2019 Half Year Report - A Strong Result in an Improving Environment

2019 Half Year Report - A Strong Result in an Improving Environment



Key points

  • Gross written premiums of US$1,210.5m (H1 2018: US$1,150.8m), a 5.2% increase (6.5% at constant FX rates).
  • Premium rate increases of 4.3% (H1 2018: increases of 3.5%).
  • Net earned premium1 of US$804.9m (H1 2018: US$783.5m), an increase of 4.2% at constant FX rates.
  • Positive underwriting result with a combined ratio1,2 of 94.4% (H1 2018: 95.9%).
  • No material change in overall net major loss estimates for 2017 and 2018 events.
  • Profit on ordinary activities before the impact of FX and tax of US$127.1m (H1 2018: US$17.9m).
  • Profit after tax of US$120.3m (H1 2018: US$12.9m).
  • Solid investment return3 after fees of US$94.7m, representing a non-annualised return of 2.4% (H1 2018: US$5.1m/0.1%).
  • RoNTA4 (non-annualised) of 12.6% (H1 2018: 2.3%) and total value created of US$122.2m (H1 2018: US$2.0m).
  • Adjusted net tangible assets5 of US$1,083.4m (31 December 2018: US$992.9m).
  • Continued implementation of our strategy, including:
    • Brit managed third party capacity on Sussex, Versutus II and Syndicate 2988, expanded to over US$440m for 2019 (2018: US$400m);
    • Completed the acquisition of Ambridge Partners LLP, one of the world’s leading MGUs of complex risks, based in New York; and
    • Significant strategic investment in Sutton Special Risk Inc., a leading Toronto based MGU specialising in Accident & Health business

Matthew Wilson, Group Chief Executive Officer of Brit Limited, commented:

‘I am pleased to report a positive first half of 2019 for Brit, with underwriting performance and investment return delivering a strong result. We also continued to successfully execute against our clear, progressive, strategy further building on our underwriting discipline, leadership positions and international distribution footprint.

2019 has continued to deliver positive risk adjusted premium rate increases, with the period achieving 4.3%, building on the 2018 positive movement of 3.5%. However, these increases, whilst welcome, are primarily focused on areas impacted by the major losses experienced in 2017 and 2018, and the market in other areas remains challenging. We have continued to take action to protect our balance sheet and maintained our rigorous risk selection criteria in marginal classes.

Against this backdrop, our strategy delivered a respectable combined ratio for the period of 94.4%. This reflected the combination of a healthy attritional ratio, an absence of major losses and increased income from our third party capital management and MGA businesses. It was particularly pleasing that against the backdrop of major catastrophe loss creep for the market, there was no material change to our overall net 2017 and 2018 major loss position.

Our premium written grew by 6.5% at constant exchange rates, to US$1,210.5m. We have continued to see an increased contribution from our strategic initiatives of recent years, especially from our US platform, as we continue to expand our international distribution capability. We have also expanded our core book, reflecting improved market conditions and targeted growth across our treaty portfolio and selected direct classes, partly offset by planned contractions across a number of challenged classes. The growth in our reinsurance book was particularly pleasing, where our highly respected teams have a strong track record.

In the period, we continued to invest in businesses with a strong track record in both distribution and underwriting. We completed our acquisition of Ambridge Partners LLC, one of the world’s leading managing general underwriters of complex risks and a key trading partner of Brit for the past thirteen years. Ambridge, which is based in New York, London and Frankfurt, will retain its independence and will continue to underwrite on behalf of its existing broad Brit-led consortium of Lloyd’s syndicates and international insurers. We also made a significant strategic investment in Sutton Special Risk Inc (Sutton), a leading Toronto based MGU, which specialises in Accident & Health business and underwrites on behalf of a broad panel of Lloyd's syndicates and international carriers. Our investment offers attractive exposure to a fast-growing and profitable MGU with a strong presence in Canada and the United States.

For 2019, Brit’s total managed capacity across Versutus, Sussex Capital and Syndicate 2988 has increased to US$440m. The renewal and expansion of our ILS capacity, alongside the growth in planned gross written premium for Syndicate 2988, continues our successful strategy of managing capital for third parties by offering access to Brit’s leading underwriting capabilities, deep client relationships and extensive distribution network.

We continue to expand our underwriting capabilities selectively to position the business for the future. Following significant research and development, we successfully launched our e-trading portal, initially focussing on US Cyber business. This initiative presents Brit with the opportunity to access business previously not available to the London Market, the ability to reduce expenses significantly and the potential to grow our most profitable segments, working with our distribution partners.

We have also made a number of important senior appointments, including a Head of Innovation who will manage the innovation process and position Brit as one of the most forward thinking, progressive and innovative businesses, ‘writing the future’ of the London Market.

In May, Lloyd’s launched a vision for its future. Brit is fully supportive of these initiatives and has seconded subject matter experts to the various workstreams and is engaged at an executive level. We have also appointed a Head of Strategy to help develop, manage and implement our engagement with, and response to, the initiatives.

We have continued to focus on our client service capabilities and development of a best-in-class claims service. We have entered into a new partnership with the Geospatial Intelligence Center, to provide us with industry-leading aerial images of event-affected areas which will allow us to make rapid and accurate property catastrophe assessments, allowing us to expedite claim settlements for our clients when they need it most.

Looking ahead, a number of indicators give us cause for optimism, including rate increases, the withdrawal of some capacity and the measures taken by Lloyd’s to improve market performance. However, conditions remain challenging in a number of areas, with lower than anticipated rate increases in some sectors and some heightened claims activity on more recent years. In this environment, our clear strategy of embracing data driven underwriting discipline, and rigorous risk selection; coupled with innovative capital management solutions and continued investment in distribution, uniquely positions us to respond to the opportunities and challenges of today’s market.’

Mark Allan, Group Chief Financial Officer of Brit Limited, said:

‘During the first half of 2019, Brit delivered a profit on ordinary activities before FX and tax of US$127.1m and a profit after tax of US$120.3m. After a challenging period, it is pleasing to report a strong first half result, reflecting the continued commitment of all our staff.

Underwriting contributed US$43.5m to the result, with a combined ratio of 94.4%. This reflected an attritional ratio of 56.0% and an absence of major loss activity. 2017 and 2018 have proved to be challenging years, with a number of early large and attritional losses occurring in addition to the catastrophes in those years. However, we have seen more benign claims activity on older years continue with 2016 and prior showing releases, to result in an overall US$1.9m reserve release. We have again purchased additional catastrophe protections, positioning us well for the remainder of 2019.

Our investment return was US$94.7m (net of fees), a non-annualised return of 2.4%. This was driven by the strong performance of our equity portfolio, which recovered the losses experienced in late 2018, as markets rebounded. Our cash and fixed income portfolio also generated positive income and capital returns, as yields fell substantially.

In the period, we have continued to benefit from the growth of our third party capital vehicles and from our investment in MGAs. Working with our capital and distribution partners is an important part of Brit’s strategy, that will enhance our leadership position and assist Brit in managing its expense base and strengthen our client proposition.

The ILS market is going through a transitional period on the back of 2017 and 2018, with market loss activity highlighting different strategies, risk profiles and performance. We believe that alignment is critical, and Brit is well positioned to provide attractive access to our partners with clear alignment in all of our third party capital vehicles.

Our balance sheet remains strong, with adjusted net tangible assets increasing to US$1,083.4m (31 December 2018: US$992.9m), after capital contributions, dividends paid and the impact of the Ambridge acquisition. As a result, we hold a surplus of US$338.2m or 29.1% over the Group’s management capital requirement. During the period, our capital requirements increased from US$1,081.1m to US$1,163.2m, primarily reflecting movements in interest rates.

Our investment portfolio remains consistent with our position throughout 2018, with a large allocation to cash and cash equivalents (US$572.7m or 14.4%) and fixed income securities (US$2,750.8m or 69.3%). Brit’s equity allocation stands at US$616.2m or 15.5%. At 30 June 2018, 81.0% of our invested assets were investment grade and the duration of the portfolio was 0.8 years. There is much uncertainty in the current market outlook, with strong fundamentals contrasting with many macroeconomic and political risks. We are well positioned to continue to benefit from the positive economic environment in the US.

While we have seen some positive market developments in the period, conditions remain challenging in a number of areas. We also continue to face political and economic uncertainty and challenges. The second half of 2019 is likely to experience weakening GDP growth, with heightened tension around international trade supported by loose monetary policy. However, our strategy and discipline position us well in this environment.’

Read the full report



1 Excludes the effect of foreign exchange on non-monetary items.
2 Excludes amount attributable to third party underwriting capital providers.
3 Inclusive of return on investment related derivatives, return on associates and after deducting investment management expenses and third party share of investment return.
4 RoNTA calculation excludes all FX movements. Based on adjusted net tangible assets (footnote 5).
5 Adjusted net tangible assets are defined as total equity, less intangible assets net of the deferred tax liability on those intangible assets.

Brit Limited 2019 Interim Report

Brit Limited’s 2019 Interim Report is available at www.britinsurance.com