Beazley profit more than halves but still beats expectations

Beazley posted a 55% slump in full-year pre-tax profit on Thursday as natural catastrophes and a drop in investment returns took their toll.

In the year to the end of December 2018, pre-tax profit fell to $76.4m from $168m the year before, but this was still ahead of consensus expectations of just under $70m. Meanwhile, gross premiums written increased by 12% to $2.6bn but return on equity came in at 5% versus 9% in 2017.

The combined ratio ticked down to 98% from 99% and the dividend was lifted 5% to 11.7p a share.

The insurer said that after 2017's "exceptional" catastrophe experience, 2018 was only slightly less eventful, with two hurricanes in the US, Florence and Michael, and two typhoons in Japan, Jebi and Trami. It also pointed to the massively destructive wildfires seen in California in November for the second year in a row.

Beazley's investment returns fell to $41.1m from $138.3m, mainly due to a series of interest rate hikes in the US that only generated a modest return for its fixed income portfolio, which accounted for 81% of the group's total investments at year end.

Chief executive Andrew Horton said: "Beazley saw strong growth in 2018 with gross premiums written rising 12%. Our US business has been growing extremely well and we underwrote more than a billion dollars of premium locally for the first time in the US last year. Although market conditions were challenging, depressing our earnings, we entered 2019 with positive premium rate momentum and higher interest rates that should deliver stronger returns going forward."

Beazley said its business was confronted with "stiff" headwinds in 2018, which hit both its underwriting and investment returns. However, it's entering this year with some "moderate" tailwinds, with firmer prices for some lines of business and higher interest rates set to underpin its investment returns.

At 0955 GMT, the shares were up 5.3% to 520p.

Shore Capital analyst Paul De'Ath said: "Overall the results look reasonable with slightly better than expected investment return the main driver of the beat. The business is well positioned, however for future growth in premiums and earnings going forward thanks to improving situations in both pricing and interest rates, in our view."