We noticed that Beazley issued an Interim Results update last week to global stock markets and investors. Here are some highlights from the report;
Much is at stake for the insurance industry in this decisive year. As we navigate the many challenges that 2020 continues to present, there are unique opportunities to prove our value and make a positive and lasting impact on our clients and in our communities.
Since we published our 2019 annual report and accounts we have been living under the shadow of COVID-19. Social distancing, health and welfare concerns, the economic fallout and anticipated recession have created multiple challenges for our clients, our industry and for Beazley. Our risk management and business planning processes have been thoroughly put to the test. Nevertheless we have adapted, continued to operate effectively and continued to grow.
When we published our annual report and accounts in February, we noted how change came thick and fast in 2019 and the steps we took to navigate those changes. Our actions were designed to improve resilience to external factors such as more fierce and frequent natural disasters; the growing litigiousness driving claims inflation; and political-economic unrest including resurgent trade wars. We strengthened our operational efficiency to begin 2020 ready for the challenges ahead and to be able to take advantage of changing market dynamics.
Although we could not foresee how events would unfold, the foundations we built meant we have been better positioned to adapt and respond to the changing needs of our clients and brokers.
SOCIAL DISTANCING TRANSFORMATION
From the beginning of social distancing through to planning the phased return to our offices, the priority has been our clients and our colleagues. There was an urgent need to focus on the welfare of our people, to understand their individual circumstances and pressures, and to ensure they had the resources to effectively work remotely.
We have been working from home since 17 March and most of our colleagues remain so as of July 2020. The smooth transition of our largely office-based 1600+ workforce to homeworkers is a testament to the professionalism and tireless efforts of our teams.
We entered lockdown in the advantageous position of having upgraded IT systems over the past two years to support our evolution to a more flexible, activity-based working environment. Therefore colleagues had the equipment and secure systems in place to work from home with minimal disruption.
CLAIMS
Understanding clients’ unique circumstances and providing clear and current information, particularly on claims and points of coverage, has been an important element of our service in this pandemic. An early decision to implement a 60-day ‘premium pause’ for any client was positively received. A subsequent option to suspend a policy with agreement of the underwriter for an agreed period has also been implemented to help to ease the financial pressures of our clients in these very difficult times.
In responding to this crisis, the insurance industry faces record losses on a par with major natural catastrophes. Having a well-diversified portfolio means our COVID-19-related claims are neither excessive nor restricted in any particular line of business. We have estimated that Beazley’s pandemic-related losses will amount to $170m net of reinsurance split between political, accident & contingency ($70m) and marine, property and reinsurance ($100m). There is still uncertainty around how COVID-19 will impact liability lines of business.
We have increased the opening claim ratios for specialty lines and cyber & executive risk over the last few years in preparation for a likely recession. Both of these books are on a claims made basis and we have been re-underwriting the more recession prone lines of business to reduce the potential impact of future claims. In the last recession, which affected our 2007 to 2010 underwriting years, we did not need to further increase our claims ratios from where they opened.
We have long been mindful of the potential impact that systemic issues have on our liability business. There are many examples of the impact they can have including the DotCom crash, high profile bankruptcies and the sub-prime crisis. Part of our mitigation strategy is to protect the business with reinsurance which will respond if overall losses in specialty lines and cyber & executive risk reach a predetermined level. For the 2020 underwriting year, if the combination of claims arising from COVID-19 and recession increased claims by around $10m we would begin to recover under this reinsurance contract. The limit of this contract is $140m of which we would bear 20% of any losses. The reinsurance programme is a multiyear programme and has been purchased for the 2021 underwriting year already.
MYBEAZLEY
In June we also launched enhanced cyber and MediaTech policy wordings in Spain. In addition we rolled out our myBeazley broker e-trading platform to Singapore, enabling brokers to place smaller risks more efficiently. We are also pleased to have continued attracting great talent and making key underwriting and claims hires and promotions in Asia Pacific, Europe and North America.
The impacts of COVID-19 will remain long after the lockdown and virus have subsided. Technological advancements, change in working habits and economic recession are just a few of the areas which will have a lasting legacy; some for the better and some for the worse. However, with every challenge comes opportunities and by utilising our key differentiators in our business model and strategy we will be able to successfully navigate these impacts. This approach has put us in good stead over the last six months, rising to the unprecedented challenges which have crossed our path. As a result, Beazley enters this unknown post-COVID-19 world in a strong position, ready for the challenge of embracing the changes which will inevitably arise in the future.
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