A strong performance in a challenging environment

17-02-2017

Key points
  • Gross written premiums of US$1,912.2m (2015: US$1,999.2m), a decrease at constant exchange rates of 2.3%.
  • Net earned premium1 decreased by 6.1% at constant exchange rates to US$1,515.1m (2015: US$1,649.6m). 
  • Combined ratio1 of 96.4% (2015: 91.7%), including 4.5 percentage points of major losses (2015: nil) and despite further rate decreases from the ongoing challenging rating environment.
  • Operating profit before FX and corporate activity costs of US$118.5m (2015: US$91.7m).
  • Profit after tax of US$157.6m (2015: US$15.6m).
  • Return on invested assets2 after fees for the period of US$102.9m or 2.6% (2015: US$5.0m or 0.1%).
  • RoNTA3 before FX movements of 11.8% (2015: 9.1%) and RoNTA after FX movements of 15.8% (2015: 3.8%). 
  • Adjusted net tangible assets4 decreased to US$1,064.8m (2015: US$1,074.7m), after dividends paid and share buy-back costs of US$148.9m.
  • Launch of Syndicate 2988 for the 2017 underwriting year, supported by third party capital.
  • Continued execution of strategy to deliver opportunity-driven profitable growth, with considered expansion in a number of areas of our book including US marine and Latin American engineering business, the successful opening of our Singapore office and the launch of a number of initiatives across both underwriting and claims. 

Mark Cloutier, Group Executive Chairman of Brit Limited, said:

‘Brit has delivered a strong performance in 2016. Our return on adjusted net tangible assets before FX, which we see as a key indicator of our performance, increased to 11.8%, giving a five year average of 16.9%. This was driven by the combination of a continuing contribution from underwriting results, under difficult circumstances, and a strong performance from our investment portfolio. Our RoNTA, after including foreign exchange movements, increased significantly to 15.8%.

Market conditions remain challenging as competition from new entrants and additional capacity from existing competitors with appetite to grow has put continuing downward pressure on rates across several major classes of business. We do not believe these conditions are sustainable over the longer term and certainly call for a cautious approach to growth. In this climate, we are determined to maintain underwriting discipline and have adopted a defensive stance to protect our business and preserve capital. Our strategy is to remain well diversified and to focus on retaining quality business, while contracting the areas of our book experiencing the most rating pressure. We also continue to assess cautiously new business and manage our portfolio mix to target areas of our book with less rating pressure. We believe that such an approach will enable us to weather the current environment and position us well for the future when the ill-discipline reads through to results and market conditions improve.

This focused and disciplined strategy has resulted in a combined ratio for 2016 of 96.4%, including 4.5 percentage points attributable to major losses. Pleasingly, our attritional ratio remained relatively constant at 55.5%. This is a solid result in today’s challenging environment and increasingly complex marketplace.

During 2016, we have maintained our strategy of building our platform through the addition of specialty underwriting talent in targeted areas. We have also launched a number of initiatives, demonstrating our commitment to innovating new products that address real client needs, both in terms of the cover we offer and the claims service we provide. Our international distribution capabilities also continue to expand, with our new Singapore service company starting to write business in the period and with a significant strategic investment in Camargue Underwriting Managers, a Lloyd’s coverholder and one of South Africa's leading providers of specialised insurance products. We also launched Syndicate 2988 for the 2017 underwriting year, supported by third party capital.


Our investment strategy takes a long term view of markets and we are pleased this strategy has resulted in a return of 2.6% in the year, primarily driven by contraction in the US yield curve, giving rise to mark to market gains on our long dated treasuries. In November, we sold the majority of our fixed income positions locking in a solid result for the year and leaving the portfolio defensively positioned with a 25.9% allocation to cash and cash equivalents.

In December 2016, we announced appointment of Matthew Wilson to Group Chief Executive Officer, and my appointment as Group Executive Chairman, effective 1 January 2017. I have worked with Matthew since 2010 and there is no one who knows the business better. He has the skill-set, market experience and leadership qualities to successfully take the business forward on the next stage of its journey. I look forward to continuing to work closely with Matthew and the entire Brit team in my new role, and to build upon the market-leading platform we have created at Brit, through what are likely to be challenging, but interesting times.’


Matthew Wilson, Group CEO of Brit Limited, commented:

‘Market conditions have, as expected, remained difficult during 2016, with the industry experiencing continued pressure on premium rates. Against this backdrop with increased catastrophe activity, we delivered a respectable combined ratio of 96.4%, including 4.5 percentage points attributable to major losses.

Brit experienced an expected overall rate reduction of 3.3%, lower than the 4.1% reduction experienced in 2015. This reduction was seen across both reinsurance business, which experienced rate reductions of 4.8%, and direct business, which experienced rate reductions of 2.9%.

We have looked to balance our portfolio by actively defending our core business, ensuring rigorous risk selection in the classes experiencing pressure and modestly expanding in areas where profitable opportunities exist, while contracting in areas where it is felt that profit margins are thinner. We are also managing our net position through the selective use of additional reinsurance protections, such as increased cessions on quota shares.

It is pleasing to have seen a number of initiatives successfully launched during the year, and to see those initiated in recent years delivering profitable premium growth for the Group. In the current environment, we believe this proactive approach and emphasis on innovation is an important complement to our disciplined underwriting. Looking ahead, we believe our clearly defined underwriting approach and opportunity driven growth strategy will allow us to navigate the ongoing challenging conditions, while leaving us strongly positioned for any improvements over the longer-term.

In September 2016 we announced the launch of Syndicate 2988, which has a capacity of £52m (US$82m) for its first year of trading. Syndicate 2988 reaffirms our commitment to the Lloyd’s market and will help us further position Brit as the specialist underwriter of choice, building on our existing strength across underwriting, claims and capital management and track record of delivering attractive returns for capital providers. Delivering new products, solutions and perspectives for brokers and clients is at the very heart of our strategy. The launch of Syndicate 2988 is a powerful demonstration of this objective, and we look forward with excitement to the resulting expansion of Brit’s presence at Lloyd’s.

Lastly, I am honoured and excited to lead Brit going forward and would like to thank Mark who has been instrumental in the transformation of Brit over the last few years. Today we are a highly successful business with a clear strategy, a strong culture and a hugely supportive parent in Fairfax. I am pleased that Mark will continue to play a crucial role as Group Executive Chairman, supporting myself and the senior management team as we look forward to 2017 and beyond with confidence.’


Notes

1 Net earned premium and the combined ratio exclude the effect of foreign exchange on non-monetary items.
2 Return on invested assets includes return on investment related derivatives and share of net profit of associates, and is after deducting investment management fees.
3 RoNTA excludes all foreign exchange movements and corporate activity costs and is based on adjusted net tangible assets.
4 Adjusted net tangible assets are defined as total equity, less intangible assets net of the deferred tax liability on those intangible assets. 

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