5th Feb 2015 07:53
LONDON (Alliance News) - Specialist insurer Beazley PLC Thursday reported a 16% drop in pretax profit in 2014, citing reserve releases lower than its five-year average and higher foreign exchange losses due to the strength of its US dollar reporting currency, compared to currencies it uses in operations and to pay staff.
Beazley increased its dividend for the year to 9.3 pence from 8.8 pence, though its special dividend to shareholders was lowered to 11.8 pence from 16.1 pence for the prior year.
In a statement, Beazley said it made a USD261.9 pretax profit in 2014, compared with USD313.3 million in the prior year, as revenue grew by 4% to USD1.77 billion and expenses swelled by 11% to USD1.49 billion.
Revenue was lifted by a 4% rise in a net earned premiums to USD1.66 billion, with rates on renewal business on average decreasing by 2% across the portfolio. Beazley also reported a 92% increase in net investment income to USD83.0 million as the portfolio benefited from falling yields in regions where its has fixed rate exposure.
Beazley attributed the fall in pretax profit to an increase in its combined ratio, a measure of underwriting profitability representing the ratio of costs to net earned premium, which rose to 89% from 84% in the prior year. Anything below 100% represents an underwriting profit. Beazley said the change in its combined ratio was driven by above-average prior-year reserve releases in 2013.
Along with a forex hit, as the dollar made gains against sterling, which is the currency in which most of the company's employees receive their salaries, and the euro and Canadian dollar, the combined ratio's increase reduced profit by about USD80 million, Beazley said. The foreign exchange losses also include the translation of premiums paid in other currencies into the reporting currency.
According to the insurer, reserve releases totalled USD158.1 million in 2014, compared with USD218.0 million in 2013, a particularly benign year for catastrophes, and the USD166.6 million five-year average.
"Insurance companies exist to pay claims. Subdued claims activity of the kind we have seen in many lines of business for the past two years casts an artificially rosy light on the economics of our business," Andrew Horton, chief executive, said in a statement.
"Beazley's response has been consistent throughout our history: we will focus on specialist products that command higher margins and walk away from underpriced business; we will keep a keen focus on expenses while continuing to invest prudently for the future; and we will return capital that we cannot profitably deploy to our investors," Horton added.
By Samuel Agini; [email protected]; @samuelagini
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