Results for the year ended 31 December 2016 Friday, 3 rd February - - PowerPoint PPT Presentation

Results for the year ended 31 December 2016

Friday, 3rd February 2017

Disclaimer notice

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Certain statements made in this presentation, both oral and written, are or may constitute “forward looking statements” with respect to the operation, performance and financial condition of the Company and/or the Group. These forward looking statements are not based on historical facts but rather reflect current beliefs and expectations regarding future events and results. Such forward looking statements can be identified from words such as “anticipates”, “may”, “will”, “believes”, “expects”, “intends”, “could”, “should”, “estimates”, “predict” and similar expressions in such statements or the negative thereof, or other variations thereof or comparable terminology. These forward looking statements appear in a number of places throughout this document and involve significant inherent risks, uncertainties and other factors, known or unknown, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking

• statements. Given these uncertainties, such forward looking statements should not be read as guarantees of future

performance or results and no undue reliance should be placed on such forward looking statements. A number of factors could cause actual results to differ materially from the results discussed in these forward looking statements. The information and opinions contained in this presentation, including any forward looking statements, are provided, and reflect knowledge and information available, as at the date of this presentation and are subject to change without

• notice. There is no intention, nor is any duty or obligation assumed by the Company, the Group or the Directors to

supplement, amend, update or revise any of the information, including any forward looking statements, contained in this presentation. All subsequent written and oral forward looking statements attributable to the Company and/or the Group or to persons acting on its behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this document.

Contents

Overview of 2016 4-8 Financials Performance 10 Investments 11-12 Reserves 13-14 Capital 15-16 Underwriting review 17-22 Our vision and strategic priorities 22 Outlook for 2017 23 Appendix 25-30

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Overview of 2016

Good performance across the board in 2016

• Profit before income tax of $293.2m (2015: $284.0m)
• Return on equity of 18% (2015: 19%)
• Gross premiums written increased by 6% to $2,195.6m (2015: $2,080.9m)
• Combined ratio of 89% (2015: 87%)
• Rate reduction of 2% on renewal portfolio (2015: reduction of 2%)
• Prior year reserve releases of $180.7m (2015: $176.3m)
• Net investment income of $93.1m (2015: $57.6m)
• Second interim dividend of 7.0p (2015: 6.6p) taking full year dividend to 10.5p

(2015: Full year 9.9p). Special dividend of 10.0p (2015: 18.4p)

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• Invested in our teams
• Hired 63 new underwriters
• Acquired Leviathan and the Marketform team
• Opened or expanded offices in Atlanta, Los Angeles,

Miami, Houston, Paris and Birmingham

• Launched our SL International business in Europe and

RoW

• Gerard Bloom joined us in December to head team
• Converting Beazley Re to an insurance company
• US premiums continue to grow strongly with 20%

growth in 2016

• Partnered with Munich Re to offer expanded cyber cover
• f up to $100m and continued to work with Korean Re
• Active on corporate finance side
• Continued capital management
• Successful debt issuance
• Completed change of group domicile

Strategic update – a busy year

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In 2016 we unveiled Beautifully designed insurance as the company’s global brand positioning

19% 21% 17% 19% 18% 0% 5% 10% 15% 20% 25% 2012 2013 2014 2015 2016 Return on equity (%) 53% 45% 49% 48% 48% 38% 39% 40% 39% 41% 91% 84% 89% 87% 89% 0% 25% 50% 75% 100% 125% 2012 2013 2014 2015 2016 Combined ratio (%) Expense ratio Claims ratio

Cover

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Sustained high performance

1,895.9 1,970.2 2,021.8 2,080.9 2,195.6 500 1,000 1,500 2,000 2,500 2012 2013 2014 2015 2016 Gross premiums written ($m) 8.3 8.8 9.3 9.9 10.5 8.4 16.1 11.8 18.4 10.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 2012 2013 2014 2015 2016 Dividends per share (p) Special Interim and second interim

Excellent total shareholder return - TSR 21.6% per annum since 31.12.09

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Shareholder return (%) * Average NAV growth (including dividends) over the past 7 years of 17.7% 0% 25% 50% 75% 100% 125% 150% 175% 200% 225% 250% 275% 300% 325% 350% 375% 400% 425% 31 December 2009 31 December 2010 31 December 2011 31 December 2012 31 December 2013 31 December 2014 31 December 2015 31 December 2016 NAV target range (RFR +10% p.a. to RFR +15% p.a.) NAV growth (Including dividends) TSR growth (1 month average)

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Financials

Strong performance across all metrics

Year ended 31 December 2016 Year ended 31 December 2015 % Increase Gross premiums written ($m) 2,195.6 2,080.9 6% Net premiums written ($m) 1,854.0 1,713.1 8% Net earned premiums ($m) 1,768.2 1,698.7 4% Profit before income tax ($m) 293.2 284.0 3% Earnings per share (pence) 35.5 31.9 Dividend per share (pence) 10.5 9.9 Special dividend (pence) 10.0 18.4 Net assets per share (pence) 225.9 186.5 Net tangible assets per share (pence) 211.2 174.8

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Portfolio delivered highest ever investment income

11 36.1 46.8 43.5 62.7 46.5 43.3 36.2 14.1 30.4

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 2012 2013 2014 2015 2016 Annualised investment return Investment return ($m) 1st half 2nd half Return

Cash and Cash Equivalents 15.0% Government Quasi Government & Supranational 41.1% Investment Grade Credit 27.2% Other Credit 1.6% Senior Secured Loans 2.5% Equity Linked funds 3.3% Hedge Funds 7.3% Illiquid Credit Assets 2.0%

Minor changes to portfolio mix

12 31 December 2016 31 December 2015

Cash and Cash Equivalents 10.8% Government Quasi Government & Supranational 26.8% Investment Grade Credit 46.0% Other Credit, 2.4% Senior Secured Loans 2.0% Equity Linked funds, 2.5% Hedge Funds 6.7% Illiquid Credit Assets 2.8%

Prior year reserve releases very stable

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• 1%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

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15 30 45 60 75 90 105 120 135 150 165 180 195 210 225 2012 2013 2014 2015 2016 Reserve releases ($m) Specialty lines Political risks and contingency Life accident and health Marine Property Reinsurance % of NEP

Whole account reserve strength within our target range

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Above actuarial estimate (%) 6.1% 6.7% 6.4% 6.7% 7.5% 7.4% 8.2% 7.9% 7.4% 6.9% 8.2% 7.1% 8.2% 6.6% 0.0% 5.0% 10.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Financial year

Surplus in net held reserves

Capital management discipline continues

• We have returned capital of £717.6m in the past 7 years
• This represents 174% of our 2009 post rights-issue market capitalisation

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 2009 2010 2011 2012 2013 2014 2015 2016 Percentage of market capitalisation at 2009 rights issue Funds returned to shareholders (£m) Interim and final dividends Special dividend Share buybacks (£) % of market capital

Updated capital position remains strong

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Year ended 31 December 2016 $m Year ended 31 December 2015 $m Lloyd’s economic capital requirement (ECR) 1,489.2 1,326.9 Capital for US insurance company 107.7 107.7 1,596.9 1,434.6

• Group capital requirement
• Our funding is made up of our own equity (on a Solvency II basis) plus $361.0m of debt

and an undrawn banking facility of $225.0m

• At 31 December 2016 surplus capital post dividend of 36% of ECR, including Solvency II

adjustments

• We expect high single digit growth in underwriting capital and premiums going forwards

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Underwriting review

Underwriting review – 2016 achievements

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• Combined ratio of 89%
• Growth in gross premiums written of 6% to $2,195.6m
• Specialty lines, our largest division, achieved growth of 14%
• 20% growth in locally underwritten US premium
• Rating environment remains challenging with reductions of 2% across portfolio as a

whole

• Favourable claims experience with natural catastrophe losses within our budget
• We continue to reserve consistently, maintaining our surplus over actuarial estimate

between 5-10%

Underwriting review

Year ended 31 December 2016 Year ended 31 December 2015 % Increase Gross premiums written ($m) 2,195.6 2,080.9 6% Net premiums written ($m) 1,854.0 1,713.1 8% Net earned premiums ($m) 1,768.2 1,698.7 4% Expense ratio 41% 39% Claims ratio 48% 48% Combined ratio 89% 87% Rate change on renewals (2%) (2%)

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Cumulative rate changes since 2008

Rate change (%)

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75% 80% 85% 90% 95% 100% 105% 110% 115% 120% 2008 2009 2010 2011 2012 2013 2014 2015 2016 All divisions Life, accident & health Marine Political risks & contingency Property Reinsurance Specialty Lines

2017 underwriting outlook

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• Competitive market conditions expected to continue
• Diverse portfolio allows disciplined underwriting approach where competitive

pressures are strongest

• We see opportunities for growth in 2017
• Cyber demand continues to increase
• Locally underwritten US premium
• SL international business

Our vision and strategic priorities

To become, and be recognised as, the highest performing specialist insurer Growth in Small Enterprise (SE) Sales and Service Growth in Asia Pacific Growth in the US Innovation and Product Development

Growth in Europe

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Data and Analytics

Outlook for 2017

• Political and economic landscape remains uncertain
• Premium rates expected to decline across portfolio as a whole
• Continue our organic growth strategy by attracting talented teams and individuals
• Opportunities for high single digit growth led by our specialty lines business
• Plan for full launch of SL International on Lloyd’s and company paper
• Merging PCG and LAH divisions under Christian Tolle’s leadership
• New strategic initiative on data

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Questions?

Any questions?

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Appendix

Specialty lines incurred claims remain in line with expectations

26 73% 113% 89% 62% 49% 45% 48% 52% 74% 77% 70% 67% 64% 54% 42% 28% 11% 3%

73 97 47 84 251 303 322 336 420 459 423 442 432 460 503 562 619 0% 20% 40% 60% 80% 100% 120% 140% 1993- 1996 1997- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Net Ultimate Premium $m

Specialty lines net incurred loss ratio at each development year 6 to Latest 6 5 4 3 2 ULR Please note that this graph is gross of internal commissions Net incurred loss ratio (%)

US gross premium growth

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US gross premiums ($m) 100 200 300 400 500 600 700 800 900 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Architects and engineers professional indemnity Technology, media and business services Other specialty lines Property PCG & marine Accident and health

Cumulative rate changes since 2001

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Cumulative rate change (%) 50% 100% 150% 200% 250% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Life, accident & health Marine Political risks & contingency Property Reinsurance Specialty lines All divisions

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Portfolio management achieves consistent combined ratio through market cycles

Combined ratio (%) 40 60 80 100 120 140 160 2012 2013 2014 2015 2016 Year

Performance by division

Year ended 31 December 2016

Life, accident & health Marine PCG Property Reinsurance Specialty lines

Gross premiums written ($m) 126.6 247.4 118.7 329.7 213.4 1,159.8 Net premiums written ($m) 118.0 220.7 97.6 277.1 141.2 999.4 Net earned premiums ($m) 117.5 223.2 103.6 287.0 138.4 898.5 Result from operating activities ($m) (3.9) 34.5 31.5 51.5 60.9 133.9 Claims ratio 59% 44% 29% 40% 29% 56% Rate change on renewals (2%) (7%) (6%) (4%) (4%) 1% Percentage of business led 62% 54% 70% 70% 46% 95%

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