- Lloyd’s of London syndicate manager disappoints for second time in 2025
- Management raises combined ratio guidance, but growth looks weak
- Big investment in new Bermuda platform may limit scope for cash returns
“Beazley’s first-half results back in August disappointed investors, and the third-quarter trading update has done the same, judging by the share price fall,” says AJ Bell investment director Russ Mould.
“Near-term pricing and premium growth do seem a little soft in 2025, while the launch of a $500 million investment in a new platform based in Bermuda may also limit scope for further near-term cash returns. This is a difficult combination for a stock that reached a new all-time high in the summer and trades at a big premium to net asset value (NAV), even if the company’s long-term track record and plans still stand up to scrutiny.
Source: LSEG Refinitiv data
“Beazley manages seven syndicates at Lloyd’s of London and specialises in the insurance and reinsurance of risks across a range of specialist areas, including property, catastrophe, marine, and cybercrime.
“The last-named has been a good area of growth and Beazley’s move to raise $400 million from investors in late 2022 so it could focus on this and rake in additional premiums paid off nicely. The FTSE 100 member generated record profits in each of 2023 and 2024 as a result.
Source: Company accounts. IFRS17 accounting standard introduced in 2023 so prior years not directly comparable.
“However, strong profits and lofty returns on capital across the industry tend to attract more capital as everyone looks for a piece of the action, with the result that pricing and returns on capital start to weaken. This classic cycle looks to be repeating itself again in 2025, as Beazley flags weaker pricing for renewals and a slowdown in growth in written premiums.
“Chief executive Adrian Cox gently steered down growth forecasts for 2025 alongside the first-half results in August, to a low single digit percentage increase from a mid-single digit percentage gain, and he has now cut expectations for premiums once more, this time to flat-to-low single digit growth.
Source: Company accounts
“This may well reflect Beazley’s characteristic caution when it comes to managing risk, as well as the wider insurance cycle, and the company looks content to let rivals take on extra risk at lower prices. This discipline has served the company and its shareholders well over the long term and it could do so again this time around, judging by how Beazley feels able to increase its guidance for its combined ratio in 2025. Management now expects a figure in the low eighties percentage range, an improvement on its prior steer of something in the mid-eighties.
“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 combined ratio the higher the profits, all other things being equal.
Source: Company accounts, analysts' consensus forecasts, management guidance alongside Q3 update
“The upgrade to the combined ratio is a reminder that Beazley took only a limited hit from the Los Angeles wildfires at the start of the year, while rising cybercrime does not seem to have caused undue discomfort either, presumably due to careful risk management. Profits have also benefited from an unusually quiet hurricane season in the USA and the Caribbean, despite the headlines written, and terrible damage wrought, by the category 5 storm Hurricane Melissa as it swept across Jamaica.
“The slower premium growth and $500 million investment in a new platform based in Bermuda will weigh on earnings this year and next all the same, and analysts expect lower figures for both 2025 and 2026, compared to the record high of 2024. This combination may lower the scope for dividend increases and particularly share buybacks, too.
Source: Company accounts, Marketscreener, analysts' consensus forecasts
“The Bermuda investment should lay the groundwork for long-term future growth, but the market seems more focused on near-term profits and cash returns for now, perhaps because the stock’s valuation does reflect a fair amount of good news already.
“The shares trade on barely seven times earnings and come with a 3.5% forward dividend yield for this year, while the share buyback takes the total cash return to some 12% of Beazley’s stock market capitalisation. Those numbers may catch the eye of income hunters, although they do also reflect the danger that the bad weather blows the forecasts off course, even allowing for the syndicate managers’ underwriting skills.
“Moreover, the shares now trade on around 1.5 times the last stated tangible net asset value (NAV) of 536p a share, or $7.34 a share, based on the sterling/dollar cross rate at the end of June.
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 287% and consistently lofty returns on tangible equity, merits a lofty multiple of book value – assuming it can be maintained.”
