Profits fall nearly 40% as Lloyds insurer buys US underwriter

Lloyd’s insurer Beazley has announced a fully underwritten rights issue and placing to raise £150m to buy US-based underwriting manager First State Management Group and expand its work at Lloyd's.

The rights issue of 165,589,635 new ordinary shares and placing of 17,478,904 new ordinary shares is at issue price of 86 pence per share.

The news came on results showing profit down nearly 40%, despite premiums up 12%.

Full year results highlights:

  • Profit before tax of £87.2m (2007: £138.5m)
  • Profit before tax and foreign exchange on non monetary items of £41.0m (2007: £130.3m)
  • Return on equity of 16% (2007: 28%)
  • Return on equity excluding foreign exchange on non-monetary items of 8% (2007: 26%)
  • Investment returns –1.5% (2007: 4.9%)
  • Final dividend of 4.4p per share
  • Combined ratio 90% (2007: 90%)
  • Prior year reserve releases of £72.8m (2007: £64.1m)
  • Gross written premiums up 12% to £875.7m
  • Net written premiums up 14% to £740.4m
  • Business written through US operations up 54% to US$269.1m (2007: US$175.2m)

Andrew Horton, chief executive said: “We called a turn in the market last October and foresaw 'significant opportunities' for Beazley. Opportunities to grow our Lloyd's business and our locally underwritten US business have increased since then, with January renewals confirming our expectations of premium rate rises in many classes.

“The acquisition of First State marks a significant step forward in the development of our US strategy, which focuses on gaining access to profitable business that would not normally come to London. We have reinsured the business underwritten by First State for many years and the expertise of their team and quality of their broker relationships is well known to us.

“In London, the rights issue will also support the growth of our specialist teams in markets that are now seeing diminished competition and a clear flight to quality from brokers and clients. In both the near and medium term, we see a range of attractive opportunities for profitable capital deployment across our core lines.”

Where the money will go:

  • First State will cost Beazley $35.4m (£24.6m), comprising $32.6m plus an expected dollar for dollar adjustment for net assets at closing of $2.8m. As of 30 November 2008, First State had gross assets of $10.6m.
  • Beazley Group will fund additional capital to its Lloyd's syndicates of £27m to support First State's underwriting in 2009.
  • The acquisition of First State is not conditional upon the successful completion of the proposed rights issue and placing.

Change to corporate structure

Beazley Group also announced plans to incorporate a new holding company for the group, incorporated in Jersey and tax resident in the Republic of Ireland, and to establish a newly incorporated Irish reinsurer.

“The new corporate structure, which will have no affect on the placement by Lloyd's brokers of business with Beazley's Lloyd's syndicates in London, will provide a favourable operating base from which to develop the business and bring the group's corporate tax rate down in line with its global peer group, in a stable tax environment,” Beazley said.