TIDM32OW
RNS Number : 8753O
Brit Limited
12 February 2021
Brit LIMITED
PRESS RELEASE
12 February 2021
UNAUDITED Full Year results for the Year ended 31 December
2020
STRONG RATE INCREASES AND PREMIUM GROWTH IN AN UNPRECEDENTED
YEAR
Key points
-- Gross written premiums of US$ 2,424.4 m (2019: US$ 2,293.5
m), a 5.7% increase (5.6% at constant FX rates).
-- Risk adjusted premium rates increases on renewal business of
10.6% (2019: 5.9%), bringing the total increase since 1 January
2018 to 20.2%.
-- Net earned premium(1) of US$1,713.9m (2019: US$1,638.5m), an
increase of 4.5% at constant FX rates.
-- Attritional ratio of 52.6%, an improvement of 2.4 percentage
points (pps) (2019: 55.0%), with most classes showing a strong
underlying performance.
-- Combined ratio(1,2) of 112.6% (2019: 95.8%), including 15.9
pps of COVID-19 relates losses and 7.8pps of other major losses
(2019: 3.6pps).
-- Combined ratio(1,2) excluding COVID-19 related losses of 96.7%.
-- Return on invested assets (3) after fees of US$45.5m or 1.0% (2018: US$148.1m or 3.6%).
-- Loss on ordinary activities before the impact of FX and tax
of US$233.7m (2019: profit of US$183.0m).
-- Loss after tax of US$ 232.0m (2019: profit of US$179.9m) .
-- Balance sheet remains strong: adjusted net tangible assets(4)
of US$ 1,436.8 m (2019: US$1,150.4m).
-- Capital surplus of US$341.0m (2019: US$348.9m) and a strong
capital ratio(5) of 122.1% (2019: 128.4%).
-- We have continued to focus on our 'Leadership, Innovation,
Distribution' strategy, including:
o Launch of Ki, the first fully digital and
algorithmically-driven Lloyd's of London syndicate;
o Launch of a direct pay claims facility in collaboration with
Visa and Vitesse; and
o Sponsorship of a US$300m catastrophe bond via Sussex Capital
UK PCC Limited.
Matthew Wilson, Group Chief Executive Officer of Brit Limited,
commented:
'At a time when the global pandemic is still ravaging
communities, we spare a thought for our colleagues, brokers and
clients who have had to deal with the ultimate tragedy of losing a
loved one through COVID-19. The human cost, the economic impact and
the toll on mental welfare has been at a level no one could have
foreseen as we began the year. I am proud of the way in which
everyone in Brit has responded to the challenge and not only
managed to service our clients, but to excel in doing so.
Our products are designed to support businesses and individuals
in such difficult times and we have focussed on responding to
claims as they have been notified. We have stood tall with respect
to valid COVID-19 claims and the financial impact on Brit has been
significant. Furthermore, 2020 was also a very active year for
catastrophe events, being the fifth-costliest on record.
Despite the backdrop of COVID-19, there were a number of
positives in the period. We achieved risk adjusted rate increases
of 10.6%, with almost all classes contributing to the increase.
This gives a total overall increase since 1 January 2018 of 20.2%.
In this positive rate environment, we continued to grow our written
premium to US$2,424.4m. During the period we also delivered an
attritional claims ratio of 52.6%, an improvement of 2.4pps,
reflecting underwriting discipline, rigorous risk selection, and
rate increases.
Looking ahead to 2021, against the challenging backdrop there
are a number of indicators to give us cause for optimism, including
rate increases, the withdrawal of capacity in the market from
certain classes and our improving attritional claims ratio. In this
environment, our clear strategy of embracing data driven
underwriting discipline, rigorous risk selection and planned
targeted growth for 2021, coupled with innovative capital
management solutions and continued investment in distribution,
positions us well to respond to the opportunities and challenges
ahead.'
Notes
1 Excludes the effect of foreign exchange on non-monetary items.
2 Excludes amounts attributable to third-party underwriting capital
providers.
3 Inclusive of return on investment related derivatives, return on
associates and after deducting investment management expenses and
third-party share of investment return.
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 available resources as a percentage
of management entity capital requirements.
For further information, please contact:
+44 (0) 20 3857
Antony E Usher, Group Financial Controller, Brit Limited 0000
+44 (0) 20 3727
Edward Berry, FTI Consulting 1046
+44 (0) 20 3727
Tom Blackwell, FTI Consulting 1051
About Brit Limited
Brit is a market leader in global specialty insurance and
reinsurance. We underwrite across a broad class of commercial
insurance with a strong focus on property, casualty and energy
business. Brit is a reputable and influential name in the Lloyd's
market and we pride ourselves on our specialist underwriting and
claims expertise.
We operate globally via a combination of our own international
distribution network that benefits from Lloyd's global licences and
our broker partners, and underwrite a broad class of commercial
specialty insurance. Our underwriting capabilities are underpinned
by a strong financial position, our underwriting expertise and
discipline and customer service.
We have a strong track record and are passionate about our
business, our people and our clients and we have focused on
cultivating a franchise that is built on delivering exceptional
service. Our culture is centred on achievement and we have
established a framework that identifies and rewards strong
performance.
Brit is a member of the Fairfax Financial Holdings Limited group
of companies (Fairfax). The Fairfax financial result for the year
ended 31 December 2020, which included the Brit Limited financial
result, was published on 11 February 2021.
www.britinsurance.com
Disclaimer
This press release does not constitute or form part of, and
should not be construed as, an offer for sale or subscription of,
or solicitation of any offer or invitation or advice or
recommendation to subscribe for, underwrite or otherwise acquire or
dispose of any securities (including share options and debt
instruments) of the Company nor any other body corporate nor should
it or any part of it form the basis of, or be relied on in
connection with, any contract or commitment whatsoever which may at
any time be entered into by the recipient or any other person, nor
does it constitute an invitation or inducement to engage in
investment activity under Section 21 of the Financial Services and
Markets Act 2000 (FSMA). This document does not constitute an
invitation to effect any transaction with the Company or to make
use of any services provided by the Company. Past performance
cannot be relied on as a guide to future performance.
Officer statements
'At a time when the global pandemic is still ravaging
communities, we spare a thought for our colleagues, brokers and
clients who have had to deal with the ultimate tragedy of losing a
loved one through COVID-19. It is clearly a year that many will
wish to forget, albeit ironically it will probably be one of the
most memorable of the 21st century. The challenges brought about by
COVID-19 have been on a global scale not seen since the second
world war. The human cost, the economic impact and the toll on
mental welfare has been at a level no one could have foreseen as we
began the year.
The excellence of any group of people, a team or a company, is
seldom measured during the best of times, it is exhibited during
the worst of times. We must never forget that the primary aim of
business is to service its customers and reward its shareholders,
and with significant COVID underwriting losses, we must acknowledge
that we have not achieved the latter. That said, I am so very proud
of the way in which everyone in Brit has responded to the challenge
that has impacted every aspect of life, and not only managed to
service our clients, but to excel in doing so.
Our immediate priorities as the crisis emerged were to ensure
the safety of our employees and continuity of our service to our
clients and brokers. All our offices were quickly and successfully
able to move to remote working using our robust IT estate and
systems and have maintained a continuity of service to our clients,
remaining fully open for business throughout the year. Our
underwriters have been actively engaging with clients and brokers,
delivering market-leading responsiveness. Our Claims team continues
to service our policyholders in these challenging circumstances,
proactively working with our third-party adjusters to ensure claims
continue to be handled promptly and to our usual high standards. It
was pleasing that in 2020, Marsh and Lockton rated Brit the number
one carrier for service provided in the London Market, while AJG
ranked us third in the London Market and Aon ranked us third out of
34 carriers.
The crisis has impacted many of our clients. Our products are
designed to support businesses and individuals in such difficult
times and we have focussed on responding to claims as they have
been notified. We have stood tall with respect to valid COVID-19
claims and the financial impact on Brit has been significant, with
claims of US$270.7m related to COVID-19 being reported within Major
Losses in the period. COVID-19 has predominantly impacted our
Contingency (Event Cancellation) and Casualty Treaty books. These
losses have driven an increase of 15.9 percentage points (pps) in
our combined ratio, bringing the overall combined ratio to
112.6%.
2020 was also a very active year for catastrophe events, being
the fifth-costliest on record. The net impact to Brit of these
events, before reinstatements, was US$132.5m, or 7.8pps on the
combined ratio (2019: US$58.4m/3.6pps).
The pandemic has also severely impacted investment markets. The
first quarter of 2020 saw markets suffer their worst period since
the 2008 financial crisis, as investors priced in the short-term
impact of the shutdown and potential longer term impact of a global
recession, while the remainder of the year witnessed a recovery.
Brit's investment return for the year was a positive US$45.5m,
driven by the performance of our fixed income portfolio. Our
overall operating result before FX movements was a loss of
US$233.7m and our result after tax was a loss of US$232.0m.
Despite the backdrop of COVID-19, there were a number of
positives in the period. We achieved risk adjusted rate increases
of 10.6%, with almost all classes contributing to the increase.
This gives a total overall increase since 1 January 2018 of 20.2%.
In this positive rate environment, we continued to grow our written
premium to US$2,424.4m, an increase of 5.6% at constant exchange
rates.
During the period we delivered an attritional claims ratio of
52.6%, an improvement of 2.4pps, reflecting underwriting
discipline, rigorous risk selection, and rate increases. We have
also maintained our long-standing track record of prior year
reserve releases, improving the combined ratio by 3.6pps
(US$61.5m).
Brit's brand purpose is 'writing the future'. In May, we were
proud to announce plans to launch Ki, a standalone business and the
first fully digital and algorithmically-driven Lloyd's of London
syndicate, in collaboration with Google Cloud. Ki Syndicate 1618,
with backing from Blackstone and Fairfax, commenced underwriting
for the 2021 year of account in November 2020. We believe Ki will
redefine the commercial insurance market and places Brit at the
forefront of innovation in our sector.
We strive to ensure equal opportunity is part of how we conduct
ourselves as a business and as a team. The simple message is that
discrimination in all its forms will not be tolerated at Brit. We
continue to work hard on inclusion and are committed to proactively
addressing its challenges. We have formed an Inclusion and
Diversity Committee and launched the Brit People Forum, so we can
listen to and learn from the personal stories of the widest
spectrum of the Brit community and come together to make inclusion
and diversity 'business as usual' for Brit.
During 2020, we have received continued support from our owner,
Fairfax. This support has enabled us to continue to focus on our
strategy and to position ourselves well for the opportunities as
they arise.
In September, we appointed Mark Allan as CEO of Ki, and as such
he will be stepping down from his role as Group CFO, once his
successor has started. Mark has made a significant contribution to
Brit over the last ten years and will remain both on the Brit
Executive and on the Brit Ltd and Brit Syndicates Ltd Boards as an
Executive Director. I am delighted that Gavin Wilkinson will be
joining in May 2021 as Group CFO, subject to regulatory
approval.
Looking ahead to 2021 and beyond, significant uncertainty still
surrounds COVID-19 and the timeframes over which vaccination
programmes will allow lockdowns to be eased. We also face the
consequences of the economic support measures taken by governments
driving yields down to record lows and the likely impact on the
economy, with recessionary risks heightened.
However, against this challenging backdrop there are a number of
indicators to give us cause for optimism, including rate increases,
the withdrawal of capacity in the market from certain classes and
our improving attritional claims ratio. In this environment, our
clear strategy of embracing data driven underwriting discipline,
rigorous risk selection and planned targeted growth for 2021,
coupled with innovative capital management solutions and continued
investment in distribution, positions us well to respond to the
opportunities and challenges ahead.'
Matthew Wilson
Group Chief Executive Officer
'For Brit and the wider insurance market, 2020 has proved to be
very challenging, with results heavily impacted by the COVID-19
pandemic and its impact on insurance, investment and currency
markets, and other major loss events. Brit's operating result
before FX movements for 2020 was a loss of US$233.7m (2019: profit
of US$183.0m), while the post-tax result was a loss of US$232.0m
(2019: profit of US$179.9m).
Our underwriting loss of US$215.0m and combined ratio of 112.6%
included major losses of US$403.2m (or 23.7pps of the combined
ratio), resulting from COVID-19 related claims (US$270.7m),
Hurricane Laura (US$65.4m), Hurricane Sally (US$27.1m), Hurricane
Zeta (US$15.5m), the Nashville Tornadoes (US$13.7m) and US Civil
Unrest (US$11.7m). However, we were pleased with the attritional
ratio of 52.6%, an improvement of 2.4pps, and to continue our
long-standing track record of prior year reserve releases
(US$61.5m), benefiting our combined ratio by 3.6pps.
In the first quarter of 2020 investment markets sold off due to
fears around the financial impact of the coronavirus pandemic,
before staging a partial recovery over the remainder of the year.
Our investment return for the year, net of fees, was US$45.5m or
1.0%, driven by gains in our fixed income portfolio of US$141.3m,
partly offset by losses in our equity (US$42.5m) and fund
(US$32.8m) portfolios.
Preserving a strong financial position is critical to the
long-term success of an insurance business. Our statement of
financial position remains strong as we maintain our 'conservative
best estimate' reserving policy which provides us with a secure
foundation. During the period, our management capital requirement
increased from US$1,227.7m to US$1,540.3m, primarily reflecting the
dramatic fall in interest rates in response to COVID-19, but also
reflecting our investments alongside partners in Ki, Syndicate 2988
and Sussex. We raised capital from our parent, Fairfax, amounting
to US$524.0m during the period to ensure we trade into 2021 with a
strong capital position. At the end of the period our adjusted net
tangible assets totalled US$ 1,436.8 m (31 December 2019:
US$1,150.4m), after payment of a US$20.6m dividend, and our capital
surplus was US$341.0m (31 December 2019: US$348.9m).
We are very excited about the prospects for our new digital
business, Ki, that brings together the best of Lloyd's underwriting
with the latest technology and data science. This cutting-edge
business is a first for the market and has a fundamentally
different operating model, designed to dramatically improve the
broker experience for follow capacity in Lloyd's. We are delighted
to have worked with world-class partners in Google Cloud and
University College London on the launch.
Ki has raised US$500m of committed capital from two backers,
funds managed by Blackstone Tactical Opportunities and Fairfax. It
has also onboarded its first trading partners, a leading group of
Lloyd's brokers, giving their clients access to our valuable
capacity and sustainable business model. In October 2020, Ki
Syndicate 1618 achieved 'permission to underwrite' from Lloyd's,
and in November it bound its first risk, with the line having been
generated by Ki's proprietary algorithm, a first in the Lloyd's
market.
In December, we sponsored our first 144A catastrophe bond
issuance, via Sussex Capital UK PCC Limited. The bond provides
US$300m of multi-year named storm and earthquake protection for a
risk period of four years to 31 December 2024. Structured on an
annual aggregate state-weighted basis, the proceeds from the bond
will be used to collateralize a reinsurance agreement with Brit
Syndicates Limited, acting on behalf of Syndicate 2987, and Sussex
Capital UK PCC Limited. This is the first time a protected cell of
a UK domiciled multi-arrangement risk transformation vehicle has
issued a 144A catastrophe bond and provides Brit with valuable
catastrophe protection over the next four years to complement our
traditional reinsurance programme.
While we have seen some positive market developments in 2020,
the year has been defined by COVID-19. In 2021, the world faces
ongoing uncertainty and challenge arising from the pandemic.
However, our strategy, discipline and plans for 2021 position us
well against the significant macro-economic challenges that lie
ahead.'
Mark Allan
Group Chief Financial Officer
Brit at a Glance
We are a market-leading global specialty (re)insurer and the
largest business that trades primarily on the Lloyd's of London
platform, the world's leading specialist commercial insurance
market. We provide highly specialised insurance products to support
our clients across a broad range of complex risks, with a strong
focus on property, energy and casualty business.
We care deeply about our clients' needs, ensuring that we not
only surround them with - and invest in - the best talent in the
industry, but also combine the depth of our experience with the
latest technology to deliver a relentless innovation agenda. Acting
in open, honest partnership, our clients can be sure that with Brit
by their side the future isn't something to be feared, it's
something to be seized.
We operate globally via a combination of our own international
distribution network that benefits from Lloyd's global licences and
our broker partners. Our underwriting capabilities are underpinned
by a strong financial position and our commitment to deliver
superior returns to our shareholders.
At Brit, LEADERSHIP, INNOVATION and enhancing our product
DISTRIBUTION are at the heart of our strategy, underpinned by our
strong underwriting and claims expertise.
We have a strong track record and are passionate about our
business, our people and our customers and we have focused on
cultivating a franchise that is built on delivering exceptional
service. Our culture is centred on achievement with four key
tenets: delivering on commitments and ensuring the same from
others; managing risk actively to optimise reward; focusing efforts
to maximise results; living a distinct ethos. In addition, we
encourage enthusiasm for improvement, be it changes to process,
policy or working practices, we encourage new thinking, and we
encourage collective working and open and honest communication.
The Fairfax Group
Since June 2015, Brit has been a member of the Fairfax Financial
Holdings Limited group (Fairfax), a Canadian company whose shares
are listed on the Toronto Stock Exchange ( www.fairfax.ca ). At the
start of 2020, Brit was 89.3% owned by FFHL Group Limited (FFHL), a
Fairfax company, while Brit's remaining shares were owned by the
Ontario Municipal Employees Retirement System (OMERS), the pension
plan manager for government employees in the Canadian province of
Ontario. On 28 August 2020, FFHL purchased all 48,000,000 Class A
shares from OMERS, thereby increasing Fairfax's ownership of the
Brit Group to 100.0%.
We believe that Fairfax is an excellent partner for Brit,
enabling us to enhance our global product offering. It provides us
with expanded underwriting opportunities and distribution channels
and supports our ability to be a leading global specialty
(re)insurer.
2020 underwriting review
COVID-19
COVID-19 has had a significant impact on the insurance industry,
with commentators likening the direct effect of the pandemic to
9/11 or the combined effects of Hurricanes Katrina, Rita and Wilma.
Lloyd's has suggested that COVID-19 could be the market's largest
ever single loss event, initially estimating a potential of
US$107bn in claims, with Lloyd's share likely to be in excess of
US$4.0bn. Given the protracted nature of the pandemic, these
estimates are likely to be significantly exceeded.
Our immediate priorities as the crisis emerged were to ensure
the safety of our employees and continuity of our service to our
clients and brokers. All our offices were quickly and successfully
able to move to remote working using our robust IT estate and
systems and have maintained a continuity of service to our clients,
remaining fully open for business throughout the lockdown period.
Our underwriters have been actively engaging with clients and
brokers, delivering market-leading responsiveness. Our Claims team
continues to service our policyholders in these challenging
circumstances, proactively working with our TPAs to ensure claims
continue to be handled promptly and to our usual high
standards.
The financial impact on Brit has been significant, with claims
of US$270.7m related to COVID-19 being reported within Major Losses
in the period. These losses have driven an increase of 15.9
percentage points (pps) in our combined ratio. COVID-19 has
predominantly impacted our Contingency (Event Cancellation) and
Casualty Treaty books.
COVID-19 is a highly unusual insurance event, 'earning' over a
prolonged period. Estimating the overall cost is highly subjective
and is dependent on factors such as how long lockdowns and social
distancing continue, the ability to reschedule events and the
potential of minimising cost by either the early
cancelling/postponing of events or holding them behind closed
doors. All these factors play into our loss estimates.
We also continue to monitor our wider business, which may be
impacted by claims arising directly or indirectly from the events
unfolding, and we continue to consider the potential impact on
medium-term claims from a global recession, which typically brings
increased moral hazard, fraud and a more litigious environment
generally.
Brit notes the outcome of the Supreme Court ruling on 15 January
2021 in respect of the FCA's COVID-19 related business interruption
test case. Brit was not party to this action, the outcome of which
does not have a material impact on the Group.
During 2020, we have managed to maintain the collaborative, can
do attitude that has set us apart in the market, and proved we can
operate a leading insurance business remotely and electronically.
Our ability to collaborate using technology has allowed us to carry
on with our goals, and our culture of managing risk actively has
allowed us to adapt. We have moved paper-based brochures to
e-books, physical stamps to e-stamps and, thanks to our portals and
PPL, are able to seek out new business opportunities with our
e-distribution capability.
We have learnt much about ourselves during lockdown and our
culture has excelled, showing itself to its best. New positive
cultural attributes have also emerged during lockdown, together
with some areas that we need to work harder on in a working from
home environment.
Investment markets were also significantly impacted by COVID-19.
In the first quarter of 2020, markets suffered their worst quarter
since the financial crisis as investors priced in the short-term
impact of COVID-19 and potential longer term impact of a global
recession. Markets subsequently rebounded following fiscal and
monetary stimulus and recovered further in quarter four following
positive vaccine news, with value stocks performing particularly
well. Brit's investment return for the twelve months to 31 December
2020 was a positive US$45.5m, which is discussed later in this
report.
Major loss activity
2020 also saw a high level of non-COVID-19 related major loss
activity, with an estimated US$83bn of global insured losses
arising from natural catastrophes and man-made events, an increase
of 32% over 2019 (US$63bn) and the fifth-costliest on record.
Natural catastrophes, including hail storms, wildfires and floods,
accounted for US$76bn of the estimate, as well as having a
devastating impact on people's lives, homes and businesses. The
windstorm season was very active, with record number of named
storms, albeit resulting in only moderate insured losses of
US$20bn. The estimated global economic loss of all 2020 events is
approximately US$187bn (2019: US$149bn).
The main events impacting Brit in 2020 were Hurricane Laura,
Hurricane Sally, Hurricane Zeta, the Nashville Tornadoes and US
Civil Unrest. The net impact to Brit of the claims incurred from
these events, before reinstatements, was US$132.5m, or 7.8pps on
the combined ratio (2019: US$58.4m/3.6pps). Whilst moderate
individually, they accumulate to a significant total, well above
average expectations. These events have disproportionately hit
insurance lines and less populated areas outside of the peak zones.
As a result, we have seen higher exposure from our coverholder
business, which is deliberately weighted to these exposures and
provides balance to the overall property account.
Rate increases
The market has continued to benefit from strengthening premium
rates during 2020. Brit achieved an overall risk adjusted rate
increase of 10.6% (2019: 5.9%). All divisions have continued to
achieve rate increases, with the largest increases achieved in
Property D&F, Marine Cargo, D&O and Excess Casualty.
RARC since 1 January 2018 now +20.2%, analysed across portfolios
as follows:
2018 2019 2020 TOTAL
% % % %
London - Direct 3.6 7.1 10.7 21.4
London - RI 3.1 2.4 7.2 12.7
Overseas Distribution 4.5 6.4 14.6 25.5
TOTAL 3.7 5.9 10.6 20.2
----- ----- ----- ------
Our customers
Our customers are our priority. When a customer has a claim, we
understand they are facing difficult and unexpected challenges.
They expect the insurance they have purchased to respond and
deliver when they need it most. We see each and every claim as an
opportunity to deliver the claims service our customers need to
move forward with their lives.
This claims service has included:
-- Driving a strong effort to respond to a high volume of
COVID-19 claims experienced throughout the year, including
assisting many commercial lines customers and brokers who had
previously never experienced a loss, with the extra support they
needed to expedite and resolve their claim;
-- Working with our local third-party claims adjusters on a high
volume of property and business interruption claims in a variety of
jurisdictions in response to COVID-19 and related government
actions. Collaboration with our local TPAs was robust and required
extra effort in the early stages of developing a response
strategy;
-- Maintaining a focus on responding to our customers and
pursuing opportunities to reduce claims lifecycle and bring claims
to resolution at every opportunity;
-- Utilising Geospatial Intelligence Centre technology to
advance our property claims adjusting capabilities by capturing
high resolution images of Brit-insured properties affected by
events ranging from tornadoes in Nashville, to Hurricanes Laura,
Sally and Zeta. Losses were immediately referred to our TPAs for
payment, where covered damage(s) could be determined, even when
affected areas could not be accessed by local field adjusters;
-- Swiftly establishing dedicated loss funds for our TPAs and
coverholders, to expedite claims payments;
-- Proactively making interim or partial payments whenever
possible to support our insureds' recovery efforts; and
-- Completing a proof of concept and subsequently introducing to
brokers our new Brit Direct Pay innovation. Brit Direct Pay
provides our customers the option of self-directing their payment
through a custom app directly to their Visa bank card so that their
claims payment can be transferred within hours, or sooner. This is
the first of its kind in the London market, and we have plans to
expand the capability to the US in 2021.
Our underwriting
Our overall GWP for 2020 was US$ 2,424.4 m, an increase of 5.7 %
over 2019 (US$ 2,293.5 m), or 5.6 % at constant rates of exchange.
We saw dramatic reductions in some areas of the business as
COVID-19 impacted travel, events and M&A and have continued to
refine our portfolio where conditions have been challenging. This
has reduced the headline growth rate despite us seeing strong
growth in other areas including Property Treaty, Specialty,
Property, Financial and Professional Lines and Scion, reflecting
the strong rating environment and targeted growth as conditions
improved .
Our retention ratio, the proportion of our business that renews
on a premium weighted basis, was 76.1%, marginally lower than in
2019 (78.0%). Across all lines, we have retained our underwriting
discipline and are prepared to discontinue accounts that we believe
are inadequately priced or outside of our appetite.
Distribution remains central to our strategy, and we continue to
build our network. Our overseas offices make a significant
contribution to the Group, providing 19.2% of GWP, and allowing us
to access business not generally available in London. In 2020 they
generated US$465.4m of premium (2019: US$508.7m).
-- Brit Global Specialty USA (BGSU) has written US$289.7m of
premium (2019: US$305.9m). We have streamlined and refocused our
product set, focusing on classes where we see sustainable
opportunities and the potential to operate at scale.
-- Scion Underwriting Services Inc., our US MGA headed by Scott
Brock, generated US$64.8m of premium for Brit in 2020, in its third
year of operations (2019: US$46.0m). This growth reflected the
strong rating environment and increased market traction.
-- Ambridge Partners LLC, our New York based MGA, generated
US$27.8m of premium for Brit (2019: US$46.7m). This reduction
reflects the reduction in corporate transactional activity
resulting from the impact of COVID-19 and from other factors such
as Brexit uncertainty.
-- Our Bermuda operation continues to selectively write
reinsurance business in lines and markets that we believe are well
rated. Premiums generated by our Bermuda office in 2020 equated to
US$83.1m (2019: US$110.1m). The reduction relates to discontinuing
our Casualty Treaty operation in 2020 as previously announced.
Our combined ratio in 2020 was 112.6% , including 15.9 pps in
respect of COVID-19, 7.8pps in respect of other major losses and (
3.6) pps of reserve releases. Over the past five years, we have
delivered an average combined ratio of 104.1% despite the impact of
COVID-19 and extreme catastrophe years of 2017 and 2018 . Excluding
the impact of COVID-19 related claims, our 2020 combined ratio was
96.7% and our five-year average is 100.9%.
Overall, the combination of strong portfolio management and
underwriting discipline has led to us achieving a 52.6 %
attritional ratio in 2020 (2019: 55.0%), a strong underlying
performance.
As part of our standard reserving process, we released US$61.5m
of net reserves established for prior year claims, the equivalent
of a combined ratio reduction of 3.6pps (2019: US$ 47.9 m/2.9pps).
This reflected an improvement in Brit's overall net estimates
arising from the 2017 to 2019 major loss events, and favourable
attritional development across our London Direct and London
Reinsurance portfolios. These releases were partly offset by a
strengthening in our Overseas Distribution portfolio, reflecting
adverse attritional experience and inflationary pressures in
BGSU.
Our business developments during 2020
During 2020 we have continued to focus on our underwriting
strategy. Developments have included:
-- Ki, the first algorithmically driven Lloyd's of London syndicate
Ki is a standalone business, launched for 2021, and the first
fully digital and algorithmically-driven Lloyd's of London
syndicate (Syndicate 1618) that will be accessible anywhere, at any
time. We believe Ki will redefine the commercial insurance market
with its digital and data-first model.
Ki marks a step change for an industry that is yet to face the
disruption seen across the rest of financial services and other
industries. It aims to significantly reduce the amount of time and
effort taken for brokers to place their follow capacity, creating
greater efficiency, responsiveness and competitiveness. Google
Cloud brings to Ki enterprise-grade cloud solutions powered by
innovative technologies that enable rapid transformation at scale.
Ki's algorithm is able to evaluate Lloyd's policies and
automatically quote for business through a digital platform which
brokers can access directly. The selection process is performed
using a proprietary algorithm developed with support from
University College London and their Computer Science department. Ki
follows several 'nominated' lead syndicates across the Lloyd's
market, including Brit. Ki offers brokers a line on every risk in
the selected classes led by these markets.
Ki truly embraces all that is represented in 'The Future at
Lloyd's' by bringing data, technology, innovation and artificial
intelligence to the fore in the complex world of corporate and
specialty underwriting. With Lloyd's focus on e-placement and the
ever-increasing adoption of electronic trading, we expect the
transition in how the Lloyd's market transacts business to be
accelerated.
Ki completed one of the largest fundraises of any start-up in
Europe in 2020 with US$500m of committed capital invested by
Blackstone Tactical Opportunities (Blackstone) and Fairfax. This
capital commitment has funded Ki's launch and will enable the
business to grow rapidly to significant scale.
Securing support from Blackstone, one of the world's leading
investment firms, is a significant statement of confidence in Ki
and the vision we have set out. With its investors, Ki has the
financial firepower to rapidly scale the business and support its
plan to provide a truly differentiated offering to brokers and
clients.
Ki has also onboarded its first trading partners, a leading
group of Lloyd's brokers including Aon, Aon Re, BGCI, including Ed
and Besso, Bishopsgate, BMS, Gallagher, Guy Carpenter, Howden,
Lockton, Lockton Re, Marsh, Miller, Price Forbes, AmWins/THB,
Tysers, Willis, and Willis Re. Ki has agreed to provide valuable
capacity to each trading partner in 2021, giving their clients
immediate security about placing business in Lloyd's.
Ki is continuing to focus on innovation, with two upgrades to
the platform deployed in the first 60 days following launch. In
2021, Ki will deliver additional platform capability on the back of
broker feedback, broaden out the use of non-Brit Lloyd's lead
markets into new classes and digitally integrate with a number of
broker partners.
These developments are Lloyd's firsts, enabling seamless and
instantaneous commitment of follow capacity in the market and comes
on the back of the recent launch of Lloyd's Blueprint Two and
realises a vision for the digital future for the Lloyd's follow
market.
Ki has brought together a team combining the best talent from
the current Lloyd's model, with a strong focus on relationships and
deep underwriting and broker expertise in the Portfolio
Underwriting team led by Dan Hearsum, combined with leading
technology, data science and actuarial skills in its Portfolio
Management and Development functions, led by Alan Tua and James
Birch respectively.
In October 2020, Ki Syndicate 1618 achieved 'permission to
underwrite' from Lloyd's, and in November it bound its first risk,
with its line having been generated by its proprietary algorithm, a
first in the Lloyd's market. Ki plans to write cUS$400m of GWP in
its first year, which would make it the largest ever digital
start-up in Lloyd's.
Further information can be found at www.ki-insurance.com and
https://youtu.be/_gZUqDGjTrI .
-- Issue of Brit sponsored US$300m Cat Bond
On 14 December 2020, Brit successfully sponsored a 144A cat bond
issuance, via Sussex Capital UK PCC Limited. The bond provides
US$300m of multi-year named storm and earthquake protection for a
risk period of four years to 31 December 2024. Structured on an
annual aggregate state weighted basis, the proceeds from the bond
will be used to collateralize a reinsurance agreement with Brit
Syndicates Limited, acting on behalf of Syndicate 2987, and Sussex
Capital UK PCC Limited. This is the first time a protected cell of
a UK domiciled multi-arrangement risk transformation vehicle has
issued a 144A cat bond.
-- Private Client launch
In May, we announced the launch of our new Private Client
offering. Brit Private Client offers brokers operating in the high
and ultra-high net worth market, and their clients, a credible new
alternative, combining Brit's brand and reputation in claims and
service with a team of highly regarded market practitioners. It
differentiates itself through its bespoke approach, offering
clients personalised solutions through a single policy that will
include significant limits, worldwide coverage and additions such
as personal cyber. Coverage includes homes, rare and valuable
possessions, annual travel and cars all in one policy. The focus of
the book is the UK and Ireland.
-- E-trading microsite
In July, our e-trading microsite (
www.britinsurance.com/e-trading ) went live, increasing our ability
to shine a light on our Cyber, Kidnap and Ransom, Terror, Flood and
Private Client portal services. This demonstrates how innovation is
becoming central to everything we do at Brit, while also
demonstrating our distribution strategy in action.
-- Continued development of BGSU
BGSU Cyber and Technology expansion: In January, we appointed an
Assistant Vice President (AVP), Cyber and Technology and, in April,
we appointed an AVP, Cyber. These roles will support the
underwriting and growth of Brit's US Cyber portfolio.
BGSU Programs: In April, BGSU appointed a Vice President (VP),
Programs, to develop BGSU's Specialty Program offering and identify
future opportunities for growth, working closely with prospective
MGAs. In December, BGSU appointment a VP Programs, to develop and
expand the current portfolio.
BGSU Terrorism: BGSU launched a Terrorism product with the
appointment of a VP, Terrorism. Working with the London Terrorism
team, the US team will look to enhance Brit's profile as a highly
respected Terrorism market leader.
-- Continued Portfolio Management
Where classes remain challenging, we have continued to take
action to improve our performance and maintained our rigorous risk
selection criteria. During 2020, we examined the classes we write
in BGSU and took the following decisions:
-- BGSU Cargo and First Dollar: BGSU exited Cargo and First
Dollar, and completed two renewal rights disposals in respect of
these classes. Under both transactions, a number of Brit staff
transferred with the renewal rights.
-- BGSU Property E&S: In November, BGSU exited Property
E&S following a review of its performance and prospects.
Despite significant rate rises, the lack of scale, inherent
volatility and cost of reinsurance protection made this book
untenable. We are reallocating the catastrophe aggregate to our
Programs and Reinsurance Classes where we see greater opportunity
to make profitable margins both now and over the market cycle.
-- Commonwealth (CICA)
During 2020, we progressed the sale of CICA. The transaction
completed on 5 February 2021 for a consideration of US$19.7m. CICA
is a US admitted carrier that holds a number of licences to operate
as an insurance company. Brit originally acquired CICA in April
2018 at a cost of US$16.4m.
-- 2021 business planning
With the launch of Ki Syndicate 1618, Brit's planned premium
growth across all three syndicates for 2021 is 27.9%. This makes
Brit one of the fastest growing large managing agents in the
market, demonstrating the value and strength of Brit to the Lloyd's
Market.
Syndicate 2987's GWP is planned to grow by 12.5%. As in previous
years, we continue to actively manage the portfolios by segmenting
Classes into 'High Performing', 'Core Growth', 'Core New
Initiatives', 'Core Opportunistic' and 'Portfolio Management'.
Growth (excluding RARC) is driven primarily by the 'High
Performing' and 'Core Growth' segments, while the largest increases
in RARC are targeted on the weakest performing segments of the
portfolio.
Syndicate 2988's GWP is planned to grow by 12.8%. The 2021 plan
promotes continued diversification of the Syndicate's portfolio, by
growing the 'High Performing' and 'Core Growth' segments such as
Casualty Treaty. Growth in Syndicate 2988 premium is largely a
function of greater penetration into Syndicate 2987's business plus
selective growth of existing business.
Financial Performance Review
Overview of Results
The Group's income statement, re-analysed to show the key
components of our result, is set out below:
2020 2019 2018 2017 2016
US$m US$m US$m US$m US$m
Gross written premium 2,424.4 2,293.5 2,239.1 2,057.0 1,912.2
Net earned premium (Note
1) 1,714.0 1,638.5 1,466.1 1,540.1 1,515.1
Underwriting result (Note
1) (215.0) 68.4 (56.9) (172.8) 54.6
Underwriting result (215.0) 68.4 (56.9) (172.8) 54.6
Return on invested assets,
net of fees 45.5 148.1 (82.1) 204.2 102.9
Corporate expenses (23.6) (20.3) (20.0) (24.0) (21.3)
Finance costs (23.6) (23.7) (18.8) (17.1) (18.8)
Other items (17.0) 10.5 (3.4) 2.6 1.1
-------- -------- -------- -------- --------
(Loss)/profit on ordinary
activities before tax, and
FX (233.7) 183.0 (181.2) (7.1) 118.5
FX movements 3.2 3.3 (9.1) 12.6 41.3
(Loss)/profit on ordinary
activities before tax (230.5) 186.3 (190.3) 5.5 159.8
Tax (1.5) (6.4) 23.8 16.0 (2.2)
(Loss)/profit for the year
after tax (232.0) 179.9 (166.5) 21.5 157.6
Note 1: Excluding the effects of foreign exchange on
non-monetary items.
Group performance and total value created
2020 was dominated by COVID-19 and other major losses. However,
we also saw a further improvement to market conditions, a strong
attritional performance, continued reserve releases and a good
investment return.
The result on ordinary activities for the year before tax and FX
was a loss of US$ 233.7 m (2019: profit of US$183.0m), loss before
tax was US$230.5m (2019: profit before tax of US$186.3 m ) and loss
after tax was US$232.0m (2019: profit after tax was US$ 179.9 m ).
Return on adjusted net tangible assets (RoNTA), excluding the
effects of FX, was (19.6)% (2019: 18.1%). RoNTA for 2020 after
including foreign exchange movements was 18.4% (2019: 18.4%) and
total value created for the year was a negative US$217.0m (2019:
positive US$198.6m).
Our adjusted net tangible assets at 31 December 2020 totalled US
$1,436.8m (2019: US$ 1,150.4m).
We measure our performance using our key performance indicators
(KPIs).
2020 2019
Return on net tangible assets before FX movements
(RoNTA) (19.6)% 18.1%
Total value created US$(217.0)m US$198.6m
Combined ratio 112.6% 95.8%
Investment return (net of external investment
related expenses) 1.0% 3.6%
Capital ratio 122.1% 128.4%
Ratio of front office employees to back office
employees 140.9% 150.9%
------------ ----------
In 2020, our RoNTA was 19.6% negative (2019: 18.1% positive),
reflecting the impact of COVID-19, and other major losses activity,
partly offset by a strong attritional performance, solid prior year
reserve releases, and a positive investment return. This return
resulted in a five-year average RoNTA of (0.6)%.
In 2020, value creation was a negative US$217.0m, or 18.9% of
opening adjusted NTA (2019: positive US$198.6m). The Company has
generated a total value of US$(30.3)m over the past five years, an
average of US$(6.1)m per annum.
The combined ratio is our key underwriting metric. Our combined
ratio in 2020 was 112.6% (2019: 95.8%), including 15.9pps in
respect of COVID-19 related claims and 7.8pps (2019: 3.6%) in
respect of other major losses, partly offset by (3.6)pps (2019:
(2.9)%) of reserve releases. Over the past five years, we have
delivered an average combined ratio of 104.1% despite the impact of
COVID-19 and extreme catastrophe years of 2017 and 2018. Excluding
COVID-19 related claims, our 2020 combined ratio was 96.7% and our
five-year average combined ratio was 100.9%.
The return on our invested assets was US$45.5m or 1.0% (2019:
US$148.1m/3.6%). This was a combination of US$73.2m (2019:
US$87.3m) of investment income, US$7.5m of realised gains (2019:
losses of US$51.9m), US$11.6m of mark-to-market unrealised losses
(2019: gains of US$134.8m), return on associated undertakings of
US$2.0m (2019: US$0.3m) and losses on investment related
derivatives of US$13.9m (2019: losses of US$2.8m), less fees of
US$12.6m (2019: US$11.7m). Our 2020 return also includes a positive
adjustment of US$0.9m (2019: negative adjustment of US$7.9m), which
represents the amount included in 'Investment return, net of fees'
which is attributable to third-party investors.
Our investment strategy takes a long-term view of markets, which
can lead to significant variations in our year-on-year return
figures. Over the past five years, we have delivered an average
investment return of 2.0%.
Our statement of financial position remains strong. At 31
December 2020, following capital injections from Fairfax in 2020 of
US$524.0m, Group capital resources totalled US$1,881.3m (2019:
US$1,576.6m) giving surplus management capital of US$341.0m (2019:
US$348.9m), or 22.1% (2019: 28.4%) over our Group management
capital requirement. During 2020, our capital requirements
increased from US$1,227.7m to US$1,540.3m, primarily reflecting
movements in interest rates and Brit's share of the capital
requirement of Ki Syndicate 1618 . Brit has met its regulatory
capital requirements at all times during 2020.
At 31 December 2020, the ratio of front office employees to back
office employees was 140.9% (2019: 150.9%), reflecting that we had
approximately 1.4 front office employees for every back office
employee. The reduction in the ratio in 2020 follows the trend in
recent years and primarily reflects the relative increased back
office staff to support our overseas growth, third-party capital
management and regulatory requirements.
In addition to our KPIs, we have other measures that offer
further insight into the detail of our performance. These measures
include:
-- Premium related: Risk adjusted rate change; Retention rate;
-- Claims related: Claims ratio; Attritional loss ratio; Major
claims ratio; Reserve release ratio; and
-- Underwriting expense related: Underwriting expense ratio;
Commission ratio; Operating expense ratio.
Underwriting
Overview
Our underwriting result for the year was a loss of US$215.0m
(2019: profit of US$68.4m ) and our combined ratio, which excludes
the effect of foreign exchange on non-monetary items, was 112.6%
(2019: 95.8%). The premiums, claims and expenses components of this
result are examined below.
Premiums written
Premium growth Growth at
2019 (Restated) constant
2020 (Note1) Growth FX rates
US$m US$m % %
-------- ---------------- -------
London Market Direct 1,411.6 1,361.7 3.7 3.6
London Market Reinsurance 479.2 427.5 12.1 12.0
Overseas Distribution 437.6 462.0 (5.3) (5.3)
Discontinued underwriting 5.0 11.2 (55.4) (57.3)
Other underwriting 91.0 31.1 192.6 192.6
Group total 2,424.4 2,293.5 5.7 5.6
Note 1: The 2019 analysis has been re-analysed to reflect the
underwriting class monitoring structure introduced in 2020.
Gross written premium (GWP) increased by 5.7% to US$2,424.4m
(2019: US$2,293.5m). At constant exchange rates, the increase was
5.6 %. London Market Direct business increased by 3.7% to
US$1,411.6m (2019: US$1,361.7m), London Market R einsurance
increased by 12.1 % to US$479.2m (2019: US$427.5m), Overseas
Distribution decreased by 5.3 % to US$437.6m (2019: US$462.0m) and
Other Underwriting increased by 192.6% to US$91.0m (2019:
US$31.1m).
The drivers of the increase in Group GWP, which was in line with
expectations, are as follows:
-- Current year premiums: Growth in our core London Market
Direct (Specialty, Property, and Financial and Professional
Liability) and Reinsurance classes (Property Treaty), reflected the
strong rating environment and targeted growth as we capitalise on
market opportunities. These increases were partially offset by
reduced demand in certain classes due to the impact of COVID-19
related restrictions, our withdrawal from a number of
underperforming classes, and the non-renewal of certain accounts
due to poor performance or pricing inadequacy. Within Overseas
Distribution, while there was an overall reduction in premium,
increases were seen in targeted BGSU classes (Excess Casualty,
Casualty RI US, Professional Liability, Cyber and General
Liability) and in Scion.
-- Prior year premium development: The book again experienced
favourable development on prior years, but at a lower rate than in
2019. This resulted in a year-on-year reduction of US$23.5m.
-- Foreign exchange: The impact of foreign exchange resulted in
a US$1.7m year-on-year increase in premium, which reflects the
movement during 2020 of the US dollar against a number of
currencies in which the Group writes business.
Premium ratings
Measure Commentary Track record
Risk adjusted The risk adjusted rate change (RARC) shows whether 2020 10.6
rate change premium rates are increasing, reflecting a hardening %
market, or decreasing, reflecting a softening market. 2019 5.9%
A hardening market indicates increasing profitability. 2018 3.7%
2017 (1.3)%
In 2020, we achieved a RARC of 10.6%, bringing 2016 (3.3)%
the RARC since 1 January 2018 to 20.2%.
-------------------------------------------------------- -------------
2020 saw a continued positive rate environment, building on that
of 2019 and 2018, with an overall risk adjusted premium rate
increase of 10.6% across the portfolio (2019: 5.9%), bringing the
total increase since 1 January 2018 to +20.2%.
In 2020, London Direct increased by 10.7% (2019: 7.1%), London
Reinsurance by 7.2% (2019: 2.4%) and Overseas Distribution by 14.6%
(2019: 6.4%). All Divisions achieved rate increases, with the
largest increases achieved in Property D&F, Marine Cargo,
D&O and Excess Casualty.
Retention rates
Measure Commentary Track record
Retention The retention rate shows the proportion of our 2020 76.1%
rate business that renews, on a premium weighted basis, 2019 78.0%
compared to the previous year. 2018 80.2%
2017 83.6%
2016 84.3%
---------------------------------------------------- -------------
Our retention rate for the period was 76.1% (2019: 78.0 %). The
reduction reflects the continued action we have taken to improve
our performance by discontinuing underperforming business lines
.
Outwards reinsurance
Our reinsurance expenditure in 2020 increased by US$ 11.5 m to
US$ 648.8 m, but reduced as a proportion of GWP from 27.8% to
26.8%. This reflects our targeted reduction in ceded premium
(predominately proportional treaties), as we focus on retaining a
greater portion of our high-performing portfolios and those with
significant rate increases.
Net earned premium
Net earned premium (NEP) in 2020, excluding the effects of
foreign exchange on non-monetary items, increased by 4.6% to
US$1,713.9m (2019: US$ 1,638.5m ). At constant exchange rates, the
increase was 4.5 %. London Market Direct business increased by 6.1%
to US$979.3m (2019: US$922.9m), London Market R einsurance
increased by 11.5 % to US$338.5m (2019: US$303.6m), Overseas
Distribution decreased by 3.2 % to US$308.5m (2019: US$318.7m) and
Other Underwriting increased by 16.8% to US$65.9m (2019: US$56.4m).
These movements reflected the movements in GWP, together with the
proportional reduction in reinsurance spend.
Claims
Measure Commentary Track record
Claims ratio The claims ratio measures the performance of the 2020 72.6%
whole underwriting book, encompassing risks written 2019 55.7%
in the current year and in prior years. 2018 63.1%
2017 72.0%
2016 56.5%
----------------------------------------------------- -------------
The claims ratio can be further analysed into its underlying
components, as follows:
Measure Commentary Track record
Attritional The a ttritional loss ratio measures the performance 2020 52.6%
loss ratio of the underlying underwriting book by measuring 2019 55.0%
the effect of attritional claims. 2018 57.2%
2017 56.4%
2016 55.5%
-------------------------------------------------------- -------------
Major claims The major claims ratio measures the effect of claims 2020 23.7%
ratio arising from major losses on our performance. 2019 3.6%
2018 12.0%
The 2020 ratio reflects the impact of COVID-19 2017 16.2%
related claims (15.9%) and other of major loss 2016 4.5%
activity (7.8%).
-------------------------------------------------------- -------------
Reserve The r eserve release ratio measures the performance 2020 (3.6)%
release of reserves held on the statement of financial 2019 (2.9)%
ratio position at the start of the year. A negative ratio 2018 (6.1)%
indicates an overall net release, which means that 2017 (0.6)%
prior year claims are performing better than estimated 2016 (3.5)%
at the start of the year. A positive ratio indicates
that over the course of the year, the amount required
to meet those prior year claims has increased.
-------------------------------------------------------- -------------
Our underlying claims performance in 2020 was strong, with a
reduction in our attritional loss ratio to 52.6% (2019: 55.0%).
This reflects favourable underlying claims experience across our
London Market Direct portfolio (principally Programmes and
Facilities, Property and Specialty) and the effect of strong
compound rate increases, combined with a change in mix as we target
growth on our high-performing segments while taking remedial action
on more marginal business.
The financial impact of COVID-19 on Brit has been significant,
with a loss estimate of US$270.7m being reported within Major
Losses in the period. COVID-19 has predominantly impacted our
Contingency (Event Cancellation) and Casualty Treaty books, with a
smaller impact on Property, Property Treaty and Personal Accident.
These losses have driven an increase of 15.9pps in our combined
ratio.
Non-COVID-19 related catastrophe activity was again significant,
with 2020 being the fifth most costly year on record to the
industry. The Group incurred major claims, before reinstatement
premiums, of US$132.5m, or 7.8pps of the combined ratio (2019:
US$58.4m/3.6%), as set out below. Major losses are defined as
claims which are initially assessed as having the potential to
exceed US$15.0m (net of reinsurance and allowing for
reinstatements), incurred from natural or man-made catastrophes, or
from large single risk loss events.
Major losses 2020 2019
US$m US$m
------------------------------------- ------
Nashville Tornado 13.7 -
US Civil Unrest 11.7 -
Hurricane Laura 65.4 -
Hurricane Sally 27.1 -
Hurricane Zeta 15.5 -
Hurricane Dorian - 24.3
Typhoon Faxai - 12.5
Typhoon Hagibis - 24.8
------
Total before COVID-19 related
losses 133.4 61.6
COVID-19 related losses 271.4 -
------------------------------------- ------ ------
Total before third-party investors'
share 404.8 61.6
Third-party investors' share
(Note 1) (1.6) (3.2)
--------------------------------------- ------ ------
Total 403.2 58.4
--------------------------------------- ------ ------
CoR 23.7% 3.6%
--------------------------------------- ------ ------
Note 1: Accounting rules require Brit to consolidate Sussex
Capital and Versutus II which have third-party investors. This
adjustment eliminates the third-party share of major losses which
is included in the Group's consolidated income statement within
'gains on other financial liabilities'. Of this US$1.6m, US$0.7m is
in respect of COVID-19 related losses and US$0.9m is in respect of
other major losses.
As part of our standard reserving process, we released US$ 61.5
m of net reserves established for prior year claims, the equivalent
of a combined ratio reduction of 3.6pps (2019: US$47.9 m /2.9pps),
maintaining our unbroken record of reserve releases since we
started disclosing them in 2004.
The 2020 release reflected improvements in Brit's overall net
estimates arising from the 2017 to 2019 major loss events, and
favourable attritional development across our London Direct and
London Reinsurance portfolios. These releases were partly offset by
a strengthening in our Overseas Distribution portfolio, reflecting
adverse attritional experience and inflationary pressures in
certain BGSU classes.
Underwriting expenses
Our underwriting expense ratio was 40.0% (2019: 40.1%).
Measure Commentary Track record
Underwriting The underwriting expense ratio measures the cost 2020 40.0%
expense we incur to acquire every US$1 of premium. There 2019 40.1%
ratio are two key components to this - commission costs 2018 40.2%
and operating expenses. 2017 40.4%
2016 39.9%
--------------------------------------------------- -------------
The underwriting expense ratio can be further analysed into its
underlying components, as follows:
Measure Commentary Track record
Commission The commission ratio measures our distribution 2020 26.6%
ratio costs and shows how much of every US$1 of premium 2019 27.2%
is paid to acquire our business. 2018 27.8%
2017 27.6%
2016 27.2%
------------------------------------------------------ -------------
Operating The operating expense ratio helps us understand 2020 13.4
expense how much it costs us to support the underwriting %
ratio activities. This ratio shows how much of every 2019 12.9%
US$1 of premium we spend supporting our underwriting 2018 12.4%
activities. 2017 12.8%
2016 12.7%
------------------------------------------------------ -------------
Commission costs were US$454.3m and the commission expense ratio
was 26.6% (2019: US$443.3m/27.2%). The decrease in the ratio
principally reflects a change in business mix towards lower
commission business, a drive to reduce overall acquisition costs
and changes to our outwards reinsurance programme.
Our operating expenses are analysed below.
Expenses
Our operating expense ratio increased to 13.4% (2019: 12.9%).
Operating expenses for the period were as follows:
Expense analysis 2020 2019
US$m US$m
Underlying operating expenses including bonus
provisions 275.9 275.3
Project costs, timing differences and other expense
adjustments (Notes 1, 2) 7.0 1.1
------ ------
Total operating expenses 282.9 276.4
------ ------
Note 1: Timing differences relate to movement in deferred
non-commission acquisition costs.
Note 2: Includes minority share of expenses incurred by
consolidated vehicles, and expenses relating to non-controlling
interests.
Underlying operating expenses during 2020 increased by US$0.6m
to US$275.9m (2019: US$275.3m). This small increase relates to the
consolidation of a full year of Ambridge expenses (consolidated
from 18 April 2019), the consolidation of a proportion of Syndicate
2988 expenses following Brit providing a proportion of its capital
for 2020, increased legal and professional charges and regulatory
levies, partly offset by lower staff, travel and entertainment
costs.
The allocation of operating expenses within the Consolidated
Income Statement and the Segmental Information is as follows:
Disclosure of operating expenses 2020 2019
US$m US$m
Acquisition costs 145.4 150.6
Other insurance related expenses 113.9 105.5
------ ------
Total insurance related expenses 259.3 256.1
Other operating expenses 23.6 20.3
Total operating expenses 282.9 276.4
Other income
Other income totalled US$14.1 m (2019: US$ 45.9 m), as set out
below:
Other income 2020 2019
US$m US$m
Fee and commission income (Note 1) 29.7 45.6
Change in value of ultimate parent
company shares (Note 2) (15.6) 0.3
------- ------
Total other income 14.1 45.9
------- ------
Note 1: Total fee and commission income is included within our
underwriting result and our combined and expense ratios.
Note 2: Change in value of ultimate parent company shares is
included within our corporate result.
Fees and commissions generated by the Group's underwriting
management activities have decreased in 2020, totalling US$29.7m, a
reduction of 34.9% (2019: US$45.6m/increase of 225.7%). Included in
the reduction were: US$15.9m in respect of the change in value of
shares held by Brit in its ultimate parent, US$6.4m in respect of
Brit's increased share of Syndicate 2988 resulting in less
third-party income, and US$9.5m in respect of Ambridge, which
experienced lower revenues in 2020 reflecting the reduction in
corporate transactional activity resulting from the impact of
COVID-19 and other factors such as Brexit uncertainty.
Losses on other financial liabilities
The statement of financial position of the Group includes
liabilities representing third-party investors' share in structured
undertakings consolidated by the Group. These structured
undertakings are Sussex Capital, Versutus II and an equity UCITS.
Changes in the value of these liabilities during a year are
recorded in the Group's consolidated income statement as 'losses on
other financial liabilities', as follows:
Losses on other financial liabilities 2020 2019
US$m US$m
Underwriting vehicle related (Note 1) (6.0) (2.6)
Investment vehicle related (Note 2) - (7.9)
Total losses on other financial liabilities (6.0) (10.5)
Note 1: Allocated to the Group's underwriting and investment
result as it represents the third-party share.
Note 2: Allocated to the Group's investment result as it
represents the third-party share of the investment result.
Return on invested assets
The investment portfolio is managed, for the most part, by
Hamblin Watsa Investment Counsel Limited, a Fairfax subsidiary with
an excellent long-term track record, whose sole business is
managing investment portfolios of Fairfax group companies. They are
supported by a number of external managers across core fixed income
and a small allocation to specialised credit.
The return on our invested assets was US$45.5m or 1.0% (2019:
US$148.1m/3.6%). This result is analysed below:
Investment return 2020 2019
US$m US$m
Income 73.2 87.3
Realised gains/(losses) 7.5 (51.9)
Unrealised (losses)/gains (11.6) 134.8
------- -------
Investment return before fees 69.1 170.2
Investment management fees (12.6) (11.7)
------- -------
Investment return, net of fees 56.5 158.5
Investment related derivative return (13.9) (2.8)
Third-party investors' share of investment return
(Note 1) 0.9 (7.9)
Return on associated undertakings 2.0 0.3
------- -------
Total return 45.5 148.1
------- -------
Total return 1.0% 3.6%
------- -------
Note 1: This adjustment eliminates the amount included in
'Investment return, net of fees' which is attributable to
third-party investors. This amount is included in the Group's
consolidated income statement within 'Gains on other financial
liabilities'.
Return on invested assets
(net of fees)
Year %
--------------
2020 1.0
--------------
2019 3.6
--------------
2018 (2.0)
--------------
2017 4.9
--------------
2016 2.6
--------------
In March, the significant fall in yields, as the Federal Reserve
delivered two emergency interest rate cuts totalling 150bps in
response to the emerging economic impact of the COVID-19 pandemic,
boosted our unrealised gains from fixed income to US$64.5m (2019:
unrealised gains of US $22.4m). However, our total portfolio income
return decreased to US$73.2m (2019: US$87.3m) due to the fall in
yields. While we expect income returns going forward to be lower,
we continue to seek opportunities to increase the yield on our
portfolio where appropriate opportunities arise.
Following market sell-offs in the first quarter of 2020, our
equity portfolio has recovered well. However, it has underperformed
the broader market rally, due to its value bias. Realised and
unrealised losses from equities for the year totalled US$48.8m
(2019: gain of US$90.5m). T he return on funds was also negative
for the year, with a loss of US$32.8m (2019: loss of US$17.8m) ,
the majority of which is unrealised.
The return on cash has reduced over the year, in line with the
fall in interest rates. Our approach to cash management during the
year has, and continues to be, to limit the amount of operational
cash and to maximise amounts held within short-term government
bills.
At 31 December 2020, the running yield (expressed as yield as a
percentage of invested assets) of our total portfolio was 0.6%
(2019: 1.5%). This has decreased over 2020 in line with the
decrease in base rates and decline in the yield curve in the US and
continues to represent a challenging environment for insurance
groups.
Our share of our associated undertakings' net profit was US$2.0m
(2019: US$ 0.3 m) .
-- Camargue Underwriting Managers Proprietary Limited, a leading
managing general underwriter of a range of specialised insurance
products and specialist liability solutions in South Africa in
which Brit holds a 50% share, contributed US$1.0m to this return
(2019: US$0.6m) ;
-- Sutton Special Risk Inc. , a leading Canada-based managing
general underwriter specialising in Accident & Health business
in which Brit acquired a 49% share on 8 January 2019 , also
contributed US$1.0m (2019: US$0.7m) to this return; and
-- In 2019, Ambridge Partners LLC contributed US$(1.0)m to the
associated undertaking result. On 19 April 2019, Ambridge became a
100% subsidiary of the Group and ceased to be an associated
undertaking.
Foreign exchange
We manage our currency exposures to mitigate the impact on
solvency rather than to achieve a short-term impact on earnings. We
experienced a total foreign exchange gain of US$3.2m in 2020 (2019:
gain of US$3.3m), reflecting the movement of the US dollar against
other currencies in which we trade and hold assets. This total
foreign exchange related gain comprised:
-- An unrealised revaluation loss of US$12.4m (2019: gain of
US$14.0m ), relating to the retranslation of transactions and
balances held in currencies other than US dollar. This includes the
effect of movements in US dollar, which gave rise to a gain on our
long positions on Canadian dollar, Euro and Sterling;
-- Gains of US$12.8m (2019: losses of US$15.2m ) on derivative
contracts which were entered into to help manage our monetary FX
exposures and therefore should be viewed in conjunction with our
monetary FX movements; and
-- Gains of US$2.8m (2019: gains of US$4.5m), as a result of the
IFRS requirement to recognise non-monetary assets and liabilities
at historic exchange rates. This adjustment is essentially a timing
difference. The adjustment for the full year 2020 comprises an
increase in the debit carried on the statement of financial
position at 31 December 2019 (US$2.0m).
The allocation of the FX result within the Consolidated Income
Statement is as follows:
Foreign exchange gains and (losses) 2020 2019
US$m US$m
Net change in unearned premium provision - non-monetary
FX effect (3.2) 3.4
Acquisition costs - non-monetary FX effect 1.4 (1.7)
Net foreign exchange gains - non-monetary (Note
1) 4.6 2.8
------- -------
2.8 4.5
------- -------
Net foreign exchange (losses)/gains - monetary
(Note 1) (12.4) 14.0
Return on derivative contracts - FX related instruments
(Note 2) 12.8 (15.2)
------- -------
0.4 (1.2)
------- -------
Total gains 3.2 3.3
------- -------
Note 1: The sum of these two amounts, US$7.8m, is the 'Net
foreign exchange loss' figure per the Consolidated Income Statement
(2019: US$16.8m 'Net foreign exchange gains').
Note 2: The 2019 figure excludes a gain of US$0.4m on a
derivative contract entered into to effectively hedge the Sterling
proportion of the Group's expenses, which is allocated to
expenses.
Tax
Our tax on ordinary activities for 2020 resulted in a tax charge
of US$1.5m (2019: tax charge of US$6.4m), based on a group loss
before tax of US$230.5m (2019: profit before tax of US$186.3m).
The Group is liable to taxes on its corporate income in a number
of jurisdictions where its companies carry on business, most
notably the UK, Australia and the US. Corporate profits and losses
in Bermuda are exempt from tax. The tax charge is calculated in
each legal entity across the Group and then consolidated.
Therefore, the Group effective rate is sensitive to the location of
taxable profits and is a composite tax rate reflecting the mix of
tax rates in those jurisdictions.
The 2020 Group rate varies from the weighted average rate in
those jurisdictions due to a number of factors. The principal
factors are an increase of US$41.5m in the unrecognised deferred
tax asset in respect of undeclared Lloyd's syndicate years of
account, and the impact of the change in the UK tax rate used for
the calculation of deferred taxes, from 17% for brought forward
balances to 19% for carried forward balances. The rate is further
influenced by the impact of exempt income such as dividend income,
disallowable expenses and by non-UK taxes arising in our Lloyd's
syndicates.
Financial position and capital strength
Overview
Our business is underwritten principally through our
wholly-aligned Lloyd's Syndicate 2987, which benefits from Lloyd's
ratings of A (Excellent) from A.M. Best, AA- (Very Strong) from
Fitch and A+ (Strong) from Standard & Poor's.
Our capabilities and ambition are underpinned by our strong
financial position. At 31 December 2020, our adjusted net tangible
assets totalled US$ 1,436.8 m (2019: US$ 1,150.4m ). At 31 December
2020, following capital injections from Fairfax in 2020 of
US$524.0m, Group capital resources totalled US$ 1,881.3 m, giving
surplus management capital of US$341.0m (2019: US$348.9m), or 22.1
% (2019: 28.4%), or 22.1 % (2019: 28.4%) over our Group management
capital requirement of US$1,540.3m.
Brit has in place a US$450m revolving credit facility (RCF),
expiring on 31 December 2023. Under our capital policy we have
identified a maximum of US$250.0m (2019: US$250.0m) of this
facility to form part of our capital resources, with the balance
available for liquidity funding. At 31 December 2020, the cash
drawings on the facility were US$130.0m (2019: US$140.0m) and a
US$130.0m uncollateralised letter of credit (LoC) was in place (31
December 2019: US$80.0m/uncollateralised) to support our
underwriting activities. At the date of this report, cash drawings
had reduced to US$ 93.0 m and the US$130.0m uncollateralised LoC
remained in place.
Brit has in issue GBP135.0m subordinated debt (the Notes) which
is listed on the London Stock Exchange. The Notes were issued in
December 2005, were callable in whole by Brit on 9 December 2020
and mature in 2030. On 14 December 2020, Brit announced that it had
determined not to exercise its call option to redeem the Notes, in
accordance with Condition 7(b) of the Notes. It also announced
that, in accordance with the terms of the Notes, the interest rate
had been reset and was now 3.6757% (previously 6.625%).
At 31 December 2020, our gearing ratio was 28.0 % (2019:
29.9%).
Brit's invested assets (financial investments, investments in
associates, cash and cash equivalents and derivative contracts) at
31 December 2020 were US$ 4,857.1 m (31 December 2019:
US$4,182.2m).
Our asset allocation, on both a look-through basis and statutory
disclosure basis, is set out in the tables below:
31 December 2020 Statutory basis Total
invested
assets
(look-through)
Equity Debt Specialised Cash Associated Investment
securities securities Loan investment and cash undertakings Derivatives
instruments funds equivalents (net)
US$m US$m US$m US$m US$m US$m US$m US$m
---------- ---------- ------------ ----------- ----------- ------------ -----------
Government
Look-through debt
basis securities - 1,814.9 27.3 - - - 1,842.2
Corporate debt
securities - 1,577.6 1.7 - - - 1,579.3
Structured products - - - 18.7 - - - 18.7
Loan instruments - - 23.0 - - - - 23.0
Equity securities 376.7 - - 212.5 - 20.5 - 609.7
Alternative - - - - - - -
investments -
Cash and cash
equivalents - - - 5.6 775.7 - - 781.3
Investment related
derivatives - - - (1.4) - - 4.3 2.9
------------ -----------
Total invested
assets (statutory) 376.7 3,392.5 23.0 264.4 775.7 20.5 4.3 4,857.1
---------- ---------- ------------ ----------- ----------- ------------ -----------
31 December 2019 Statutory basis Total
invested
assets
(look-through)
Equity Debt Specialised Cash Associated Investment
securities securities Loan investment and cash undertakings Derivatives
instruments funds equivalents (net)
US$m US$m US$m US$m US$m US$m US$m US$m
---------- ---------- ------------ ----------- ----------- ------------ -----------
Government
Look-through debt
basis securities - 1,611.8 - 9.7 - - - 1,621.5
Corporate debt
securities - 1,339.2 - 2.2 - - - 1,341.4
Structured products - 0.1 - 18.2 - - - 18.3
Loan - - - - - - - -
instruments
Equity securities 403.9 - - 242.7 - 19.4 - 666.0
Alternative investments - - - 8.5 - - - 8.5
Cash and cash
equivalents - - - 5.1 520.1 - - 525.2
Investment related
derivatives - - - (0.8) - - 2.1 1.3
------------ -----------
Total invested
assets (statutory) 403.9 2,951.1 - 285.6 520.1 19.4 2.1 4,182.2
---------- ---------- ------------ ----------- ----------- ------------ -----------
We have extended the duration of our portfolio in 2020. This
offers some protection for our solvency position against falling
interest rates, while still protecting our assets from the
potential of rising rates, as economies begin to reopen and the
impact of the extensive government stimulus continues.
We also took the opportunity to increase our credit allocation
when spreads widened in the first quarter of 2020, although the
swift reversal resulted in less reinvestment opportunities for
maturities in the second half of the year. The allocation to credit
risk, is primarily defensive, focused, high quality, investment
grade non-cyclical companies. Equity allocations are invested in a
portfolio of both listed and private (non-listed) equities and
funds.
The assets remain primarily invested in cash and fixed income
securities (2020: US$ 4,202.8 m or 86.5 % of the portfolio; 2019:
US$3,488.1m or 83.4% of the portfolio). The fixed income portfolio
is short dated, with a majority allocation to government bills.
Corporate bonds represent 32.5% (2019: 32.1%) of the total
portfolio with 1.0 pps (2019: 1.9pps) of this figure being below
investment grade.
The exposure to equities and funds has fallen over 2020 (2020:
US$ 628.4 m or 12.9 % of the portfolio; 2019: US$692.8m/16.6%),
predominately due to market movements.
The duration of our portfolio at 31 December 2020 was 1.45 years
(2019: 1.1 years), which is shorter than the duration of our
liabilities. US rates fell significantly across the curve over
2020, as the US Federal Reserve delivered two emergency interest
rate cuts totalling 150bps in March, in response to the emerging
economic impact of the COVID-19.
At 31 December 2020, 83.7% of our invested assets were
investment grade quality (2019: 81.1%).
Outlook
Looking ahead to 2021 and beyond, significant uncertainty exists
for the insurance industry.
-- Significant uncertainty still surrounds COVID-19 and the
timeframes over which vaccination programmes will allow lockdowns
to be eased. We also face the consequences of the measures taken by
governments driving yields down to record lows and the likely
impact on the economy, with recessionary risks heightened.
-- The frequency of major events and magnitude of the resulting
claims, with 2020's experience following on from those of 2017 and
2018, the most costly back-to-back years on record;
-- The impact of medium loss events, with commentators
attributing an increase in the frequency and severity of such
events to climate change and other factors such as population
growth and increasing insured values;
-- Further pressures on attritional ratios continue, largely
driven by the soft market years of 2017 and 2018 and by social
inflation in the US Casualty market;
-- The cost of doing business in the London market remains
elevated. The market needs to become more efficient in processing
and work with distribution partners to become more competitive in
local markets;
-- Despite the welcome withdrawal of some capacity, available
capacity continues to exceed demand;
-- In a number of markets where we operate, we see increasing
competition from local carriers; and
-- We continue to face political and economic uncertainty and
challenges. 2020 saw continued volatility in financial markets and
experienced weakening growth, recession fears, falling yields,
heightened tension around international trade and loose monetary
policy. These trends show no signs of abating as we go into 2021
and the resulting outlook for the investment market continues to be
challenging.
However, against this challenging backdrop there are a number of
indicators to give us cause for optimism, including rate increases,
the withdrawal of capacity in the market from certain classes and
our improving attritional claims ratio. In this environment, our
clear strategy of embracing data driven underwriting discipline,
and rigorous risk selection, coupled with innovative capital
management solutions and continued investment in distribution,
positions us well to respond to the opportunities and challenges
ahead.
-- Preserving a strong financial position is critical to the
long-term success of an insurance business. Our statement of
financial position remains strong as we maintain our 'conservative
best estimate' reserving policy which provides us with a secure
foundation . We also benefit from the financial strength of our
ultimate parent, Fairfax, and from our relationships with our
capital partners supporting Ki, Syndicate 2988 and the Sussex
vehicles.
-- We also continue to take action to improve our performance
and maintain our underwriting discipline and rigorous risk
selection criteria in all areas of the business.
-- Leadership - We strive to provide direction and authority
within our business and to our industry. We are supportive of the
Future at Lloyd's Blueprint and are proud to have worked with
Lloyd's to be the first Lloyd's Syndicate to use ILS capacity to
back our capital at Lloyd's, a landmark achievement.
-- Innovation - Our purpose is to help our clients and partners
thrive in an uncertain world and drive the industry forward in
terms of products, services and technology, and innovation is at
the heart of our strategy. BritX, our Innovation team, was launched
in 2019 to create real change and action, and was the driving force
behind Ki. It is aimed at targeting opportunities to disrupt our
market and has identified a number of opportunities of real
potential.
-- Distribution - Our strategy is to deliver our products to our
customers in a more efficient manner. This includes increased
digital distribution and positioning ourselves closer to our
customers. We have an established local distribution platform in
the US, our largest market, and now have an established Bermuda
operation, which houses Brit Re (our captive reinsurer and A-rated
reinsurance carrier), Sussex Re (our ILS vehicle) and BGSB (our
reinsurance service company).
We are ready to face the future with optimism.
Principal risks and uncertainties
Risk Management Framework
Brit delivers shareholder value by actively seeking and
accepting risk within agreed limits. Risk management at Brit is a
continuous process that links directly to the organisation's
business and risk management strategies and the associated Board
risk tolerances.
Brit's Risk Management Framework (RMF) applies a consistent
methodology and structure to how risks are identified, measured,
managed and monitored. This process enables us to protect
policyholders and maximise shareholder value by ensuring the risk
and capital implications of business strategy are well
understood.
The RMF has the following key elements:
-- Identification: Risk events, risks and relevant controls are
identified and classified. This is a continuous process which
considers any emerging and existing risks. The risk register sets
out the significant risks faced by the business and identifies the
potential impact and likelihood of each risk.
-- Measurement: Risks are assessed and quantified and controls
are evaluated. This is done through a combination of stochastic
modelling techniques, stress and scenario analysis, reverse stress
testing and qualitative assessment using relevant internal and
external data.
-- Management: The information resulting from risk
identification and measurement is used to improve how the business
is managed.
A key part of the RMF is the setting of risk tolerances and risk
appetite. Risk tolerances are set by the Board and represent the
maximum amount of risk Brit is willing to accept to meet its
strategic objectives. Risk appetite is set by management and
reflects the maximum amount of risk that Brit wishes to take in the
current market environment. The actual amount of risk taken is
monitored against the tolerances and appetites on an ongoing
basis.
The RMF, including the risk tolerances and appetite, reflects
Brit's strategy and seeks to ensure that risk is accepted in the
areas which are expected to maximise shareholder value whilst
continuing to protect policyholders against extreme events. The
process applies to both the Brit Group and to the individual
underwriting entities (such as Lloyd's syndicates).
The risk management team, led by the Chief Risk Officer (CRO),
monitors whether Brit is operating within the risk tolerance levels
approved by the Board. This includes assessments of any new
strategic initiatives and the principal risks and uncertainties
faced by the business as detailed below.
All Brit staff are involved in ensuring there is an appropriate
risk culture which promotes the identification and management of
risk. Brit's risk culture aims to ensure the risk and capital
implications of decisions are understood and there is open
communication about risks and issues in all areas of the
business.
Brit's approach to risk management is designed to encourage
clear decision-making as to which risks Brit takes and how these
are managed based on the potential strategic, commercial,
financial, compliance and legal implications of these risks.
Risk Governance
The Board is responsible for overseeing our risk management and
internal control systems, which management is responsible for
implementing.
Brit maintains a strong risk governance framework using Risk
Oversight Committees and Audit Committees whose membership consists
of independent non-executive Directors. The Board, Risk and Audit
Committee agendas are designed to ensure all significant areas of
risk are reported on and discussed. The Risk Oversight Committees
monitor and review the risk profile and the effectiveness of all
risk management activities and, in particular, monitor adherence to
agreed risk limits.
Our Internal Audit function provides assurance to the Risk
Oversight Committees, Audit Committees and Boards, while external
experts are regularly used for independent assessments.
Brit operates a three lines of defence model for governing risk.
Within the first line of defence individual risk committees monitor
day-to-day risk control activities. The risk management function,
as a second line of defence, provides oversight over business
processes and sets out policies and procedures. Internal Audit, as
a third line of defence, provides independent assurance and
monitors the effectiveness of the risk management processes.
Key risks
The RMF categorises the risks to Brit as follows:
-- Overarching risk: strategic, earnings and solvency; and
-- Individual risk categories: insurance, market, liquidity, credit and operational and group.
The key risks and uncertainties are set out in the following
table and the principal risks in the current environment are set
out below.
Risk category Risk Description
Insurance Underwriting - pricing Emerging experience is inconsistent
with the assumptions and pricing models
used.
--------------------------- ---------------------------------------------
Underwriting - catastrophe Premiums are insufficient to meet the
long-term profitability expected.
--------------------------- ---------------------------------------------
Reserving Prior year reserves are insufficient
to cover claims (net of reinsurance).
--------------------------- ---------------------------------------------
Investment Investment market Invested assets adversely affected by
risk changes in economic variables, such
as interest rates, bond yields, equity
returns, credit spreads, credit ratings.
--------------------------- ---------------------------------------------
Operational and People Failure to attract, motivate and retain
group key Directors, senior underwriters,
senior management and other key personnel,
on whom our future success is substantially
dependent.
--------------------------- ---------------------------------------------
COVID-19 risk management
The COVID-19 pandemic originated in Hubei Province in China and
has since spread across the globe. Governments have taken various
actions to contain the pandemic, including social distancing
measures, travel restrictions and lockdowns, resulting in the
closure of certain businesses. This has given rise to insurance
claims from various lines of business, with our Contingency (Event
Cancellation) and Casualty Treaty books being the most impacted.
The pandemic has also caused significant volatility in the
financial markets. Although investment markets have substantially
recovered from significant falls experienced in H1 2020, interest
rates remain at depressed levels given the economic outlook.
The Group has managed the risks associated with COVID-19 in line
with the requirements of its risk management policies. Further
details are provided below.
-- Operational risk
COVID-19 has caused a temporary shift from an office-based
working environment to a remote working environment for all staff
since 18 March 2020. Brit and its outsourced service providers have
adapted well. Operational performance has generally been
strong.
All key business services have continued to operate with no
material impact from COVID-19. The investment in 2019 in Microsoft
Office 365 and the decision to rollout laptops to all full-time
employees has made working remotely relatively seamless.
Underwriting can be managed through PPL, Whitespace and reinsurance
trading platforms, and underwriting and claims staff contact
details are available online or via the Brit App. The Claims team
continues to service our policyholders in these challenging
circumstances.
We immediately put in place support mechanisms for our employees
and we continue to communicate regularly to ensure that people feel
engaged and supported. We regularly monitor and report on the
performance of controls and operational effectiveness. The ongoing
monitoring of the operational risk profile has not identified any
material concerns or failings.
In 2020, Marsh and Lockton rated Brit the number one carrier for
services provided in the London Market, while AJG ranked us third
in the London Market and Aon ranked us third out of 34
carriers.
-- Insurance risk
COVID-19 has resulted in additional claims to the Group,
principally relating to event cancellation covers. The Group has a
rigorous process for establishing reserves for insurance claim
liabilities, including those associated with COVID-19. However,
significant uncertainties remain around loss estimates given that
the pandemic is ongoing. We also continue to monitor the potential
for claims arising indirectly from the pandemic. For example, due
to the global recession which may lead to an increased risk of
moral hazard, fraud and a more litigious environment generally.
The underwriting portfolio is actively managed to reflect market
developments, and action has been taken to ensure Brit is
appropriately positioned for both the pandemic and the recessionary
economic conditions. The Group is now applying communicable disease
exclusions across the vast majority of its business.
-- Investment and Market risk
Financial markets have experienced volatility in 2020. The
investment portfolio is actively managed to reflect market
developments, and action was taken to ensure Brit's portfolio is
appropriately positioned for the recessionary economic conditions
and to take advantage of opportunities in asset prices where these
arose. The volatility in investment returns experienced over the
course of 2020 is within the range of stress and scenario tests
carried out by the Group.
-- Credit risk
COVID-19 has caused economic disruption around the world with
many businesses and individuals forced to cease business activity
in light of government lockdowns. As at 31 December 2020, the Group
has not seen a material increase in defaults but continues to
monitor this closely.
-- Solvency and Liquidity risk
As at 31 December 2020, the Group held a surplus of US$341.0m
over its management capital requirements. All regulatory capital
requirements have been complied with by the Group's individual
insurance subsidiaries throughout 2020. It should be noted that our
regulatory capital requirements calculation as at 31 December 2020
included an allowance for the uncertainties associated with
COVID-19 as described above.
Brit continues to benefit from the support of the wider Fairfax
Group, with capital contributions of US$524.0m provided during the
year to largely strengthen the resilience of the statement of
financial position to further shocks.
Following the COVID-19 outbreak, the Group conducted stress
testing of its underwriting subsidiaries' liquidity resources, in
order to assess their ability to continue making claims payments as
they fell due. This stress testing demonstrated their continued
ability to access sufficient liquidity, even in severe stress
scenarios. At 31 December 2020, the Group held US$2,623.5m of cash
and short-dated government debt securities, and US$190.0m undrawn
on its RCF.
As part of the terms of the RCF, Brit is obliged to ensure that
borrowings under the facility will not exceed 40% of consolidated
net tangible assets (defined as the aggregate of the share capital
of the Company, the amount standing to the credit of the
consolidated reserves of the Group and any financial indebtedness
of the Group which is fully subordinated to the facility). At 31
December 2020 Brit was well within this threshold, with RCF
drawings equating to 16.0% of consolidated net tangible assets
(2019: 16.9%).
Emerging risks
Brit undertakes a formal emerging risk review annually with the
results reported to the Risk Oversight Committees and included in
Brit's Own Risk and Solvency Assessment (ORSA) and Commercial
Insurer's Solvency Self-Assessment (CISSA) reports of the
underwriting entities. The review is an important part of the risk
identification aspect of the RMF and includes horizon scanning of
the internal and external risk environment to identify potential
new or developing risks to Brit. These risks can then be included
in the risk register and managed appropriately as required.
The emerging risk review has previously identified risks such as
the United Kingdom's exit from the EU (Brexit) and cyber risk.
These risks have been managed throughout their development and are
now monitored as part of the business as usual risk management
process.
Climate change related financial risks
Climate change has been recognised as an emerging risk in the
ORSA since 2014 and has been an area of focus since having been
identified as a high priority by Brit's 2018 emerging risks
analysis. Its potential impact on the insurance industry is an area
of focus for the wider insurance market and its regulators.
The financial risks to insurers may include the potential for
increased frequency and severity of weather-related natural
catastrophes, for example, hurricanes and wildfires. This year has
seen the most active Atlantic hurricane season on record, with 30
named storms being recorded. Of these 12 made landfall in the US,
six of which were category three hurricane strength or higher, both
statistics either equalling or setting new records. 2020 was also a
record year for wildfires, with California seeing its first ever
'gigafire', a blaze that burns at least a million acres of
land.
Climate change specific tests and scenarios have been included
in both ORSAs and Brit's Solvency II internal models.
Brit is managing the risks associated with climate change in
line with the RMF and is embracing the latest regulatory guidance.
This will continue to be an area of management, Risk Committee and
Board focus, with a multi-disciplinary Climate Change Risk Working
Party having been set up to consider the financial risks associated
with climate change.
The three main areas of risk identified for Brit are natural
catastrophes, liability claims and investment losses:
-- Natural catastrophe risks relating to climate change are the
risk of increased frequency and severity of weather-related natural
catastrophes. This could result in additional claims to Brit. We
continuously monitor scientific studies, regularly review the
completeness of existing models and the application of the Brit
view of risk. Brit's exposure to natural catastrophe risks is
monitored on an ongoing basis by the Risk Management Function.
-- Climate change could result in additional liability claims.
For example, there is the potential for claims against firms for
their contribution to climate change. While such claims have not
generally been successful to date, there remains an ongoing risk.
Brit's exposure is limited through limits on gross underwriting
exposure and through the purchase of reinsurance.
-- Investment losses have the potential to arise from exposure
to industries perceived to be contributing to climate change. Brit
has a diversified investment portfolio, with limits on exposure to
individual issuers. Brit is developing metrics to strengthen its
understanding of the potential impacts of climate change on its
investments.
Brit also actively considers the potential implications of
climate change and sustainability on its investment and
underwriting strategies, how it should engage more widely on
environmental and ethical issues, and its own sustainability
initiatives.
United Kingdom's exit from the EU (Brexit)
We have continued to work to minimise the impact of Brexit on
Brit and our clients. While direct European business is not
material for Brit, we have continued to monitor and evaluate the
associated risks.
Our new processes are operational and we commenced writing
business via Lloyd's Brussels in the fourth quarter of 2018, for
risks incepting on or after 1 January 2019.
Brit notes the Trade and Cooperation Agreement (TCA) between the
UK and the EU, which governs the UK and EU's economic and trading
relationship from 1 January 2021. Brit also notes the areas on
which further agreement still needs to be reached, including
financial services and data adequacy.
The main risk to Brit was the ability to service historical
policies with EEA claims. However, the successful completion in
December 2020 of the transfer to Lloyd's Insurance Company S.A.
(LIC) of Syndicate 2987's and Syndicate 2988's European liabilities
in accordance with Part VII of the Financial Services and Markets
Act 2000, provides a mechanism to address this risk. This transfer
was sanctioned by the High Court on 25 November 2020 and took
effect on 30 December 2020, whereupon all relevant policies (and
related liabilities) underwritten by the Group's syndicates for
years of account between 1993 and April 2019 (or October 2020 in
the case of German reinsurance) were transferred to LIC. On the
same date, a 100% Quota Share Reinsurance Agreement was entered
into, whereby LIC reinsured all risks on the same policies back to
the relevant open years of account of the syndicates that wrote the
transferring policies and/or inherited liabilities on transferring
policies through Reinsurance to Close of earlier years of account.
The combined effect of the two transactions has no economic impact
for the Group.
Financial information and availability of accounts
The financial information set out above is unaudited and does
not constitute the Company's statutory accounts for the year ended
31 December 2020 or 2019. The 2020 financial information is derived
from the Company's unaudited 2020 statutory accounts and the 2019
financial information is derived from Company's 2019 statutory
accounts.
Statutory accounts for 2019 have been delivered to the Registrar
of Companies. The auditor has reported on those accounts; its
report was unqualified and did not contain statements under Section
498(2) or (3) of the Companies Act 2006.
The audited statutory accounts for 2020 are expected to be
available on the Company's website no later than 12 March 2021. An
announcement will be made when they are available. The Directors do
not anticipate any modification or emphasis of matter paragraph in
the auditor's report required to be included with the statutory
accounts for 2020.
The statutory accounts for 2020 will be delivered to the
Registrar of Companies following the Company's annual general
meeting.
The unaudited preliminary results were approved by the Board on
10 February 2021.
Responsibility statement of the Directors
The Directors confirm that, to the best of their knowledge:
-- The unaudited consolidated financial statements, contained
within the Company's 2020 unaudited statutory accounts, which have
been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position, and
profit or loss of the Group; and
-- The Strategic Report, contained within the Company's 2020
unaudited statutory accounts, includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
Matthew Wilson Mark Allan
Group Chief Executive Officer Group Chief Financial Officer
10 February 2021 10 February 2021
Consolidated Income Statement
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
US$m US$m
-------------------------------------------------- -------------- --------------
Revenue
Gross premiums written 2,424.4 2,293.5
Less premiums ceded to reinsurers (648.8) (637.3)
---------------------------------------------------- -------------- --------------
Premiums written, net of reinsurance 1,775.6 1,656.2
Gross amount of change in provision for unearned
premiums (52.2) (43.8)
Reinsurers' share of change in provision
for unearned premiums (12.7) 29.5
Net change in provision for unearned premiums (64.9) (14.3)
Earned premiums, net of reinsurance 1,710.7 1,641.9
---------------------------------------------------- -------------- --------------
Investment return 56.5 158.5
Return on derivative contracts (1.1) (17.6)
Gain on business combination - 10.2
Other income 14.1 45.9
Losses on other financial liabilities (6.0) (10.5)
Net foreign exchange gains - 16.8
Total revenue 1,774.2 1,845.2
---------------------------------------------------- -------------- --------------
Expenses
Claims incurred:
Claims paid:
Gross amount (1,326.8) (1,366.6)
Reinsurers' share 391.4 509.1
---------------------------------------------------- -------------- --------------
Claims paid, net of reinsurance (935.4) (857.5)
Change in the provision for claims:
Gross amount (417.6) 83.2
Reinsurers' share 113.9 (140.2)
---------------------------------------------------- -------------- --------------
Net change in the provision for claims (303.7) (57.0)
Claims incurred, net of reinsurance (1,239.1) (914.5)
Acquisition costs (598.7) (595.2)
Other operating expenses (137.5) (125.8)
Net foreign exchange losses (7.8) -
Total expenses excluding finance costs (1,983.1) (1,635.5)
---------------------------------------------------- -------------- --------------
Operating (loss)/profit (208.9) 209.7
Finance costs (23.6) (23.7)
Share of net profit of associates 2.0 0.3
(Loss)/profit on ordinary activities before
tax (230.5) 186.3
Tax charge (1.5) (6.4)
(Loss)/profit for the year (232.0) 179.9
---------------------------------------------------- -------------- --------------
All (losses)/profits arise from continuing operations.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
US$m US$m
--------------------------------------------------- -------------- --------------
(Loss)/profit attributable to:
Owners of the parent (229.3) 179.9
Non-controlling interests (2.7) -
--------------------------------------------------- -------------- --------------
(Loss)/profit for the year (232.0) 179.9
----------------------------------------------------- -------------- --------------
Other comprehensive income
Items not to be reclassified to profit or
loss in subsequent periods:
Actuarial losses on defined benefit pension
scheme (5.5) (4.7)
Deferred tax gain relating to actuarial losses
on defined benefit pension scheme 1.8 6.4
Items that may be reclassified to profit
or loss in subsequent periods:
Change in unrealised foreign currency translation
losses on foreign operations 2.3 3.7
Total other comprehensive income (1.4) 5.4
----------------------------------------------------- -------------- --------------
Total comprehensive income recognised for
the year (233.4) 185.3
----------------------------------------------------- -------------- --------------
Total comprehensive income for the year attributable
to:
Owners of the parent (230.7) 185.3
Non-controlling interests (2.7) -
------------------------------------------------------ -------- ------
Total comprehensive income for the year (233.4) 185.3
-------------------------------------------------------- -------- ------
Consolidated Statement of Financial Position
At 31 December 2020
31 December 31 December
2020 2019
US$m US$m
---------------------------------------- -------------- --------------
Assets
Intangible assets 181.2 192.6
Property, plant and equipment 60.5 67.9
Deferred acquisition costs 247.3 243.6
Investments in associated undertakings 20.5 19.4
Reinsurance contracts 1,764.1 1,628.1
Employee benefits 48.8 51.9
Deferred taxation 49.8 41.1
Current taxation 8.5 11.4
Financial investments 4,056.6 3,640.6
Derivative contracts 14.9 15.7
Insurance and other receivables 1,302.0 1,240.2
Cash and cash equivalents 775.7 520.1
Assets classified as held for 17.8 -
sale
Total assets 8,547.7 7,672.6
------------------------------------------- -------------- --------------
Liabilities and Equity
Liabilities
Insurance contracts 5,813.0 5,266.1
Borrowings 314.5 316.2
Other financial liabilities 62.0 75.5
Provisions 2.3 3.5
Deferred taxation 9.9 -
Current taxation - 1.2
Derivative contracts 9.2 14.2
Insurance and other payables 620.7 676.0
Liabilities directly associated 1.8 -
with assets classified as held
for sale
Total liabilities 6,833.4 6,352.7
------------------------------------------- -------------- --------------
Equity
Called up share capital 8.6 7.0
Share premium 1,027.9 505.5
Capital redemption reserve 1.0 1.0
Foreign currency translation reserve (84.1) (86.4)
Retained earnings 639.2 892.8
------------------------------------------- -------------- --------------
Total equity attributable to owners
of the parent 1,592.6 1,319.9
Non-controlling interests 121.7 -
---------------------------------------- -------------- --------------
Total liabilities and equity 8,547.7 7,672.6
------------------------------------------- -------------- --------------
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
US$m US$m
---------------------------------------------- -------------- --------------
Cash flows from operating activities
Cash used in operations (414.3) (467.0)
Tax received 2.7 0.6
Interest received 63.3 70.1
Dividends received 6.3 5.3
Net cash outflows from operating activities (342.0) (391.0)
------------------------------------------------ -------------- --------------
Cash flows from investing activities
Purchase of intangible assets (6.5) (5.2)
Purchase of property, plant and equipment (1.2) (4.9)
Acquisition of subsidiary undertaking - (31.1)
Acquisition of associated undertaking - (13.0)
Dividends from associated undertakings 1.0 0.5
Net cash outflows from investing activities (6.7) (53.7)
------------------------------------------------ -------------- --------------
Cash flows from financing activities
Proceeds from issue of shares 524.0 70.6
Drawdown/(repayment) on revolving credit
facility (10.0) 132.0
Purchase of shares for share-based payment
schemes (3.0) (25.0)
Interest paid (14.0) (14.5)
Transactions with non-controlling interests 124.0 -
Dividends paid to owners of the parent (20.6) (20.6)
Net cash inflows from financing activities 600.4 142.5
------------------------------------------------ -------------- --------------
Net increase/( decrease) in cash and cash
equivalents 251.7 (302.2)
Cash and cash equivalents at the beginning
of the year 520.1 818.2
Effect of exchange rate fluctuations on cash
and cash equivalents 3.9 4.1
-------------- --------------
Cash and cash equivalents at the end of the
year 775.7 520.1
------------------------------------------------ -------------- --------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Total
Called Foreign attributable
up Capital currency to owners Non-controlling
share Share redemption translation Retained of the interests Total
capital premium reserve reserve earnings parent US$m equity
US$m US$m US$m US$m US$m US$m US$m
-------- --------- ------------ ------------ --------- ------------- ----------------- --------
At 1 January 2020 7.0 505.5 1.0 (86.4) 892.8 1,319.9 - 1,319.9
------------------ -------- --------- ------------ ------------ --------- ------------- ----------------- --------
Total
comprehensive
income
recognised - - - 2.3 (233.0) (230.7) (2.7) (233.4)
Issuance of share
capital 1.6 522.4 - - - 524.0 - 524.0
Dividend - - - - (20.6) (20.6) - (20.6)
Transactions with
non-controlling
interests - - - - - - 124.4 124.4
------------------ -------- --------- ------------ ------------ --------- ------------- ----------------- --------
At 31 December
2020 8.6 1,027.9 1.0 (84.1) 639.2 1,592.6 121.7 1,714.3
------------------ -------- --------- ------------ ------------ --------- ------------- ----------------- --------
Called up Capital Foreign currency
share Share redemption translation Total
capital premium reserve US$m reserve Retained earnings equity
US$m US$m US$m US$m US$m
---------- ---------- ------------------- ----------------- ------------------ --------
At 1 January 2019 6.8 435.1 1.0 (89.7) 731.8 1,085.0
-------------------- ---------- ---------- ------------------- ----------------- ------------------ --------
Total comprehensive
income
recognised - - - 3.7 181.6 185.3
Recycling of
foreign exchange
losses upon
acquisition of
Ambridge - - - (0.4) - (0.4)
Issuance of share
capital 0.2 70.4 - - - 70.6
Dividend - - - - (20.6) (20.6)
-------------------- ---------- ---------- ------------------- ----------------- ------------------ --------
At 31 December 2019 7.0 505.5 1.0 (86.4) 892.8 1,319.9
-------------------- ---------- ---------- ------------------- ----------------- ------------------ --------
Nature and Purpose of Group Reserves
Share premium: The balance represents the difference between the price at which shares are issued and
their nominal value, less any distributions made from this account.
Capital redemption reserve: The balance represents the amount by which share capital is diminished
in the event of a share cancellation and is required to be recognised in a legal reserve to maintain
the Group's capital.
Foreign currency translation reserve: The balance on this reserve represents the foreign exchange differences
arising from the translation of financial statement information of entities within the Group from functional
currencies to the presentational currency of the Group.
Retained earnings: Retained earnings represents the cumulative comprehensive income retained by the
Group after taxation and after any distributions made from this account.
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END
FR DGGDDSXBDGBB
(END) Dow Jones Newswires
February 12, 2021 02:00 ET (07:00 GMT)
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