Interim Report 2023

A strong underwriting and investment performance

Interim results for the six months ended 30 June 2023

• Group profit after tax (including discontinued operations) of $574.1m (2022 restated $32.1m).
• Adjusted group operating profit¹ of $257.4m (2022 restated: loss of $154.1m).
• Gross written premiums increased to $2,021.3m (2022 restated: $1,990.5m).
• Underwriting profit (undiscounted) of $95.1m (2022 restated: $79.5m).
• Combined ratio (undiscounted) of 93.3% (2022 restated: 93.6%).
• Return on invested assets² of $147.0m or 2.4%³ (2022 restated: $233.4m negative or -4.3%²).
• Ki continued its success, maintaining its growth trajectory with $453.0m of GWP recognised in the first six months of 2023, an increase of $110.1m or 32.1%.
• Sale of Ambridge successfully completed, realising a gain on sale of $259.1m.
• Balance sheet remains strong: Adjusted net tangible assets⁴ of $2,301.8m (31 December 2022 restated: $1,979.6m), after payment of dividends of $303.6m.
• Capital ratio⁵ improved to 151.6% (31 December 2022 restated: 141.0%). Capital surplus increased by $234.0m to $943.8m (31 December 2022 restated: $709.8m).
• Adoption of IFRS 17, the new accounting standard for insurance contracts, with 2022 figures restated on this basis.

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Martin Thompson, Group Chief Executive Officer of Brit Limited, commented:

‘I am pleased to report that our strategy has delivered an excellent overall performance for the first half of 2023, underpinned by a strong underwriting result, with an undiscounted combined ratio of 93.3% for the period.  This primarily reflects the combination of a healthy attritional ratio and the absence of any major losses.  

Market conditions remain broadly positive, and we achieved risk adjusted rate increases of 7.7% in the first half, driven by the rising cost of reinsurance and market pressure on liability lines, primarily reflecting social inflation.  In total, we have seen compound increases since 1 January 2018 of 65.7%.  However, while rate increases continue to accelerate in a number of classes, others have seen increased competition and a reduction in the level of rate, putting pressure on premium income in some lines.

Against this backdrop we have remained highly disciplined and focused on underwriting profitability. This is reflected in our overall growth with the Group’s gross premium written of $2,021.3m (2022 restated: $1,990.5m) representing an increase of 2.5% at constant rates of exchange, mainly driven by Ki, whose premium in its third year of trading increased by $110.1m to $453.0m.

Going into the second half of 2023, the industry continues to face a complex and constantly evolving landscape, including the uncertain economic environment, ongoing inflationary pressures and an elevated number of major loss events from primary and secondary perils.  While overall market conditions remain fundamentally attractive, we are also starting to experience rating pressure in certain classes, a reminder that, even in a hard market, risk selection remains paramount.

Brit is well placed to navigate these challenges, while taking advantage of the opportunities we are seeing. We have a clear strategic focus on driving performance and profitability, and this clarity will stand us in good stead. Our significant investments in data and digital are enhancing the way in which we write business and interact with our trading partners and will ensure Brit’s future success as a lead underwriter, while Ki continues to revolutionise the follow market. Finally, our unique culture underpins all of this, creating a positive environment that empowers our people and makes Brit a home for talent. We remain excited about what Brit can achieve and look forward with confidence.’

Notes

1     This represents the groups operating result before the impact of discounting, changes in risk adjustment and other IFRS17 adjustments, and before foreign exchange gains and losses.

2     Inclusive of interest revenue from financial assets not measured at FVTPL, other investment return, return on investment related derivatives, return on associates and after deducting investment management expenses. 

3     The figures are non-annualised.

4     Adjusted net tangible assets are defined as total equity, less intangible assets net of the deferred tax liability on those intangible assets, less non-controlling interest.

5     The capital ratio is calculated as total available resources divided by management entity capital requirements. The management entity capital requirement is the capital required for business strategy and regulatory requirements.

Officer statements

I am pleased to report that our strategy has delivered an excellent overall performance for the first half of 2023, underpinned by a strong underwriting result, with an undiscounted combined ratio of 93.3% for the period.  This primarily reflects the combination of a healthy attritional ratio and the absence of any major losses.  

Market conditions remain broadly positive, and we achieved risk adjusted rate increases of 7.5% in the first half, driven by the rising cost of reinsurance and market pressure on liability lines, primarily reflecting social inflation.  In total, we have seen compound increases since 1 January 2018 of 65.7%.  However, while rate increases continue to accelerate in a number of classes others have seen increased competition and a reduction in the level of rate, putting pressure on premium income in some lines.

Against this backdrop we have remained highly disciplined and focused on underwriting profitability. This is reflected in our overall growth with the Group’s gross premium written of $2,021.3m (2022 restated: $1,990.5m) representing an increase of 2.5% at constant rates of exchange, mainly driven by Ki, whose premium in its third year of trading increased by $110.1m to $453.0m.

On 10 May 2023, Brit completed the sale of Ambridge, its US and European based managing general underwriter (MGU) to Amynta Group, recording a gain on sale of $259.1m.  We believe it was the appropriate time to realise the value of our investment in Ambridge as we focus on our strategic priorities: our core underwriting capabilities and our investment in building out our market leading digital capabilities.  In Amynta we were pleased to find the perfect owners to take Ambridge forward. Importantly, Ambridge and Amynta remain key partners for Brit, and we look forward to a long and deep underwriting relationship with them as an independent MGU.

Our ability to deliver a best-in-class claims service is an important differentiator for Brit.  We continued to support our clients when they need it most, with innovation at the heart of our claims approach, as demonstrated with our response to the 2022 major loss events.  We were delighted that the successful delivery of this strategy resulted in our claims team winning the ‘Claims Product Solution’ and the ‘Commercial Lines Claims Excellence’ awards at the 2023 Insurance Times Claims Excellence Awards, and ‘Best Use of Technology’ award at the 2023 British Claims Awards.

Going into the second half of 2023, the industry continues to face a complex and constantly evolving landscape, including the uncertain economic environment, ongoing inflationary pressures and an elevated number of major loss events from primary and secondary perils.  While overall market conditions remain fundamentally attractive, we are also starting to experience rating pressure in certain classes, a reminder that, even in a hard market, risk selection remains paramount.

Brit is well placed to navigate these challenges, while taking advantage of the opportunities we are seeing. We have a clear strategic focus on driving performance and profitability, and this clarity will stand us in good stead. Our significant investments in data and digital are enhancing the way in which we write business and interact with our trading partners and will ensure Brit’s future success as a lead underwriter, while Ki continues to revolutionise the follow market. Finally, our unique culture underpins all of this, creating a positive environment that empowers our people and makes Brit a home for talent. We remain excited about what Brit can achieve and look forward with confidence. 

Martin Thompson

Group Chief Executive Officer

14 September 2023

This Interim Report is our first following the implementation of IFRS 17 ‘Insurance Contracts’ on 1 January 2023.  This new accounting standard has not changed the way we evaluate the performance of our insurance and reinsurance operations. The company remains focused on underwriting profit on an undiscounted basis with strong reserving.  We continue to use the traditional volume measure of gross written premium, and the performance measure of the combined ratio.

In the first half of 2023, Brit delivered both a strong underwriting result and a strong investment performance.  Brit’s profit after tax and including discontinued operations totalled $574.1m (2022 restated: 32.1m).

Underwriting profit, excluding the impact of discounting, was $95.1m (2022 restated: £79.5m), with a combined ratio of 93.3% (2022 restated: 93.6%). This performance reflected good underwriting discipline, rigorous risk selection, and healthy compound rate increases. 

The Group had no major losses in the period (2022 restated: $39.6m/3.2pps impact on the combined ratio).  While we have some exposure to cat events in H1 2023, we anticipate claims arising to be attritional in scale.

In the period, our overall prior year reserves were unchanged.  This comprised favourable ex-cat claims experience across Programmes & Facilities, Property, Specialty and FinPro portfolios, offset by strengthening in Casualty Treaty and an overall increase in historical cat event losses.

Our return on invested assets net of fees was a strong $147.0m or 2.4% (non-annualised), with all investment classes other than derivatives contributing to this return.  The result reflects market conditions, with increasing yields and positive equity market performance.

Our balance sheet remains strong, with adjusted net tangible assets of $2,301.8m (31 December 2022 restated: $1,979.6m). Our management capital surplus increased to $943.8m or 51.6% (31 December 2022 restated: $709.8m/41.0%) over our Group management capital requirement of $1,829.6m (31 December 2022 restated: $1,732.3m), reflecting the impact of the movement in interest rates on our capital requirements, and our result for the period.

Our investment portfolio remains conservatively positioned, with a large allocation to securities ($4,484.2m or 69.9%) and cash and cash equivalents ($905.0m or 14.1%). Brit’s equity allocation stands at $901.9m, or 14.1%.  At 30 June 2023, 79.5% of our invested assets were investment grade quality (31 December 2022: 82.2%) and the duration of the portfolio has increased to 2.5 years (31 December 2022: 1.7 years). 

We continue to monitor the impact of inflation across our underwriting portfolio and reserves, with work being undertaken collaboratively across Underwriting, Actuarial, Risk and Claims. In the 2023 half-year reserving exercise the actuarial team has maintained its approach of explicitly considering the impact of our forward-looking expectations for claims inflation on the reserves.

We have continued to experience strong underwriting conditions and favourable market developments in the first half of 2023, though underwriting conditions in certain classes are becoming more challenging.  In H2 2023, the world faces ongoing volatility, challenges arising from inflation, and uncertainty surrounding events in Ukraine.  The insurance market also continues to evolve.  However, we believe that our strategy, discipline and financial strength position us well to take advantage of opportunities as they arise.

Gavin Wilkinson

Group Chief Financial Officer

14 September 2023

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