7th Mar 2007 07:03
Beazley Group PLC07 March 2007 Beazley Group plc Plantation Place South60 Great Tower StreetLondon EC3R 5AD Tel: +44 (0)20 7667 0623Fax: +44 (0)20 7674 7100www.beazley.com Press Release 20th year of profits Beazley Group plc, results for the year ended 31st December 2006London, UK, March 7, 2007 • Profit before tax of £86.8m (2005: £16.1m) • Profit before tax and foreign exchange on non-monetary items £96.2m (2005: £7.9m) • Return on equity increased to 20% (2005: 4%) • Increased final dividend to 3.2p (2005: 2.5p) Growth across the business • Gross premiums written up 34% at £745.1m (2005: £558.0m) • Overall increase of 6% on rates on renewal business • Premiums from the US increased to US$68.9m (2005: US$15.4m) • Investment return of 4.9% (2005: 4.2%) Healthy financial position • Successful Tier 2 subordinated debt issue raised £150m • Claims reserve releases against our medium tail specialty lines account of £18m 2006 2005 Change £m £m %Gross premiums written 745.1 558.0 34Net premiums written 574.3 425.8 35Net earned premiums 509.6 372.3 37 Profit before tax and foreign exchange 96.2 7.9 1,118adjustments on non-monetary itemsProfit before tax 86.8 16.1 439 Claims ratio 53% 73% -Expense ratio 33% 32% -Combined ratio 86% 105% - Earnings per share (p) 16.8 3.1 -Dividends per share (p) 4.8 4.0 -Net assets per share (p) 88.5 77.8 - Cash and investments 1,167.8 884.5 32 Andrew Beazley, Chief Executive of Beazley, said: "The company delivered a strong performance in its 20th year and I am pleased toannounce an increase in the full year dividend to 4.8p per share. With the rightpeople in the right places, we saw growth across the business and took advantageof the opportunities presented by profitable underwriting conditions. Wecontinue to work hard retaining and recruiting the best talent to move thebusiness forward in line with our strategic objectives. We enter the new yearwith a positive outlook." 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 Note to Editors: Beazley Group, plc (BEZ.L) based in London, is the parent company of global,specialist insurance businesses with operations in the UK, US, France, Singaporeand Hong Kong. Beazley manages two Lloyd's syndicates (Syndicate 2623 andSyndicate 623) with aggregate underwriting capacity in 2007 of £860m (US$1.7bn).Both syndicates are rated A by A.M. Best. In the US, Beazley's underwritersfocus on writing specialist insurance products in the admitted market, backed byBeazley Insurance Company, Inc., an admitted carrier in all 50 states; andsurplus lines risks, backed by the Beazley syndicates at Lloyd's. BeazleyInsurance Company is rated A- by A.M. Best. Beazley is a market leader in many of its chosen lines including professionalindemnity, commercial property, marine, reinsurance, and personal lines. Formore information please go to: www.beazley.com CHAIRMAN'S STATEMENT Our 20th anniversary year of business has been an exciting and challenging time.We achieved record profits before tax of £86.8m in strong underwritingconditions. Overall The board is pleased to announce record profits before tax of £86.8m (2005:£16.1m). As we predicted in our previous annual report, we have benefited fromstrong underwriting conditions following last year's hurricane losses, combinedwith strong returns from our investment balances. We were well placed to makethe most of the opportunities presented, maintaining our strategy of controlledrisk taking. We are very proud of this result which comes during the 20thanniversary of Beazley Furlonge Limited as a managing agency at Lloyd's. Underwriting performance In 2006 we wrote gross premiums of £745.1m (2005: £558.0m) - a 34% increase yearon year. This was driven by both our increased ownership of the combined premiumcapacity of syndicates 623 and 2623 - we owned 78% in 2006 (2005: 70%) - and anincrease in the combined premium capacity to £830m in 2006 (2005: £742m).Premium capacity increased largely due to the rise in insurance rates which wewere expecting following the catastrophic events of 2005. We also took a largershare of the risks which we know well - our average line size is now 21.3%(2005: 20.2%). Our combined ratio reduced to 86% (2005: 105%). The reduction is mainly due tothe claims ratio which fell to 53% (2005: 73%). Investors will recall that the2005 loss ratio was impacted by the hurricane losses (estimated impact 18%) andwe have also been able to make claims reserve releases from our medium tailspecialty lines business which have developed better than originally expected.Although it is too early to make any further releases at this stage, we hopethat 2007 should see further favourable claims development. Our investment performance has also been strong. We have achieved investmentincome of £48.3m (2005: £31.6m), a return of 4.9% (2005: 4.2%). This has beendriven through higher US dollar and sterling interest rates throughout theperiod. The bond portfolio remains relatively short in duration, with an averageduration of 11 months, enabling us to make the most of interest rate increases. In our business review, Andrew Beazley describes in detail the strong progresswhich we are making in becoming a premier risk-taking business. Our strategy ofrecruiting high-calibre underwriting, claims and support personnel, combinedwith creating improved opportunities to access insurance business, have allcontributed to this achievement. During the year we have recruited 39underwriters and 11 claims professionals, and established offices in Hong Kong,Singapore, Paris, Chicago, San Francisco and New York, as well as a number ofsatellite offices throughout the UK. US business The US business has made good progress in 2006. This business, which commencedtrading in early 2005, operates its own managing general agent (MGA), whichwrites insurance business both through Lloyd's and through its own admitted USinsurance company. The US businesses are completely integrated within therelevant lines of business in London. The US initiative aims to improve ouraccess to customers who would not traditionally use Lloyd's as an insurancecarrier. The key to this initiative is getting the right people who willmaintain our levels of commitment and professionalism in developing the businessand whose underwriting approach is consistent with ours. During 2006 we wroteUS$68.9m (2005: US$15.4m) through the MGA, of which US$35.9m was written throughthe admitted insurance company and US$33.0m on behalf of our Lloyd's syndicates.The business gathered momentum during the year and we are now seeingconsistently improving premium volumes month on month. Capital During the period we strengthened our capital position through a lower tier 2debt issue which raised £150m at an interest rate of 7.25%. The issue wasunderwritten by JP Morgan Cazenove and Royal Bank of Scotland, and was fivetimes oversubscribed, demonstrating the confidence which the financial marketshave in Beazley. The funds will be used to support both our underwriting at Lloyd's, replacingthe existing £72m subordinated loan, and for providing further funds to supportthe ongoing development of our US business. To add further support to our futureplans we have also retained £50m of the syndicated letter of credit facility(currently undrawn) led by Lloyds TSB. Dividend The board propose an increased final dividend of 3.2p (2005: 2.5p), bringing thefull year dividend to 4.8p (2005: 4.0p), an increase of 20%. The final dividendwill be paid on 10 May 2007 to shareholders registered on 13 April 2007. Board changes During the year Marty Becker, Dan Jones and Gordon Hamilton joined the BeazleyGroup board as non-executive directors. Marty has more than 28 years' ofexperience in the insurance industry where he is currently serving as chairmanand chief executive officer at both Max Re and LaSalle Holdings Re. Dan joinedus with over 20 years' of experience in insurance broking, most recently withMarsh Inc.. Gordon, who joined in September, has over 30 years' experience as anaudit partner at Deloitte & Touche LLP and its predecessor practices,specialising in UK listed company audits, with extensive experience of board andaudit committees. Joe Sargent, who chaired the group during the IPO in 2002, and Tom Sullivan, whoserved as a non-executive director on our audit and remuneration committees fora number of years, both retired from the group in 2006. I'd like to extend mythanks on behalf of the group to both Joe and Tom for their considerablecontribution and guidance to the group. Conclusion 2006 was a good year for Beazley following the turbulent times arising from thehurricane losses in 2005. We have strong positions in our chosen market areasfrom which to take advantage of favourable underwriting conditions. The groupcontinues to search out new opportunities to create value for shareholders in adynamic and creative way. BUSINESS REVIEW In our 20th year as a managing agent at Lloyd's we are pleased to announce agroup profit before tax of £86.8m. Rates remain firm and our business isprospering in such strong underwriting conditions. 2006 was a good year both for the group and the insurance industry. With theright people in the right places, we saw growth across the business and tookadvantage of the opportunities presented by profitable underwriting conditions.Throughout the year we continued to deliver our strategic initiatives in linewith our vision and are focused on what we're good at; risk taking and claimsmanagement. Strategy We continue in our vision to build a premier risk-taking business measured byresults and reputation. The four main strategic themes are: • Diversification - maintaining a well balanced and diversified book of business; • Cycle management - delivering profit at all points of the insurance cycle; • Distribution - target markets must be broker-led markets with sustainable profitability; and • Talent - we must be able to leverage the depth and experience of our staff. The enablers which will help us achieve this are: • Access to our business worldwide. Developing new ways of providing our customers with access to our insuranceproducts will help us grow our products profitably. • Proactively managed claims. A proactive claims management capability can be a source of competitiveadvantage for the group. Consequently we are making significant investment inthis area. • Informed underwriting decisions. The knowledge and expertise of our underwriters is central to our ability todevelop the classes of business we write. We have attracted and hired staff withcomplimentary skills to help our underwriters in making their businessdecisions. Access to our business worldwide US business development Our US business continued to make progress in its first full year of operation.The business writes insurance through a managing general agent (MGA), whichwrites business both for our syndicates at Lloyd's and our admitted insurancecompany, Beazley Insurance Company Inc. In 2006 we wrote US$68.9m (2005:US$15.4m) of premiums through the US, with US$35.9m coming from the admittedinsurance company. Of the teams that write this business, specialty lines is the largest, havingwritten US$22.7m on behalf of the syndicates and an additional US$34.6m throughthe insurance company in 2006. The US specialty lines team writes a variety ofprofessional indemnity and directors' and officers' liability insurance,focusing on small to mid-sized customers, who traditionally may not haveaccessed insurance through Lloyd's. Our second largest US team is the propertygroup, which writes high-value homeowners business in the Carolinas, Florida andGeorgia, and wrote premiums of US$10.3m in 2006. The remaining premiums ofUS$1.3m were written by our US cargo team. As the company is still in a start-up phase the costs of the operation aredisproportionate to its ultimate steady state position. These costs includerecruitment, marketing, IT development and legal fees along with theinfrastructure costs allowing us to offer admitted market policies in additionto our Lloyd's surplus lines products. Headcount increased from 44 to 100 by theend of December. We do not anticipate that the benefits of this increase willstart to be realised until 2008. We are pleased with progress made to date, having made a number of key hires andproved our ability to attract the level of talent to compliment our Londonskills. We have also established broker contacts through a strong marketingcampaign which will aid us in executing this important initiative. Commercial property initiative During 2006 we developed a commercial property insurance service for themid-sized market segment through our admitted US insurance company. This willcomplement our existing US commercial property business written through Lloyd's.We recruited Mark Bernacki, formerly of Liberty Mutual Group, to lead theinitiative. The service embodies the flexibility and breadth of coverage valuedby brokers and their clients. A new and comprehensive tool has been developed onour BeazleyTrade IT platform to facilitate efficient underwriting. In developingproduct pricing, we employed actuarial techniques and drew on our underwritingexperience, whilst allowing for competitive and market considerations. Theinitiative was formally launched in February 2007. Extended coverage through branch network During the year we have strengthened our position and opened branch officesacross a number of locations. We completed the purchase of the Asia Pacific Underwriting Agency (APUA), inJanuary 2006, a managing agent operating through Hong Kong and renamed thecompany Beazley Limited (Hong Kong). We previously owned 79.8% of this business.The acquisition provides access to the local market and is primarily focused onprofessional indemnity insurance. In 2006 it wrote £2.2m of premiums on behalfof the two syndicates. We also set up a small operation in Paris in September towrite similar business. In November, we established a presence in Singapore for our engineering team,which forms part of the property group. This team will write specialistengineering risks and will be managed from the UK. Given the nature of the Asianmarket, in which business tends to be placed almost entirely within the region,Singapore provides the perfect hub to access this type of business. To build our UK cargo business line, and to gain access to the local UK markets,we established offices in Manchester and Leeds during 2006, adding to ourexisting offices in Birmingham and Colchester. Proactively managed claims Unlocking the value in claims During 2006, we continued to invest in developing our claims service. Improvedunderwriting and pricing capabilities, maintenance of our high client retentionrates, lowered cost of the claims, and improved confidence in our results andreserving, all result in a significant improvement to the service we provide ourclients. 70% of our claims managers in specialty lines are sourced from partner andsenior associate roles in top law firms. Most managers have over 10 years'experience and expertise in specialist areas, such as insurance of architectsand engineers, medical malpractice and employment practices. In the US, weestablished claims operations that are responsible for managing claims emanatingout of both our Lloyd's business and our US carrier. With the right people inplace, we focused our efforts in three areas. We integrated our claims managersand underwriters by product line to give the managers a thorough and detailedunderstanding of the clients and their claims, enhancing our credibility,essential in third party claims. We adopted a team-based approach to complexclaims, and developed analytical tools. We also refined our approach in theselection of counsel and worked closely with them to improve managementpractices. In the property group our claims managers each have at least 14 years'experience and are successful in managing some of the most complex propertyclaims negotiations on behalf of the market. In the marine division, we hired achief engineer of ships to work closely with us evaluating the claims, findingalternate solutions to mitigating our clients' exposures and our own exposure. We are confident that the energy invested in this important area will benefitboth our clients and shareholders. Informed underwriting decisions Rating Environment Renewal rate movement based on 2001 prevailing rates. 2001 2002 2003 2004 2005 2006 % % % % % % Specialty lines 100 135 160 167 166 165Property 100 126 131 125 123 138Reinsurance 100 143 149 148 149 190Marine 100 118 129 128 131 143 Total 100 131 145 145 146 155 During 2006, trading conditions were robust across all lines of business. Themarket is proving to be dynamic and responsive, with rate increases across allclasses averaging 6%. This is particularly true in our catastrophe accounts;reinsurance, open market property and offshore energy. These were heavilyimpacted by the 2005 hurricane season. Hurricanes Katrina, Rita and Wilmaaccounted for estimated worldwide losses of around US$80bn, of which Beazley'sshare was originally estimated at £60m net of reinsurance. We have since adjusted the way we price our risks. For instance, in ourreinsurance account our premium rates increased by over 28% in 2006. Likewise,open market property rates increased by 26%, whilst offshore energy rates sawsome of the highest increases (over 35%). To ensure our prices were correctlycalibrated, we bought and refined a number of risk management products which weuse to monitor pricing and our aggregate exposures in certain geographicregions. Rates across specialty lines, which accounts for around 50% of the premiums wewrite, maintained their competitive position (small decrease of 1%) despiteincreasing pressure on rates during the second half of the year. Premiumswritten by this team increased significantly over the past year to £361.0m (a33% increase). Through this growth we continued to seek out the most attractiverisks while adhering to rigorous management principles. Growth Our managed premium capacity increased to £830m (2005: £742m) in 2006. Thisincrease was driven by the forecast increase in insurance rates following the2005 hurricane season, together with continued growth in our specialty linesbusiness. In 2007, we plan to write combined premium capacity of £860m, anincrease of 4%. We increased our share of managed premium capacity to 78% (2005:70%) in 2006which has risen to 81% for 2007. This increases the amount the group canunderwrite at Lloyd's to £697m (2006: £647m). Part of the expansion in capacity(£19m) came from our acquisition of Santam Corporate Ltd in December 2006. Our managed syndicates' (both 2623/623) capacity has grown by 30% since theflotation of Beazley group in 2002. The group's share of the premiums we managehas increased even more dramatically by 111%, from £330m in 2003 to £697m in2007. Outlook As the US business becomes more established, we are optimistic about realisinggreater returns in 2007. We have key individuals in place and have seen strongpremiums growth in recent months. The addition of the commercial property teamin the spring of 2007 will strengthen this further. We actively monitor the position of our business in relation to the insurancecycle. The chart below is an indicative guide to our main opportunities andthreats in 2007 and illustrates where our efforts will be focused. It and thestatements below represent our current view based on information up to the endof February, and any comparisons at later dates should be viewed in thiscontext. Across the business, we are expecting 2007 to be a positive year both in termsof premiums written and ratings. Our current projection is that both premiumsand ratings will increase up to 5%. Our largest anticipated growth areas are inour political and contingency group within specialty lines and large commercialrisks within the property group. Specialty lines will account for over 50% ofthe business's premiums, and we expect it to grow despite minor rate decreases.Careful management of the insurance cycle through active price monitoring andclaims management holds the key to our long-term success. We believe thatunderwriting conditions in 2007 will lead to continued profitability for thegroup. 2007 premium movement 2007 premium US UK Rest of Overall Rate Share % world change Political ++ ++ ++ ++ - 8contingency groupManagement + + + + - 5liabilityProfessional + - 0 0 - 38indemnitySPECIALTY LINES + + + + - 51 Jewellers and + + + + + 7homeownersLarge commercial ++ 0 0 ++ ++ 19risksPROPERTY ++ 0 0 ++ ++ 26 REINSURANCE + + + + ++ 8 Hull and Cargo 0 0 0 0 - 7Energy 0 0 0 0 - 5Marine Misc 0 0 0 0 - 3MARINE 0 0 0 0 - 15 TOTAL + 0 0 + 0 100 ++ Growth of more than 5% + Growth of between 0% and 5% 0 No change - Reduction of between 0% and 5% - - Reduction of more than 5% 20th anniversary 2006 marked the 20th year of Beazley Furlonge Limited as a managing agency atLloyd's. We began trading in 1986 with capacity to underwrite £12m of premiums. Our aimhas been to create and build a premier risk taking business partly throughnurturing a working environment that attracts and retains highly skilledindividuals. Twenty years later we have the capacity to underwrite £860m with ateam of 419 people around the globe. Our growth has been organic and timed tocoincide with positive market conditions. We believe that patience and pickingthe right people has been core to our success. Over the years, numerous world events have tested our skills and ability to bothunderwrite high quality risks and manage them. The business has never made aloss and we continue to grow confidently and purposefully. We have recruited and retained talented individuals - underwriters, claimsmanagers and support staff who have made Beazley the professional, wellregarded, premier risk taking business we are today. I'd like to take thisopportunity to thank all those who have contributed to making our early vision areality. The insurance industry will continue to undergo changes and face challengesbrought about by expected and unexpected events. One can be certain that thefuture holds as much opportunity as we have experienced so far in our journey.The journey is far from over. Andrew BeazleyChief Executive Specialty lines Profile Led by Johnny Rowell since 1992, the specialty lines division is a market leaderin most business segments and underwrites around half the group's premiumincome. The team is organised by major product group - management liability,professional liability, and political and contingency and by size of risk-small, mid-market and large. This structure was designed to bring togethersimilar disciplines and interests in product line and style of underwriting.These groups do not work in isolation and by sharing experiences, team memberstransfer best practices across portfolios, working together to improve quality. We have integrated the specialty lines team across the different territories inwhich we operate. Specialty lines now have a presence in London, Paris, HongKong and in eight offices in the US. By establishing experienced, empoweredunderwriters in local markets we have significantly improved our access tobusiness that we would not otherwise have, and we will continue to pursue thisstrategy. Our premium income for 2006 was £361.0m (2005: £270.9m). Market overview The rating environment in 2006 was, overall, better than expected. Across theteam, rates fell by 1%. There is variation across different portfolios, withrate increases still achievable in some lines and competition intensifying inothers. We expect competition to increase slightly in 2007. The team's approachto managing this is multi-tiered, including close monitoring of rate changes andrates achieved, increased segmentation of individual books of business, robustauditing of internal underwriting teams, delegated authority and treaty businessand targeted reviews of both high performing and under-performing areas. Current performance 2006 was the first complete trading year for our US-based operation. Our localpresence in the US market has been well received and the growth rate in incomeachieved to date is very satisfactory. On both sides of the Atlantic we made significant investment in talent,strengthening our claims service as well as our underwriting capabilities. Wesee significant opportunities to differentiate ourselves through the calibre ofour claims managers and the quality of service they provide. This has not alwaysbeen an area of focus for insurers in our markets. Our sources of business remained stable in 2006 with the top five brokersproducing 54% of our premium income, against 53% in 2005 and 52% in 2004.Geographically the book remains predominantly US domiciled with 65% of premiumsemanating from that region compared with 62% in 2005 and 63% in 2004. The way we write the business has changed little from previous years.Facultative business accounted for 67% of our premium in 2006 compared with 68%in 2005 and 73% in 2004, while binding authority income was 21% for 2006 against24% in 2005 and 20% in 2004. Outlook Our goal in 2007 is to ensure that our mix of products and segments (business bysize and method of placement) evolves to maximise opportunities in themarketplace. In a changing environment we will need to react quickly to bothopportunities and threats. Overall, we expect premiums to remain stable in 2007, although theirdistribution may change slightly. Our US, French and Hong Kong operations willgrow and we will continue to invest in a number of our London teams. Werecognise the value that clients and brokers place on the provision of stablecoverage and will work to deliver this, consistent with the demands ofprofitability. With a successful year of high-calibre recruitment behind us, our focus in 2007will be on retaining and developing employees. Responsive service - both inunderwriting and claims - will remain at the heart of our business, supported byfinancial, operations and project management expertise. Our commitment toservice excellence, in-depth risk analysis and understanding and deliveringproducts that meet broker and client needs will continue to underpin sustainablelong-term profitability. Property Profile Led by Jonathan Gray since 1992, the specialist underwriting teams in theproperty group lead the programmes of Fortune 1000 clients and insure some ofthe world's largest construction projects. The division insures large corporateclients, engineering and construction projects, high-value homeowners,jewellers' risks and smaller property clients, representing almost a quarter ofthe group's gross premiums written. With expansion in the US, we will also be able to provide medium-sized USclients with property coverage through our admitted insurance company. Thediverse nature of our clients and class types and increasingly diversedistribution platform enable us to provide the group with a well-balancedportfolio. Market overview Rates in catastrophe exposed areas in the US continued to harden during thecourse of 2006 with hurricane prices reaching an all-time peak during thehurricane season. Earthquake rates in California also increased during thelatter part of the year as increased reinsurance costs filtered down to theprimary market. However, non-US rating levels were disappointing withcompetitive conditions a consistent theme throughout the year. There was littleor no pricing reaction in the non-US markets to the hurricane losses of 2004 and2005. 2006 saw a benign hurricane season and the absence of major catastrophes incomparison with recent years. In addition, the underlying trend of claimsincidences also showed a decrease. Current performance The amount of business led by the property group increased during 2006 from 66%of the business written in 2005 to 70% in 2006 with the biggest increase beingin the open market account, where we now lead 53% of the business written. Rate increases averaged 13% across all lines in the property group during 2006compared with 2005, with open market experiencing the largest increase at 27%. Our managing general agent (MGA) in Florida had a successful year with premiumwritten increasing from US$6.2m in 2005 to US$10.3m in 2006. The engineering team had another excellent year in 2006, growing its businessprofitably and consolidating its lead market position in its target areas. Towiden the distribution network and access business directly from Asia, we set upan office in Singapore attracting employees already well known to the Londonteam. The UK homeowner market is experiencing increasing competition. To improve ourresults, we have completely reviewed and updated our UK homeowners rating tablesusing the latest peril modelling techniques and postcode data available, whichwill enhance our risk selection criteria. Our reputation as property insurance specialists, combined with a claimsperformance acknowledged by the market as superior, gave us access tosignificant reinsurance capacity. However, the cost of this reinsurance washigher than previous years and retention levels increased. Outlook The US continues to present great opportunity for our business in London thoughwe anticipate that non-US risks will be more of a challenge. Our high-valuehomeowner operation in Florida will build on its increasing reputation to growits portfolio and the launch of our admitted market products will provide accessto medium-sized commercial property clients thus enhancing the long term balanceof our portfolio. We believe that high rating levels for catastrophe business will be maintainedin the coming year, providing our group with strong business opportunities forUS-based risks. Non-catastrophe rates will experience further pressure. Reinsurance Profile Led by Neil Maidment since 1996, the reinsurance division is a recognised leaderproviding capacity to a significant proportion of the world's leading generalinsurers, some of which have been clients for over 20 years. Specialising inproperty catastrophe, property risk excess, casualty catastrophe, aggregateexcess of loss and pro-rata business, the team's main exposures outside the USare in the UK, Europe, Japan, Canada and Australasia. Results from thereinsurance division represent 8% of the group's 2006 gross premiums written. Market overview Following the losses incurred in the 2005 hurricane season, the reinsurancemarket hardened considerably in 2006 with rates in the property treaty marketincreasing 47% on average in the US. Outside the US, the effect was lessdramatic but nevertheless rates increased 7% on average. Despite predictions of another catastrophic hurricane season in the NorthAtlantic, 2006 proved to be a particularly benign year for hurricane activity.Experts cite two possible exceptional meteorological reasons for this; dustparticles blown from the Sahara to the area where hurricanes normally develop,and the El Nino phenomenon in the Pacific. While the insurance market benefitedoverall, demand also increased at a faster rate than supply in peak zones ofexposure. Prices increased and reinsurance capacity decreased. Current performance The impact of predicted increases in near term frequency and severity of futurelosses and the consequent increase in capital required to manage these exposureshas been felt by both buyers and sellers of reinsurance. The cost of hedgingthese risks increased to uncommercial levels in the retrocessional market.Therefore, we reduced our gross exposures to fit within our risk appetite whichremained unchanged. We successfully adjusted the portfolio to manage these challenges whileimproving the risk-reward balance. In addition, we retained our commitment toour long-term clients, while continuing to diversify our portfolio in targetmarkets, such as western Europe. We benefited directly from the quiet hurricane season, seeing very low claimsactivity and consequently a greatly reduced loss ratio. Our estimate for losses incurred as a result of the 2005 hurricane season werewell within our reserve limits, hence we are able to release some of thereserves earlier than expected. Outlook Experts continue to predict Atlantic hurricane activity above the long termaverage and because of the trend for the US population to move towards thecoast, we expect to see an increase in the cost to the insurance and reinsuranceindustry. Following last year's significant price increases in the US, we expect thatrates in key catastrophe exposed areas will be maintained at or around theircurrent levels. The recent changes in Florida legislation designed to relievepressure on buyers in that state are not expected to have a significant directeffect on our portfolio. Outside the US, we anticipate some pressure on rates, particularly in smallermarkets, however they will remain at levels that are capable of substantialprofits. It is anticipated that the impact of windstorm Kyrill will encouragegreater discipline in the UK and continental European markets. Our team will continue to advance its long-term objective of developing a welldiversified and efficient portfolio focusing on larger non-life insurancemarkets. Marine Profile Led by Clive Washbourn since 1998, 2006 was a rewarding year for our marinedivision with record levels of gross premiums (at £137.9m). We are establishedmarket leaders in all the major classes we write, which include marine hull,cargo and war. Our energy portfolio has also been expanded to benefit fromoptimum underwriting conditions in that sector. We are able to attract the highest quality business through our marketleadership position and in-depth knowledge of the segment. As our portfolio hasgrown, we have continued to strengthen our underwriting and claims team. Market overview Underwriting conditions were favourable for most of our classes during 2006,with healthy premium rates, appropriate levels of deductible and coverage. Wesaw strong, profitable premium growth, with our marine hull and energy accountsperforming particularly well. Our 2005 hurricane losses have developed in line with projections and comparefavourably with our market peers. We are confident that the majority of ourgross loss will be collectable from reinsurers. Current performance In the wake of a record 2005 hurricane season, underwriting conditions in ourenergy account were excellent, with rating conditions for Gulf of Mexico risksat the highest levels for many decades. During 2006 the energy class achievedthe highest composite rate change of all Beazley classes, which supported thenear doubling of gross premium income year on year. Although there is someindication of competitors expanding their capacity as confidence returns to thesector, we expect rating conditions to be stable. Our hull account has benefited from a period of relatively benign loss frequencycoupled with robust trading conditions for our insureds. In areas such as marinebuilders risks, the hull account was able to optimise capacity in a tight marketfor risks that have natural peril exposure. We continue to be the leader inLondon for voyage and tow insurances and this class has performed extremely wellduring the last 12 months. Our war account, which covers insurance against terrorism and war like acts onships and aeroplanes, continues to perform well. Competition for this portfoliohas increased although our position as a lead market within London will allow usto respond quickly if rates rise at any stage. Our cargo portfolio has enjoyed a consistent level of gross premium. Lossfrequency reduced during the last 12 months, which has benefited profitability.We continue to develop our modest UK cargo agency underwriting operation.Profitability to date has been excellent, premium levels are projected to doubleduring the next 12 months and there is good long-term opportunity to develop avaluable portfolio and diversify our account. The group purchased a whole account excess of loss reinsurance programme in2006, as in previous years, but opted to purchase less low-level specificprotection and run this risk against our capital. This decision to purchase lessreinsurance proved particularly judicious in the light of the low claimsfrequency across classes during 2006. Outlook We look forward to 2007 as a period in which we can further consolidate ourposition. We are pleased with the quality of our account and anticipaterelatively stable underwriting conditions in the majority of our classes. Wefully expect to meet our target profitability and to continue to grow incomewhere opportunity allows. We are delighted that we have reached a long term agreement to be soleunderwriters of the renewal rights for the Charterers Club, which significantlyenhances our marine liability portfolio. The marine liability class hashistorically enjoyed good profitability and since this class typically does notcorrelate with our other marine classes, it further diversifies our portfolio. We will continue to focus upon those risks that are well known to theunderwriting and claims team. The relationships with the insured often set usapart from our competitors and this, we believe, will help insulate the divisionfrom the effects of increased competition in the worldwide market that webelieve are likely to develop in future years. FINANCIAL REVIEW 2006 2005 Movement £m £m % Gross premiums written 745.1 558.0 34Net premiums written 574.3 425.8 35 Net earned premiums 509.6 372.3 37 Net investment income 48.3 31.6 53Other income 7.1 6.9 3 Revenue 565.0 410.8 38 Net insurance claims 270.7 273.0 (1)Acquisition and administrative 168.4 118.5 42expensesOther expenses 33.5 1.4 2,293 Expenses 472.6 392.9 20 Finance costs 5.6 1.8 211 Profit before tax 86.8 16.1 439 Claims ratio 53% 73% -Expense ratio 33% 32% -Combined ratio 86% 105% - Rate increase 6% - -Investment return 4.9% 4.2% - Gross premiums written During 2006, our gross premiums written increased by 34% to £745.1m and netearned premiums increased by 37% to £509.6m. Growth came from both the rise inunderlying premium capacity for syndicates 623 and 2623 and a higher group shareof combined premiums written. In 2006 syndicates 2623 and 623 had capacity towrite £830m (2005: £742m) of premiums net of brokerage, and we increased ourshare of the combined capacity to 78% in 2006 (2005: 70%). Our business is derived from a variety of risk types, classes of business andgeographical locations. Diversity is one of the key parts of our strategy.Achieving a balanced portfolio enables us to control our risk profile and reducethe capital we are required to hold. It should protect us from the impact ofone-off events and balance our results. This was demonstrated in 2005 when ourlosses from the US hurricanes of around 21% of shareholders funds were amongstthe lowest in our sector. We continued to write approximately 43% of our risks, in medium tail accounts,mainly through our specialty lines team. Medium tail insurance is defined asinsurance business where claims are determined and settled three to five yearsafter the period of insurance has expired. We write a significant amount of thistype of insurance as we believe it is a source of competitive advantage, basedon the correct pricing disciplines and underwriting experience. Reinsurance Reinsurance is purchased for a number of reasons: to mitigate the impact ofcatastrophes such as those experienced during the 2005 hurricanes; provide leadline capabilities to our underwriters; and as a way of managing the group'scapital. Our reinsurance spend increased by 29% in 2006 to £170.8m. However, as apercentage of gross premiums written, reinsurance spend reduced during the yearto 23% of gross premiums written (2005: 24%). The reduction in percentage coveris partly explained by a lack of supply from the reinsurance market, atcompetitive prices, in the first six months of the year. This was particularlytrue in our hurricane-impacted classes from 2005. We managed our aggregateexposures carefully and were prepared to reject business if reinsurance coverwas not available at the correct prices or if its addition would exceed our riskappetite. Combined ratio The group's combined ratio has reduced from 105% in 2005 to 86% in 2006. The2005 ratio was heavily impacted by the US hurricane losses of £60m. This aloneis estimated to have added 18% to the 2005 ratio. 2006 has been more stable interms of claims, but has seen increased costs partly through the expansion ofthe US. The expense ratio increased by 1% as a result of the expansion to 33%. Claims Our claims ratio decreased to 53% in 2006 (2005: 73%). This has arisen due totwo principal factors: - 2005 was heavily impacted by hurricane losses, which added anestimated 18% to our claims ratio; and - Increased releases of specialty lines reserves in 2006 reduced theclaims ratio by 3.5% (2005: 0.2%). 2005 hurricane losses update At the end of 2005, we set up claims reserves for the 2005 US hurricanes at US$104m (£60m). During 2006, we saw positive development in terms of these costs,which enabled us to release US$11m (£6.0m) of our claims reserve. The tablebelow shows our latest estimate of the total hurricane losses. 2006 2005 US$m US$m Gross loss 371 370Reinsurance recovery 273 260Sub total 98 110Reinstatement premiums 21 20Net loss 119 130Catastrophe margin 26 26releasedTotal hurricane losses 93 104 Specialty lines claims reserve releases In 2006 we released around £18.0m of prior year specialty lines reserves. Thisis a reflection of our view that claims for medium tail class of businesses aredeveloping better than initially thought. This is partly attributed to bettermanagement of our pricing for these risks at the time of inception, togetherwith strong claims management discipline. This is also due to an improvement inthe frequency and severity of claims falling under policies issued during theseyears. Reserving approach We have consistently adopted a prudent approach towards our medium tailspecialty lines account reserving. The nature of this type of business is thatfor the majority of classes of business the corridor of uncertainty surroundingpotential claims is wide in the first three years of development following theunderwriting year. As we gain more certainty in years four and five, we have abetter view as to where claims are likely to settle and we can adjust ourreserves accordingly. Expenses Our expense ratio has increased by 1% to 33% in 2006. This is due to the US,which was in its first full year of operation. This business expandedconsiderably with employee numbers rising from 44 to 100 by year end. As thebusiness is in a start-up phase it bore one-off costs such as recruitment,marketing and legal fees, incurred in advance of the ultimate premiums potentialbeing delivered. We also established offices in a number of locations: Paris, Singapore, HongKong and throughout the US. Facilitating better access to business is animportant part of our strategy. Employee numbers During 2006, our permanent employee numbers grew from 282 to 419 as we continuedour recruitment in both the UK and in the US. In the UK, we strengthened ourspecialty lines underwriting, claims teams and support functions - in particularwe insourced the accounts processing function during the year. In the US, werecruited additional personnel in all areas of the business as we built upoperations in our Florida and Connecticut offices and set up a number of smallregional offices. We also set up offices in Hong Kong, Singapore and Parisduring the year. Having talented individuals is key to achieving our strategy ofbecoming a premier risk-taking business. 2006 2005 Employee numbers Specialty lines 172 101Property 55 41Reinsurance 9 7Marine 28 20 Finance (including actuarial, compliance and 55 36internal audit)IT 43 38Ceded reinsurance 15 11Talent management 11 8General management and other support 31 20 Total 419 282 UK 309 238US 100 44Other (Hong Kong, Singapore, and Paris) 10 - Investment performance In 2006, despite a difficult environment for fixed income investments, our totalinvestment income grew to £48.3m (2005: £31.6m), providing a return of 4.9%(2005: 4.2%). During the first half of 2006, the US Federal Reserve continued its programme ofraising interest rates in order to slow the rate of growth and containinflation. The Bank of England also reacted to increasing inflation by raisingthe base rate twice in the second half of the year. However, for the group, theshort duration of our portfolios for most of the year largely insulated ourreturns from the capital erosion effects of higher interest rates and theportfolios benefited from increasing yields as rates rose. Our continuing investments in alternative assets and a new stand aloneinvestment in equities added significantly to our investment returns. Ouralternative investments achieved a return of 9.0%. These investments represent amixture of longer-term debt securities, equities, hedge funds, high yield debtand short-term deposits. Meanwhile, our stand alone equity investment achieved areturn of 4.8% since it was initiated in October. For regulatory and legal reasons, certain trust funds and deposits are requiredto be managed centrally by Lloyd's on behalf of the syndicates. These funds areinvested in high-grade, fixed income securities and their performance isdetailed separately in the table below. The group maintains funds in cash for various operational purposes. The majorityof these cash balances are invested in money market funds managed by ScottishWidows Investment Partnership, AIM Global and Bank of America. The table below highlights the returns received by currency and by investmenttype. 2006 2006 2005 2005 Average Annualised Average Annualised £m return £m return % %Fixed interest securities £m 383.0 4.5 390.0 4.0US $ 425.7 4.4 209.5 3.7Lloyd's managed and other 56.6 3.9 30.7 3.7 Hedge funds 45.3 11.1 30.1 9.8 Equities 22.5 11.9 3.2 15.5 Cash and money market funds 57.5 3.7 97.0 3.7 TOTAL 990.6 4.9 760.5 4.2 Investment income has also increased as a result of larger cash balances beingmanaged by the group. The group's cash and investment balance grew during 2006mainly due to: • additional underwriting of syndicate 2623 in 2006; and • the receipt of funds raised as part of the debt issue in the final quarter (£150m). As a large proportion of our insurance liabilities are medium tail, i.e. theclaims are paid several years after premiums are received, we expect theinvestment balance will increase further into 2007. Other expenses Other expenses consist of non-underwriting related group expenses of £6.2m(2005: £9.9m), profit related bonus provisions of £5.0m (2005: £3.3m), and aforeign exchange loss of £22.3m (2005: a credit of £11.8m). The majority of theincrease in 2006 is explained by the foreign exchange loss, of which £17.6m(2005: a credit of £11.3m) relates to foreign exchange differences onnon-monetary items (refer note 3). Foreign exchange differences arising on non-monetary items In 2006, the impact of foreign exchange on non-monetary items has added a £9.4mcharge (2005: a profit of £8.2m) to our profit before tax. Non-monetary itemsinclude unearned premium reserve, reinsurers' share of unearned premium reserveand deferred acquisition costs. Under International Financial ReportingStandards (IFRSs) these balances are carried at historic exchange rates, whilstmonetary items are translated at closing rates. This imbalance createsvolatility in our accounts which cannot be hedged as the mismatch is notmonetary in nature. Within our 2006 portfolio, around 67% of premiums were generated through USdollar transactions. As the US dollar weakened significantly during 2006,falling from an opening position of £1=US$1.72 to £1=US$1.96 (a 12% devaluation)there was a negative effect on our profits and net assets. BALANCE SHEET MANAGEMENT Summary balance sheet 2006 2005 Movement £m £m % Intangible assets 21.9 18.2 20Investments and cash 1,167.8 884.5 32Insurance receivables 244.0 158.9 54Reinsurance assets 345.3 394.5 (12)Other assets 105.2 87.3 21 Total assets 1,884.2 1,543.4 22 Insurance liabilities 1,225.6 1,096.4 12Borrowings 154.9 29.1 432Other liabilities 184.2 137.5 34Total liabilities 1,564.7 1,263.0 24 Net assets 319.5 280.4 14 Net assets per share 88.5p 77.8p 14 Intangible assets Intangible assets are made up of two main elements: - previously acquired goodwill or purchased capacity; and - capitalised IT projects. During 2006, we acquired an additional 3% of capacity in syndicate 2623 for£0.5m. Of this 2% was acquired through the purchase of Santam Corporate Limitedin December 2006. The remaining 1% was acquired during the Lloyd's auctionprocess where we paid on average 2.7p per £1 of capacity. We began capitalising IT projects during 2005 (£3.6m), as the company increasedits emphasis on building IT systems supporting our non-Lloyd's initiatives suchas the US. During 2006, this policy continued and after an annual review wecapitalised a further £3.7m, bringing the net book value to £5.0m at 31 December2006. Our policy is to depreciate these items over their useful economic life (3years). Investments and cash Our portfolio remains mainly invested in high quality, short duration bonds. Weinvest 11.8% (2005: 7.6%) in alternative investments and equities. To enhancereturns and further diversify risks associated with investing solely in bonds,we increased the proportion of equities by 3.7% in October 2006 through a standalone investment in a global equity fund managed by AllianceBernstein During the year we diversified the fixed income assets by investing a proportionof our US fixed income portfolios with two new investment managers; ConningAsset Management and Wellington Management. This also gives us access todifferent investment styles and skill sets. Manager Investment Type 2006 2006 £m %AllianceBernstein US $, £, Euro •, CAD $ 700.9 60.0 Fixed income, equityConning Asset Management US fixed income 125.2 10.7Wellington Management US fixed income 86.8 7.4Union Bancaire Privee Alternative investments 102.6 8.8 including hedge fundsLloyd's Corporation Fixed income 73.5 6.3Scottish Widows Money market funds 22.3 1.9Investment PartnershipAIM Global Money market funds 7.8 0.7Bank of America Money market funds 17.0 1.5Other cash balances Current account and 31.7 2.7 deposits TOTAL 1,167.8 - The performance of the managers and the structure of the investment portfolio ismonitored by our chief investment officer who reports to the investmentcommittee, which holds delegated responsibility from the board for allinvestment matters. Insurance receivables Insurance receivables represent broker balances receivable in respect ofpremiums we have written. During 2006, broker balances increased by 54% to£244.0m, due to increased premiums written by syndicate 2623. We outsource thecollection of our premium broker balances to JMD Specialist Insurance ServicesLimited, which operates within the Lloyd's market as specialist creditcontrollers. Reinsurance assets Reinsurance assets, which mainly represent recoveries from our reinsurers inrespect of claims, form 18% or £345.3m of our total assets at the end of 2006(2005: 26% or £394.5m). Of this balance, £166.8m represents our estimate ofrecoveries in respect of claims incurred but not yet reported. These assets are managed through: - Minimising risk through selection of reinsurers who meet strictfinancial criteria (e.g. minimum net assets, minimum 'A' rating by A.M. Bestwhen initially selected). These criteria are varied by type of business (shortvs. medium tail); - Timely calculation and issuance of reinsurance collection notes fromour ceded reinsurance team; and - Regular monitoring of outstanding debtor position by our reinsurancesecurity committee. In addition we provide against reinsurance recoveries that are impaired. At theend of 2006 we had provided £4.8m (2005: £5.2m) in respect of our reinsurancerecoveries. Insurance liabilities Insurance liabilities of £1,225.6m consist of two main elements; unearnedpremiums reserve ("UPR"), and gross insurance claims. - Our unearned premiums reserve (UPR) has increased by 34% in 2006 to£359.6m, mainly due to increased premiums written. The bulk of the UPR relatesto the 2006 year which has been written at favourable rates. This business willearn through to our income statement in 2007. - Gross insurance claims are made up of claims which have been notifiedto us but not yet paid and an estimate of incurred but not yet reported claims(IBNR). These are estimated by both the underwriter and the syndicate actuarythrough the quarterly peer review process, a description of which is included innote 23. Gross insurance claims increased by 4% in 2006 to £866.0m mainly due tothe increase in business written. Borrowings Historically we have relied on short-term banking facilities to support ourunderwriting at Lloyd's and the US operation. This was typically issued in theform of letters of credit, although we could draw down physical cash if requiredto pre-defined limits. As a condition of this type of debt, we also had tocomply with certain banking covenants; minimum levels of net assets, realisticdisaster scenario events and profitability. The facility was also renegotiatedevery two years. To provide us with greater flexibility over our capital, we issued longer-termdebt in October 2006. We raised £150m of lower tier 2 long-term subordinateddebt through a fixed rate debenture. The proceeds will be used to replace theexisting short-term facilities and to support opportunities to grow the businessas they arise. The issue is callable on 17 October 2016 and bears an initialinterest rate of 7.25% payable in arrears. We retained £50m of the short-termdebt in the form of a letter of credit facility, led by Lloyds TSB, to provideadditional capital should the requirement arise. At the time of the issue we entered into a derivative transaction, whereby webetter matched our investment and currency risk by swapping the sterling fixedrate loan into the equivalent of: - £107m of floating rate sterling loans; and - US$80m of floating rate US dollar loans. These items have been accounted for using hedge accounting for both the floatingrate and currency elements of the transaction. Currency profit hedging Our policy is to minimise our largest foreign exchange currency risk-exposure,which is to the US dollar. This is managed by estimating our US dollar profitseach year and selling a proportion each month. We also sell our year-endunhedged profits for our second largest currency exposure, Euros, once a year.In 2006, the group sold US$108.5m at an average exchange rate of 1.88 (2005:1.87). CAPITAL POSITION The group has two requirements for capital: 1. To support underwriting at Lloyd's through syndicate 2623, this isbased on the group's own individual capital adequacy. This may be provided inthe form of either the group's cash and investments or debt facilities; and 2. To support underwriting in Beazley Insurance Company, Inc. in the US. Our funding comes from a variety of sources: 1. £319.6m comes from our shareholders own funds (i.e. net assets). Ofthis balance, £81m is unavailable to the group at present because it relates tofixed assets or undistributable syndicate profits. 2. £150m was raised in 2006 through a tier 2 subordinated debt issue; 3. An undrawn banking facility of £50m (2005: £150m) provided by asyndicate of banks led by Lloyds TSB; and 4. The final source of funds comes from our US$18m subordinated long termdebt with a maturity in 2034. 2006 2005 £m £m Sources of funds Shareholders funds 319.5 280.4Tier 2 subordinated debt 150.0 -Long term subordinated debt 9.7 10.5(US$18m)Bank facility (drawn) - 70.0 479.3 360.9 Uses of funds Lloyd's underwriting 292.0 301.7Capital for US insurance company 30.6 32.6 322.6 334.3 Surplus 156.7 26.6Unavailable surplus (81.0) (19.7)Available surplus 75.7 6.9 Individual capital assessment Historically our capital requirements were set using Lloyd's risk based capital(RBC) model. The RBC model assessed the risk posed by the proposed business planbased on historical market average data. The capital regime changed in 2005, sothat syndicates make their own assessment of risk in their ICA. 2006 was thefirst full year where our capital requirements were determined by its ICA. In order to determine its ICA, we made significant investment in both models andprocess: • we use sophisticated mathematical models that reflect the key risks inthe business allowing for probability of occurrence, impact if they do occur,and interaction between risk types. A key focus of these models is to understandthe risk posed by individual teams, and to the business as a whole, of apossible deterioration in the underwriting cycle; and • The ICA process is embedded so that the teams can see the direct andobjective link between underwriting decisions and the capital allocated to thatteam. This gives a consistent and comprehensive picture of the risk rewardprofile of the business and allows teams to focus on strategies that improvereturn on capital. This robust ICA process demonstrates that the business is well diversified andstable. This is reflected in our capital requirement of 42% of premium capacity,a reduction from 47% of premium capacity in 2006. This equates to a capitalrequirement of £292m. CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2006 Notes 2006 2005 £m £m Gross premiums written 3 745.1 558.0Written premiums ceded to reinsurers (170.8) (132.2) Net premiums written 3 574.3 425.8 Change in gross provision for unearned (84.9) (73.7)premiumsReinsurer's share of change in the 20.2 20.2provision for unearned premiumsChange in net provision for unearned (64.7) (53.5)premiums Net earned premiums 3 509.6 372.3 Net investment income 4 48.3 31.6Other income 5 7.1 6.9 55.4 38.5 Revenue 565.0 410.8 Insurance claims 357.0 463.7Insurance claims recoverable from (86.3) (190.7)reinsurersNet insurance claims 3 270.7 273.0 Expenses for the acquisition of 3 129.6 95.5insurance contractsAdministrative expenses 6 38.8 23.0Other expenses 6 33.5 1.4Operating expenses 201.9 119.9 Expenses 3 472.6 392.9 Results of operating activities 92.4 17.9 Finance costs 8 (5.6) (1.8) Profit before tax 86.8 16.1 Comprises: Profit before tax and foreign exchange 96.2 7.9adjustments on non-monetary itemsForeign exchange on non-monetary items (9.4) 8.2 Income tax expense 9 (26.9) (5.0) Profit after tax 59.9 11.1 Earnings per share (pence per share):Basic 10 16.8 3.1Diluted 10 16.7 3.1 BALANCE SHEETAS AT 31 DECEMBER 2006 2006 2005 Notes Group Company Group Company £m £m £m £mAssets Intangible assets 12 21.9 - 18.2 -Plant and equipment 13 7.0 - 2.5 -Investment in - 65.1 - 31.7subsidiariesInvestment in associates 14 1.3 - 1.3 -Deferred acquisition 15 78.9 - 52.7 -costsFinancial investments 16 958.4 340.0 771.9 221.9Insurance receivables 17 244.0 - 158.9 -Deferred income tax 26 3.5 - 2.4 -Reinsurance assets 18,23 345.3 - 394.5 -Current income tax - 0.7 - -Other receivables 14.5 25.4 28.4 48.4Cash and cash 19 209.4 29.8 112.6 6.7equivalents Total assets 1,884.2 461.0 1,543.4 308.7 Equity Share capital 20 18.1 18.1 18.0 18.0Reserves 21,22 225.8 230.9 232.1 229.4Retained earnings 75.6 14.9 30.3 16.1Total equity 319.5 263.9 280.4 263.5 Liabilities Insurance liabilities 23 1,225.6 - 1,096.4 -Borrowings 24 154.9 157.0 29.1 10.5Derivative financial 25 2.4 2.4 - -instrumentsDeferred income tax 26 11.6 - 6.0 -Current income tax 15.6 - 4.5 1.3liabilitiesOther payables 27 152.7 37.7 124.1 33.4Retirement benefit 28 1.9 - 2.9 -obligations Total liabilities 1,564.7 197.1 1,263.0 45.2 Total equity and 1,884.2 461.0 1,543.4 308.7liabilities STATEMENT OF MOVEMENTS IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2006 Group Notes Share Reserves Retained Total capital earnings £m £m £m £m Balance at 1 January 2005 18.0 232.5 27.1 277.6 Retained profits for the - - 11.1 11.1yearForeign exchange translation - 0.8 - 0.8differencesDividends paid 11 - - (7.9) (7.9)Increase in employee share 21 - 0.4 - 0.4optionsAcquisition of own shares in 21 - (1.6) - (1.6)trust Balance at 31 December 2005 18.0 232.1 30.3 280.4 Retained profits for the - - 59.9 59.9yearChange in net investment - (0.6) - (0.6)hedgeForeign exchange translation - (2.8) - (2.8)differencesDividends paid 11 - - (14.6) (14.6)Issue of shares 20 0.1 0.3 - 0.4Increase in employee share 21 - 0.8 - 0.8optionsAcquisition of own shares in 21 - (4.0) - (4.0)trust Balance at 31 December 2006 18.1 225.8 75.6 319.5 Company Notes Share Reserves Retained Total capital earnings £m £m £m £m Balance at 1 January 2005 18.0 230.5 2.1 250.6 Retained profits for the - - 21.9 21.9yearForeign exchange translation - (1.1) - (1.1)differencesDividends paid 11 - - (7.9) (7.9)Balance at 31 December 2005 18.0 229.4 16.1 263.5 Retained profits for the - - 13.4 13.4yearForeign exchange translation - 1.3 - 1.3differencesDividends paid 11 - - (14.6) (14.6)Issue of shares 20,21 0.1 0.2 - 0.3 Balance at 31 December 2006 18.1 230.9 14.9 263.9 CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 Notes Group Company Group Company £m £m £m £m Cash flow from operatingactivitiesProfit before tax 86.8 14.4 16.1 23.6Adjustments for non-cashitemsAmortisation of intangibles 1.4 - 0.3 -Equity settled share based 0.8 - 0.4 -compensationForeign exchange translation (4.6) - 1.9 -of foreign subsidiaryNet fair value losses/(gains) (8.8) 0.8 (3.0) 0.7on financial assetsDepreciation of plant & 1.2 - - -equipment Changes in operating assetsand liabilitiesIncrease in insurance 129.2 - 635.9 -liabilitiesIncrease in insurance (85.1) - (69.9) -receivablesDecrease/(Increase) in other 13.9 22.9 (3.0) (21.8)receivablesIncrease in deferred (26.2) - (14.4) -acquisition costsDecrease/(Increase) in 49.2 - (296.2) -reinsurance assetsIncrease in other payables 37.6 6.5 69.0 32.7Income tax paid (11.5) (3.1) (5.8) (1.1)Contribution to pension fund (1.0) - (1.0) -Acquisition of own shares in 21 (4.0) - (1.6) -trust Net cash from operating 178.9 41.5 328.7 34.1activities Cash flow from investingactivitiesPurchase of plant and 13 (5.7) - (2.5) -equipmentPurchase of syndicate 12 (0.2) - (1.6) -capacityAcquisition of subsidiary (2.2) - - -(net of cash acquired)Purchase of licences 12 - - (5.1) -Purchase of investments (2,125.1) (412.4) (1,419.3) 211.1Purchase of software 12 (3.1) - (3.6) -developmentProceeds from sale of 1,947.2 293.5 1,120.2 (205.7)investmentsCapital injection in - (33.4) - (26.6)subsidiary Net cash used in investing (189.1) (152.3) (311.9) (21.2)activities Cash flow from financingactivities Proceeds from issue of shares 0.4 0.4 - - Repayment of syndicated loan (18.6) - - - Proceeds from Tier 2 148.1 148.1 18.6 -subordinated debt Dividends paid 11 (14.6) (14.6) (7.9) (7.9) Net cash used in financing 115.3 133.9 10.7 (7.9)activities Net increase in cash and cash 105.1 23.1 27.5 5.0equivalentsCash and cash equivalents at 112.6 6.7 81.5 1.7beginning of yearEffect of exchange rate (8.3) - 3.6 -changes on cash and cashequivalentsCash and cash equivalents at 19 209.4 29.8 112.6 6.7end of year This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOWRelated Shares:
Beazley