Interim results for the six months ended 30 June 2022

A strong underwriting performance and significant growth.

Key points

Gross written premiums of $1,990.5m (H1 2021: $1,464.4m), a 35.9% increase (37.6% at constant FX rates).
Risk adjusted premium rates increases of 12.1% (H1 2021: 10.2%). Premium rate increases since 1 January 2018 of 45.2%.
Net earned premium¹ of $1,249.0m (H1 2021: $876.0m), an increase of 43.9% at constant FX rates.
Attritional ratio¹ of 51.7%, an improvement of 1.5pps (H1 2021: 50.2%), with most classes showing a strong underlying performance.
Combined ratio^1,2 of 91.6% (H1 2021: 95.5%), including 3.2pps of Ukraine related losses (H1 2021: 1.3pps of COVID-19 related losses), no other major losses (H1 2021: 9.3pps) and reserve movements of 0.7pps (H1 2021: (4.7)pps).
Return on invested assets³ after fees of $233.4m negative for H1 2022, representing a non-annualised return of
-4.3% (H1 2021: positive return of $168.9m/+3.4%). This included $221.8m of unrealised losses.
Operating loss before the impact of FX and tax of $166.0m (H1 2021: profit of $208.6m).
Loss after tax of $186.9m (H1 2021: profit of $204.3m).
RoNTA⁴ (non-annualised) of -10.2% (H1 2021: +16.1%).
Balance sheet remains strong: Adjusted net tangible assets⁵ of $1,534.5m (31 December 2021: $1,740.6m).
Capital ratio⁶ improved to 157.1% (31 December 2021: 139.1%). Capital surplus increased by $100.0m to $717.9m (31 December 2021: $617.9m)
Ki continued its success, maintaining its growth trajectory with $342.9m of GWP recognised in the six months.

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

'We are pleased to report an excellent underwriting result for the first half of 2022 with a combined ratio 91.6%. This is testament to Brit’s clear focus on underwriting performance, supported by excellent client service and our ongoing investment in an innovation and data-led approach. With market volatility, rising inflation and the devastating invasion of Ukraine, the first half of 2022 has presented numerous and significant risks for our clients, and going into the second half of 2022 many of these risks and uncertainties will persist. However, we continue to see favourable pricing developments and this, alongside Brit’s strong financial position, means we are well placed to navigate this climate, and support clients in managing and protecting themselves against these and any other emerging risks.'

'Alongside supporting clients in navigating this landscape, the remainder of 2022 will also see us continue to drive progress in some of the areas that matter most to us and our employees – namely technology and innovation, and inclusion and diversity. The coming six months will see us further build and enhance our innovative and data driven underwriting platform, while also continuing to foster and support an inclusive and diverse culture at Brit.'

Notes

Includes the effect of foreign exchange on non-monetary items. 30 June 2021 figures have been represented on this basis.
Include FX movements on non-monetary items, the impact of gains/losses on other financial liabilities but exclude any adjustment for non-controlling interests. 30 June 2021 figures have been represented on this basis.
Inclusive of return on investment related derivatives, return on associates and after deducting investment management expenses.
Includes the return on FX related derivatives ($(8.1)m).
Return on net tangible assets (RoNTA) shows the return generated by our operations for the owners of Brit Limited before foreign exchange movements, compared to the adjusted net tangible assets (see footnote 6) deployed in our business attributable to them. The impact of the Group’s defined benefit pension schemes are excluded from the calculation. The 30 June 2021 figure is represented on this basis.
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.
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 underwriting performance for the first half of 2022 with a strong combined ratio of 91.6% for the period. This primarily reflected the combination of a healthy attritional ratio, partly offset by the impact of the Ukraine crisis, for which we have established a provision of $39.6m.

Brit has been shocked and horrified by the unfolding events in Ukraine. Brit’s thoughts are with its people and our Fairfax colleagues based there. Brit and its staff have also supported The Red Cross Ukraine Crisis Appeal.

I am also pleased that, alongside delivering a strong underwriting result, we were able to grow our premium written to $1,990.5m (2021: $1,464.4m), an increase of 35.9%, or 37.6% at constant rates of exchange. Our core direct and reinsurance divisions contributed to this growth as did Ki in its second year of trading.

The development of Ki continues apace, gaining significant traction in the market. In the period, it wrote $342.9m of premium, an increase of 203.6% at constant FX rates over its first six months of trading.

Market conditions have also contributed to Brit’s premium growth. We achieved risk adjusted rate increases of 12.1%, driven by the rising cost of reinsurance and market pressure on liability lines primarily reflecting social inflation. This gives a total overall increase since 1 January 2018 of 45.2%.

As with the wider insurance market, our overall result was impacted by the volatility of financial markets and its impact on our investment return.

During the first half we made a number of important senior appointments, including Bilge Mert as Chief Technology Officer and Kanika Chaganty as Chief Data Officer. These appointments support our technology and data strategy to further advance the business’ focus on delivering an innovative, data-driven and technology empowered platform that enables our underwriting and claims teams to thrive. We also made a number of key underwriting and business development appointments.

Our ability to deliver a best-in-class claims service continues to be a core focus. We have supported our clients when they need it most, with innovation at the heart of our claims approach, including launching Brit Direct Pay, our claims payment solution, to our US clients. We were also delighted that Brit Private Client, 18 months since launch, took overall first place in the Highpoint High Net Worth Insurer Survey, showing that our proposition of underwriting, claims and service excellence has been welcomed by the market.

We are proud of Brit’s unique culture and we have continued to make progress against our inclusion and diversity roadmap, focusing on our ongoing commitment to attract and retain diverse talent and support a culture of inclusion. We have continued with our wide-ranging educational and awareness programme and have partnered with GT Scholars, a UK based social enterprise to help young people from all backgrounds access career opportunities in insurance and build their employability skills.

Going into the second half of 2022, the industry faces a number of challenges and uncertainties, driven by the volatile geopolitical and economic landscapes, including inflationary pressures and ongoing supply chain issues. Wider challenges also continue to exist such as the potential for increased frequency and magnitude of major loss events, excess capacity, the cost of doing business in the London Market, and increased competition from local carriers in some markets. However, against this backdrop we believe we are well positioned to respond to the opportunities and challenges ahead.

Martin Thompson

Interim Group Chief Executive Officer

27 July 2022

In the first half of 2022, Brit delivered a strong underwriting result, offset by the impact of the global financial market volatility on our investment portfolio. Brit’s operating result before FX and tax was a loss of $166.0m and our non-annualised return on net tangible assets was -10.2%.

Underwriting profit was $104.9m, with a combined ratio of 91.6%. The attritional ratio for the period was 51.7%, reflecting good underwriting discipline, rigorous risk selection, and healthy compound rate increases.

Major losses of $39.6m contributed 3.2pps (2021: $93.0m/10.6pps) to the combined ratio, and related to provisions established as a result of the shocking events in Ukraine. This follows an assessment of direct exposures within the Terrorism, Casualty Treaty, Marine War, Contingency and Political and Credit Risk classes, along with potential secondary impacts. Brit does not write Aviation business. Given the ongoing nature of the event, neither the duration nor the ultimate outcome can be predicted with any certainty, and we continue to monitor the situation closely.

In the period, as part of our quarterly reserving process we released $6.1m (0.5%) of attritional prior year reserves. These releases were offset by a modest strengthening in respect of historic cat events ($14.7m/1.2%), resulting in an overall increase of $8.6m/0.7% in our prior year reserves. The structure of our reinsurance protections means that any further downside to these events is limited.

Our return on invested assets net of fees was a negative $233.4m or -4.3% (non-annualised), including $221.8m of unrealised losses, with equities, funds and fixed income each contributing to the result. The result reflects the reaction of investment markets to the conflict in Ukraine, with US government bond yields increasing significantly and US and European investment grade credit and high yield spreads widening during the period. It was also the worst first half of the year for developed markets equities in over 50 years.

Our balance sheet remains strong, with adjusted net tangible assets of $1,534.5m (31 December 2021: $1,740.6m). Our management capital surplus increased to $717.9m or 57.1% (31 December 2021: $617.9m/39.1%) over our Group management capital requirement of $1,256.6m (31 December 2021: $1,581.6m), reflecting the impact of the movement in interest rates on our capital requirements, partly offset by the result for the period.

Our investment portfolio remains conservatively positioned, with a large allocation to cash and cash equivalents ($1,071.3m or 20.4%) and fixed income securities ($3,379.3m or 66.3%). Brit’s equity allocation stands at $671.6m, or 12.8%. At 30 June 2022, 80.6% of our invested assets were investment grade and the duration of the portfolio had increased to 1.8 years.

We remain cognisant of the potential impacts of inflation, with work being undertaken collaboratively across the Group to quantify and mitigate its impact on profitability. We also continue to focus on ensuring that our underwriting and pricing adequately addresses inflationary trends and we continue to review the key drivers of claim settlement costs and frequency by class of business. Our reserves continue to be set at a margin above the actuarial estimate which is in turn set on a conservative best estimate basis incorporating our current view of social and economic inflation.

We are making good progress with our project to implement IFRS 17, the new accounting standard for insurance contracts applicable from 1 January 2023. In the first half of 2022 the Company’s efforts focused on the finalisation and documentation of key accounting policies and significant estimates, and the implementation and testing of information technology systems support the production of figures on an IFRS 17 basis. The company is currently refining its opening consolidated IFRS 17 balance sheet as at 1 January 2022 and continues to evaluate the effect that the adoption of IFRS 17 will have on its consolidated financial statements.

We have continued to experience strong underwriting conditions and favourable market developments in the first half of 2022. However, 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

27 July 2022