Beazley plc – Annual report – 31 December 2017
Chairman’s statement (extract)
Another building block for future growth was put in place in July, when we received authorisation from the Central Bank of Ireland to convert our long established Dublin-based reinsurance company (Beazley Re dac) into an insurance company (Beazley Insurance dac) permitted to transact business throughout the European Union. Planning for this predated the British referendum vote to withdraw from the European Union in June 2016. We can now offer prospective clients in continental Europe a choice of cover, backed by either the Dublin-based insurance company or by our Lloyd’s syndicates.
Chief executive’s statement (extract)
In February 2017 we acquired Creechurch Underwriters, a Canadian managing general agency specialising in small and mid sized specialty business. And in July 2017 we received authorisation from the Central Bank of Ireland to underwrite business through a new Dublin-based insurance company, Beazley Insurance dac, broadening our access to business from continental Europe.
Our longstanding preference is for organic growth, but our purchase of Creechurch Underwriters was an exception that was not difficult to justify. We had supported the company with underwriting capital since its creation in 1996 and we knew the team extremely well. Now that we have a local presence in Canada, we see significant growth opportunities and have already begun to supplement the existing team with new underwriters focusing on media liability, cyber and environmental liability business.
In Europe, we opened a new office in Spain, expanded our office in Germany and plan to transact business for the account of Beazley Insurance dac through branches in those countries, as well as in the UK and France. Clients will have a choice of security: that of the insurance company, which enjoys passporting freedoms under European Union law, and that of our Lloyd’s syndicates.
Q&A with the chief executive (extract)
Q – The economic fundamentals of the European Union look stronger today than at any time in recent years. How important are European markets to Beazley?
Today, Europe is not a major market for us. Tomorrow, we hope, it will be much more important. At present about 15% of our total business derives from Europe and 4% from the EU excluding the UK. We have plans to grow this business significantly in the years ahead, particularly for our specialty lines products, and we have been actively hiring talent during 2017. We see strong demand for cyber, management liability and medical malpractice insurance in Europe and we believe that financial institutions in particular will value our products and expertise. We do not expect Brexit to be an impediment to European growth: we will access business after Brexit both through Lloyd’s and through our new Dublin-based insurance company, which was authorised in 2017.
Risk management (extract)
2017 in review (extract)
This year has included organisational changes which have impacted the risk and control environment. Firstly, we received approval of Beazley Insurance dac’s licence from the Central Bank of Ireland to underwrite insurance business in Europe in addition to the reinsurance of syndicate 2623 and syndicate 3623. Secondly, Beazley purchased a managing general agent, Creechurch Underwriters, which is now called Beazley Canada Limited, in order to provide more of Beazley’s products to our clients in Canada.
We have been involved throughout these processes which, in each case, started with the production of an Own Risk and Solvency Assessment (ORSA) report which informed the board of the risk and capital considerations and subsequently has involved updating the risk register, controls and governance to reflect the new risk profile. This has included ensuring that the new underwriting and claims processes meet Beazley’s group-wide consistent underwriting and claims standards.
Beazley has also established a new special purpose syndicate, syndicate 5623. We have supported the establishment of this syndicate including setting the processes and controls appropriate for the portfolio nature of the underwriting, which is different to the majority of underwriting performed at Beazley.
We have also started a risk review of our US operations. Whilst there were already two risk managers based full time in the US, the chief risk officer is spending nine months, spanning 2017 and 2018, in the US in order to provide assurance to the board that the US operations are working appropriately following the recent growth – we now have over 500 staff, or around 40% of the total workforce, based in the US – and that we are ready for the continued growth planned over the next few years.
We worked with the board to produce Beazley’s contingency plan for the UK’s exit from the European Union (‘Brexit’), setting out a central plan and testing it against a range of potential outcomes. The main risk is the ability to offer insurance to European clients following Brexit and, for context, around 4% of Beazley’s current European business is within scope. The central plan is to be able to offer policies, at the client’s choice, either through Beazley’s insurance company in Dublin or through the subsidiary that Lloyd’s is in the process of establishing in Brussels. A Brexit working group, led by the chief risk officer, was established to oversee Beazley’s response to Brexit and this working group will remain in place until the conclusion of the Brexit process.