For 2023, Lancashire saw its profits reach $332.7mn, up from a $17.3mn loss the year prior, Beazley's profits jumped by 115% to $1.25bn and Hiscox saw a 127% increase from $275.6mn in 2022 to $625.9mn in 2023.
All three carriers hailed strong pricing momentum and underwriting discipline as the reasons behind their growth, pointing towards a particularly strong property market as a key driver for growth.
- Below, we explore key themes of the results including:
- Diverging net and top-line growth
- Confidence over ongoing expansion potential this year, if at a slower pace
- Insulation from casualty reserving issues, albeit with some strengthening at Hiscox
Top-line growth
All carriers flagged their move to attack the hard market of 2023 as a reason for greater profits during earnings calls, although the extent of growth varied.
Under new IFRS 17 reporting, the only comparable premium metric reported by all three was insurance revenue, with Lancashire’s growth leading the way as it grew its primary business significantly, with a US buildout still underway.
CEO Alex Maloney said: “We continue to grow our premiums in excess of the strong rate change we have seen throughout 2023, demonstrating real momentum at the right time in the underwriting cycle.”
Both Hiscox and Beazley disclosed additional gross and net “written premium” metrics, with each seeing a diverging gross to net growth rate.
Beazley’s 7% top-line written premium figure compared with 24% net growth, as it reduced its quota-share reinsurance buying after the November 2022 capital raise of $404mn. The carrier recorded a 64% increase in property insurance written premiums, writing more than $1.35bn in 2023.
Hiscox’s 5% top-line figure trailed an 11% net written premium growth (in constant currency), reflecting its move to take more risk net within its reinsurance unit (where net growth was up 23%) as it had less ILS capital to deploy.
Growth targets
All three firms flagged the potential to grow by high single digits up to low double digits this year and underscored what they saw as sectoral growth opportunities, even as rate momentum ebbs.
With both Beazley and Lancashire building out E&S operations onshore in the US, and Hiscox targeting SME growth in the US, the trio are hoping ongoing flows to the surplus lines business will support expansion.
Hiscox said the firm wants to grow 5%-15% and sees property and energy insurance and reinsurance as attractive, while it is “managing the cycle” in casualty insurance.
It flagged plans to grow in big-ticket lines of business including the green economy, as well as chasing a “structural growth opportunity” in retail, where it plans more marketing and broker distribution deals. It flagged that a distribution partnership entered last year on US workers’ compensation should open up more SME clients.
Paul Gregory, Lancashire’s CUO, said it expected around 10% premium growth in 2024. Gregory added that the level of growth Lancashire experienced felt “pretty sensible based on anticipated market conditions”.
Quizzed on whether the property market may start to soften this year, his CEO Maloney said that “one or two areas of competition on great cat layers at high levels” showed “an appreciation” from markets of great pricing levels.
“People are just more willing to deploy,” he added. “But that’s just good underwriting.”
He said there was not yet a “rush to this market”, with challenges for those considering IPOs and no influx of capital.
“Clearly, the industry has another good year, more confidence builds, the cycle continues as it always will do, but there's nothing that's spooking us at the moment,” he said.
Beazley forecast high single-digit growth on a gross basis for 2024 and “a little bit higher net”. However, it said the disconnect between faster net growth and slower gross growth that prevailed in 2023, as it cut reinsurance buying, would fall away, as this tactic has mostly played out.
The firm said it expected growth in property as specialty risk remained flatter, and, within cyber, it expects growth to come from exposure, as rates have been falling.
Beazley’s CUO Bob Quane said the carrier is also paying a lot of attention to North America in 2024, where it sees a long-term opportunity to grow market share.
“As commercial property underwriting has become increasingly complex and more volatile, many brokers have shifted their clients' program to the non-admitted market,” Quane said. “As a result, we are building our relevance in the market, accessing new clients that previously would have been unavailable to us.”
He also underscored that perceptions of climate risk should keep property business more disciplined than in the past.
Underwriting profits lead to capital returns
Using the undiscounted combined ratio, Lancashire reported the largest year-on-year improvement, though Beazley’s underwriting profit came in the strongest with a 74% figure.
For 2024, Beazley is predicting its combined ratio will be in the low-80s, as CEO Adrian Cox said last year benefited from lower-than-expected catastrophe activity and lower-than-expected attritional, with both of those factors expected to normalise this year.
Out of its three segments, Hiscox’s retail division posted the weakest combined ratio, partly influenced by strengthening of reserves for a $160mn portfolio of US cyber and general liability business, exited in 2021.
Hiscox CEO Aki Hussain said that, looking to 2024, the carrier is targeting a combined ratio of between 89% and 94%.
The excess returns enabled all carriers to undertake some form of special return to investors.
Berenberg analyst Tryfonas Spyrou said Beazley’s “bet to raise capital to deploy in the hard market has clearly paid off”, as he calculated dividends and buybacks will be worth about $443mn in total – more than the $400mn raised in November 2022.
He forecast ongoing higher capital returns, as the firm was in the “sweet spot of generating strong levels of capital, in excess of what is required to fund the current growth opportunities”.
Spyrou said Hiscox surprised the market by announcing a special $150mn buyback, “having previously played down expectations of additional capital repatriation”.
Setting aside routine final dividends, the special dividends or share buybacks ranged from 5% of shareholder equity for Hiscox to 8% for each of Beazley and Lancashire.
After US results season brought up multiple cases of casualty-reserve deterioration, the London-listed trio managed to avoid negative headlines on this issue – though it was a point they were quizzed on by analysts.
Each had their own specifics on why they were better insulated from this issue.
But one broader question may have been why more of the carriers chose against salting away increased just-in-case reserves, given the bumper profits they made last year.
This question was raised on Beazley’s call by an analyst, and CEO Cox said that, given the firm’s reserving confidence level remained "bang in the middle” of its 80%-90% target, there was “no logic for us to apply an opportunistic increase in reserve levels”.
Similarly, Lancashire’s reserve confidence level of 88% was near the top of its target range. Reserve releases were down year on year from $134mn to $79mn.
In contrast, Hiscox did take a call to strengthen its reserve confidence level, to 83% at year-end from 77% at half-year 2023.
CEO Hussain said the firm strengthened its “already prudent reserves, materially increasing the quality of those reserves and reducing the risk to [...] future profitability”.
The carrier still delivered net reserve releases of $123mn, down from $209mn, as releases elsewhere offset the general additions and strengthening of reserves for exited US broker business.
In tandem with the strengthening, Hiscox entered legacy transactions as a further hedge. Paul Cooper, Hiscox’s CFO and executive director, said LPTs cover 42% of Hiscox’s gross casualty reserves for 2019 and prior, which provides the carrier with protection from inflation and other pressures.
At Beazley, reserve releases remained stable at $110mn during the year, which equates to a 2.5% release, with property releases particularly beneficial.
However, Beazley CFO Sally Lake explained there had been small strengthening on cyber liability reserves, albeit almost entirely offset by more recent years having benign claims experience.
Later, Cox noted this had related to issues with Meta’s pixel-tracking tools.
Generally, however, Lake highlighted Beazley’s policy of writing claims-made policies and little general lability risk and buying aggregate reinsurance as factors that had shielded it from social inflation.
“We've been telling you for a number of years that this has been a problem we've been highly alert to,” she said.
Finally, Lancashire executives noted that the firm only entered the casualty class during 2021, with “problem years” pre-dating its entry.
CFO Natalie Kershaw said the carrier is “reserving casualty exceptionally prudently”.
With a bumper Q4 behind the London-listed specialty carriers, unfortunately, the challenge this year will be getting recognition for their results amid depressed conditions on the London Stock Exchange as much as managing the ebbing pace of the long-run hard specialty insurance market and opening new markets.
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