Lloyd’s of London underwriter Beazley has seen annual earnings almost halve after interest rate hikes led to fixed income investment losses.
The blue-chip company, which provides insurance against catastrophic events like natural disasters, said profits slumped from $308.7million in 2021 to $160.8million (£134.6million) last year.
Central banks have been hiking interest rates globally in response to high inflation, causing bond yields to rise and ultimately a $179.7million investment deficit in Beazley’s fixed-income portfolio from mark-to-market accounting losses.
Declining earnings: Lloyd’s of London underwriter Beazley said its profits slumped from $308.7million in 2021 to $160.8million last year due largely to interest rate hikes
However, its combined ratio – a key indicator of insurers’ profitability – for 2022 improved by four percentage points to 89 per cent. Any number below 100 per cent denotes a profit.
The result was boosted by a better claims ratio, despite the firm incurring $120million in expected losses from Hurricane Ian, and further payouts related to the Ukraine war’s escalation.
At the same time, gross written premiums expanded by 14 per cent to $5.3billion, with its marine, accident and political (MAP) risks division achieving 23 per cent growth.
Premiums in the group’s cyber risks arm also climbed by 40 per cent as the trend towards digitalisation boosted demand for insurance protection against hacking from both large and medium-sized companies.
Though the rate of new cyber business began to soften last year, Beazley forecasts continued strong growth in demand for such services, particularly among major corporations outside its core market of the US.
To further expand its cyber reach, the company conducted a share placing last November that raised approximately £350million and launched the insurance sector’s first-ever cyber catastrophe bond two months later.
Chief executive Adrian Cox said the bond ‘will see new capital come into a cyber market that needs to grow at pace in the next decade to meet business demand’.
Regarding the firm’s outlook for 2023, he said net premiums were anticipated to grow faster than gross premiums at a mid-20s percentage rate, while its combined ratio is expected to stay in the ‘high-80s.’
Cox added: ‘Although significant geopolitical headwinds remain, I believe we are in an excellent position to sustainably grow our company.’
Beazley shares had shrunk by 4.8 per cent to 628.5p on Thursday afternoon, making them the biggest faller on the FTSE 100, which the firm only joined in December alongside asset manager Abrdn and engineering company Weir Group.
