insurance Contracts.

Principal activity

The principal activity of Syndicate 4321 is the underwriting of insurance risks that meet specific ESG scoring metrics at Lloyd's.

Business review

A review of the syndicate's activities and future outlook is included in the strategic report.

Risk governance and reporting

Beazley Furlonge Limited's ('BFL') Board of Directors has the responsibility for defining and monitoring the risk appetite within which BFL and the syndicates operate (collectively, 'Beazley'), with key individuals and committees accountable for day-to-day management of risks and controls. Regular reporting by the risk management team in Board meetings and senior management committees ensures that risks are monitored and managed as they arise.

Climate change/Responsible business

Led by Beazley plc's Board and supported by the Boards of BFL, Beazley Insurance dac, and Beazley Insurance Company Inc, ESG issues and climate related risks were regular agenda items throughout 2023. In March 2021 we launched our first Responsible Business Strategy. This document, and the subsequent updates which are published alongside the Beazley plc annual report and accounts, sets out the goals and targets across a wider range of ESG issues, including climate change.

In addition to the summary Responsible Business report, Beazley plc discloses its compliance with the Task Force on Climate- Related Disclosures' Recommendations and Recommended Disclosures at the consolidated group level in the Beazley plc annual report and accounts produced annually. The 2023 Beazley plc ARA has not been published as at the date of this report but is expected to be available on the Group's website in March 2024.

Although not specifically listed in the risk categorises detailed further in this report, the Board of BFL deems climate risk to be inherently embedded within all risks managed across the syndicate.

Risk management

Beazley prides itself on understanding the drivers of risk in the syndicate. The risk management function supports and challenges management in managing those risks. During the year, Beazley continued to enhance and roll out elements of the risk management framework. Beazley has continued working with colleagues across the first and second lines of defence to support the syndicate strategy, challenging the oversight of climate-related risks (covering physical, transition and litigation) and journey in digitisation. The details of the performance of the risk management framework are further in this report.

Control statement

The Chief Risk Officer's latest report to the Board confirmed that the control environment identified no significant failings or weaknesses in key processes. The report confirmed that the syndicate was operating within risk appetite as at 31 December 2023 and the systems have been in place for the entirety of 2023.

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Risk management oversight and framework

The Beazley plc Board delegates direct oversight of the risk management function and framework to its risk committee, and the primary regulated subsidiary Boards and their (audit and) risk committees. The Board delegates executive oversight of the risk management function and framework to the executive committee, which fulfils this responsibility primarily through its risk and regulatory committee.

Beazley takes an enterprise-wide approach to managing risk. The risk management framework establishes the approach to identifying, measuring, mitigating, monitoring, and reporting on principal risks. The risk management framework supports the strategy and objectives.

Beazley leverages the 'three lines of defence' model, in which the risk management function is part of the second line of defence. The ongoing communication and collaboration across the three lines of defence ensures that the syndicate identifies and manages risks effectively.

A suite of reports from the risk management function support senior management and the Board in discharging their oversight and decision-making responsibilities throughout the year. The risk management function's reports include updates on risk appetite, risk profiles, stress and scenario testing and analysis, reverse stress testing, emerging and heightened risks, a report to the remuneration committee, and the Own Risk and Solvency Assessment (ORSA) report.

The Board approves the risk appetite statements at least annually and receives updates on monitoring against risk appetite throughout the year. This includes an assessment of principal risks.

The business operates a control environment which supports mitigating risks to stay within risk appetite. The risk management function reviews and challenges the control environment through various risk management activities throughout the year. In addition, the risk management function works with the capital model and exposure management teams, particularly in relation to validation of the internal model, preparing the ORSA, monitoring risk appetite and the business planning process.

The risk management plan considers, among other inputs, the inherent and residual risk scores for the risks in the registers. The risk management function also includes results from internal audits into its risk assessment process. The internal audit function considers the risk management framework in its audit universe to derive a risk-based audit plan.

The approach to identifying, managing and mitigating emerging risks includes inputs from the business, analysis of lessons learned from prior risk incidents and industry thought leadership. The approach considers the potential materiality and likelihood of impacts, which helps prioritise emerging risks which the syndicate monitors or undertakes focused work on. Key emerging risks in 2023 included geopolitical, artificial intelligence, large cyber attack, legal and regulatory risk, human capital, and climate change. The Board carries out a robust assessment of emerging risks at least annually.

Principal risks the syndicate faces

Beazley assess carefully the principal risks facing the syndicate. The syndicates principal risks are under continuous review with ongoing risk assessments. Consideration is given to new regulations including Consumer Duty, and the Digital Operational Resilience Act. Insurance, Strategic and Operational risks outlook increases from macroeconomic changes, enhancements in technology, people and processes which deliver great benefit, but also introduce risk during and post implementation. The table below summarises the principal risks the syndicate faces, the control environment, governance and oversight that mitigate these risks.

Legend for the principal risks table on the following page

Risk appetite

Within

Trending outside

Outside

Risk outlook

Increasing

Stable

Decreasing

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Managing agent's report continued

Principal risks and summary descriptions

Insurance

The risk arising from the inherent uncertainties about the occurrence, amount and timing of insurance premium, and claims liabilities. This includes risk from underwriting such as market cycle, catastrophe, reinsurance and reserves.

  • Market cycle: potential systematic mispricing of medium or long-tailed business that does not support revenue to invest and cover future claims;
  • Catastrophe: one or more large events caused by

Mitigation and monitoring

Beazley uses a range of techniques to mitigate insurance risks such as pricing tools, analysis of macro trends and claim frequency, including alignment with pricing and ensuring exposure was not overly concentrated in any one area, especially lines of business with higher risk.

The strategic approach to exposure management and a comprehensive internal and external reinsurance programme helped to reduce volatility of profits in addition to managing net exposure with the transfer of risk.

nature (e.g., hurricane, windstorm, earthquake and / or

The prudent and comprehensive approach to reserving helped ensure

wildfire) or mankind (e.g., coordinated cyber-attack,

that claims covered by the policy wording were paid, delivering good

customer outcomes. High calibre claims and underwriting

global pandemic, losses linked to an economic crisis,

professionals deliver expert service and claims handling to insureds.

an act of terrorism or an act of war and / or a political

The underwriting committee oversees these risks.

event) impacting a number of policies, and therefore

giving rise to multiple losses;

Beazley carries out periodic analysis to identify significant areas of

• Reinsurance arrangements: reinsurance may not be

concentration risk across the syndicates business and monitors

available or purchases not made to support the

solvency regularly to ensure it is adequately capitalised.

business (i.e., mismatch); and

Insurance risk outlook continues to be stable as Beazley manages the

• Reserving: reserves may not be sufficiently established

to reflect the ultimate paid losses.

market cycle across all the lines of business.

Credit

Credit risk arising from brokers and coverholders continues to be low

This risk of failure of another party to perform its financial

as the syndicate relies on robust due diligence processes, credit

or contractual obligations in a timely manner.

monitoring and ongoing monitoring of aged debts.

Credit risk outlook continues to be stable.

Group

Risk culture centres on principles of transparency, accountability, and

The risk of an occurrence in one area of Beazley, which

awareness. This helps maintain a strong risk culture that supports an

adversely affects another area in the syndicate resulting

embedded risk management framework. An effective risk culture

in financial loss and / or reputational damage. This

reflects a maturing risk management framework, encourages sound

also includes a deterioration in culture which leads to

risk taking, creates an awareness of risks and emerging risks. The

inappropriate behaviour, actions and / or decisions

executive committee and the Board oversee this risk.

including dilution of culture or negative impact on the

brand.

Group risk outlook continues to be stable as the executive committee

manages culture through continuous improvement and monitoring.

Liquidity

By managing liquidity Beazley maximises flexibility in the management

Investments and / or other assets are not available

of financial assets, including investment strategy, without incurring

or adequate in order to settle financial obligations

unacceptable liquidity risks over any time horizon. In doing so, this

when they fall due.

helps to ensure that clients and creditors were financially protected.

Beazley periodically assesses the liquidity position of the syndicate

which is overseen by the risk committee. This includes a

benchmarking view from a third-party assessment.

Liquidity risk outlook continues to be stable as Beazley manages

above sufficient levels of liquidity and capital.

Regulatory and legal

The control environment supports the nature, exposure, scale and

Non-compliance with regulatory and legal requirements,

complexity of the business overseen by the risk and regulatory

failing to operate in line with the relevant regulatory

committee. Beazley maintains a trusting and transparent relationship

framework in the territories where the syndicate operates.

with regulators, ensuring coordinated communication and robust

This may lead to financial loss (fines, penalties),

process, policies and procedures being followed in the business. In

sanctions, reputational damage, loss of confidence from

addition, key staff, particularly those who held defined roles with

regulators, regulatory intervention, inability to underwrite

regulatory requirements, are experienced and maintained regular

or pay claims.

dialogue with regulators. Beazley horizon scans for regulatory and legal

matters and considers their potential impacts on the syndicate.

Beazley considers the needs of its clients in everything its business

does. Beazley delivers good customer outcomes to our clients

throughout the product lifecycle. The Conduct Review Group oversees

this risk. Beazley aims to do the right thing to minimise reputational

risk via stakeholder management and oversight through governance.

Regulatory and legal risk outlook continues to increase as Beazley

manages evolving regulatory requirements and legislative changes

globally.

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Principal risks and summary descriptions

Mitigation and monitoring

Operational

Beazley attracts and nurtures talented colleagues who champion

Failures of people, processes and systems or the impact

diversity of thought, creating a culture of empowerment, collaboration

of an external event on operations (e.g., a cyber-attack

and innovation to build an environment of employee wellbeing. The

having a detrimental impact on operations) including

managing agent employs high calibre, motivated, loyal, and productive

transformation and change related risks.

people with sufficient competence to perform their duties.

Beazley invests in technology and re-engineering processes to support

the operation of activities which are overseen by the operations

committee. Beazley has policies and procedures across the

organisation which ensure effective and efficient operations. This

drives productivity and quality across our people, processes and

systems to continue to enable scalable growth.

The business continuity, disaster recovery and incident response

plans, help ensure that processes and systems enable our people to

deliver the right outcomes for clients and overall productivity. During

2023, there were effective controls in the day-to-day operations

around information security, data management, operational resilience

including cyber resilience, etc. to mitigate the damage that loss of

access to data or the amendment of data can have on the ability to

operate.

Operational risk outlook continues to be stable as Beazley manages

evolving manual processes and controls into digitised processes

along with technological and cyber resilience which are continuously

evolving risks.

Strategic

Events or decisions that potentially stop the syndicate from achieving its goals or danger of strategic choices being incorrect, or not responding effectively to changing environments in a timely manner leading to inadequate profitability, insufficient capital, financial loss or reputational damage. Pervasive risks impacting multiple areas (e.g., reputation, and ESG) occurring through real or perceived action, or lack of action taken by a regulatory body, market and/or third-party used by the business. A negative change to Beazley's reputation would have a detrimental impact to syndicate profitability and public perception.

Beazley continuously addresses key strategic opportunities and challenges itself to be the highest performing sustainable specialist insurer. BFL ensures it recognises, understands, discusses, and develops a plan of action to address any significant strategic priorities in a timely fashion whilst ensuring continuity of operational effectiveness and brand reputation.

Beazley creates an environment that attracts, retains and develops high performing talent with diversity of thought to explore, create and build, through investing in understanding the complexity of the risks clients face and deploying expertise to create value. The executive committee and the Board oversee these risks.

Beazley aims to strategically create a sustainable business for its people, partners and planet through its responsible business goals. BFL embeds ESG principles and ambitions and it focuses on reducing its carbon footprint, contributing appropriately to its social environment, and enhancements to governance. Note that while Beazley considers market practice, it does not necessarily move with every prevailing market trend, considering these for potential opportunities and risks.

Strategic risk outlook continues to be stable as Beazley embeds its achievements from 2023.

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Beazley | Syndicate 4321 Annual report 2023

07

Managing agent's report continued

Directors

A list of Directors of the managing agent who held office during the year can be found on page 32 of this syndicate annual report.

Syndicate annual general meeting

In accordance with the Syndicate Meetings (Amendment No. 1) Byelaw (No. 18 of 2000) the managing agent does not propose to hold a syndicate annual meeting this year. Members may object to this proposal within 21 days of this notice. Any objections must be made in writing to the managing agent.

Disclosure of information to the auditor

The directors of the managing agent who held office at the date of approval of this managing agent's report confirm that, so far as they are each aware, there is no relevant audit information of which the syndicate's auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the syndicate's auditor is aware of that information.

Auditor

Pursuant to Section 14(2) of Schedule 1 of the Insurance Accounts Directive (Lloyd's syndicate and Aggregate Accounts) Regulations 2008, the auditor will be deemed to be reappointed and Ernst & Young LLP will therefore continue in office.

On behalf of the Board

S M Lake

Finance Director

27 February 2024

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Beazley plc published this content on 15 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 March 2024 13:36:07 UTC.