Beazley Plc · LSE:BEZ
Beazley — Investor Presentation (May 2023)
24 slides from Beazley's investor presentation, May 22, 2023
Slide 1: Introducing IFRS 17 at Beazley
Introducing IFRS 17 at Beazley Sally Lake – Group Finance Director Jahan Anzsar – Group Actuary Investor presentation Monday 22 May 1
Slide 2: Disclaimer
Disclaimer Certain statements made in this presentation, both oral and written, are or may constitute “forward looking statements” with respect to the operation, performance and financial condition of the company and/or the group. These forward-looking statements are not based on historical facts bu
Slide 3: Agenda
Agenda 04 What IFRS 17 means for Beazley 07 Our accounting choices 10 Equity walk 11 Reserving 12 Contractual Service Margin (CSM) 14 Discounting 15 The new Profit & Loss 16 Combined ratio 18 Insurance Written Premium 19 In Summary 3
Slide 4: What IFRS 17 means for Beazley
What IFRS 17 means for Beazley • IFRS 17 is a new accounting standard which came into force on 1 January 2023 • Beazley will use IFRS 17 for the first time at our Half-Year Results 2023 • IFRS 17 has been designed to bring more transparency, comparability, and alignment to the way insurance companie
Slide 5: What's staying the same?
What’s staying the same? Strategy Cash generation Dividends and capital IFRS 17 and IFRS 9 do not Our cashflows stay the same There is no impact to change our strategy or the way under IFRS 17. It’s the timing of our regulatory capital position we do business. profit recognition that will change. or
Slide 6: What's changing?
What’s changing? Proforma and KPI Reserving approach Introduction of changes Discounting The way we report will look Our reserving approach and IFRS 17 requires that insurance different under IFRS 17 and our setting of the risk adjustment will cashflows are on a discounted basis. KPIs will be revise
Slide 7: Accounting choices
Accounting choices Our choices The impacts MEASUREMENT General Measurement Model We have consistent accounting treatment across all MODEL (GMM) business. RISK We expect the reserve confidence level will be Cost of Capital approach ADJUSTMENT between the 80th to 90th percentile range. DISCOUNTING Bot
Slide 8: Accounting choices
Accounting choices Our choices The impacts Aggregation of products with similar Our approach to aggregation reflects the way we AGGREGATION risks (Portfolios) and two Groupings manage risks and our business. (profitable and onerous) Fully Retrospective The standard will be applied as though it TRANS
Slide 9: GMM vs PAA
GMM vs PAA GMM PAA Current IFRS / GAAP (General Measurement Model) (Simplified Approach) Liability for remaining coverage Liability for remaining coverage (LRC) (LRC) Contractual Service Margin (CSM) Unexpired Risk Risk Adjustment UPR & DAC Premium received Discounting (less acquisition costs) Best
Slide 10: IFRS 4 to IFRS 17 Net Equity Walk
IFRS 4 to IFRS 17 Net Equity Walk IFRS 4 Equity Reserving changes Effects of discounting IFRS 17 Equity All numbers are illustrative or indicative, unaudited and subject to change. 10
Slide 11: Maintaining a prudent reserving approach
Maintaining a prudent reserving approach • Aim to have a reserve confidence level in the • We have employed a consistent and prudent 80th to 90th percentile range reserving strategy • The level of reserve margin will be calculated on • Aim to hold a margin of 5%-10% above actuarial a ground up basis
Slide 12: Contractual Service Margin (CSM)/Loss Component
Contractual Service Margin (CSM)/Loss Component The CSM is established when we expect cash inflows to exceed outflows. CSM It reflects the future profit we expect to earn as insurance contracts are PROFITABLE fulfilled. Expected Cash Inflows Expected Cash Outflows CSM CSM CSM CSM Time Portfolio Loss
Slide 13: Components of the Contractual Service Margin (CSM)
Components of the Contractual Service Margin (CSM) CSM 0.3 Expected Cash Expected Inflows Cash Outflows Acquisition costs Risk Adjustment All numbers are illustrative or indicative, unaudited and subject to change. 13
Slide 14: Discounting
Discounting • Under IFRS 17 discounting is applied to expected future cash flows Illiquidity to reflect the time value of money. premium • The discount rate used is required to be consistent with observable current market prices and reflects the cashflows’ characteristics IFRS17 and the contract’s l
Slide 15: The new Profit & Loss
The new Profit & Loss IFRS 4 IFRS 17 Gross earned premiums X Insurance revenue X Ceded earned premiums (X) Insurance service expense (X) Gross claims (X) Allocation of Reinsurance Premium X Ceded claims X Amounts recoverable from Reinsurers X Expenses (X) Insurance service result X Investment result
Slide 16: Our new combined ratio calculation
Our new combined ratio calculation • Inputs derived directly from the IFRS 17 Profit & Loss • Will show both discounted amounts for insurance service expense and insurance revenue • This calculation is net of reinsurance for both insurance service expense and insurance revenue 16
Slide 17: IFRS 17 compared to IFRS 4 combined ratio
IFRS 17 compared to IFRS 4 combined ratio • We expect the IFRS 17 combined ratio to be around 3-6% lower than under IFRS 4, driven by the inclusion of discounting and the updated approach to attributable expenses both reducing the number. • Other elements are different between the two calculations,
Slide 18: Insurance Written Premium
Insurance Written Premium Gross Premiums Written is IWP excludes reinstatement The expectation is that growth replaced with Insurance premiums and profit commissions will be materially consistent Written Premiums. as these are treated as claims between IFRS 4 and IFRS 17. under IFRS 17. 18
Slide 19: In summary
In summary 19
Slide 20: Key takeaways
Key takeaways Insurance Written Premium is our new growth metric IFRS17 Combined Ratio will be net of reinsurance and discounted Reserve confidence – expected to be between the 80th and 90th percentile 27th July 2023 – Half Year Trading Update plus 2022 IFRS 17 comparatives 7th September 2023 – Half
Slide 21: IFRS 17 Journey
IFRS 17 Journey 27th July Nov May Trading update and Deloitte Market briefing Q1 Interim Statement 2022 IFRS 17 comparatives Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Mar May 7th Sept 2023 2022 Annual IFRS 17 Analyst Half Year IFRS 17 Annual Report session results Report 21
Slide 22: Questions
Questions 22
Slide 23: Appendices
beazley Appendices
Slide 24: Glossary
Glossary IFRS 4 The interim standard previously used in Beazley and was replaced by IFRS 17 Liability for Incurred The liability of Incurred Claims (LIC) is the outstanding claims provision for Past on 1 January 2023. Claims (LIC) and Current Service. The calculation for the LIC is very similar to t