Beazley plc | Annual report and accounts 2019 Navigating change www.beazley.com Navigating change The world is constantly changing. Strategic report IFC Highlights Our key performance indicators From the Lloyd’s market to climate 01 Our key differentiators 02 Entrepreneurial spirit change, internal structure to 03 Strong partnerships 04 Diversified business 08 Our business model management succession, change 10 Navigating change 12 Management changes is a constant and navigating these 16 Statement of the chair 18 Chief executive’s statement is something Beazley increased 22 Q&A with the chief executive 24 Chief underwriting officer’s report 28 Performance by division focus on in 2019. Change also 30 Navigating change for 33 years 32 Financial review brings opportunities and the steps 32 Group performance 37 Balance sheet management 39 Capital structure we have taken in preparation 41 Operational update 44 Risk management over the last year mean we are 51 Responsible business 66 Section 172 statement ready to take advantage of these 67 Directors’ report opportunities in 2020 and beyond. Governance 72 Letter from our chair 74 Board of directors 78 Investor relations 79 Statement of corporate governance 94 Letter from the chair of our remuneration committee 96 Directors’ remuneration report 125 Statement of directors’ responsibilities 126 Independent auditor’s report You can find out about how we have navigated changes throughout 2019 Financial statements wherever you see this symbol. 137 Consolidated statement of profit or loss 138 Statements of comprehensive income 139 Statements of changes in equity Find out more on pages 10 to 11 141 Statements of financial position 142 Statements of cash flows 143 Notes to the financial statements 207 Glossary Please turn overleaf for our key performance indicators and highlights. www.beazley.com Highlights Gross premiums written Net premiums written Net earned premiums $3,003.9m $2,503.5m $2,347.0m (2018: $2,615.3 m) (2018: $2,248.5 m) (2018: $2,084.6m) Net investment income Cash and investments Investment return $263.7m $5,851.3m 4.8% (2018: $41.1m) (2018: $5,052.6 m) (2018: 0.8%) Rate increase on renewals Profit before tax for the financial year 6% $267.7m (2018: 3%) (2018: $76.4m) Beazley Annual report 2019 Key performance indicators Financial highlights Earnings per share (c) Net assets per share (c) Gross premiums written ($m) 60 350 3,500 23.3 50 300 17.8 18.7 25.5 24.2 3,000 286.3 48.8 48.6 250 2,500 40 44.6 263.9 268.2 261.6 256.2 200 2,000 30 3,003.9 150 1,500 2,615.3 20 25.0 2,343.8 100 2,195.6 1,000 2,080.9 10 13.0 50 500 0 0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 ■ Tangible ■ Intangible Dividends per share (p) Return on equity (%) Combined ratio (%) 100 30 25 100 99 98 87 89 25 20 80 20 19 15 18 60 15 15 40 48 48 58 59 62 18.4 10.0 10 10 11.7 12.3 39 41 41 39 38 9.9 10.5 11.1 9 5 5 20 5 0 0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 ■ Interim and second interim ■ Special ■ Claims ratio ■ Expense ratio The interim and second interim dividend for 2019 Average five year return on equity of 13%. Our combined ratio has averaged 95% over has grown by 5%, which is in line with our dividend five years. strategy. The group is of the view that some of the above metrics constitute alternative performance measures (APMs). Further information on our APMs can be found in the financial review on page 33 and in the glossary on page 207. Find out more within our financial statements on pages 136 to 206 www.beazley.com Beazley Annual report 2019 01 Our key differentiators We create value through the implementation of three key differentiators – consistently applied and nurtured across our specialist insurance operations around the world. We look for individuals with a Entrepreneurial strong sense of ownership for the business they handle who spirit are willing – indeed keen – to be accountable for their decisions Strong long term relationships Strong with brokers, reinsurers and clients have sustained our partnerships business over three decades We maintain a diverse underwriting Diversified portfolio and actively manage the different insurance cycles business to target consistent results year on year 02 Beazley Annual report 2019 www.beazley.com Our key differentiators continued Entrepreneurial As companies grow, they often find it harder to maintain the entrepreneurial flame that brought spirit them success in their early days. Below are two ways Beazley has met the challenge of sustaining its entrepreneurial spirit. First, by a strong cultural bias towards openness and transparency. Organisations in which information is shared reluctantly, if at all, cannot hope to maintain an entrepreneurial culture because new products and new ways of doing business almost invariably spring from people sharing ideas and insights. Transparency is deeply rooted in Beazley’s culture, and information and ideas are widely shared. One forum that exemplifies Beazley’s commitment to openness is the NexCo, an alternative executive committee comprising high potential employees – usually at an early stage in their careers – from around the company. The NexCo meets monthly and reviews the same briefing papers as Beazley’s executive committee. Its role is to exchange ideas, challenge the senior management team ‘Our NexCo provides a and suggest alternative strategic platform for us to review approaches. The NexCo was first the thoughts and views established in 2018 and has made important contributions in a number from a more diverse of areas, including imagining the group of employees, future skills needed for an underwriter in 2030 and what the roadmap looks enhancing entrepreneurial like for how to move our talent from spirit, and allowing where it is today, to where we think it needs to be. Beazley to make more informed decisions.’ The second way in which Beazley R achel Turk encourages entrepreneurial spirit is Head of corporate development by offering employees varied career paths. This has become easier as the company has grown around the world. Many Beazley employees have now worked for a duration of two years or more outside their home countries. This too supports the cross- fertilisation of ideas that characterises entrepreneurial companies. www.beazley.com Beazley Annual report 2019 03 Strategic report Strong partnerships have underpinned Beazley’s success since the company was founded in 1986. As a leading participant in the such as risks relating to intangible Lloyd’s market, Beazley is constantly assets and new technologies. Strong cooperating – as well as competing The PIF launched its first product – with other Lloyd’s syndicates. in September 2019. partnerships Sometimes these relationships are formalised into Lloyd’s consortia or Around the world, Beazley’s lineslip facilities, whereby syndicates partnerships with insurance brokers allocate pre-determined capacity are also critical in securing access to particular classes of business. In to high quality business. For smaller 2019, Beazley partnered with other risks these relationships are Lloyd’s syndicates to form consortia increasingly dependent on online focusing on reputational risk and systems that allow brokers to place technology-enhanced marine cargo business with Beazley with minimal insurance. effort. A growing number of brokers have been gaining access to Beazley’s Beazley is also a founding member award-winning e-trading platform, of the product innovation facility (PIF) myBeazley, through application at Lloyd’s, launched in June 2019 by programming interfaces (APIs) a number of syndicates to develop that enable them to link their solutions for non-standard risks that own trading platforms to ours. might not suit the traditional market, ‘In 2019, we launched myBeazley in Germany and Spain and added new products to our offering in France and the UK. As the platform continues to grow it allows us to strengthen the partnerships we have and form new ones.’ 04 Beazley Annual report 2019 www.beazley.com Our key differentiators continued Diversified business In 2019, the mix of business underwritten Each year we review the make up of Beazley’s diverse by Beazley was particularly important our portfolio and assess which areas portfolio of business, as a succession of natural catastrophes offer profitable growth opportunities in the US and Japan rocked the world’s and which require us to reduce our combined with the reinsurance markets and some underwriting appetite. risk selection skills of lines of US liability business saw jury awards climb steeply. The latter mainly Every underwriting portfolio will have its underwriters, has impacted Beazley’s management peaks and troughs and Beazley’s liability book, comprising predominantly underwriting profit was reduced to been critical to the directors’ & officers’ (D&O) and $4.8m in 2019. However, achieving company’s track employment practices liability (EPL) an underwriting profit albeit small, is risks, as well as healthcare liability testament to the benefits of a carefully record of profitability risks, particularly for large hospitals. balanced portfolio of non-correlated lines Other lines of liability business have of business that Beazley has built up through widely varying been less affected. over many years. market conditions. 2009 gross premiums written 2014 gross premiums written 2019 gross premiums written Specialty lines 28% Specialty lines 24% Specialty lines 33% Property 23% Cyber & executive risk 20% Cyber & executive risk 27% Cyber & executive risk 15% Property 17% Property 14% Marine 15% Marine 16% Marine 10% Political, accident & contingency 11% Political, accident & contingency 13% Political, accident & contingency 9% Reinsurance 8% Reinsurance 10% Reinsurance 7% www.beazley.com Beazley Annual report 2019 05 Strategic report Diversified portfolio The spread of our overall portfolio by division and the impact this diversification has had on our combined ratio over the past ten years can be seen in the chart below.