30th Jul 2007 09:18
Beazley Group PLC30 July 2007 The following replaces the Interim Results released at 07:00am RNS 0586B Amendment: Year ended 31 Dec 2006, not 2007 - (bottom right hand column first page) Press release Beazley announces strong results for first half Beazley Group plc, interim results for the six months ended 30 June 2007 London, 30 July, 2007 • Record profit before tax of £60.2m (2006: £28.3m) • Gross premiums written up 10% to £434.1m (2006: £394.3m) • Combined ratio 87% (2006: 90%) • Gross written premiums from US operations up to US$77.9m (2006: US$27.4m) • Prior year reserve releases of £25.2m (2006: £11.3m) • Dividend increased 25% to 2.0p (2006: 1.6p) 6 months 6 months Year ended ended ended 30 Jun 2007 30 Jun 2006 31 Dec 2006 Gross premiums written (£m) 434.1 394.3 745.1 Net premiums written (£m) 325.6 255.2 574.3 Net earned premiums (£m) 290.4 225.7 509.6 Profit before tax (£m) 60.2 28.3 86.8 Profit before tax and foreign 60.6 36.2 96.2exchange adjustments on nonmonetary items (£m)Profit after tax (£m) 41.6 19.9 59.9 Earnings per share (p) 11.6 5.5 16.8 Dividend per share (p) 2.0 1.6 4.8 Net assets per share (p) 98 80 89 Andrew Beazley, Chief Executive of Beazley, said: "Our businesses performed well in the first half of 2007. Our Lloyd'sunderwriters continue to develop attractive business in a market where rates,although under pressure, remain at historically high levels. Our performance inthe first half of the year provides a solid basis for continued selective butprofitable underwriting during the second half." "Our US operations, now just over two years old, are making an increasingcontribution to our diversified and specialist business range, supporting ourlong term cycle management strategy. Beazley was the first Lloyd's business toestablish a presence in the US admitted market. Earlier this year we beganunderwriting commercial property insurance on an admitted basis, complementingthe management and professional liability lines that are now beginning to showstrong traction." ENDS For further information, please contact: Beazley Group plc Andrew Beazley 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, since 1986, Beazley (BEZ.L) is the parent company of a globalspecialist risk insurance and reinsurance business operating through Lloyd'ssyndicates 2623 and 623 in the UK and Beazley Insurance Company, Inc., a USadmitted carrier in all 50 states. Both syndicates are rated A by A.M. Best withan aggregate capacity for 2006 of £830m (over US$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 CHIEF EXECUTIVE'S STATEMENT We are delighted to announce record profits for the first six months of 2007 of£60.2m (2006: £28.3m). High levels of premiums written through our Lloyd'ssyndicates, a substantial increase in contribution from our US operations and abenign claims environment have contributed to a good underwriting performance.Our investment income has risen to £32.6m (2006: £19.1m), a return of 5.2%(2006: 4.8%). Underwriting Gross premiums written have increased by 10% to £434.1m (2006: £394.3m), whilenet earned premiums have risen by 29% to £290.4m (2006: £225.7m). Writtenpremiums were impacted by the devaluation of the US dollar, which for the periodin question has fallen in value against sterling by approximately 11%. Netearned premiums have increased due to several factors. Firstly, our share of thecombined syndicate premiums written rose from 70% in 2005 to 81% in 2007.Secondly, our reinsurance costs fell from £139.1m to £108.5m in 2007. Finally,our US operation continues to gain traction, generating written premiums of$77.9m in the first six months of 2007(2006: $27.4m). Our combined ratio has reduced to 87% (2006: 90%). Within this the claims ratiohas reduced from 56% to 51% in 2007 and our expense ratio has developed as weexpected with an increase of 2% to 36%. In 2007 we released £25.2m (2006: £11.3m) of prior year claims reserves. We madereleases from the reserves we were holding at the end of 2006 within both ourcatastrophe exposed businesses and our specialty lines portfolio. There were fewlarge claims in the first half of 2007, which enabled us to release £7.3m fromour reinsurance, marine and commercial property accounts in respect of policieswritten in 2006. Our specialty lines claims reserves have also continued todevelop well enabling us to make releases of £12.8m across a number ofunderwriting years. Rating environment 2001 2002 2003 2004 2005 2006 2007 YTDSpecialty Lines 100 135 160 167 166 165 161Property 100 126 131 125 123 138 141Reinsurance 100 143 149 148 149 190 205Marine 100 118 129 128 131 142 133Total 100 131 145 145 146 154 153 Over the past six months we have experienced an increasingly competitive ratingenvironment and we expect this trend to continue. The property and reinsurancebusinesses have continued to see rate increases for catastrophe exposed businessin areas such as Florida and the Gulf of Mexico whereas other parts of ouraccount have experienced rate reductions. The combined effect is a reduction ofonly 1% across our portfolio which demonstrates the advantage of a diversifiedand specialist account. From an overall trading perspective rating levels inmany of our lines are still at historic highs and continue to provide attractiveunderwriting opportunities. Nonetheless, we expect the trading environment to bemore challenging during the coming months. However, we are also confident of theoverall rating levels in our main areas of expertise remaining at levels thatdeliver good underwriting profits. Our largest account, specialty lines, has seen rates easing by 2% in the pastsix months. We are able to maintain significant price stability in lines wherewe have a substantial market position such as errors and omissions insurance forUS lawyers, architects and engineers. Close client relationships, riskmanagement advice and investment in claims management all form part of our valueproposition enabling us to differentiate ourselves and retain clients that valuehigh quality service. This business continues to trade at historically highpremium prices. The premium achieved in 2007 was 61% higher than for comparablerisks in 2001. US business The US business continues to gather pace, writing $77.9m in the first six monthsof 2007 (2006: $27.4m). In the US we write business through our managing generalagent (MGA), on behalf of both our syndicates at Lloyd's and our own US domesticinsurance company. The strategy of having a presence on the ground in the USenables us to insure risks on behalf of clients who would not normally insurethrough London. To support the growth in the US we injected a further $45m of capital intoBeazley Insurance Company, Inc. in April taking the total capital to $105m. Our largest business line in the US, specialty lines, has performed well,writing $60.3m (2006: $23.3m) in the six months. The focus for this business isprofessional indemnity and management liability insurance. Our medicalmalpractice book has recently been extended through the purchase of a managinggeneral agent, Sapphire Blue, that specialises in professional liabilityinsurance for US healthcare institutions. We know them well having participatedin their underwriting facility for some years. The property team in the US has also had a strong six months writing $16.5m(2006: $3.2m). The commercial property team started writing business through ourdomestic insurance company in February and wrote $2.8m in the first half of thisyear. The high value homeowners' insurance team also performed well, writing$7.1m during the period. We have increased our overall premium expectation for the US business in 2007from $130m to $150m. Reinsurance protection The reinsurance market has now settled down after the dislocation experienced in2006 following the losses sustained from Hurricane Katrina. Retrocessionalreinsurance protecting our reinsurance account remains scarce and expensive butfor all the other areas of our business cover is available at realistic terms. The overall reinsurance spend has decreased in 2007. The largest component ofthis reduction is the specialty lines proportional treaty arrangement where wehave rebalanced the treaty reducing our spend by £20m. In addition we have beenre-underwriting our reinsurance account to be less reliant on the reinsurancemarket. This year as pricing generally remains at uneconomic levels we haveelected to buy less retrocessional cover. We are particularly pleased with the reception by reinsurers of our new USdomestic commercial property initiative. Their comprehensive backing of our newventure means that we are able to compete on level terms with the rest of themarket. Reserve releases In the first six months of 2007 we released £25.2m (2006: £11.3m) of prior yearreserve releases across a number of business lines. These reserve releases,illustrated in the table below, are a reflection of our view that claimsdevelopment is better than we had previously estimated. +--------------------------+---------------------------+---------------------------+| |2007 |2006 |+--------------------------+---------------------------+---------------------------+| |£m |£m |+--------------------------+---------------------------+---------------------------+|Specialty lines |12.8 |7.4 |+--------------------------+---------------------------+---------------------------+|Property |6.1 |0.7 |+--------------------------+---------------------------+---------------------------+|Reinsurance |1.2 |0.4 |+--------------------------+---------------------------+---------------------------+|Marine |5.1 |2.8 |+--------------------------+---------------------------+---------------------------+|TOTAL |25.2 |11.3 |+--------------------------+---------------------------+---------------------------+ Within our specialty lines business, the ultimate level of claims for any oneunderwriting year becomes more certain in time and the corridor of uncertaintynarrows significantly after 4 to 6 years. The majority of the releases in thefirst half of 2007 are from the 2003 and 2004 underwriting years. We remainconfident in the strength of reserves we hold for this business. In addition to the specialty lines releases, we have also been able to lowerreserves held for catastrophe business written in 2006. Much of this portfoliohas now been earned which enabled us to release £7.3m across our reinsurance,commercial property and offshore energy lines of business. As our business matures we will continue to re-evaluate the reserves. Currentdata indicates that our reserves are strong and a benign claims environment maylead to further adjustment. Specialty lines Premium income within specialty lines rose 15% over the comparable period in2006. Renewal rates softened slightly but by less than previously anticipated,and through careful risk selection and market segmentation our underwriterscontinue to develop profitable opportunities. Our local US underwriting operation continued to grow, writing $41.6m in the USadmitted market through Beazley Insurance Company, Inc., and a further $18.7m inpremiums for the account of our Lloyd's syndicates. Our professional liabilitybusiness for architects and engineers grew particularly strongly, benefitingfrom investments in claims expertise and marketing as well as a 20 year trackrecord in the class. As noted above, our healthcare business took a significant step forward throughthe acquisition in March 2007 of Sapphire Blue, an MGA focusing on the long termhealth sector, which wrote $20 million in premiums in 2006. We continue to focus on enhancing our claims services. During 2005 and 2006 wedeveloped our in-house claims service capabilities with the aim of improving ourclient relationships by exceeding the service standards they have come to expectfrom the broader market. Importantly this strategy also enables us to gain agreater knowledge of the claims we manage, and hence settle claims moreefficiently. Property Property rates entering 2007 were at a cyclical high, which has lead tosignificant increases in market capacity. Consequently, there has been adownward pressure on rates in most of the property classes and specifically innon-catastrophe areas. However, terms and conditions for catastrophe exposedrisks in the US still remain strong and the overall trading environment remainsfavourable. In the absence of any major catastrophes, terms will continue to bechallenged through the rest of the year. Beazley's profile as a noted leadunderwriter allows us to see a wide range of business, but an emphasis on riskselection and profitability remains core. Our US presence has increased as we began underwriting mid-sized commercialrisks through our admitted insurance company. A focused approach based on thekey differentiators of experienced underwriting, flexible terms and rapid policydelivery has received a positive reaction in the market. Our surplus lines business based in Florida continues to grow its reputation asa provider of high valued homeowner insurance, and this year we have expandedinto small commercial risks. Reinsurance 2007 began well for our reinsurance team. Prices in the US improved with averagerate changes of 15% on renewals, although pressure to flatten or reduce rateshas increased as we have approached the middle of the year. Outside the US,prices are flat or down slightly. Gross premiums rose by 7% to £43.2m as wecontinued to grow the portfolio both through increased share on existingaccounts and new business. Windstorm Kyrill caused losses across a wide area of Europe in January. Theimpact on the Beazley reinsurance account is expected to be modest. The recentUK flooding is currently estimated to produce insured losses in the region of£3.0bn. Based on the limited information available at this early stage weanticipate a modest impact from these events on Beazley. However, we expect boththese losses and Kyrill will be contained within reserves established forattritional claims. Marine The marine team had a solid start to 2007, writing gross premiums of £79.6m(2006: £81.7m). Net earned premiums increased by 29% to £55.3m. The teamcontinues to develop the existing portfolio, consolidating their strong marketposition. Renewal rates for hull, cargo and energy have been under pressure in 2007.Despite this we are confident that these areas are trading profitably. We haveexpanded our marine liability account through the acquisition of business from alarge coverholder. We are constantly looking for ways to expand the account in aprofitable manner, continuing to search out niche risks that we can fullyunderstand and service. Investment income Invested assets continued to grow - cash and investments now amount to £1,310.9mwhich compares to £923.2m at the end of June 2006 and £1,167.8m at the end ofDecember 2006. Investment income increased to £32.6m in the first six months of2007, compared with £19.1m over the same period in 2006. This represents anannualised investment return of 5.2% on average assets for the period (4.8% infirst half 2006). The increase in investment income has been the result of thecontinued growth in invested assets and higher yields on our fixed incomeinvestments, together with good results from both our alternative investmentsand our equity portfolio. Dividend The board is pleased to report that it will pay an increased interim dividend of2.0p (2006: 1.6p). This will be paid on 31 August 2007 to shareholders on theregister on 10 August 2007. Outlook So far 2007 has been a robust year in terms of premiums written and benign interms of claims development. Reductions in rates have been in line with ourexpectations. We continue to grow the business in a controlled manner, searchingout attractive risks to add to our portfolio. Lloyd's remains central to ourbusiness strategy, and this has been reaffirmed by the recent upgrade of Lloyd'sfinancial strength rating by S&P to A+ from A. In addition, developing access tonew markets and business, a strong claims management service and informedunderwriting decisions remain central themes in our business vision. We have been spending, and continue to spend, considerable management timeplanning for 2008 and beyond. Our expectation is that most areas of businesswill continue to soften and it is important that profitability is protected. Theopportunities within our US business initiative, our reserving philosophy, ourinvestment in claims management expertise, our growing investment balance andour underwriting experience of managing previous insurance cycles will help tomaintain our track record of good profitability across the insurance cycle. The first six months have been extremely positive with record premiums andprofits, US business expansion and strong claims reserves. No doubt the next sixmonths will bring a number of new as well as familiar challenges, which we lookforward to with enthusiasm. We have an invigorated but seasoned team and a firmplatform from which to trade. The excitement is the future. Andrew Beazley Chief Executive Income Statement For the period ended 30 June 2007 Note 6 months 6 months Year to 31 ended 30 ended 30 December June 2007 June 2006 2006 (unaudited) (unaudited) (audited) £m £m £m Gross premiums written 2 434.1 394.3 745.1Written premiums ceded to reinsurers (108.5) (139.1) (170.8)Net premiums written 2 325.6 255.2 574.3 Change in gross provision for (73.6) (100.8) (84.9)unearned premiumsReinsurer's share of change in the 38.4 71.3 20.2provision for unearned premiumsChange in net provision for unearned (35.2) (29.5) (64.7)premiums 2 290.4 225.7 509.6 Net earned premiums Net investment income 3 32.6 19.1 48.3Other income 4 4.8 3.4 7.1 37.4 22.5 55.4Revenue 2 327.8 248.2 565.0 Insurance claims 161.7 161.8 357.0Insurance claims recovered from (13.2) (34.5) (86.3)reinsurersNet insurance claims 2,7 148.5 127.3 270.7 Expenses for the acquisition of 79.0 60.1 129.6insurance contractsAdministrative expenses 25.6 17.2 38.8Other expenses 8.8 13.6 33.5Operating expenses 113.4 90.9 201.9 2 261.9 218.2 472.6 Expenses Results of operating activities 65.9 30.0 92.4 Finance costs 5.7 1.7 5.6 Profit before tax 60.2 28.3 86.8 Comprises:Profit before tax and foreign 60.6 36.2 96.2exchange adjustments on non monetaryitemsForeign exchange on non-monetary (0.4) (7.9) (9.4)items Income tax expense (18.6) (8.4) (26.9) Profit after tax 41.6 19.9 59.9 Earnings per share (pence pershare):Basic 5 11.6 5.5 16.8Diluted 5 11.5 5.5 16.7 Balance Sheet As at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) £m £m £m AssetsIntangible assets 29.2 19.8 21.9Plant and equipment 7.0 6.1 7.0Investments in associates 1.3 1.3 1.3Deferred acquisition costs 89.6 70.5 78.9Financial investments 956.3 802.4 958.4Insurance receivables 259.5 234.0 244.0Deferred tax assets 4.3 3.2 3.5Reinsurance assets 410.2 420.5 345.3Other receivables 17.0 36.4 14.5Cash and cash equivalents 354.6 120.8 209.4 Total assets 2,129.0 1,715.0 1,884.2 EquityShare capital 18.4 18.0 18.1Reserves 226.5 228.5 225.8Retained earnings 105.7 41.3 75.6Total equity 350.6 287.8 319.5 LiabilitiesInsurance liabilities 1,440.0 1,198.0 1,225.6Borrowings 151.2 27.0 154.9Derivative financial instrument 4.1 - 2.4Deferred income tax 13.7 12.4 11.6Current income tax liabilities 9.2 4.5 15.6Creditors 159.3 183.4 152.7Retirement benefit obligations 0.9 1.9 1.9Total liabilities 1,778.4 1,427.2 1,564.7 Total equity and liabilities 2,129.0 1,715.0 1,884.2 Statement of movements in equity For the period ended 30 June 2007 Share Reserves Retained Total Capital Earnings £m £m £m £m Balance as at 1 January 2006 18.0 232.1 30.3 280.4 Retained profits for the period - - 19.9 19.92005 final dividends paid - - (8.9) (8.9)Increase in employee share - 0.4 - 0.4optionsAcquisition of own shares held - (2.8) - (2.8)in trustForeign exchange translation - (1.2) - (1.2)differences Balance as at 30 June 2006 18.0 228.5 41.3 287.8 Retained profits for the period - - 40.0 40.02006 interim dividends paid - - (5.7) (5.7)Issue of shares 0.1 0.3 - 0.4Increase in employee share - 0.4 - 0.4optionsAcquisition of own shares held - (1.2) - (1.2)in trustChange in net investment hedge - (0.6) - (0.6)Foreign exchange translation - (1.6) - (1.6)differences Balance as at 31 December 2006 18.1 225.8 75.6 319.5 Retained profits for the period - - 41.6 41.62006 final dividends paid - - (11.5) (11.5)Issue of shares 0.3 4.0 - 4.3Increase in employee share - 1.1 - 1.1optionsAcquisition of own shares held - (3.6) - (3.6)in trustChange in net investment hedge - (1.0) - (1.0)Foreign exchange translation - 0.2 - 0.2differences Balance as at 30 June 2007 18.4 226.5 105.7 350.6 Cash flow statement For the period ended 30 June 2007 6 months 6 months Year to 31 ended 30 ended 30 December June 2007 June 2006 2006 (unaudited) (unaudited) (audited) £m £m £m Cash flow from operating activities Profit before tax 60.2 28.3 86.8Adjustments for non-cash items:Amortisation of intangibles 0.9 0.4 1.4Depreciation of plant and equipment 0.7 0.3 1.2Equity settled share based 0.8 0.4 0.8compensationForeign exchange on translation of (1.8) (1.3) (4.6)foreign subsidiaryForeign exchange on translation of - (2.1) -borrowingsNet fair value losses/(gains) on (1.0) 1.0 (8.8)financial investments Changes in operating assets andliabilitiesIncrease in insurance liabilities 214.4 101.6 129.2Increase in insurance receivables (15.5) (75.1) (85.1)Decrease/(increase) in other (2.7) (8.0) 13.9receivablesIncrease in deferred acquisition (10.7) (17.8) (26.2)costsDecrease/(increase) in reinsurance (64.9) (26.0) 49.2assetsIncrease in other payables 3.4 64.3 37.6Income tax paid (22.1) (2.9) (11.5)Contribution to pension fund (1.0) (1.0) (1.0)Acquisition of own shares in trust (3.6) (2.8) (4.0) Net cash from operating activities 157.1 59.3 178.9 Cash flow from investing activitiesPurchase of syndicate capacity - - (0.2)Acquisition of subsidiary (net of (5.7) - (2.2)cash acquired)Purchase of plant and equipment (0.6) (3.9) (5.7)Purchase of software development (0.6) (2.0) (3.1)Purchase of investments (1,073.0) (529.5) (2,125.1)Proceeds from sale of investments 1,076.2 498.0 1,947.2 Net cash used in investing (3.7) (37.4) (189.1)activities Cash flow from financing activitiesProceeds from Tier 2 subordinated - - 148.1debtProceeds from issue of shares 4.5 - 0.4Repayment of syndicated loan - - (18.6)Dividends paid (11.5) (8.9) (14.6) Net cash used in financing (7.0) (8.9) 115.3activities Net increase in cash and cash 146.4 13.0 105.1equivalentsCash and cash equivalents at 209.4 112.6 112.6beginning of periodEffect of exchange rate changes on (1.2) (4.8) (8.3)cash and cash equivalents Cash and cash equivalents at end of 354.6 120.8 209.4period Notes to the financial statements For the period ended 30 June 2007 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 2007 comprisethe parent company 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 2006. Our full accountingpolicies are set out in the group's 2006 annual report. The comparative figures for the financial year ended 31 December 2006 areextracted from the company's statutory accounts for that financial year. Thoseaccounts have been reported on by the company's auditors and delivered to theregistrar of companies. The report of the auditors was (i) unqualified, (ii) didnot include a reference to any matters to which the auditors drew attention byway of emphasis without qualifying their report, and (iii) did not contain astatement under section 237(2) of 237 (3) of the Companies Act 1985. 2. Segmental analysis The principal activity of the group is insurance. The following primary businesssegments; specialty lines, property, reinsurance and marine have been applied.All foreign exchange differences on non-monetary items have been included withinthe unallocated totals. These have been split out as this provides a fairerrepresentation of the loss ratios, which would otherwise be distorted by themismatch arising under International Financial Reporting Standards (IFRS)whereby unearned premium reserves and deferred acquisition costs (DAC) aretreated as non-monetary items and claims reserves are treated as monetary items. 2. Segmental analysis 30 June 2007 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 205.3 106.0 43.2 79.6 - 434.1writtenNet premiums written 157.0 78.2 32.7 57.7 - 325.6 Net earned premiums 140.7 73.3 19.5 55.3 1.6 290.4Net investment 22.2 4.1 3.2 3.1 - 32.6incomeOther income 2.4 1.4 0.6 0.4 - 4.8Revenue 165.3 78.8 23.3 58.8 1.6 327.8 Net insurance claims 80.6 36.6 8.5 22.8 - 148.5Expenses for the 36.8 20.6 5.0 15.4 1.2 79.0acquisition ofinsurance contractsAdministrative 15.9 5.6 1.5 2.6 - 25.6expensesOther expenses 4.4 1.7 0.7 1.2 0.8 8.8Expenses 137.7 64.5 15.7 42.0 2.0 261.9 Results from 27.6 14.3 7.6 16.8 (0.4) 65.9operating activities Finance costs (5.7) Profit before tax 60.2 Tax expense (18.6) Profit after tax 41.6 Claims ratio 57% 50% 44% 41% - 51%Expense ratio 37% 36% 33% 33% - 36%Combined ratio 94% 86% 77% 74% - 87% 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 income 12.3 2.7 1.5 2.6 - 19.1Other 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 (7.9) 30.0operating activities 16.5 7.3 2.2 11.9 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% 31 December 2006 Specialty Property Reinsurance Marine Unallocated Total Lines £m £m £m £m £m £m Gross premiums 361.0 187.8 58.4 137.9 - 745.1writtenNet premiums written 267.3 149.9 40.5 116.6 - 574.3 Net earned premiums 234.6 123.1 42.1 101.5 8.3 509.6Net investment income 35.9 4.2 4.1 4.1 - 48.3Other income 4.0 1.3 0.7 1.1 - 7.1Revenue 274.5 128.6 46.9 106.7 8.3 565.0 Net insurance claims 146.3 66.3 13.7 44.4 - 270.7Expenses for the 50.8 39.9 10.3 28.5 0.1 129.6acquisition ofinsurance contractsAdministrative 21.8 9.9 3.3 3.8 - 38.8expensesOther expenses 7.8 4.0 1.5 2.6 17.6 33.5Expenses 226.7 120.1 28.8 79.3 17.7 472.6 Results from 47.8 18.1 (9.4) 92.4operating activities 8.5 27.4 Finance costs (5.6) Profit before tax 86.8 Tax expense (26.9) Profit after tax 59.9 Claims ratio 62% 54% 33% 44% - 53%Expense ratio 31% 40% 32% 32% - 33%Combined ratio 93% 94% 65% 76% - 86% 3. Net investment return 6 months 6 months Year to 31 ended 30 ended 30 December June 2007 June 2006 2006 (unaudited) (unaudited) (audited) £m £m £m Investment income at fair valuethrough income statement- interest income 24.6 19.0 28.0 Realised gains/(losses) on financialinvestments at fair value throughincome statement- realised gains 8.8 2.8 22.9- realised losses (8.2) (0.9) (9.9) Net fair value gains/(losses) onfinancial investments through incomestatement- fair value gains 18.5 1.1 24.4- fair value losses (10.0) (2.1) (15.6) Net fair value gains/(losses) onfair value hedge- change in interest rate swap (2.6) - (3.0)- change in borrowings 2.6 - 3.0 Investment management expenses (1.1) (0.8) (1.5) 32.6 19.1 48.3 4. Other income 6 months 6 months Year to 31 ended 30 ended 30 December June 2007 June 2006 2006 (unaudited) (unaudited) (audited) £m £m £m Profit commissions 3.6 2.9 5.5Agency fees 0.5 0.5 1.1Other income 0.7 - 0.5 4.8 3.4 7.1 5. Earnings per share 6 months 6 months Year to 31 ended 30 ended 30 December June 2007 June 2006 2006 (unaudited) (unaudited) (audited) Basic 11.6p 5.5p 16.8pDiluted 11.5p 5.5p 16.7p Basic Basic earnings per share is calculated by dividing profit after tax of £41.6m(2006: £19.9m) by the weighted average number of issued shares during the periodof 359.2m (2006: 360.6 m). The shares held in the ESOP have been excluded fromthe calculation until such time as they vest unconditionally with the employees. Diluted Diluted earnings per share is calculated by dividing profit after tax of £41.6m(2006: £19.9m) by the adjusted weighted average number of shares of 362.2m(2006: 364.0m). The adjusted weighted average number of shares assumesconversion of all dilutive potential ordinary shares, being share options. Theshares held in the ESOP have been excluded from the calculation until such timeas they vest unconditionally with the employees. 6. Dividends An interim net dividend of 2.0p (2006: 1.6p) per ordinary share is payable on 31August 2007 to shareholders registered on 10 August 2007 in respect of the sixmonths to 30 June 2007. These financial statements do not provide for thedividends as a liability. 7. Insurance premiums and claims The loss development tables below provide information about historical claimsdevelopment by the four segments - specialty lines, property, reinsurance andmarine. The tables are by underwriting year which in our view provides the mosttransparent reserving basis. We have supplied tables for both ultimate grossclaims ratio and ultimate net claims ratio. The top part of the table illustrates how the group's estimate of claims ratiofor each underwriting year has changed at successive year-ends. The bottom halfof the table reconciles the gross and net claims to the amount appearing in thebalance sheet. While the information in the table provides a historical perspective on theadequacy of the claims liabilities established in previous years, users of thesefinancial statements are cautioned against extrapolating redundancies ordeficiencies of the past on current claims liabilities. The group believes thatthe estimate of total claims liabilities as at 30 June 2007 are adequate.However, due to inherent uncertainties in the reserving process, it cannot beassured that such balances will ultimately prove to be adequate. Gross ultimate claims 2002ae 2003 2004 2005 2006 2007 % % % %Specialty lines12 months 71.4 70.9 71.2 69.024 months 67.3 70.0 68.3 -36 months 65.0 66.4 - -48 months 57.4 - - -Position at 30 June 2007 53.3 65.5 67.0 68.9 Property12 months 51.3 65.1 85.1 59.424 months 38.4 65.1 82.6 -36 months 35.8 65.5 - -48 months 35.1 - - -Position at 30 June 2007 35.1 64.5 81.5 52.0 Reinsurance12 months 58.6 86.7 192.2 52.524 months 33.5 80.2 182.5 -36 months 28.0 75.5 - -48 months 28.2 - - -Position at 30 June 2007 28.2 75.4 185.4 34.2 Marine12 months 60.0 62.2 82.6 57.224 months 44.7 64.2 79.8 -36 months 39.0 62.0 - -48 months 36.2 - - -Position at 30 June 2007 35.8 62.1 75.1 52.2 Total12 months 62.9 69.8 89.9 63.224 months 52.6 69.0 87.0 -36 months 49.4 66.4 - -48 months 45.2 - - -Position at 30 June 2007 43.1 65.7 85.6 59.1 Total ultimate losses(£m) 1,048.3 276.8 477.3 667.5 529.0 599.4 3,598.3Less paid claims net of reinsurance (£m) (828.8) (147.5) (247.2) (288.8) (50.3) (5.5) (1,568.1)Less unearned portion of ultimate losses (£m) - - - (6.9) (111.2) (491.8) (609.9)Gross claims liabilities (100% level) (£m) 219.5 129.3 230.1 371.8 367.5 102.1 1,420.3Less unaligned share (£m) (65.9) (38.8) (69.0) (111.5) (79.5) (19.4) (384.1)Gross claims liabilities, group share 153.6 90.5 161.1 260.3 288.0 82.7 1,036.2 Net ultimate claims 2002ae 2003 2004 2005 2006 2007 % % % %Specialty lines12 months 68.2 68.2 69.2 67.224 months 64.9 67.9 67.5 -36 months 63.0 65.1 - -48 months 55.9 - - -Position at 30 June 2007 52.0 63.7 66.1 67.2 Property12 months 49.1 59.7 64.9 62.424 months 42.6 61.7 62.8 -36 months 40.3 60.8 - -48 months 39.8 - - -Position at 30 June 2007 39.8 60.5 60.6 56.9 Reinsurance12 months 60.5 88.0 153.4 54.524 months 38.2 84.1 127.8 -36 months 33.4 81.7 - -48 months 34.1 - - -Position at 30 June 2007 34.2 81.8 131.0 49.7 Marine12 months 55.5 57.9 55.7 54.324 months 44.5 52.5 49.3 -36 months 39.6 48.7 - -48 months 39.2 - - -Position at 30 June 2007 39.0 48.7 45.8 49.4 Total12 months 60.4 66.4 73.5 62.624 months 53.1 65.5 69.0 -36 months 50.5 63.1 - -48 months 46.9 - - -Position at 30 June 2007 45.0 62.3 67.3 60.0 Total ultimate losses(£m) 567.4 233.7 368.9 416.2 426.7 497.4 2,510.3Less paid claims net of reinsurance (£m) (462.0) (134.7) (191.3) (140.3) (47.1) (5.5) (980.9)Less unearned portion of ultimate losses (£m) - - - (4.9) (93.1) (418.5) (516.5)Net claims liabilities (100% level) (£m) 105.4 99.0 177.6 271.0 286.5 73.4 1,012.9Less unaligned share (£m) (31.6) (29.7) (53.3) (81.3) (61.7) (13.8) (271.4)Net claims liabilities, group share (£m) 73.8 69.3 124.3 189.7 224.8 59.6 741.5 Analysis of movements in loss development tables We have updated our loss development tables to show the interim ultimate lossratios as at 30 June 2007 for each underwriting year. As such, care should betaken when comparing these half year movements to the full year movements shownwithin the body of each table. The benign claims experience during the first half of 2007 has produced ageneral trend of reducing loss ratios across our business. We comment on theother notable movements by team below. In addition, we continue to maintain an element of our catastrophe loading onthe 2006 underwriting year. This should be considered when comparing the interim30 June 2007 position of the 2006 underwriting year against the development ofthe previous catastrophe free year, namely 2003. Specialty Lines The ultimate loss ratios on the 2003 underwriting year have continued to reducein light of the benign claims environment and the year is turning out to beexceptional. The underlying claims developments on these classes do not followsmooth patterns. Consequently, our reserving policy in these classes of businessis to move the ultimate loss ratios only when we have sufficient evidence to doso. Reinsurance The increase in our ultimate loss ratio on the 2005 underwriting year has beencaused by a small reduction in expected ultimate premium income. The underlyingclaims reserves remain unchanged from 31 December 2006. 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 2007 Specialty Property Reinsurance Marine Total (unaudited) Lines £m £m £m £m £m Current year 93.4 42.7 9.7 27.9 173.7Prior year- 2004 and earlier (10.5) (0.8) 0.1 0.2 (11.0)- 2005 year of account (2.3) (2.0) - (2.6) (6.9)- 2006 year of account - (3.3) (1.3) (2.7) (7.3) (12.8) (6.1) (1.2) (5.1) (25.2) Net insurance claims 80.6 36.6 8.5 22.8 148.5 6 months ended 30 June 2006 Specialty Property Reinsurance Marine Total (unaudited) Lines £m £m £m £m £mCurrent 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) Net insurance claims 72.7 25.5 10.1 19.0 127.3 Year to 31 December 2006 Specialty Property Reinsurance Marine Total (audited) Lines £m £m £m £m £m Current year 164.3 68.2 19.6 49.6 301.7Prior year- 2003 and earlier (12.3) (0.7) (0.4) (0.4) (13.8)- 2004 year of account (4.7) (0.7) (0.8) (3.0) (9.2)- 2005 year of account (1.0) (0.5) (4.7) (1.8) (8.0) (18.0) (1.9) (5.9) (5.2) (31.0) Net insurance claims 146.3 66.3 13.7 44.4 270.7 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Beazley