Beazley profits hit by lower reserve releases and currency headwinds

5th Feb 2015 09:02

Lower reserve releases than its five-year average and currency headwinds saw specialist insurer Beazley report a 16% decline in pre-tax profit in 2014.The group said its pre-tax profit for year fell from $313.3m (£205.75m) to $261.9m, while revenue rose 4% to $1.77bn thanks to an increase in net earned premiums to $1.66bn, as rates on renewal business on average declined by 2% across the company portfolio.Expenses increased by 11% to $1.49bn, while net investment income jumped 92% to $83m as the portfolio was helped by falling yields in areas where it had fixed rate exposure."Insurance companies exist to pay claims. Subdued claims activity of the kind we have seen in many lines of business for the past two years casts an artificially rosy light on the economics of our business," Andrew Horton, chief executive, said in a statement."Beazley's response has been consistent throughout our history: we will focus on specialist products that command higher margins and walk away from underpriced business."We will keep a keen focus on expenses while continuing to invest prudently for the future; and we will return capital that we cannot profitably deploy to our investors."The decline in profit was due to currency headwinds, which saw the dollar gain against the sterling, euro and Canadian dollar, together with the increase in combined ratio - a measure of underwriting profitability representing the ratio of costs to net earned premium.The lower level of reserve releases is unlikely to recover, after the Bank of England's Prudential Regulation Authority late last year wrote to insurance companies to caution them about dipping into their backstop funds after officials detected record levels of these releases, which it suspects companies may be using at unsustainable levels to prop up profits and dividends.Beazley shares were up 1.76% to 295.90p at 09:34 on Thursday.