- Lloyd’s of London syndicate manager generates record annual profits in 2024
- FTSE 100 member raises its dividend by three-quarters
- Insurer launches a second major buyback programme
- However, softer profit guidance for 2025 holds back shares which trade at all-time highs
“Shares in fellow FTSE 100 index members Intertek and Fresnillo are up after big increases in their full-year dividend, with a buyback from the former and a special dividend from the latter, so investors could be forgiven for wondering why shares in Beazley are down. The insurer has, after all, reported record profits for 2024, increased its dividend by 76% and launched a second, big share buyback programme,” says AJ Bell investment director Russ Mould.
“One difference is that Beazley’s shares trade at an all-time high, which those of the other pair do not, while Beazley’s profit guidance for 2025 is a little lukewarm after the bumper performance of 2024.
Source: LSEG Refinitiv data
“Higher claims thanks to natural disasters, higher repair costs due to inflation and higher costs of capital are all undeniable challenges for non-life insurers (and reinsurers) such as Beazley as they seek the best risk-adjusted return from the Lloyd’s syndicates that they manage.
“But this combination served to restrict capacity in the insurance market at a time when it was increasing. As a result, for those players strong enough and smart enough to withstand the storm, headline insurance rates rose, and savvy specialists such as Beazley have generated good profits, strong cash flow and high returns on equity as a result.
“Beazley even raised over $400 million in fresh cash from investors late in 2022 so it could rake in additional premiums for business covering property and cybersecurity in particular, to take advantage of the firm pricing environment.
“That strategy bore fruit in 2023 and all the more so in 2024, when Beazley generated a record pre-tax profit of $1.4 billion.
Source: Company accounts. IFRS17 accounting standard introduced in 2023 so prior years not directly comparable
“Gross premiums written rose by 10% in 2024, to lay the foundations for future earnings, at least if costs are controlled and risks carefully managed.
Source: Company accounts
“Beazley’s acknowledgement of $80 million in exposures to the Los Angeles wildfires should not be a cause for undue concern among shareholders in this respect, even though it remains truly awful news for Californian householders who have to cope with loss or damage.
“But chief executive Adrian Cox is flagging an increase in Beazley’s combined operating ratio (COR) to the mid-80% range for 2025, well up from 75% in 2024 and also above the consensus analysts’ forecasts of a figure in the low eighties. This could mean 2025 earnings will drop year-on-year and potentially come in below current estimates for pre-tax profit of $1.1 billion, if Mr Cox’s early assessment of 2025’s COR proves accurate.
“The combined ratio adds together expenses and the sum of any claims losses and divides that total figure by the premium earned. A figure below 100% shows that an insurer is in the black, and the lower the number the higher the earnings, all other things being equal.
Source: Company accounts
“Beazley therefore still expects to be strongly profitable. This should help the dividend and fund the $500 million share buyback that is planned for 2025. Add those together and the non-life insurer is expected to return more than £550 million to its shareholders in 2025, or 10% of its current stock market capitalisation.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, management guidance for buyback in 2025
“Such a figure may well be of interest to income-seekers as they research potential portfolio picks, but those who prefer capital gains may take a harder look at the valuation on an earnings basis.
“Beazley trades on a single-digit multiple of forecast earnings for 2025, to reflect the potential volatility of its earnings and the unpredictability of natural disasters, but its shares now trade on 1.6 times tangible net asset value (NAV), even after 2024’s one-fifth jump in book value to 546p a share (just north of $6.80 a share, based on the year-end sterling/dollar cross rate).
Source: Company accounts.
“That means the shares are a long way away from the absolute bargain they proved to be in 2020 and 2021, when they traded below NAV, although some investors may seek to argue that Beazley’s financial solidity, as evidenced by a Solvency II ratio of 264%, and its 25%-plus returns on tangible equity both merit a lofty multiple of book value – assuming they can be maintained.”
