news
2017 Full Year Results
16-02-2018
A positive performance in a challenging year
Key points
Matthew Wilson, Group Chief Executive Officer of Brit Limited, commented:
‘2017 was dominated by the scale and multiplicity of natural catastrophes from hurricanes, earthquakes and wildfires, resulting in significant human and economic consequences in the regions affected. Our products have responded to these events, supporting numerous businesses and individuals to get back on their feet in these difficult times. Our focus has been on providing an outstanding claims service and we have been pro-active in ensuring our customers’ needs have been at the forefront of our actions. The net impact of these events on Brit was US$250.0m, or 16.2pps of our 112.4% combined ratio. This was in line with our expectations given the nature and scale of the events and our market share.
Market conditions have, as expected, remained difficult during 2017, with Brit experiencing an overall rate reduction of 1.3%, albeit lower than the 3.3% reduction in 2016. Against this backdrop, we have maintained our rigorous risk selection in the classes experiencing pressure and continue to focus growth efforts in classes experiencing more favourable rating conditions. This strategy resulted in a respectable attritional ratio of 56.4%.
Our premium written grew by 8.2% at constant exchange rates over 2016, to US$2,057.0m. This was driven by positive back year premium development, our initiatives to broaden our distribution base and ongoing development of our core business. We continue to add specialty underwriting talent in targeted areas and in 2017 have strengthened our US program capability, launched a new US cyber and technology team, and expanded our US Yacht and US Professional Lines offerings.
During 2017, it was particularly pleasing to see our US operation, BGSU, reach the milestone of writing over US$1bn of premium since its formation in 2009. BGSU has reached this milestone by delivering strong, profitable organic growth with a focus on niche areas where it has significant expertise and experience.
The successful launch in 2017 of Brit Syndicate 2988, together with its increased capacity for 2018, reinforces our long-term commitment to the Lloyd’s market and ambition to use its infrastructure to expand our current position as the largest Lloyd’s only insurer. It will also help us further position Brit as Lloyd’s ‘underwriting leader of choice’, building on our existing strength across underwriting, claims and capital management and track record of delivering attractive returns for capital providers.
In December we launched a new Bermuda-domiciled collateralised reinsurance platform, Sussex Capital, with initial funding of US$102.5m. From 2018, Sussex Capital will write direct collateralised reinsurance while also providing collateralised reinsurance to Brit's Syndicate 2987. Its launch strengthens Brit's reinsurance capability, provides access to a diversified source of capital and further enhances our client and broker proposition.
While the outlook for 2018 is more positive with some encouraging signs of rate improvements in certain classes, we remain in a fiercely competitive market environment. Notwithstanding, we believe that with highly disciplined underwriting and our strategic focus on market leadership, innovation in product and process, and the broadening of local product distribution, we can look to the future with confidence.’
Mark Allan, Chief Financial Officer of Brit Limited, said:
‘During 2017, Brit delivered a profit after tax of US$21.5m, against a backdrop of significant catastrophe activity, strong competition and continued pricing pressures. Total value created during the period was US$24.7m.
Claims arising from the major loss activity totalled US$250.0m, increasing the combined ratio by 16.2pps to 112.4%. Our attritional and expense ratios of ratio of 56.4% and 40.4% respectively were relatively stable despite the challenging market conditions, while reserve releases of US$9.6m after incorporating the effects of the Ogden rate change continue to demonstrate our conservative reserving approach.
Our net investment return was an outstanding US$204.2m, representing a return of 4.9%, driven by gains on our equity and fund investments. Foreign exchange gains, net of returns on FX related derivatives, totalled US$12.6m.
The impact of the major losses on market-wide results highlights the thin margins currently available in the specialty market and we remain focused on defending our core business and maintaining a disciplined approach to underwriting.
We increased the level of reinsurance purchased in 2017, with spend increasing from 22.6% to 25.6% of premiums written. Our relationship with the Bermuda domiciled special purpose reinsurer Versutus Limited has continued to grow, with the amount of capital deployed to support Brit increasing to US$187.0m for 2018. We have also expanded the use of quota shares to manage our net exposure and have purchased a two year catastrophe protection, which largely explains the increase in ceded premium in the period. The events of 2017 have illustrated the benefits of these protections.
Our balance sheet remains strong, with adjusted net tangible assets of US$1,043.7m, a small decrease of US$21.1m in the year, after a dividend payment of US$45.8m. This means that we hold a surplus of US$395.1m or 36.8% above the Group’s management capital requirement.
Syndicate 2988, Versutus and Sussex are key to Brit’s strategy of building long term relationships with the capital markets, and through these platforms we now have access to over US$400m of capacity. The support they provide enables us to strengthen our reinsurance capability and manage our catastrophe risk exposures whilst offering capital market investors attractive, non-correlating returns.
While the outlook remains challenging, there are some positive signs. We believe we are well positioned to navigate the current climate and take advantage of opportunities as they arise.’
Notes
- Gross written premiums of US$2,057.0m (2016: US$1,912.2m), an increase at constant exchange rates of 8.2%.
- Risk adjusted premium rates on renewal business reduced by 1.3% (2016: 3.3%).
- Combined ratio1 of 112.4% (2016: 96.4%), including 16.2 percentage points of major losses (2016: 4.5pps) and 0.9pps in respect of the Ogden rate change. Major losses in line with expectations given the nature and scale of the events and our market share.
- Excellent return on invested assets2 after fees of US$204.2m or 4.9% (2016: US$102.9m or 2.6%).
- Profit after tax of US$21.5m (2016: US$157.6m).
- RoNTA3 after FX movements of 2.5% (2016: 15.8%) and RoNTA before FX movements of 1.1% (2016: 11.8%).
- Adjusted net tangible assets4 of US$1,043.7m (2016: US$1,064.8m), after dividends paid of US$45.8m.
- Capital ratio of 136.8% (2016: 125.6%).
- Successful launch of Syndicate 2988 for the 2017 underwriting year, supported by third party capital, with increased capacity for 2018, expanding Brit’s current position as the largest Lloyd’s only insurer.
- Successful launch of a new Bermuda-domiciled collateralised reinsurance platform, Sussex Capital, with initial funding for 2018 of US$102.5m, further enhancing client and broker proposition.
- Focus on leadership, innovation and distribution, with continued opportunity-driven considered expansion in a number of areas including US programs, US cyber and technology, US Yacht and US Professional Lines.
Matthew Wilson, Group Chief Executive Officer of Brit Limited, commented:
‘2017 was dominated by the scale and multiplicity of natural catastrophes from hurricanes, earthquakes and wildfires, resulting in significant human and economic consequences in the regions affected. Our products have responded to these events, supporting numerous businesses and individuals to get back on their feet in these difficult times. Our focus has been on providing an outstanding claims service and we have been pro-active in ensuring our customers’ needs have been at the forefront of our actions. The net impact of these events on Brit was US$250.0m, or 16.2pps of our 112.4% combined ratio. This was in line with our expectations given the nature and scale of the events and our market share.
Market conditions have, as expected, remained difficult during 2017, with Brit experiencing an overall rate reduction of 1.3%, albeit lower than the 3.3% reduction in 2016. Against this backdrop, we have maintained our rigorous risk selection in the classes experiencing pressure and continue to focus growth efforts in classes experiencing more favourable rating conditions. This strategy resulted in a respectable attritional ratio of 56.4%.
Our premium written grew by 8.2% at constant exchange rates over 2016, to US$2,057.0m. This was driven by positive back year premium development, our initiatives to broaden our distribution base and ongoing development of our core business. We continue to add specialty underwriting talent in targeted areas and in 2017 have strengthened our US program capability, launched a new US cyber and technology team, and expanded our US Yacht and US Professional Lines offerings.
During 2017, it was particularly pleasing to see our US operation, BGSU, reach the milestone of writing over US$1bn of premium since its formation in 2009. BGSU has reached this milestone by delivering strong, profitable organic growth with a focus on niche areas where it has significant expertise and experience.
The successful launch in 2017 of Brit Syndicate 2988, together with its increased capacity for 2018, reinforces our long-term commitment to the Lloyd’s market and ambition to use its infrastructure to expand our current position as the largest Lloyd’s only insurer. It will also help us further position Brit as Lloyd’s ‘underwriting leader of choice’, building on our existing strength across underwriting, claims and capital management and track record of delivering attractive returns for capital providers.
In December we launched a new Bermuda-domiciled collateralised reinsurance platform, Sussex Capital, with initial funding of US$102.5m. From 2018, Sussex Capital will write direct collateralised reinsurance while also providing collateralised reinsurance to Brit's Syndicate 2987. Its launch strengthens Brit's reinsurance capability, provides access to a diversified source of capital and further enhances our client and broker proposition.
While the outlook for 2018 is more positive with some encouraging signs of rate improvements in certain classes, we remain in a fiercely competitive market environment. Notwithstanding, we believe that with highly disciplined underwriting and our strategic focus on market leadership, innovation in product and process, and the broadening of local product distribution, we can look to the future with confidence.’
Mark Allan, Chief Financial Officer of Brit Limited, said:
‘During 2017, Brit delivered a profit after tax of US$21.5m, against a backdrop of significant catastrophe activity, strong competition and continued pricing pressures. Total value created during the period was US$24.7m.
Claims arising from the major loss activity totalled US$250.0m, increasing the combined ratio by 16.2pps to 112.4%. Our attritional and expense ratios of ratio of 56.4% and 40.4% respectively were relatively stable despite the challenging market conditions, while reserve releases of US$9.6m after incorporating the effects of the Ogden rate change continue to demonstrate our conservative reserving approach.
Our net investment return was an outstanding US$204.2m, representing a return of 4.9%, driven by gains on our equity and fund investments. Foreign exchange gains, net of returns on FX related derivatives, totalled US$12.6m.
The impact of the major losses on market-wide results highlights the thin margins currently available in the specialty market and we remain focused on defending our core business and maintaining a disciplined approach to underwriting.
We increased the level of reinsurance purchased in 2017, with spend increasing from 22.6% to 25.6% of premiums written. Our relationship with the Bermuda domiciled special purpose reinsurer Versutus Limited has continued to grow, with the amount of capital deployed to support Brit increasing to US$187.0m for 2018. We have also expanded the use of quota shares to manage our net exposure and have purchased a two year catastrophe protection, which largely explains the increase in ceded premium in the period. The events of 2017 have illustrated the benefits of these protections.
Our balance sheet remains strong, with adjusted net tangible assets of US$1,043.7m, a small decrease of US$21.1m in the year, after a dividend payment of US$45.8m. This means that we hold a surplus of US$395.1m or 36.8% above the Group’s management capital requirement.
Syndicate 2988, Versutus and Sussex are key to Brit’s strategy of building long term relationships with the capital markets, and through these platforms we now have access to over US$400m of capacity. The support they provide enables us to strengthen our reinsurance capability and manage our catastrophe risk exposures whilst offering capital market investors attractive, non-correlating returns.
While the outlook remains challenging, there are some positive signs. We believe we are well positioned to navigate the current climate and take advantage of opportunities as they arise.’
Notes
- The combined ratio excludes the effect of foreign exchange on non-monetary items.
- Return on invested assets includes return on investment related derivatives and share of net profit of associates and is after deducting investment management fees.
- RoNTA excludes foreign exchange movements and corporate activity costs and is based on adjusted net tangible assets.
- Adjusted net tangible assets are defined as total equity, less intangible assets net of the deferred tax liability on those intangible assets.
