BEAZLEY PLC Beazley Furlonge Limited | Syndicate 623 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
-
Divisional performance commentary
11 Managing agent's report
- Statement of managing agent's responsibilities
- Independent auditor's report to the members of Syndicate 623
- Statement of comprehensive income
- Statement of changes in members' balances
- Balance sheet
- Cash flow statement
- Notes to the syndicate annual accounts
- 2021 underwriting year of account for Syndicate 623
- Managing agent's report
-
Statement of managing agent's responsibilities
Independent auditor's report to the - members of Syndicate 623 - 2021 closed year of account
- Profit or loss account
- Statement of changes in members' balances
- Balance sheet
- Cash flow statement
- Notes to the syndicate 2021 underwriting year of account
- Seven-yearsummary of closed year results at 31 December 2023
- Managing agent's corporate information
Highlights
Syndicate capacity | Profit for the financial year | Combined ratio | ||
£818.6m | $180.8m | 84% | ||
(2022: £587.2m) | (2022: $26.2m) | (2022: 92%) | ||
Gross premiums written | Rate increase on renewals | Cash and investments | ||
$974.7m | 5% | $1,279.2m | ||
(2022: $868.6m) | (2022: 13%) | (2022: $990.4m) | ||
Net premiums written | Claims ratio | Investment return | ||
$816.7m | 43% | 5.3% | ||
(2022: $673.5m) | (2022: 57%) | (2022: (2.4%)) | ||
Earned premiums, net of reinsurance | Expense ratio | |||
$736.1m | 41% | |||
(2022: $652.7m) | (2022: 35%) |
www.beazley.com | Beazley | Syndicate 623 Annual report 2023 | 01 |
Strategic report of the managing agent
Overview
The balanced portfolio of Syndicate 623 (the 'syndicate') has underpinned its underwriting performance in recent years. The syndicate made a profit of $180.8m (2022: $26.2m) for the year ended 31 December 2023. Gross premiums written increased to $974.7m (2022: $868.6m).
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 |
Year of account results
The 2021 year of account ('YOA') has closed with a return on capacity of 16.1% despite being adversely impacted by a number of natural catastrophes, including Hurricane Ida and Flood Bernd. Beazley has maintained an active approach to portfolio diversification and this coupled with careful risk selection has minimised the impact of these events and enabled the achieved return on capacity. The 2022 YOA is currently forecasting a positive 12.5% return on capacity. Although there were numerous adverse weather events that impacted the syndicate the positive return on capacity demonstrates that such events are within the expected range for the syndicate. The 2023 YOA, is currently projected to close with a positive return on capacity. Limited natural catastrophes and strong premium growth on the Property Risks and Marine, Aviation and Political ('MAP') Risks portfolios are the main factors contributing to this. This YOA is still developing.
Rating environment
Rate increases for the syndicate softened to 5% in 2023 across the portfolio (2022: 13%). Property Risks experienced significant rate increases at 22% while MAP Risks rate increases were 6%. After a prolonged period of high rate increases, Cyber Risks started to see rate decreases in 2023. Specialty Risks remained relatively flat year on year.
An overview of the syndicate's performance by division is presented between pages 6 and 10.
02 | Beazley | Syndicate 623 Annual report 2023 | www.beazley.com |
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 has improved in 2023 to 84% (2022: 92%) driven mainly by a reduction in the claims 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 claims ratio decreased to 43% in 2023 (2022: 57%). The improved claims ratio is a result of the large prior year reserve releases, as discussed in the next paragraph.
Prior year reserve releases
The syndicate 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. The risk margin had historically been determined by the actuarial, claims and underwriting teams, taking experience and judgement into account. During 2023, the managing agent revised the actuarial methodology behind determining the risk margin that is held, ensuring a unified and consistent approach to reserving across all entities managed by the Beazley Group. This resulted in less margin being held on some classes, such as MAP, and more on others such as Cyber. As a result of this change $23.1m of reserves (on a net of reinsurance basis) were released during the year. The managing agent continues to be of the view that the reserves held are appropriate.
During 2023 the syndicate released prior year reserves of $58.7m (2022: $9.3m). This includes the $23.1m referred to above. The syndicate experienced a large net release on most divisions, offset by a strengthening on the Cyber Risks division on the
2020 and prior underwriting year. Net (releases)/strengthening are shown by division in the table below:
2023 | 2022 | |
$m | $m | |
Cyber Risks | 5.7 | 5.1 |
Digital | (8.0) | (0.6) |
MAP Risks | (22.6) | (10.8) |
Property Risks | (8.1) | (3.6) |
Specialty Risks | (25.7) | 0.6 |
Total | (58.7) | (9.3) |
www.beazley.com | Beazley | Syndicate 623 Annual report 2023 | 03 |
Strategic report of the managing agent continued
Net operating expenses
Net operating expenses, including business acquisition costs and administrative expenses, increased from $230.3m to $296.8m in 2023. The breakdown of these costs is shown below:
2023 | 2022 | |
$m | $m | |
Brokerage costs | 198.5 | 172.5 |
Other acquisition costs | 19.0 | 14.6 |
Total acquisition costs | 217.5 | 187.1 |
Administrative and other expenses | 49.9 | 35.6 |
Profit commissions payable to managing agent | 29.4 | 7.6 |
Net operating expenses1 | 296.8 | 230.3 |
1 A further breakdown of net operating expenses can be seen in note 4.
Brokerage costs as a percentage of net earned premium are approximately 27% (2022: 26%). 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, staff costs, facilities costs, Lloyd's central costs and other support costs.
The expense ratio is a measure of net operating expenses to net earned premium. The expense ratio for 2023 is 41% (2022: 35%). 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. Profit commissions payable increased as a result of the rising profitability of the syndicate over the year.
Investment performance
The syndicate's investments generated a return of $59.9m, or 5.3% in 2023 (2022: a loss of $22.3m, or (2.4%)). This is, by some margin, the highest contribution from investments in the syndicate's history. It is partly a consequence of the ongoing growth in financial assets, which reached $1,279.2m at 31 December (2022: $990.4m). It also reflects the yields available on fixed income investments, which are much higher than in recent years, as well as strong returns from equity and credit exposures.
Considering the year as a whole, US bond yields were relatively unchanged at most maturities, so that the returns achieved on our fixed income portfolio closely reflected starting yields. However, yields were volatile throughout the year, rising significantly in the first nine months as ongoing inflationary pressures and resilient economic growth led to higher interest rates initially, then declining in the final quarter, as markets began to anticipate lower interest rates in 2024. As a result, more than half of the 2023 investment return was generated in the final two months of the year.
Equity markets were also volatile, but posted strong gains overall. Modest equity exposures, focused on US markets and selected to reflect the Beazley Group's responsible investment commitments, returned more than 25% in 2023, with the strongest performance again in the final months of the year. High yield credit exposures also produced good returns as credit spreads declined, while alternative investments, which are predominantly in hedge funds, generated more modest returns. Overall, the syndicate's capital growth investments returned a gain of 8.9%.
Although yields have declined in recent months, levels are similar to those at the beginning of 2023: The yield of the core portfolio at 31 December 2023 was 4.9%. This suggests that the good contribution from investments in 2023 could be repeated in 2024, given stability in financial markets. However, such stability is likely to remain elusive, as global geo-political risks remain elevated and forthcoming elections, in the US, UK and elsewhere, may generate further uncertainty.
04 | Beazley | Syndicate 623 Annual report 2023 | www.beazley.com |
The table below details the breakdown of our portfolio by asset class:
31 Dec 2023 | 31 Dec 2022 | |||
$m | % | $m | % | |
Cash at bank and in hand | 6.6 | 0.5 | 19.9 | 2.0 |
Fixed and floating rate debt securities | ||||
- Government issued | 616.7 | 48.2 | 559.1 | 56.4 |
- Corporate bonds | ||||
- Investment grade | 462.9 | 36.2 | 268.8 | 27.1 |
- High yield | 62.7 | 4.9 | 35.2 | 3.6 |
Syndicate loans to Lloyd's central fund | 6.8 | 0.5 | 6.5 | 0.6 |
Derivative financial assets | 1.0 | 0.1 | 4.5 | 0.5 |
Core portfolio | 1,156.7 | 90.4 | 894.0 | 90.2 |
Equity funds | 36.2 | 2.8 | 17.6 | 1.8 |
Hedge funds | 82.6 | 6.5 | 75.2 | 7.6 |
Illiquid credit assets | 3.7 | 0.3 | 3.6 | 0.4 |
Total capital growth assets | 122.5 | 9.6 | 96.4 | 9.8 |
Total | 1,279.2 | 100.0 | 990.4 | 100.0 |
Comparison of return by major asset class: | ||||
31 Dec 2023 | 31 Dec 2022 | |||
$m | % | $m | % | |
Core portfolio | 50.1 | 4.9 | (22.5) | (2.7) |
Capital growth assets | 9.8 | 8.9 | 0.2 | 0.2 |
Overall return | 59.9 | 5.3 | (22.3) | (2.4) |
Reinsurance
In 2023, the amount spent on outward reinsurance was $158.0m (2022: $195.1m). As a percentage of gross premiums written it decreased in 2023 to 16% from 22% in 2022 as the syndicate retained more net premium in line with the underwriting strategy for the year.
Outlook
The 2022 underwriting year has been impacted by a number of climate related natural catastrophes such as Hurricane Ian, Storm Uri and the Hawaiian Wildfires. The war in Ukraine has also impacted the 2022 underwriting year. Despite this challenging claims environment the syndicate is expected to produce a positive 12.5% return on capacity for 2022 underwriting year - indicating that such events are within the syndicate's expected range.
In 2023, the syndicate continued to maintain and grow a well-diversified portfolio helped by rate increases across numerous classes - particularly the Property Risks division. Despite losses attributable to the Hawaiian Wildfires in the US, the YOA is projected to close with a positive return on capacity.
Looking ahead to 2024, the managing agent anticipates building on the strong rate increases achieved over the past year. The managing agent continues to search for growth opportunities while taking heed of the increasingly complex risk environment driven by climate change, political and macro-economic factors. For the 2024 YOA business written domestically by Beazley's US-based underwriters has been removed from syndicate 623 and the revised syndicate 623 portfolio will be rebalanced to cover a larger share of Beazley's existing wholesale business written in London, Miami and Singapore. This change was passed via a ballot.
A P Cox
Chief Executive Officer
28 February 2024
www.beazley.com | Beazley | Syndicate 623 Annual report 2023 | 05 |
Divisional performance commentary
Cyber Risks
2023 | 2022 | |
$m | $m | |
Gross premiums written | 194.9 | 194.4 |
Net premiums written | 146.5 | 138.2 |
Earned premiums, net of reinsurance | 140.7 | 125.6 |
Claims incurred, net of reinsurance | (78.6) | (72.1) |
Net operating expenses | (47.4) | (34.7) |
Technical result | 14.7 | 18.8 |
Claims ratio | 56% | 57% |
Expense ratio | 34% | 28% |
Combined ratio | 90% | 85% |
Renewal rate change | (6)% | 35% |
Cyber Risks gross premium remained relatively stable in 2023 at $194.9m (2022: $194.4m). The rating spike experienced in the previous two years stabilised and with increased stability competition entered.
2023 was also the year when the market started to mature and address the challenges of systemic cyber risk. Beazley took a leading position in this with the robust approach Beazley have championed succeeding in bringing much needed clarity to the existing war exclusions and as we enter 2024, Beazley is seeing broad market consensus.
The innovations Cyber Risks has made over the last 12 months in the development of cyber catastrophe bonds and in addressing systemic or catastrophic cyber risk, have been made possible by the managing agent's ongoing work on modelling cyber risk. Beazley has shared its approach to modelling catastrophic cyber with the market during 2023, detailing Beazley's move to a probabilistic modelling framework which is underpinned by third party data and internal models to give greater insight into cyber catastrophe scenarios.
Looking forward there is growing business demand for cyber insurance and the managing agent is pleased to see that the insurance and capital markets are responding by providing the additional capacity the market needs to reach its potential. In particular the managing agent sees an opportunity to grow among businesses in the sub $250m revenue space, where the managing agent's expertise and experience of managing cyber risk adds real value to operations.
Ransomware has not gone away and while the managing agent has not seen any significant uptick in its book at the point of reporting, there is evidence in other parts of the market that it is increasing in frequency. The managing agent believes it will be able to navigate an upswing given both the improvements made in the risk selection of its book and the investment it continues to make into threat assessment and risk mitigation strategies.
06 | Beazley | Syndicate 623 Annual report 2023 | www.beazley.com |
Digital
2023 | 2022 | |
$m | $m | |
Gross premiums written | 33.6 | 34.0 |
Net premiums written | 29.6 | 28.0 |
Earned premiums, net of reinsurance | 31.1 | 24.7 |
Claims incurred, net of reinsurance | (7.1) | (13.1) |
Net operating expenses | (17.4) | (10.4) |
Technical result | 6.6 | 1.2 |
Claims ratio | 23% | 53% |
Expense ratio | 56% | 42% |
Combined ratio | 79% | 95% |
Renewal rate change | (2)% | 18% |
The Digital division achieved gross premiums written of $33.6m (2022: $34m) with a technical result of $6.6m (2022: $1.2m)
and a combined ratio of 79% (2022: 95%). The improved combined ratio is primarily driven by a decrease in the Digital claims ratio.
Digital had a successful year as the syndicate increased the number of products brought to market. The syndicate delivered a profit by maintaining a focus on underwriting discipline. The managing agent is pleased with the reception of its high quality service offering and claims handling received from brokers and the way that new products and digital access points are welcomed by the market.
Beazley is building the Digital division for the long-term, focused on underwriting discipline and client service. This approach is valued by brokers, when making a claim or in needing help with securing cover for their clients. Brokers are increasingly seeking cyber cover that includes cyber breach response and Beazley's experience in this area is rapidly becoming a key differentiator.
www.beazley.com | Beazley | Syndicate 623 Annual report 2023 | 07 |
Divisional performance commentary continued
MAP Risks
2023 | 2022 | |
$m | $m | |
Gross premiums written | 155.0 | 131.4 |
Net premiums written | 143.6 | 117.7 |
Earned premiums, net of reinsurance | 129.8 | 110.1 |
Claims incurred, net of reinsurance | (30.0) | (51.2) |
Net operating expenses | (59.8) | (42.3) |
Technical result | 40.0 | 16.6 |
Claims ratio | 23% | 47% |
Expense ratio | 46% | 38% |
Combined ratio | 69% | 85% |
Renewal rate change | 6% | 4% |
2023 saw an improved result registered by MAP Risks with gross premiums written of $155.0m (2022: $131.4m) and a
combined ratio of 69% (2022: 85%). The profitable performance is based on strong demand for the syndicate's specialist product set and the market leading expertise of the managing agent.
Geopolitical uncertainty continued through 2023, creating a heightened risk environment and increasing demand for insurance across the syndicate's terrorism, political risk, contingency, marine, aviation, war and cargo lines of business.
2023 saw the managing agent recruit a new Head of Hull and War as part of its Marine business. Marine insurance is a key component in the smooth functioning of global trade and in our cargo account, which is three times larger than it was five years ago. Increasing trade activity following the pandemic and challenges in supply chains have been important drivers of demand, while the managing agent's focus on the fundamentals has delivered sustainable profits.
The Contingency business continued to benefit from increased demand for events post pandemic. The managing agent had expected that 2023 would see a fall back in demand to pre-pandemic levels, so it has been pleasing to see that the world is still excited by the prospect of attending a face-to-face event.
Energy demand and use continues to grow alongside an increasing pace of transition away from fossil fuels. The managing agent's energy team is actively investing in the fast expanding renewables sector and with the hire of a new Head of Renewable Energy.
08 | Beazley | Syndicate 623 Annual report 2023 | www.beazley.com |
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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 13:28:09 UTC.
