Interim Management Statement

12-11-2014

Brit PLC (‘Brit’ or ‘the Group’), the global specialty insurer and reinsurer, releases the following Interim Management Statement for the nine months ended 30 September 2014.

Key points

  • Gross written premium £990.7m (30 September 2013: £944.0m), an increase of 4.9%. The increase at constant rates of exchange (CRE) was 11.7%.
  • Attritional claims experience in line with expectations. Catastrophe experience remains relatively benign.
  • Investment return for the period of £68.8m (net of investment management fees), representing a non-annualised return for the period of 2.7% (30 September 2013: £28.5m / 1.4%).
  • Continued development of US operations, with Brit Global Specialty USA (BGSU) premiums of £71.9m, up 73.7% over the same period in 2013 at CRE, largely driven by initiatives undertaken in 2013.
  • Successful commutation of the remaining reinsurance contract from the sale of the UK Company in 2012.

Mark Cloutier, Group CEO of Brit PLC, said:

‘We are very pleased with the Group’s performance through the third quarter of the year. Our specialty insurance focused book has allowed us to continue to capitalise on opportunities in our core insurance lines, whilst remaining disciplined in our approach to those classes experiencing rate pressure as conditions in some classes of business become increasingly challenging. We are experiencing rate movement consistent with our plan, and continue to see rates as adequate for meeting our financial targets.

During 2014 we have continued to build on our strong portfolio of specialty business with the successful additions to Brit of experienced Aviation and UK Property teams in London, a Facultative Reinsurance team in Miami targeting Latin American specialty business, while continuing to deliver profitable growth from our US and Bermudian platforms.

The investment portfolio continues to perform well and demonstrates the strength of our strategy to focus on a diversified mix of predominantly income generating asset classes. During the quarter we have shortened duration to reduce P&L exposure to interest rate rises.

In August we successfully completed the commutation of a portfolio reinsurance transaction relating to the restructuring of the group in 2012. Following good performance of this contract since the sale of Brit Insurance Limited (BIL) in 2012, we are pleased to have commuted at favourable terms, bringing closure on a portfolio of long-tail liability reserves including those related to the financial crisis.

While market conditions are probably best described as ‘variable’ depending on distribution, classes and geography, we believe the combination of our business model, disciplined underwriting and active capital management all operating on a scalable and expense efficient platform, places Brit in a strong position to continue to deliver very healthy returns for our shareholders.’ 

Financial performance

Premium

Gross written premium

9 months ended
30 September 2014
£m  

 

9 months ended
30 September 2013
£m

 

 
Growth
%

 

Growth at
CRE
%  

 

Brit Global Specialty Direct
Brit Global Specialty Reinsurance

768.7
222.0

 

692.5
251.5

 

11.0
(11.7)

 

17.9
(5.3)

 

Group

990.7

 

944.0

 

4.9

 

11.7

 

The 17.9% increase in Brit Global Specialty Direct reflects the continued expansion of the Group’s Chicago based US service platform, BGSU, the impact of new initiatives and selective growth in well priced classes. BGSU wrote premiums of £71.9m in the nine months to 30 September 2014, an increase of 73.7% over the same period in 2013. This growth included the impact of the Maiden Specialty renewals rights deal completed in 2013. Other new initiatives have also contributed to growth in BGS Direct including £12.5m from the Aviation team that joined the Group in June and £8.1m from the Political and Credit Risk team.

Despite a more challenging rating environment the Group has still identified growth opportunities in well priced lines and in particular on our US property binder book, where our experience, expertise and, importantly, long-term relationships have enabled us to take advantage of positive rate increases.

The 11.7% reduction in Brit Global Specialty Reinsurance is in line with expectations and reflects challenging market conditions experienced primarily by the Property Treaty book. Brit has maintained underwriting discipline in this environment. This reduction was partly offset by new business written by Brit’s recently established Bermudan office, which wrote over £20.6m of premium in the period, of which the majority was Casualty Treaty.

Rate Environment

The rating environment remains challenging, with overall risk adjusted premium rates decreasing on average across the portfolio by 3.0% (30 September 2013: increase of 0.4%), in line with trends at the time of the half year report. This reduction was strongly influenced by reinsurance business which experienced rate reductions of 7.5%, driven by a 10.6% rate reduction in Property Treaty. Rates for Brit Global Specialty Direct business on the whole remain robust, falling by only 1.5% in the period. Whilst the direction of rates continues to be a focus, overall, premium adequacy remains satisfactory and Brit continues to develop its book in classes and territories where more attractive margins are achievable, with particular focus currently on US property binders and our US Specialty business through BGSU.

Claims

Attritional claims experience in the nine months to 30 September 2014 was in line with expectations. During Q3 Brit experienced limited losses in relation to the Tripoli airport attack and Hurricane Odile. However, the catastrophe experience has been relatively benign for the year to date. Management remain confident in loss ratio guidance provided at the time of the IPO.

Investments

Investment return for the 9 months ended 30 September was £68.8m (net of investment management expenses) which equated to a non-annualised return for the period of 2.7% (2013: £28.5m / 1.4%). During the third quarter, the portfolio generated income in line with expectation, against a back drop of increased volatility stemming from uncertainty around developed and emerging market economic performance, geopolitical issues, monetary policies and the subsequent path of interest rates. In light of this the Group has reduced the duration of its investment portfolio to 1.2 years. Total investment assets were £2.5bn at 30 September 2014 and the asset allocation is broadly unchanged from 30 June 2014.

Commutation of the RiverStone reinsurance contract

In October 2012, the Group completed the sale of BIL to RiverStone Group (a member of the Fairfax Financial Holdings Limited group). Under the terms of the sale, the Group retained control of certain classes of business via a reinsurance agreement. RiverStone Group had the right, exercisable from April 2014, to commute this reinsurance arrangement.

Brit is pleased to announce that on 14 August 2014 agreement was reached with RiverStone to commute this reinsurance arrangement. Under the commutation reinsured liabilities of £192.3m have been transferred to RiverStone. This transaction marks the final element of the major restructuring of the business undertaken since 2011 by Brit’s new management. Brit does not expect this transaction to have any impact on current Group targets.

Capital Management

Brit is committed to an active capital management strategy and will update shareholders on the capital position at year end.

For further information, please contact

Sam Dobbyn, Head of Investor Relations, Brit PLC +44 (0) 20 7984 8800
Tom Burns, Brunswick +44 (0) 20 7404 5959

About Brit

Brit PLC is a market-leading global specialty insurer and reinsurer, focused on underwriting complex risks. It has a major presence in Lloyd’s of London, the world’s specialist insurance market provider, with significant US and international reach. The Brit Group underwrites a broad class of commercial specialty insurance with a strong focus on property, casualty and energy business. Its capabilities are underpinned by robust financials. Brit PLC is listed on the London Stock Exchange.