June 9, 2017 / 8:58 AM / a year ago

Fitch Affirms Beazley at IFS 'A+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, June 09 (Fitch) Fitch Ratings has affirmed Beazley Re Designated Activity Company's (Beazley Re) Insurer Financial Strength Rating (IFS) at 'A+'. It has also affirmed the Issuer Default Ratings (IDR) of Beazley Re and ultimate parent and holding company of the group, Beazley plc, (collectively Beazley) at 'A'. All ratings carry a Stable Outlook. The subordinated debt has also been affirmed at 'BBB+' KEY RATING DRIVERS The ratings of Beazley are underpinned by its historically strong and stable underwriting performance, strong capitalisation, prudent reserving practices and its established position in the London insurance market. However, the ratings are constrained by the group's business profile, which while Fitch views as strong, is limited by the group's medium size in terms of business volume. In 2016, Beazley's gross written premium was USD2.2 billion compared with the Fitch median of between EUR1 billion and EUR3 billion for non-life insurers with a 'strong' business profile. Its significant presence in the Lloyd's market is viewed positively by Fitch. Beazley's Lloyd's syndicates benefit from a strong track record and good reputation among brokers. As a result, Beazley is the lead on a large amount of business that it underwrites through the platform. Beazley has reported strong underwriting profitability in recent years as reflected in a Fitch-calculated five-year average combined ratio of 87%. Beazley's net income remained flat at USD251 million in 2016 (2015: USD249m), reflecting a slightly weaker underwriting result. This was due to increasingly challenging underwriting conditions, evidenced by an average 2% rate decline across the portfolio in 2016, which was offset by an improved investment result at Beazley. Fitch views Beazley's capitalisation as strong. Beazley's score in Fitch's Prism Factor-Based Model was 'Extremely Strong' at end-2016. Fitch expects capitalisation to remain supportive of Beazley's ratings, reflecting the group's strong underwriting performance and limited asset risk, and assuming an 'average' level of catastrophe activity during the remainder of 2017. In 2016, Beazley Group Limited repaid GBP76.5 million of existing tier 2 subordinated debt and Beazley Re issued USD250 million of new tier 2 subordinated debt with a maturity date of 2026. As a result, financial leverage increased to 20% in 2016 (2015: 15%). Fitch views such debt as moderate compared with London market peers and being supportive of the ratings. Beazley's debt-servicing ability is strong, as reflected in an 18x fixed-charge coverage in 2016 (2015: 20x). The agency's view of Beazley's good financial flexibility is driven by the number of internal and external funding options available to the insurer. Fitch believes that Beazley's reserve adequacy is strong, which will continue to contribute to technical profitability. The company targets a margin on net held reserves of between 5% and 10% above the actuarial estimate and has been able to report continuous strong prior year reserve releases. The margin in net held reserves above the actuarial estimate was 6.6% in 2016 (2015: 8.2%). Beazley's conservative investment strategy is positive for the ratings. Eighty-eight per cent of Beazley's investments are part of the group's core portfolio (CP). The CP, which consists of cash investments, sovereigns and highly rated bonds, is held to serve insurance claims, and durations are managed with reference to insurance liabilities. The remaining 12% of investments belong to a capital growth portfolio, which includes equity and hedge fund exposures. RATING SENSITIVITIES An upgrade of Beazley's ratings is unlikely given the group's business profile, which we do not expect to improve materially in the medium term. Deterioration in profitability, reflected in a combined ratio consistently above 97%, or net return on equity consistently below 10% could lead to a downgrade. A prolonged decline in capitalisation to a level below 'Very Strong' could also lead to a downgrade. Contact: Primary Analyst Graham Coutts Director +44 20 3530 1654 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Ekaterina Ishchenko Associate Director +44 20 3530 1532 Committee Chairperson Willem Loots Senior Director +44 20 3530 1808 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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