The specialist insurer has ensured it has sufficient amounts of reserve capital in place, to help it weather economic storms such as inflation

Inflation is not “bad, per se” for insurance, provided that its impacts are “properly provisioned for and thought through”, said Beazley chief executive Adrian Cox.

Speaking during an online briefing following the publication of the specialist insurer’s half-year financial results on 22 July 2022, Cox said that Beazley’s strong performance was a result of effective planning and foresight.

He explained: “We turned hawkish on economic inflation at the beginning of 2021 and began to adjust our assumptions across the business accordingly.

“We will continue to do so as we learn and things change.”

Sally Lake, Beazley’s chief finance officer, added: “[Inflation] isn’t a new thing to us – our reserving processes always allow for social and economic inflation, which affects different parts of our book at different times.

“At the beginning of last year, we added a load for excess economic inflation following the effects of the pandemic.”

Lake explained that the impact of inflation on currencies has been accounted for within the company’s solvency balance sheets, to make sure Beazley has enough funds in reserve to remain stable in the long-term and weather economic downturns effectively.

Within its half-year financial results, Beazley reported a combined operating ratio (COR) of 87% for the six months to 30 June 2022. This represented an improvement from a 94% COR for the equivalent period in 2021.

Beazley’s gross written premium (GWP), meanwhile, hit £2,119.4m in H1 2022 - up from £1,688m for the same period last year.

The insurer has also applied an excess inflation amount to its estimates and actuarial reserves, above and beyond the normal inflation level already factored into its calculations.

Lake said: “We monitor and update our [balance sheets] quarterly, when appropriate. In the first half of this year – given what’s been happening in the world – we updated these to reflect both the expected level of inflation as well as how long we expected it to last.”

Inflationary impact

Beazley has not been immune to the impact of inflation, however – it explained that the Russia-Ukraine conflict had “accelerated” inflationary pressures that were already in place due to the Covid-19 pandemic.

The ongoing war has negatively affected the business’ investment income – Beazley recorded an investment loss of £159.8m in the six months to 30 June 2022.

Cox said: “Investments are a slightly less positive story of the year so far – most investment markets faced difficult conditions in the first half of the year because of the war in Ukraine, ongoing effects of the pandemic and rising inflation.

“This resulted in a lot of volatility across many markets.”

However, Beazley’s outlook for the remainder of the year remains positive. Cox added: “We are very actively provisioned for inflation and for recession – we always consider macroeconomic and macro conditions generally as part of our usual underwriting and capital management processes.

“We will continue to monitor, learn and iterate – and if our view of these risks change, for better or worse, we will continue to adjust accordingly.”