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Beazley upbeat despite profits fall

Andrew Horton was upbeat in his first public appearance as the new Beazley CEO, as the Lloyd’s (re)insurer became the first listed London Market player to announce its interim results last week which saw a 25 percent fall in profits and a slump in investment income.

But despite posting a £15mn fall in profits to £45mn in the first half of 2008, down from £60mn last year, Horton remained positive about the company’s performance.

However, the (re)insurer saw its share price fall around 4 percent following the 25 July announcement. Horton said Beazley would continue to look at potential acquisitions as the company moved forward and would also be looking at opportunities to grow its US business.

“We continue to look at [acquiring] MGAs and add to our business,” he said. “Our US business is growing well – we have very talented individuals and continue to build.”

Beazley’s US operations have performed well in several lines so far this year, particularly in architects and engineers, which reported gross written premiums of over $50mn for the second year running.

Investment income fell sharply, down from last year’s £33mn to £13mn this year. However, Horton said the (re)insurer was in line with the first half of 2005 when its investment portfolio was smaller.

“[There’s been] more movement in the asset-backed securities. We have taken on a bit more credit exposure in the first half of the year,” he said.

The firm said it had experienced average rate reductions of 8 percent across its book so far this year and its loss ratio was also up because of increased property claims. However, the combined ratio remained stable at 90 percent because of reduced costs.

Particular pressures were felt in the firm’s catastrophe accounts, with commercial property and offshore energy falling 16 percent and 18 percent respectively. The firm blamed a “second successive catastrophe free year in Florida and the Gulf of Mexico” for the sharp falls and said it expects the “trading environment to remain challenging during the remainder of 2008”.

Gross written premiums were down 6 percent to £407.3mn (£434.1mn), while net written premiums were down 10 percent from £325.6mn to £292.3mn. Reserve releases of £23.4mn helped bolster the numbers.

On a positive note, investors will welcome the group’s limited sub-prime exposures. As a leading writer of US executive risks – albeit with limited exposures to financial institutions – the (re)insurer has had to work hard to reassure nervous shareholders over potential liabilities. But in its statement on Friday, the firm said it had just 14 exposures to sub-prime related litigation.

Horton added: “We continue to be able to report we have minimal exposure to sub-prime issues, largely due to the fact [that we] don’t insure financial institutions.”

However, Horton said the group did provide directors and officers’ cover for affected companies.

Andrew Beazley, Beazley deputy chairman, reaffirmed the (re)insurer’s commitment to London.

“We’re absolutely committed to the London market,” he said. “It’s going to be the centre of our operations many years hence.”

Shore Capital analyst Eamonn Flanagan commented: “A good start to the interim reporting season for the Lloyd's insurers with Beazley reporting profits ahead of our expectations.”

Flanagan said that Shore Capital would retain a HOLD recommendation to investors, as it waited to see how the departure of former liability underwriter Jonny Rowell will have on the business.

At the time of writing, Beazley share price had fallen to 108 pence per share compared to an opening price of 112 pence per share before announcing its interim results.

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