30th Aug 2006 07:02
Beazley Group PLC30 August 2006 Press release Continued delivery against strategic objectives Beazley Group plc, interim results for the six months ended 30 June 2006 London, UK, August 30, 2006 • Profit before tax of £28.3m (H1 2005 £35.2m); • Profit before tax and foreign exchange on non-monetary items £36.2m(H1 2005 £28.9m); • Gross premiums written up 43% at £394.3m (H1 2005 £275.4m); • Overall increase of 10% on rates on renewal; • Premiums in the USA increased to $27.4m (Full year 2005 $15.4m); • Increased dividend to 1.6p (H1 2005 1.5p); and • Our 2005 hurricane estimates remain unaltered. H1 2006 H1 2005 % Change £m £mGross premiums written 394.3 275.4 43%Net premiums written 255.2 188.9 35%Net earned premiums 225.7 166.4 36% Profit before tax and foreignexchange adjustments on non monetaryitems 36.2 28.9 25%Profit before tax 28.3 35.2 (20%) Claims ratio 56% 57% Expense ratio 34% 32% Combined ratio 90% 89% Earnings per share (p) 5.5 6.8 (19%)Dividends per share (p) 1.6 1.5 7%Net assets per share (p) 79.8 82.9 (4%) Cash and investments (£m) 923.2 778.0 19% Andrew Beazley, Chief Executive of Beazley, said: "The business remains strong and I am particularly pleased that our 20 yearrecord of profitability remains intact. Demand is strong in many of our coreareas of business and prospects for returning profits remain good. Our expansioninto the US is gaining momentum as we gain support from US domestic brokernetworks and continue to attract talented individuals. We are pleased to proposean increased dividend to 1.6p per share and look to the future with confidence." ENDS For further information, please contact: Beazley Group plc Andrew Beazley T: +44 (0)20 7667 0623 Andrew Horton T: +44 (0)20 7667 0623 Finsbury Simon Moyse Amanda Lee T: +44 (0)20 7251 3801 Notes to editors: Based in London, U.K. since 1986, Beazley (BEZ.L) is the parent company of aglobal specialist risk insurance and reinsurance business operating throughLloyd's syndicates 2623 and 623 in the UK and Beazley Insurance Company, Inc., aUS admitted carrier in all 50 states. Both syndicates are rated A by A.M. Bestwith an aggregate capacity for 2006 of £830m (over $1.4bn). Beazley InsuranceCompany, Inc. is rated A- by A.M. Best. Beazley is a market leader in many of its chosen lines of business, whichinclude professional indemnity, marine, reinsurance, commercial property andpersonal lines. Further information about us is available at www.beazley.com -------------- We are pleased to announce a profit before tax of £28.3m for the six months to30 June 2006. As a result, our net assets per share have increased to 80p from78p at the end of 2005. Overall results 2006 is an exciting and challenging time for the insurance industry with strongunderwriting conditions following the significant claims incurred by thehurricane season of 2005, which resulted in the highest insured loss in history.In line with our predictions at the end of last year, we have seen significantrate increases in all US hurricane impacted business lines, particularly acrossour US commercial property, offshore energy and treaty reinsurance accounts. Our gross written premiums increased by 43% to £394.3m (2005: £275.4m) and netearned premiums increased to £225.7m (2005: £166.4m). In 2006 the groupincreased its share in the combined capacity of syndicates 2623 and 623 to 78%(2005: 70%). At the same time our managed capacity at Lloyd's increased to £830m(2005: £742m). The increase in capacity was driven by the rise in insurancerates following the catastrophic events of 2005 together with our desire to takea greater share in the risks we lead and know well. The combined ratio for thegroup remains stable at 90% (2005: 89%), although this is a significantimprovement on the year end ratio of 105%. The expense ratio has increased to34% (2005: 32%) primarily as a result of start up costs in our US business,which is in its first full year of operation. The group's estimates for claims made in 2005 for hurricanes Katrina, Rita andWilma remain in line with previous forecasts. Our reinsurers are respondingwell. We continue to monitor the progress of any likely claims incurred closely,but are confident of the estimates of reserves being carried. Our specialty lines claims are developing better than reserved for and we havereleased £7.4m of prior year reserves. This has contributed to an increase inour forecast return on capacity on the 2004 year of account from 6.5% to 7.4%.Our 2005 year of account forecast remains at breakeven. Dividend The board is pleased to report that it will pay an interim dividend of 1.6p(2005: 1.5p). This will be paid on 10 October 2006 to shareholders on theregister on 22 September 2006. 20th year anniversary 2006 marks the 20th anniversary of Beazley Furlonge Limited as a managing agentat Lloyd's. Over this period the managing agency and more recently the grouphave never made a loss on an underwriting year basis, despite some catastrophicand costly natural and man-made events. We believe this is testament to ourconsistent delivery of the highest levels of underwriting and claims expertise,which when combined with robust risk management policies, have secured ourreputation as a premier risk taker. Rating environment As previously mentioned, trading conditions have strengthened significantly incertain classes over the past six months following last year's hurricanes. Themarket is, in certain sectors, proving yet again to be a responsive and vibrantplace, with increases in rates averaging over 60% in certain classes ofbusiness. The average renewal rate increases across all our lines was 10% (2005:a reduction of 1%). Our largest division, specialty lines, has seen its ownpremium rates increase by 3%, which is ahead of our budgeted expectations. Renewal rates movement based on the 2001 prevailing rates 2001 2002 2003 2004 2005 2006 year to dateSpecialty 100 135 160 166 168 173LinesProperty 100 126 132 125 123 139Reinsurance 100 142 149 149 148 191Marine 100 118 128 128 131 147Total 100 131 145 146 146 161 US business Currently in its first full year of operation, the US business was establishedin 2005 to enable us to access insurance business that would not traditionallycome to Lloyd's. We have successfully recruited a number of high-calibreindividuals to take the US business forward through our own managing generalagent (MGA), which writes business both for our syndicates at Lloyd's and theadmitted insurance company. Our MGA writes insurance business for our Lloyd's syndicates in both thespecialty lines and the property sectors. The focus of the specialty linesbusiness is professional liability and directors and officers insurance, whilethe property team focus on high-value homeowners' insurance in Florida and theCarolinas. In the six months to 30 June 2006, the MGA had written $10.7m ofspecialty lines business and $3.2m in respect of property. Both of these are inline with the group expectations. Our MGA writes specialty lines insurance business for Beazley Insurance CompanyIncorporated (BICI) for small and medium sized clients who would nottraditionally have purchased insurance through Lloyd's. Recently its portfoliohas been extended to include US Cargo and we plan to launch a US admittedcommercial property business. The insurance company has written $13.5m in thesix months to 30 June 2006. Reinsurance protection The availability of reinsurance protection at competitive prices in ourhurricane impacted classes of business has been scarce during the first half ofthe year. We have seen rates rise significantly in our own treaty reinsurancedivision and likewise our reinsurers have adjusted their pricing in a similarmanner. We have therefore had to monitor our exposures carefully throughout theperiod, and have managed them in line with the availability and price ofreinsurance. We maintain strict control over our aggregate exposures, to thepoint of rejecting otherwise profitable business should its addition exceed ourrisk appetite. Specialty Lines For the first half of 2006, the overall trading environment has been at or aboveexpectations and the team continues to evolve the portfolio to concentrate onareas that offer a sustainable margin. We have also focussed on implementing key strategic initiatives. The admittedbusiness is building momentum and the US and London teams are fully integrated.Our skills and expertise are effectively leveraged on a global basis, whichensures consistency of approach and product offering. Our claims initiative continues to develop, with new team members in London,Farmington and New York. The American teams are servicing US business writtenacross the whole of specialty lines. Full integration of the claims team intothe underwriting process and the ability to manage claims locally should improveoperational efficiency and effectiveness. Property Trading conditions are generally favourable in all lines, especially forbusiness in natural catastrophe exposed areas of the US where continued shortageof capacity has secured substantial rate and deductible increases. Conditionsare more competitive outside such areas, where it is expected that rates willremain flat in most lines of business. Commercial property's performance is substantially ahead of interim results in2005 due to reduced capacity and more responsible competitor pricing. The UKhomeowners and jewellers accounts are also performing well. The UK engineeringteam are in line to meet their targets for the year and have secured orders withmany high profile clients. We are also on schedule to launch our Singaporeoffice, which will write further engineering business in the fourth quarter of2006. Reinsurance The degree of impact from the hurricanes Katrina, Rita and Wilma on tradingconditions, has varied by geographic region. We had expected a quicker andbroader reaction to the impact from the hurricanes during the first quarter ofthe year. International markets remained historically profitable, yet stablepricing levels whilst the US property reinsurance market dramatically hardenedas the year progressed. The portfolio has been restructured to fit market conditions and our ability tomatch the group's risk appetite. Dramatically increased pricing of our ownreinsurance protections and the general lack of capacity for retrocessionalcover has led to a downward revision of our forecast premium income. We aretaking on less exposure and buying less cover than last year. Parts of the reinsurance market are expected to remain dislocated for theforeseeable future which will bring both challenges and opportunities for thissection of our business. Marine The first half of 2006 saw an aggressive but controlled growth of the energyincome. This book will be 40% of marine income and takes full advantage of thesignificant rises witnessed for the Gulf of Mexico offshore energy portfolio.Increases on Gulf exposed structures have ranged up to 350%. Currently the raterises on the worldwide portfolio are averaging 66% on renewal business and thetrend is upwards. The rates for hull, cargo and war are beginning to come under downward pressurebut are expected to remain profitable and deliver the group's return on equitytargets. We have added additional underwriting resource to our UK cargo team toenable further expansion in the north of England and diversification of theportfolio. Marine liability rates are rising in line with inflation and continueto be profitable. Investments The group's investment and cash balances grew over the six month period, withmanaged funds increasing to £923.2m (31 Dec 2005: £884.5m). These are mainlyheld in short duration bonds although we continue to invest up to 12% inalternative investments including high yield bonds, equities and hedge funds. Capital Our capital comes from three sources - our own shareholders' funds, oursyndicated debt facility of £150m, and subordinated loan notes. We use thiscapital to support our underwriting operations both at Lloyd's and in the US. The capacity of the combined syndicates is planned to increase to £860m (2006:£830m) for the 2007 underwriting year, subject to approval by Lloyd's. This is areflection of our belief that underwriting conditions will continue to remainfavourable for at least a further 12 months. The group's own capacity isanticipated to be at least £670m (2006: £647m). We recently submitted our first estimate of our capital requirement, orindividual capital assessment (ICA), to Lloyd's. We believe our plan is robustand that our ICA fully reflects our risk exposures including capital for notonly our main risk of underwriting, but also capital for market, credit,liquidity and operational risks to which we may have exposure. Our 2006 ICAestimated that over 70% of our risk concentration was in underwriting risk, withcapital set at 47% of premium capacity. Additional capacity on syndicate 623 As part of the Lloyd's auction process we have made an offer to the Names onsyndicate 623 for their remaining capacity (£183m). We have offered 2.7p foreach £1 of capacity. This is a mandatory offer as our capacity on the combinedsyndicates 623/2623 crossed the 75% threshold, as determined by Lloyd's lastyear. Board Changes We recently appointed Marty Becker and Dan Jones to the Beazley Group board asnon-executive directors. Marty has more than 28 years of experience in theinsurance industry where he is currently serving as chairman and chief executiveofficer of LaSalle Reinsurance Re. Dan joins us with over 20 years experience ininsurance broking, most recently with Marsh Inc. Joe Sargent and Tom Sullivan will be stepping down from the board. Joe, whojoined Beazley in 1993, has had a key role in the development of the group,including his role as chairman during the IPO in 2002. Tom joined Beazley in1997 as a non-executive director, serving on both our audit and remunerationcommittees. I'd like to take this opportunity to thank both Joe and Tom fortheir wise guidance and significant contributions to the group. Outlook Our US business is now well established and we expect premium flow to increasefurther in the second half. The addition of commercial property to our insurancecompany offering is an important step in building awareness of our capabilitiesin the US domestic market. Greater efficiency, improved customer relations, and cost control over claimsremain key strategic initiatives. We are actively recruiting claims and legalexperts to enhance our capabilities in this area, which we believe will bringsignificant long term benefits to the group. The business is having a strong year, we are optimistic for the future and lookforward to the opportunities offered by such positive underwriting conditions. Andrew BeazleyChief Executive Income StatementFor the period ended 30 June 2006 Note 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Gross premiums written 2 394.3 275.4 558.0Written premiums ceded to reinsurers (139.1) (86.5) (132.2)Net premiums written 2 255.2 188.9 425.8 Change in gross provision for (100.8) (61.8) (73.7)unearned premiumsReinsurer's share of change in the 71.3 39.3 20.2provision for unearned premiumsChange in the provision for unearned (29.5) (22.5) (53.5)premiums 2 225.7 166.4 372.3 Net earned premiums Net investment income 3 19.1 12.3 31.6Other income 4 3.4 3.3 6.9 22.5 15.6 38.5Revenue 2 248.2 182.0 410.8 Insurance claims 161.8 128.9 463.7Insurance claims recovered from (34.5) (34.0) (190.7)reinsurersNet insurance claims 2,7 127.3 94.9 273.0 Expenses for the acquisition of 60.1 42.1 95.5insurance contractsAdministrative expenses 17.2 10.6 23.0Other expenses 13.6 (1.3) 1.4Operating expenses 90.9 51.4 119.9 2 218.2 146.3 392.9 Expenses Results of operating activities 30.0 35.7 17.9 Finance costs 1.7 0.5 1.8 Profit before tax 28.3 35.2 16.1 Comprises:Profit before tax and foreign 36.2 28.9 7.9exchange adjustments on non monetaryitemsForeign exchange on non monetary (7.9) 6.3 8.2items Income tax expense (8.4) (10.6) (5.0) Profit after tax 19.9 24.6 11.1 Earnings per share (pence pershare):Basic 5 5.5 6.8 3.1Diluted 5 5.5 6.8 3.1 Balance Sheet As at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £m £m £m AssetsIntangible assets 19.8 14.8 18.2Plant and equipment 6.1 0.9 2.5Investments in associates 1.3 1.3 1.3Deferred acquisition costs 70.5 49.2 52.7Financial investments 802.4 601.6 771.9Insurance receivables 234.0 136.8 158.9Deferred income tax 3.2 2.7 2.4Reinsurance assets 420.5 271.6 394.5Other receivables 36.4 22.6 28.4Cash and cash equivalents 120.8 176.4 112.6 Total assets 1,715.0 1,277.9 1,543.4 EquityShare capital 18.0 18.0 18.0Reserves 228.5 231.9 232.1Retained earnings 41.3 49.2 30.3Total equity 287.8 299.1 280.4 LiabilitiesInsurance liabilities 1,198.0 803.0 1,096.4Borrowings 27.0 27.3 29.1Deferred income tax 12.4 16.3 6.0Current income tax liabilities 4.5 2.7 4.5Creditors 183.4 126.6 124.1Retirement benefit obligations 1.9 2.9 2.9Total liabilities 1,427.2 978.8 1,263.0 Total equity and liabilities 1,715.0 1,277.9 1,543.4 Statement of movements in equity For the period ended 30 June 2006 Share Reserves Retained Total Capital Earnings £m £m £m £m Balance as at 1 January 2005 18.0 232.5 27.1 277.6 Retained profits for the period - - 24.6 24.62004 final dividends paid - - (2.5) (2.5)Increase in employee share - 0.1 - 0.1optionsAcquisition of own shares held - (1.7) - (1.7)in trustForeign exchange translation - 1.0 - 1.0differences Balance as at 30 June 2005 18.0 231.9 49.2 299.1 Retained profits for the period - - (13.5) (13.5)2005 interim dividends paid - - (5.4) (5.4)Increase in employee share - 0.3 - 0.3optionsAcquisition of own shares held - 0.1 - 0.1in trustForeign exchange translation - (0.2) - (0.2)differences Balance as at 31 December 2005 18.0 232.1 30.3 280.4 Retained profits for the period - - 19.9 19.9Increase in employee share - 0.4 - 0.4optionsAcquisition of own shares held - (2.8) - (2.8)in trustForeign exchange translation - (1.2) - (1.2)differences2005 final dividends paid - - (8.9) (8.9) Balance as at 30 June 2006 18.0 228.5 41.3 287.8 Cash flow statement For the period ended 30 June 2006 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Cash flow from operating activities Profit before tax 28.3 35.2 16.1Adjustments for non-cash items:Amortisation of intangibles 0.4 - 0.3Depreciation of fixed assets 0.3 - -Equity settled share based 0.4 0.3 0.4compensationForeign exchange on translation of (1.3) 1.0 1.9foreign subsidiaryForeign exchange on translation of (2.1) - -borrowingsNet fair value losses/(gains) on 1.0 0.7 (3.0)financial investments Changes in operating assets andliabilitiesIncrease in insurance liabilities 101.6 342.5 635.9Increase in insurance receivables (75.1) (47.8) (69.9)Decrease/(increase) in other (8.0) 2.7 (3.0)receivablesIncrease in deferred acquisition (17.8) (10.9) (14.4)costsIncrease in reinsurance assets (26.0) (173.3) (296.2)Increase in creditors 64.3 73.1 69.0Income tax paid (2.9) (3.1) (5.8)Contribution to pension fund (1.0) (1.0) (1.0)Acquisition of own shares in trust (2.8) (1.7) (1.6) Net cash from operating activities 59.3 217.7 328.7 Cash flow from investing activities Purchase of syndicate capacity - - (1.6)Purchase of insurance licences - (5.0) (5.1)Purchase of plant and equipment (3.9) (0.9) (2.5)Purchase of software development (2.0) (1.8) (3.6)Purchase of investments (529.5) (863.9) (1,419.3)Proceeds from sale of investments 498.0 731.5 1,120.2 Net cash used in investing (37.4) (140.1) (311.9)activities Cash flow from financing activities Proceeds from borrowings - 17.9 18.6Dividends paid (8.9) (2.5) (7.9) Net cash used in financing (8.9) 15.4 10.7activities Net increase in cash and cash 12.8 93.0 27.5equivalents Cash and cash equivalents at 112.6 81.5 81.5beginning of periodEffect of exchange rate changes on (4.6) 1.9 3.6cash and cash equivalents Cash and cash equivalents at end of 120.8 176.4 112.6period Notes to the financial statements For the period ended 30 June 2006 1. Statement of accounting policies Beazley Group plc is a group incorporated in England and Wales. The interimfinancial statements of the group for the six months ended 30 June 2006 comprisethe group and its subsidiaries and the group's interest in associates. The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of accountingpolicies and the reported amounts of assets and liabilities, income andexpenses. Actual results may differ from these estimates. The accountingpolicies applied by the group in these consolidated interim financial statementsare the same as those applied by the group in its consolidated financialstatements as at and for the year ended 31 December 2005. Our full accountingpolicies are set out in the group's 2005 annual report. 2. Segmental analysis The principal activity of the group is insurance. The following primary businesssegments, marine, property, specialty lines and reinsurance have been applied.All foreign exchange differences on non-monetary items have been included withinthe unallocated totals, together with any expenses which cannot be allocated tospecific business segments. The foreign exchange has been split out as thisprovides a fairer representation of the loss ratios, which would otherwise bedistorted by the mismatch arising under IFRS whereby unearned premium reservesand DAC are treated as non-monetary items and claims reserves are treated asmonetary items. 30 June 2006 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 179.3 92.9 40.4 81.7 - 394.3writtenNet premiums written 108.0 64.3 20.9 62.0 - 255.2 Net earned premiums 114.3 51.6 17.4 42.9 (0.5) 225.7Net investment 12.3 2.7 1.5 2.6 - 19.1incomeOther income 1.5 0.8 0.4 0.7 - 3.4Revenue 128.1 55.1 19.3 46.2 (0.5) 248.2 Net insurance claims 72.7 25.5 10.1 19.0 - 127.3Expenses for the 5.5 (0.9) 60.1acquisition ofinsurance contracts 27.1 16.5 11.9Administrative 9.3 4.6 1.0 2.3 - 17.2expensesOther expenses 2.5 1.2 0.5 1.1 8.3 13.6Expenses 111.6 47.8 17.1 34.3 7.4 218.2 Results from operating activities 16.5 7.3 2.2 11.9 (7.9) 30.0 Finance costs (1.7) Profit before tax 28.3 Tax expense (8.4) Profit after tax 19.9 Claims ratio 64% 49% 58% 44% 56%Expense ratio 32% 41% 37% 33% 34%Combined ratio 96% 90% 95% 77% 90% 30 June 2005 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 124.6 61.6 41.5 47.7 - 275.4writtenNet premiums written 77.8 48.4 28.3 34.4 - 188.9 Net earned premiums 85.0 35.2 15.8 28.9 1.5 166.4 Net investment income 7.7 2.2 1.2 1.2 - 12.3Other income 0.7 1.1 0.8 0.7 - 3.3Revenue 93.4 38.5 17.8 30.8 1.5 182.0 Net insurance claims 58.8 15.0 7.3 13.8 - 94.9Expenses for the acquisition ofinsurance contracts 17.8 11.6 3.8 8.1 0.8 42.1Administrative 5.5 2.8 1.0 1.3 - 10.6expensesOther expenses 1.8 1.5 0.5 0.5 (5.6) (1.3)Expenses 83.9 30.9 12.6 23.7 (4.8) 146.3 Results from 9.5 7.6 5.2 7.1 6.3 35.7operating activities Finance costs (0.5) Profit before tax 35.2 Tax expense (10.6) Profit after tax 24.6 Claims ratio 69% 43% 46% 48% 57%Expense ratio 27% 41% 30% 33% 32%Combined ratio 96% 84% 76% 81% 89% 31 December 2005 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 270.9 128.1 65.5 93.5 - 558.0writtenNet premiums written 207.7 98.5 41.0 78.6 - 425.8 Net earned premiums 192.2 81.2 37.2 64.5 (2.8) 372.3Net investment income 19.5 5.8 3.0 3.3 - 31.6Other income 2.4 1.4 0.2 2.9 - 6.9Revenue 214.1 88.4 40.4 70.7 (2.8) 410.8 Net insurance claims 135.8 49.1 56.0 32.1 - 273.0Expenses for the 39.4 27.9 10.1 17.8 0.3 95.5acquisition ofinsurance contractsAdministrative 12.8 5.7 2.3 2.2 - 23.0expensesOther expenses 5.9 3.2 1.2 2.4 (11.3) 1.4Expenses 193.9 85.9 69.6 54.5 (11.0) 392.9 Results from 20.2 2.5 (29.2) 16.2 8.2 17.9 operating activities Finance costs (1.8) Profit before tax 16.1 Tax expense (5.0) Profit after tax 11.1 Claims ratio 71% 60% 151% 50% 73%Expense ratio 27% 41% 33% 31% 32%Combined ratio 98% 101% 184% 81% 105% 3. Net investment return 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Investment income at fair valuethrough income statement- dividend income -- 0.1 -- interest income 19.0 13.6 31.3 Realised gains/(losses) on financialinvestments at fair value throughincome statement- realised gains 2.8 0.3 1.8- realised losses (0.9) (0.5) (3.6) Net fair value gains/(losses) onfinancial investments through incomestatement- fair value gains 1.1 - 5.7- fair value losses (2.1) (0.7) (2.7) Investment management expenses (0.8) (0.5) (0.9)Net Investment Income 19.1 12.3 31.6 4. Other income 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) £m £m £m Profit commissions 2.9 2.6 4.9Agency fees 0.5 0.6 1.3Other income - 0.1 0.7 Other Income 3.4 3.3 6.9 5. Earnings per share 6 Months 6 Months Year to 31 ended 30 ended 30 December June 2006 June 2005 2005 (unaudited) (unaudited) (audited) Basic 5.5p 6.8p 3.1 pDiluted 5.5p 6.8p 3.1 p Basic Basic earnings per share is calculated by dividing profit after tax of £19.9m(2005: £24.6m) by the weighted average number of issued shares during the periodof 360.6m (2005: 360.6 m). Diluted Diluted earnings per share is calculated by dividing profit after tax of £19.9m(2005: £24.6m) by the adjusted weighted average number of shares of 364.0m(2005: 360.8m). The adjusted weighted average number of shares assumesconversion of all dilutive potential ordinary shares, being share options. 6. Dividends An interim net dividend of 1.6p (2005: 1.5p) per ordinary share is payable on 10October 2006 to shareholders registered on 22 September 2006 in respect of thesix months to 30 June 2006. These financial statements do not provide for thedividends as a liability. 7. Net insurance claims The table below analyses our net insurance claims between current yearclaims and adjustments to prior year net claims reserves. These have beenbroken down by department and period. 6 months ended 30 June 2006 Specialty Property Reinsurance Marine £m Total £m(unaudited) £m Lines £m £m Current year 80.1 26.2 10.5 21.8 138.6Prior year- 2003 and earlier (4.4) (0.7) 0.1 (0.6) (5.6)- 2004 year of account (3.0) 1.1 (0.5) (2.2) (4.6)- 2005 year of account - (1.1) - - (1.1) (7.4) (0.7) (0.4) (2.8) (11.3) Total 72.7 25.5 10.1 19.0 127.3 6 months ended 30 June 2005 Specialty Property Reinsurance Marine £m Total £m(unaudited) Lines £m £m £m Current year 58.8 18.4 8.5 14.9 100.6Prior year- 2002 and earlier - (0.8) - (0.1) (0.9)- 2003 year of account - (1.2) - (0.7) (1.9)- 2004 year of account - (1.4) (1.2) (0.3) (2.9) - (3.4) (1.2) (1.1) (5.7) Total 58.8 15.0 7.3 13.8 94.9 Independent review report to Beazley Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the income statement, balancesheet, statement of movements in equity, cash flow statement and the relatednotes. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this 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 forour review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the UK. A review consistsprincipally of making enquiries of management and applying analytical proceduresto the financial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Statements on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. KPMG Audit PlcChartered Accountants8 Salisbury SquareLondonEC4Y 8BB30 August 2006 Directors Jonathan Agnew* - Chairman Andrew Beazley - Chief Executive Marty Becker* Dudley Fishburn* Nicholas Furlonge Jonathan Gray Andrew Horton - Finance Director Dan Jones* Neil Maidment Andy Pomfret* Johnny Rowell Joe Sargent* Tom Sullivan* * non executive director Company Secretary Arthur Manners Glossary of Terms Admitted carrier An insurance company authorised to do business in the US. A charger agreement isentered into which stipulates the terms and conditions under which a businessmust conduct within a state in the US. Aggregates/aggregations Accumulations of insurance loss exposures which result from underwritingmultiple 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. A.M. Best A.M. Best is a worldwide insurance-rating and information agency whose ratingsare recognised as an ideal benchmark for assessing the financial strength ofinsurance related organisations, following a rigorous quantitative andqualitative analysis of a company's balance sheet strength, operatingperformance and business profile. Beazley Group plc obtained an A rating, whileBeazley Insurance Company, Inc., received a rating of A-. Binding authority A contracted agreement between a managing agent and a coverholder under whichthe coverholder is authorised to enter into contracts of insurance for theaccount of the members of the syndicate concerned, subject to specified termsand 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 aparticular policyholder or in the marketplace in general. 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 aspecified retention with respect to an accumulation of losses resulting from acatastrophic event or series of events. Claims Demand by an insured for indemnity under an insurance contract. Claims ratio Ratio, in percent, of net insurance claims to net earned premiums. Combined ratio Ratio, in percent, of the sum of net insurance claims, expenses for acquisitionof insurance contracts and administrative expenses to net earned premiums. Thisis also the sum of the expense ratio and the claims ratio. Coverholder/managing general agent A firm either in the United Kingdom or overseas authorised by a managing agentunder the terms of a binding authority to enter into contracts of insurance inthe name of the members of the syndicate concerned, subject to certain writtenterms 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 andamortised over the term of the contracts. Earnings per share (EPS) - Basic/Diluted Ratio, in pence, calculated by dividing the consolidated profit after tax by theweighted average number of ordinary shares issued, excluding shares issued bythe group. For calculating diluted earnings per share the number of shares andprofit or loss for the year is adjusted of all dilutive potential ordinaryshares like share options granted to employees. Excess per risk reinsurance A form of excess of loss reinsurance which, subject to a specified limitindemnifies the reinsured company against the amount of loss in excess of aspecified retention with respect of each risk involved in each loss. Expense ratio Ratio, in percent, sum of expenses for acquisition of insurance contracts andadministrative expenses to net earned premiums. Facultative reinsurance A reinsurance risk that is placed by means of separately negotiated contract asopposed to one that is ceded under a reinsurance treaty. Gross premiums written Amounts payable by the insured, excluding any taxes or duties levied on thepremium, including any brokerage and commission deducted by intermediaries. Hard market An insurance market where prevalent prices are high, with restrictive terms andconditions 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 eventalthough no claims have been reported so far. International accounting standards (IAS)/International financial reportingstandards (IFRS) Standards formulated by the IASB with the intention of achieving internationallycomparable financial statements. Since 2002, the standards adopted by the IASBhave been referred to as International Financial Reporting Standards (IFRS).Until existing standards are renamed, they continue to be referred to asInternational Accounting Standards (IAS). International accounting standards board (IASB) An international panel of accounting experts responsible for developing IAS/IFRS. Lead underwriter The underwriter of a syndicate who is responsible for setting the terms of aninsurance or reinsurance contract that is subscribed by more than one syndicateand who generally has primary responsibility for handling any claims arisingunder such a contract. Line The proportion of an insurance or reinsurance risk that is accepted by anunderwriter or which an underwriter is willing to accept. Lloyd's Lloyd's is the world's leading specialist insurance market and expects to havethe capacity to write approximately £14.8bn of business in 2006. It occupiessixth place in terms of global reinsurance premium income, and is the secondlargest surplus lines insurer in the US. In 2006, 62 syndicates are underwritinginsurance at Lloyd's, covering all classes of business from more than 200countries and territories worldwide. Long tail This refers to a type of insurance where claims may be made many years after theperiod of the insurance has expired. Liability insurance is an example of longtail business. Managed syndicate The combination of syndicate 2623 and 623 through which the group underwriteinsurance business. Managing agent A company that is permitted by Lloyd's to manage the underwriting of asyndicate. Medium tail A type of insurance where the claims may be made a few years after the period ofinsurance has expired. Net assets per share Ratio, in pence calculated by dividing the net assets (total equity) by thenumber of shares issued. Net premiums written Net premiums written is equal to gross premiums written less outward reinsurancepremiums written. Pro rate reinsurance A generic term describing quota share and surplus share reinsurance in which thereinsurer shares a proportional part of the ceded reinsurance liability,premiums, and losses of the ceding company. Also known as ParticipatingReinsurance and Proportional Reinsurance. Provision for outstanding claims Provision for claims that have already been incurred at the balance sheet datebut 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. Reinsurance to close (RITC) A reinsurance which closes a year of account by transferring the responsibilityfor discharging all the liabilities that attach to that year of account (and anyyear of account closed into that year) plus the right to buy any income due tothe closing year of account into an open year of account in return for apremium. Retention limits Limits imposed upon underwriters for retention of exposures by the group afterthe application of reinsurance programmes. Return on equity (ROE) Ratio, in percent calculated by dividing the consolidated profit after tax bythe average total equity. Risk This term may variously 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. Short tail A type of insurance where claims are usually made during the term of the policyor shortly after the policy has expired. Property insurance is an example ofshort tail business. Soft market An insurance market where prevalent prices are low, and terms and conditionsoffered by insurers are less restrictive. Stamp capacity The volume of business measured in gross written premiums net of acquisitioncosts underwritten by the group through its managed syndicates at Lloyd's ofLondon Total shareholder return The increase in the share price plus the value of any dividends paid andproposed during the year. Treaty reinsurance A reinsurance contract under which the reinsurer agrees to offer and to acceptall risks of certain size within a defined class. Unearned premiums reserve The portion of premium income in the business year that is attributable toperiods after the balance date is accounted for as unearned premiums in theunderwriting provisions. Vertical Limits Reinsurance coverage limits which exceed the groups retention limits. Registered office and advisors Registered office Plantation Place South 60 Great Tower Street London EC3R 5AD Company number 4082477 Auditors KPMG Audit PlcChartered Accountants 8 Salisbury Square London EC4Y 8BB Legal advisors Norton Rose Kempson House Camomile Street London EC3A 7AN Financial advisors Lexicon Partners Limited One Paternoster Square London EC4M 7DX Stockbrokers Numis Securities Limited Cheapside House 138 Cheapside London EC2V 6LH Principle bankers Lloyds TSB Bank plc 113-116 Leadenhall Street London EC3A 4AX Registrars Lloyds TSB Registrars The Causeway Worthing West Sussex BN99 6DA Beazley Group plc Plantation Place South 60 Great Tower Street London EC3R 5AD Tel: +44 (0) 20 7667 0623 Fax: +44 (0) 20 7674 7100 www.beazley.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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