Beazley Furlonge Limited | Syndicate 5623 at Lloyd's Annual report and accounts 2023

Welcome to our Annual report 2023

As a leading global specialist insurer, we are passionate about bringing an innovative and progressive approach to helping our clients mitigate the risks of the world. During 2023, the syndicate embodied this passion while delivering a strong financial performance for its members.

Contents

  • Highlights
  • Strategic report of the managing agent
    4 Managing agent's report

Statement of managing agent's

9

responsibilities

10

Independent auditor's report to the

members of Syndicate 5623

  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

Syndicate 5623 2021 underwriting year

  1. accounts
  2. Managing agent's report Statement of managing agent's
  3. responsibilities
    Independent auditor's report to the
  4. members of Syndicate 5623 - 2021 closed year of account

41 Profit or loss account Statement of changes in members'

  1. balances
  2. Balance sheet
  3. Cash flow statement
    Notes to the syndicate 2021
  4. underwriting year of account

Four-year summary of closed year results

  1. at 31 December 2023
  2. Managing agent's corporate information

Highlights

Syndicate capacity

Claims ratio

Gross premiums written

£339.8m

57%

$390.1m

(2022: £204.4m)

(2022: 58%) 1

(2022: $249.3m) 1

Expense ratio

Earned premiums, net of reinsurance

Combined ratio

33%

$294.2m

90%

(2022: 27%) 1

(2022: $195.0m) 1

(2022: 85%) 1

Profit for the financial year

Rate increase on renewals

Cash and investments

$40.6m

7.8%

$184.5m

(2022: $24.5m) 1

(2022: 5.5%)

(2022: $23.4m)

Net premiums written

$363.1m

(2022: $249.3m) 1

1Certain balances have been restated due to a prior period error. Refer to note 3.

www.beazley.com

Beazley | Syndicate 5623 Annual report 2023

01

Strategic report of the managing agent

Overview

Syndicate 5623 (the 'syndicate') writes portfolio underwriting business at Lloyd's and operates a follow-only portfolio. The syndicate began writing business directly at Lloyd's from the start of 2023, having previously been a special purpose reinsurance vehicle for syndicate 3623.

The capacities of the syndicates managed by Beazley Furlonge Limited ('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 profit of $40.6m (2022: $24.5m1). Gross premiums

written increased to $390.1m (2022: $249.3m1).

Year of account results

The 2021 year of account ('YOA') has closed with a return on capacity of 13.7%. The 2022 YOA is currently forecasting a return on capacity of 7.0%. The 2023 YOA is also forecasting a positive return on capacity but it is still in the early stages of development.

Rating environment

The syndicate started writing business in 2023, however, it inherited some lines of business from Syndicate 3623. The premium rates charged for renewal business of these lines of business increased by 7.8% during 2023 (2022: 5.5%).

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 90% (2022: 85%1). The increasing expense ratio explains the majority of the combined ratio movement year on year.

Claims

The claims ratio is a measure of the syndicate's claims experience and represents the ratio of its net insurance claims to net earned premium. The 2023 claims ratio for Syndicate 5623 decreased slightly to 57% (2022: 58%1).

Net operating expenses

Net operating expenses, including business acquisition costs and administrative expenses were $98.3m (2022: $52.7m). The breakdown of these costs is shown below:

2023

2022

$m

$m

Brokerage costs

66.7

42.5

Other acquisition costs

3.1

0.1

Total acquisition costs

69.8

42.6

Administrative and other expenses

28.5

10.1

Net operating expenses*

98.3

52.7

* A further breakdown of net operating expenses can be seen in note 5.

Brokerage costs as a percentage of net earned premium are approximately 23% (2022: 22%1). Brokerage costs are deferred and expensed over the life of the associated premiums in accordance with accounting guidelines. Other acquisition costs comprise of 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.

1 Certain balances have been restated due to a prior period error. Refer to note 3.

02

Beazley | Syndicate 5623 Annual report 2023

www.beazley.com

The expense ratio is a measure of net operating expenses to net earned premium. The expense ratio for 2023 is 33% (2022: 27%). 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. Incentive payments also increased during the year due to improved profitability of the syndicate.

Reinsurance

In 2023, the amount spent on outward reinsurance was $27.0m (2022: nil). As a percentage of gross premiums written this was 7%. This was the first year that the syndicate purchased reinsurance cover.

Outlook

The 2022 underwriting year has been impacted by a number of climate related natural catastrophes such as Hurricane Ian and Storm Elliot but is still expected to produce a positive return on capacity. The syndicate is also expected to produce a positive return on capacity for the 2023 underwriting year, the syndicate's first year operating as a standalone syndicate at Lloyd's.

Looking ahead to 2024, the syndicate will continue to build on previous successes.

From 1 January 2024, the syndicate will also begin writing lines of business which will 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 will follow the lead underwriting of syndicates 2623 and 623, also managed by BFL to write business on a multi-line basis. These new ESG lines were previously written through syndicate 4321.

A P Cox

Chief Executive Officer

27 February 2024

www.beazley.com

Beazley | Syndicate 5623 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 5623 is the underwriting of market facilities follow-only business at Lloyd's. The syndicate was granted full syndicate status by Lloyd's from 1 January 2023 and began writing business directly from that date.

Business review

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

Risk governance and reporting

BFL's 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, Environmental, Social and Governance ('ESG') issues and climate related risks have become regular agenda items throughout 2023. In March 2021 we launched our first Responsible Business Strategy. This document, and the subsequent update which is published alongside the Beazley plc annual report and accounts ('ARA'), 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.

04

Beazley | Syndicate 5623 Annual report 2023

www.beazley.com

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 post 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 syndicate's 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

www.beazley.com

Beazley | Syndicate 5623 Annual report 2023

05

Managing agent's report continued

Principal risks and summary descriptions

Mitigation and monitoring

Insurance

Beazley uses a range of techniques to mitigate insurance risks

The risk arising from the inherent uncertainties about the

such as pricing tools, analysis of macro trends and claim

occurrence, amount and timing of insurance premium, and

frequency, including alignment with pricing and ensured exposure

claims liabilities. This includes risk from underwriting such as

was not overly concentrated in any one area, especially lines of

market cycle, catastrophe, reinsurance and reserves.

business with higher risk.

• Market cycle: potential systematic mispricing of medium or

The strategic approach to exposure management and a

long-tailed business that does not support revenue to invest

comprehensive internal and external reinsurance programme

and cover future claims;

helped to reduce volatility of profits in addition to managing net

• Catastrophe: one or more large events caused by nature

exposure with the transfer of risk.

(e.g., hurricane, windstorm, earthquake and / or wildfire) or

The prudent and comprehensive approach to reserving helped

mankind (e.g., coordinated cyber-attack, global pandemic,

losses linked to an economic crisis, an act of terrorism or an

ensure that claims covered by the policy wording were paid,

act of war and / or a political event) impacting a number of

delivering good customer outcomes. High calibre claims and

policies, and therefore giving rise to multiple losses;

underwriting professionals deliver expert service and claims

• Reinsurance arrangements: reinsurance may not be available

handling to insureds. The underwriting committee oversees

or purchases not made to support the business (i.e.,

these risks.

mismatch); and

Beazley carries out periodic analysis to identify significant areas

• Reserving: reserves may not be sufficiently established to

reflect the ultimate paid losses.

of concentration risk across the syndicates business and

monitors solvency regularly to ensure it is adequately capitalised.

Insurance risk outlook continues to be stable as Beazley

manages the market cycle across all the lines of business.

Market

Beazley operates a conservative investment strategy with a view

The value of investments may be adversely impacted by

to limiting investment losses that would impact the the

financial market movements of values of investments, interest

syndicate's financial results. Beazley mitigates this risk by

rates, exchange rates, or external market forces. Expected

carrying out asset liability matching as per the investment

asset returns may not align to risk and capital requirements.

constraints specified in the investment strategy. The investment

committee oversees the investment strategy and its

implementation.

Market risk outlook continues to face headwinds across

investment yields and foreign currency due to the global and

political economic environment.

Credit

Beazley trades with strategic reinsurance partners over the long

This risk of failure of another party to perform its financial or

term to support the syndicate through the insurance cycles

contractual obligations in a timely manner. Exposure to credit

despite potentially catastrophic claim events. The managing

risk from its reinsurers, brokers, and coverholders, of which the

agent ensures reinsurers meet internal approval criteria

reinsurance asset was the largest exposure for the syndicate.

overseen by the reinsurance security committee. Credit risk

arising from brokers and coverholders continues to be low as the

syndicate relies on robust due diligence processes, credit

monitoring and ongoing monitoring of aged debts.

Credit risk outlook continues to be stable as Beazley manages

ceded reinsurance, broker and coverholder credit risks with low

levels of aged and bad debt.

Group

Risk culture centres on principles of transparency, accountability,

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

and awareness. This helps maintain a strong risk culture that

adversely affects another area in the syndicate resulting in

supports an embedded risk management framework. An effective

financial loss and / or reputational damage. This also includes

risk culture reflects a maturing risk management framework,

a deterioration in culture which leads to inappropriate

encourages sound risk taking, creates an awareness of risks and

behaviour, actions and / or decisions including dilution of

emerging risks. The executive committee and the Board oversee

culture or negative impact on the brand.

this risk.

Group risk outlook continues to be stable as the executive

committee manages culture through continuous improvement

and monitoring.

06

Beazley | Syndicate 5623 Annual report 2023

www.beazley.com

Principal risks and summary descriptions

Mitigation and monitoring

Liquidity

By managing liquidity Beazley maximises flexibility in the

Investments and / or other assets are not available or

management of financial assets, including investment strategy,

adequate in order to settle financial obligations when they fall

without incurring unacceptable liquidity risks over any time

due.

horizon. In doing so, this 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

Non-compliance with regulatory and legal requirements, failing

and complexity of the business overseen by the risk and

to operate in line with the relevant regulatory framework in the

regulatory committee. Beazley maintains a trusting and

territories where the syndicate operates. This may lead to

transparent relationship with regulators, ensuring coordinated

financial loss (fines, penalties), sanctions, reputational

communication and robust process, policies and procedures

damage, loss of confidence from regulators, regulatory

being followed in the business. In addition, key staff, particularly

intervention, inability to underwrite or pay claims.

those who held defined roles with regulatory requirements, are

experienced and maintained regular dialogue with regulators. BFL

horizon scans for regulatory and legal matters and considers

their potential impacts on the syndicate.

Beazley consider the needs of the syndicate's clients in

everything the syndicate does. Beazley delivers good customer

outcomes to the syndicate's 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.

Operational

Beazley attracts and nurtures talented colleagues who champion

Failures of people, processes and systems or the impact of an

diversity of thought, creating a culture of empowerment,

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

collaboration and innovation to build an environment of employee

detrimental impact on operations) including transformation and

wellbeing. The managing agent employs high calibre, motivated,

change related risks.

loyal, and productive 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.

www.beazley.com

Beazley | Syndicate 5623 Annual report 2023

07

Managing agent's report continued

Principal risks and summary descriptions

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.

Mitigation and monitoring

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. Beazley 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.

Directors

A list of directors of the managing agent who held office during the year can be found on page 49 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

08

Beazley | Syndicate 5623 Annual report 2023

www.beazley.com

Attachments

  • Original Link
  • Original Document
  • Permalink

Disclaimer

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 13:26:07 UTC.