TIDM32OW
RNS Number : 3626B
Brit Limited
11 February 2022
Brit LIMITED
PRESS RELEASE
11 February 2022
UNAUDITED Full Year results for the Year ended 31 December
2021
a strong and resilient result
Key points
-- Profit on ordinary activities before the impact of FX and tax
of $247.1m (2020: loss of $235.5m).
-- Combined ratio of 95.7%(1) (2020: 112.7%(2) ), including
15.5(1) percentage points (pps) of major losses (2020: 23.7pps(2)
), a resilient result.
-- Gross written premiums of $3,238.3m (2020: $ 2,424.4 m), an
increase of 31.8% over 2020 at constant FX rates.
-- Risk adjusted premium rates increases on renewal business of
12.9% (2020: 10.6%), bringing the total increase since 1 January
2018 to 33.1%.
-- Attritional ratio of 47.7%(1) , an improvement of 4.8 pps (2020: 52.5%(2) ).
-- Return on invested assets (3) after fees of $171.9m or 3.3% (2020: $44.6m or 1.0%).
-- Gain on sale of two subsidiaries of $22.0m (2020: nil).
-- Return on net tangible assets of 19.4%(4) (2020: negative 20.1%(4) ).
-- Balance sheet remains strong: adjusted net tangible assets(5)
of $ 1,740.6 m (2020: $ 1,436.8 m).
-- Cap ital surplus increased by 81.2% to $617.9m (2020:
$341.0m). Strong capital ratio (6) of 139.1% (2020: 122.1%).
-- A highly successful first year of trading for Ki, receiving a
very positive reception from its broking partners and recording GWP
of $395.6m.
-- Continued focus on our 'Leadership, Innovation, Distribution' strategy, including:
o Combined our US operations under our Ambridge brand to create
a single leading MGA;
o Acquired the remaining shares of Camargue Underwriting
Managers (Proprietary) Limited;
o Continued to focus on our customers with the launch of our
algorithm to enable a faster claims response to catastrophe events
and our Direct Pay claims solution;
o Piloted the first continuous binder at Lloyd's; and
o Launched the Keel Marine Consortium.
Martin Thompson, Interim Group Chief Executive Officer,
commented:
' In early October I was asked to step into Brit as Interim CEO,
following the announcement that Matthew Wilson was to take a leave
of absence due to health reasons. All of us at Brit and Fairfax
wish Matthew well and look forward to his return.
I am pleased to report a positive 2021 for Brit, with our
underwriting performance and investment return delivering a strong
overall result. Underpinning this performance was continued
successful execution against our strategy of Leadership, Innovation
and Distribution, with the progression of our business testament to
the dedication of our people and the unique culture Matthew and his
team have created at Brit.
Our clear strategy saw us deliver a combined ratio for the year
of 95.7%. This reflected the combination of an excellent
attritional ratio, prior year reserve releases and increased income
from our third party capital management and MGA businesses. That we
delivered this performance despite exposure to a number of major
loss events and the continued impact of COVID-19 was particularly
encouraging, demonstrating the increased resilience of our business
and our firm focus on disciplined underwriting.
As well as delivering a good underwriting result, we grew our
written premium by 31.8% to $3,238.3m. This reflects strong,
targeted growth in our core direct and reinsurance books, and a
very successful first year of trading for Ki.
Championing the potential of data and technology is central to
Brit's future success. Ki is an embodiment of this, but we also
made strong progress across the whole of Brit in delivering on our
innovation agenda. This includes significant milestones in how we
use technology in Claims, investment in how we use data to empower
our lead underwriters and, in January 2022, the appointments of a
Chief Technology Officer and a Chief Data Officer.
Looking ahead to 2022, while uncertainty remains around
COVID-19, rising inflation and the potential of increased frequency
and severity of major loss events, we remain optimistic. Ongoing
rate rises, continued improvement in our attritional claims ratio
and our clear strategy give us confidence that Brit is well placed
to respond to the opportunities and challenges ahead.'
Notes
1 The calculation of underwriting ratios contains an adjustment whereby
the premium paid for the loss portfolio reinsurance ($344.1m) is
added back to premium earned net of reinsurance, with an equal and
opposite adjustment to net claims incurred. The benefit of a $35.0m
reserve release resulting from the additional protection afforded
by the contract is included in the calculation. The Directors believe
that the ratios when calculated after these adjustments present
a more consistent and understandable view of the Group's performance.
2 Ratios have been represented, and include FX movements on non-monetary
items, the impact of gains/losses on other financial liabilities
but exclude any adjustment for non-controlling interests.
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 Return on net tangible assets (RoNTA) shows the return generated
by our operations for the owners of Brit Limited before foreign
exchange movements, compared to the adjusted net tangible assets
deployed in our business attributable to them. The impact of the
Group's defined benefit pension schemes are excluded from the calculation.
The 2020 figure is represented on this basis.
5 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.
6 The capital ratio is calculated as total available resources divided
by management entity capital requirements. The management entity
capital requirement is the capital required for business strategy
and regulatory requirements.
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, writing a broad range of commercial insurance. 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 2021, which included the Brit Limited financial
result, was published on 10 February 2022.
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
In early October I was asked to step into Brit as Interim CEO,
following the announcement that Matthew Wilson was to take a leave
of absence due to health reasons. All of us at Brit and Fairfax
wish Matthew well and look forward to his return.
I am pleased to report a positive 2021 for Brit, with our
underwriting performance and investment return delivering a strong
overall result. Underpinning this performance was our continued
successful execution against our strategy of Leadership, Innovation
and Distribution. Against the ongoing backdrop of COVID-19, and the
impact it continues to have on our lives, the progression of our
business is testament to the dedication of our people and the
unique culture Matthew and his team have created at Brit.
Our strategy delivered a strong combined ratio for the year of
95.7%. This reflected the combination of an excellent attritional
ratio, strong prior year reserve releases and increased income from
our third party capital management and MGA businesses. That we
delivered this performance despite exposure to a number of major
loss events and the continued impact of COVID-19 was particularly
encouraging, demonstrating the increased resilience of our business
and our firm focus on disciplined underwriting.
As well as delivering a strong underwriting result, we grew our
written premium by 31.8% at constant exchange rates, to $3,238.3m.
This reflects a very successful first year of trading for Ki,
together with strong growth in our core direct and reinsurance
books, reflecting strong market conditions and targeted growth,
partly offset by planned contractions across a number of less
attractive classes. Strong risk adjusted rate increases have
continued with 12.9% achieved in 2021. Cumulative rate increases
since 1 January 2018 now stand at 33.1%.
Championing the potential of data and technology is central to
Brit's future success and Ki is the embodiment of this. Its launch
has been an important focus for us and it gained excellent traction
in its first year of trading writing $395.6m of premium, having
received a very positive reception from its broking partners.
Working closely with those partners, Ki has continued to update and
enhance its underwriting platform, including the development and
release of its broker API, a landmark in the Lloyd's market.
In 2021, we combined our US operations to create a single
operation under the Ambridge brand. It now operates as a global
MGA, managing over $600m of premium in the US and internationally.
Our clients have the benefit of the well- recognised Ambridge MGA
model giving them better access to products and enhanced service,
and our underwriting teams are better able to capitalise on
business opportunities.
Delivering a best-in-class claims service is an important focus
for Brit. We have continued to support our clients when they need
it most, with innovation at the heart of our Claims approach. In
2021 this has included deploying our machine learning algorithm to
enable a faster claims response to catastrophe events and launching
Brit Direct Pay, the first direct-to-bank card account claims
payment solution in the London Market.
We continue to develop and launch new innovative products and
expand our underwriting offering. We launched the Keel Marine
Consortium, to transform the writing of marine war and breach call
risks. We also continued to expand our e-trading portal, which
provides a more efficient and convenient method of placing
business. We have also been working closely with Lloyd's on the
continuous binder, which went live in January 2022.
During 2021 we made a number of important appointments. We
welcomed Gavin Wilkinson as Group CFO, taking over from Mark Allan
who is now focused on his Ki CEO and Brit Executive Director roles.
We appointed Wayne Page as our first Head of Inclusion and
Diversity. Under Wayne's guidance, we have made good progress in
implementing our I&D vision, introducing a number of policies,
actively raising awareness amongst our colleagues and launching a
number of initiatives. We also appointed of Bilge Mert as Chief
Technology Officer and Kanika Chaganty as Chief Data Officer,
reflecting the importance of digital and data to our strategy.
We have an important role in fighting climate change, and we
believe firmly that insurance is a social good. In 2021 we
published our ESG strategy and made solid progress in its
implementation. This included Ki entering into a $130m
sustainability linked letter of credit agreement with its banking
partners.
Looking ahead to 2022, uncertainty still surrounds COVID-19, as
well as wider market and inflationary concerns. Insurance markets
also face other challenges, such as the potential for increased
frequency and severity of major loss events. However, strong
compound rate rises, a continued improvement in our attritional
claims ratio from underwriter actions and our clear strategy gives
us continued optimism and positions us well to respond to the
opportunities and challenges ahead.
Martin Thompson
Interim Group Chief Executive Officer
After a challenging 2020, it is very pleasing to report a strong
result, reflecting the continued commitment of all our staff, the
support of our majority shareholder, Fairfax, and the increasing
resilience of our business. During 2021, Brit delivered a profit on
ordinary activities before FX and tax of $247.1m and a profit after
tax of $236.9m. Our return on net tangible assets was 19.4%.
Underwriting contributed $90.6m to the result, with a combined
ratio of 95.7%. The attritional ratio for the period improved by
4.8pps to 47.7%, reflecting our good underwriting discipline,
rigorous risk selection, and healthy compound rate increases.
Major losses of $324.4m contributed 15.5pps to the combined
ratio, comprising Hurricane Ida ($200.5m), the Texas winter storms
($77.7m), the European floods ($18.0m) and current year COVID-19
related losses ($28.2m). The overall impact of COVID-19 related
claims on our 2021 performance, after a release of $12.3m from our
2020 year loss estimates, reduced to $15.9m.
We have maintained our long-standing track record of prior year
reserve releases, and as part of our reserving process, we released
$100.1m, the equivalent of a combined ratio reduction of 4.8pps.
These releases reflect increased certainty across a number of
portfolios in both our direct and reinsurance books, together with
overall net loss estimate reductions on the 2017 to 2020
catastrophe events and the reduction in our 2020 COVID-19 related
loss estimates.
Our release also reflects the additional reinsurance protection
afforded by a loss portfolio reinsurance we completed with
RiverStone Managing Agency Limited (RiverStone) in late 2021. The
agreement provides protection against potential adverse development
on predominantly legacy years of account underwritten by Brit
Syndicate 2987, thereby providing Brit with certainty on
discontinued lines and reducing its exposure to US Casualty claims
inflation.
Our investment return was $171.9m (net of fees), providing a
return of 3.3%. This was driven by the strong performance across
our main equity and fund portfolios as markets responded to
additional stimulus measures and vaccine rollouts.
We have continued to benefit from the growth of our third party
capital vehicles and our investments in MGAs. Working with our
capital and distribution partners is an important part of Brit's
strategy, enhancing our leadership position, strengthening our
client proposition and making our expense base more efficient.
In 2021, we sold two subsidiaries, the Commonwealth Insurance
Company of America and Scion Underwriting Services, realising a
gain of $22.0m. Brit founded Scion, a US casualty MGA, in 2018 and
it has grown to over $80m of premium in three years. In 2021, we
also completed the purchase of the remaining shares in our South
African coverholder Camargue Underwriting Managers (Proprietary)
Limited. As part of this acquisition we revalued our initial 50%
investment, made in 2016, recognising a gain of $6.1m. These gains
generated by our corporate activity illustrate the embedded value
we are generating from such relationships.
Our balance sheet remains strong, with adjusted net tangible
assets increasing to $1,740.6m (31 December 2020: $1,436.8m). As a
result, the capital surplus we hold increased by 81.2% to $617.9m
or 39.1% over the Group's management capital requirement. During
the period, our capital requirements increased from $1,540.3m to
$1,581.6m, primarily reflecting increased requirements resulting
from growth in our 2022 underwriting plans, offset by reduction in
capital requirements due to increases in interest rates.
Our investment portfolio remains conservatively positioned, with
a large allocation to cash and cash equivalents ($1,549.3m or
27.9%) and fixed income securities ($3,213.8m or 57.9%). Brit's
equity and fund allocation stands at $778.0m, or 14.0%. At 31
December 2021, 83.2% of our invested assets were investment grade
and the duration of the portfolio was 1.5 years.
We have seen some positive market developments in 2021 and we
look forward to 2022 with optimism. Challenges and uncertainty
remain, but we believe that our strategy, discipline and financial
strength, position us well to take advantage of opportunities as
they arise.
Gavin Wilkinson
Group Chief Financial Officer
Brit at a Glance
We are a market-leading global specialty (re)insurer and one of
the largest businesses 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.
We care deeply about our clients' needs, ensuring that we not
only surround them with the best talent in the industry, but also
combine the depth of our experience with the latest technology to
deliver innovation. Acting in open, honest partnership, our clients
can be sure that with Brit by their side the future is not
something to be feared, it is 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 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; actively managing risk 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 2021, Brit was 100% owned by Fairfax. On 27 August 2021,
Brit issued 92,364,532 new Class A shares to OMERS Administration
Corporation (OMERS), the defined benefit pension plan for municipal
sector employees in the Province of Ontario, Canada , for a net
contribution of $375.0m. At 31 December 2021, Fairfax owned 86.2%
of Brit Limited while the remaining 13.8% was owned by OMERS.
Fairfax has the option to purchase OMERS' interest in Brit at
certain dates commencing in October 2023.
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.
2021 underwriting review
COVID-19
COVID-19 continues to have a significant impact on the insurance
industry.
During 2021, our priorities have remained the safety of our
employees and continuity of our service to our clients and brokers.
We have maintained a high level of service to our clients and our
collaborative culture has shown itself at its best. 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.
The financial impact of COVID-19 on Brit in 2021 was lower, with
an overall net impact of $15.9m, or 0.8pps of the combined ratio
(2020: $271.4m / 15.9pps). This $15.9m loss, which was driven by
Contingency (event cancellation) and Property Treaty, arose as
follows:
-- $28.2m (1.3pps) of net claims incurred in respect of current
year losses recorded within current year claims; and
-- $12.3m (0.5pps) of reserve releases in respect of 2020 year
losses, recorded within prior year releases.
COVID-19 is a highly unusual insurance event, 'earning' over a
prolonged period. Estimating the overall cost is highly subjective
and there remains uncertainty around losses from COVID-19. We would
expect the level of uncertainty around Contingency to reduce over
time, however, within areas of the account such as Casualty Treaty,
Property Treaty and Open Market Property the ultimate loss outcome
is still to emerge and will be influenced by factors such as
coverage issues and the interpretation of contract wording.
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.
In 2020, investment markets were also significantly impacted by
COVID-19. In 2021, while volatility remains, the market rebound has
continued. Brit's investment return for the twelve months to 31
December 2021 was a positive $171.9m (2020: $44.6m).
Major loss activity
2021 also saw a high level of non-COVID-19 related major loss
activity, with an estimated $112bn of global insured losses arising
from natural catastrophes and man-made events, a 13% increase over
2020, and the fourth-costliest on record. Natural catastrophes,
including a winter freeze, floods, thunderstorms, heatwaves and a
major hurricane accounted for $105bn of the estimate, as well as
having a devastating impact on people's lives, homes and
businesses.
The estimated global economic loss arising from natural
catastrophes and man-made events in 2021 is approximately $259bn
(2020: $216bn). (Source: Swiss Re)
The main events impacting Brit in 2021 were Hurricane Ida, the
Texas winter storms and the European floods. The net impact to Brit
of the claims incurred from these events, before reinstatements,
was $296.2m, or 14.2pps on the combined ratio (2020:
$133.4m/7.8pps). They accumulate to a significant total, well above
average expectations.
Rate increases
The market has continued to benefit from strengthening premium
rates during 2021. Brit achieved an overall risk adjusted rate
increase of 12.9% (2020: 10.6%). All Divisions achieved rate
increases, with the largest increases achieved in Professional
Lines, Ambridge Transactional, Ambridge Specialty Casualty,
Property Open Market, Specialist Liability and Marine.
Risk adjusted rate increases since 1 January 2018 now total
33.1%, analysed across portfolios as follows:
2018 2019 2020 2021 TOTAL
% % % % %
London - Direct 3.6 7.1 10.7 15.3 36.7
London - RI 3.1 2.4 7.2 7.3 20.0
Overseas Distribution 4.5 6.4 14.6 13.6 39.1
TOTAL 3.7 5.9 10.6 12.9 33.1
----- ----- ----- ----- ------
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.
The Brit claims team have maintained a focus on responding to
our customers and pursuing opportunities to reduce claims lifecycle
and bring claims to resolution at every opportunity through
innovation and technology:
-- Launch of machine learning algorithm to enable faster claims response to catastrophe events
Brit continues to lead the London Market in its use of
geospatial technology to advance property claims adjusting
capabilities post catastrophe and in normal course claims response.
By capturing high resolution images of Brit-insured properties, we
can expedite the adjusting process. In 2021, we expanded the
capability by deploying a proprietary machine-learning algorithm,
developed by the Company's data science team, which assesses
ultra-high-resolution aerial images and data to further improve our
claims service and expedite payments for customers. The algorithm
allows Brit's claims team and its delegated claims adjusters to
identify, triage and assign response activity even before claims
are reported. It was used successfully in the wake of Hurricane Ida
and the US tornados.
-- Direct Pay solution
We expanded adoption of the Direct Pay solution in the UK, with
very favourable feedback from customers, coverholders and brokers.
Direct Pay offers end customers the ability to receive claims
payments securely and instantly to their bank cards. The technology
and concept for Direct Pay is expected to be deployed more widely
as a Future of Lloyd's solution for the market.
Our underwriting
Our overall GWP for 2021 was $3,238.3m , an increase of 33.6 %
over 2020 ($ 2,424.4 m), or 31.8 % at constant rates of exchange.
Of this, $395.6m was generated by Ki in its successful first year
of trading.
We experienced strong growth in our core London Market Direct
(Financial and Professional Liability, Property, and Ambridge
Transactional) and Reinsurance classes (Property Treaty),
reflecting the strong rating environment and targeted growth.
Growth was also strong in Overseas Distribution (Ambridge Specialty
Casualty and Ambridge Re), reflecting rate increases and new
business opportunities.
Our retention ratio, the proportion of our premium that renews,
improved to 83.7% (2020: 76.1%). 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. In 2021 we combined our Ambridge and Brit Global
Specialty USA (BGSU) operations under the Ambridge brand (see
below). We also disposed of our Scion US MGA, but have retained an
underwriting relationship with the team.
Our overseas offices made a significant contribution to the
Group, providing 16.0% of GWP, and allowing us to access business
not generally available in London. In 2021 they generated $516.7m
of premium (2020: $400.6m).
-- Ambridge Partners LLC, our New York based MGA, generated
$420.8m of premium for Brit (2020: Ambridge and BGSU combined:
$317.5m). This reflects the increase in corporate transactional
activity which was impacted in 2020 COVID-19 and other factors such
as Brexit uncertainty. The remodelled BGSU portfolio, now rebranded
Ambridge Specialty Casualty and Ambridge Re, has also benefited
from improved market conditions and increased traction.
-- 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 2021 equated to
$86.0m (2020: $83.1m).
-- Camargue Underwriting Managers (Proprietary) Limited, our
South African coverholder, generated $9.9m of premium for Brit in
2021.
Ki, the first algorithmically driven Lloyd's of London
syndicate
Ki, the first algorithmically driven Lloyd's of London
syndicate, has successfully delivered a transformational business
model in Lloyd's and represents a major breakthrough in how brokers
work with underwriters in the market with its digital, data driven
approach. As a result, Ki has the opportunity to grow
profitably.
Ki's platform has marked a step change for an industry that is
yet to face significant technology-driven disruption. Google Cloud
has brought to Ki enterprise-grade cloud solutions powered by
innovative technologies that enable rapid transformation at scale.
Ki's algorithm, developed with support from University College
London and its Computer Science department, is able to evaluate
Lloyd's policies and automatically quote for business through a
digital platform which brokers can access directly.
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. Ki is backed by its capital partners,
Blackstone Tactical Opportunities (Blackstone) and Fairfax. This
support will enable the business to grow rapidly to significant
scale.
In its first year of trading, Ki has gained excellent traction,
with GWP recorded during 2021 of $395.6m. Its full year combined
ratio of 113.6% reflects first year earnings drag as it grows to
scale and includes 16.0pps of catastrophe claims. Ki returned its
first quarterly profit in the fourth quarter of the year.
It has had a very positive reception from the Lloyd's broking
community since launch and has transacted with each of its broking
partners and in all of its planned classes of business. It has also
significantly expanded its market presence by onboarding the
reinsurance divisions of its partner brokers.
Further information can be found at www.ki-insurance.com .
Our business developments during 2021
During 2021 we continued to focus on our strategy of Leadership,
Innovation and Distribution. Key developments have included:
-- Loss portfolio reinsurance (LPR) agreement with RiverStone Managing Agency Limited
In November, Brit completed a LPR with RiverStone Managing
Agency Limited (RiverStone). The agreement was effective from 1
October 2021, and is for predominantly legacy years of account
underwritten by Brit Syndicate 2987. Under the agreement,
RiverStone's Syndicate 3500 has indemnified Brit against potential
adverse development in respect of net liabilities for a premium of
$344.1m, thereby providing Brit with certainty on discontinued
lines and reducing its exposure to US Casualty claims inflation.
RiverStone will assume all claims handing responsibility for the
transferring business. As a result of the additional reinsurance
protection afforded by this contract, Brit was able to release
$35.0m of net reserves established for prior year claims .
-- US strategy
During the period, Brit combined BGSU with Ambridge to create a
single operation under the Ambridge brand. It will operate as a
global MGA, managing 14 products and over of $600m of premium in
the US and internationally.
In considering our future strategy for the US, the rationale for
bringing these two businesses together was compelling, allowing an
increased focus on underwriting profit and fee generated income. By
leveraging the well-recognised Ambridge MGA model to source
potential third party underwriting capacity and utilise its strong
market reputation, clients will benefit from better access to
products and enhanced service, and our underwriting teams will be
better able to capitalise on business opportunities. The additional
capacity will provide the ability to offer larger line sizes, drive
a reduction in operating expenses and ultimately allow the US
operations to be more opportunistic and competitive in the
long-term.
-- Continuous contracts for coverholders
In December Brit announced that, working closely with Lloyd's,
it had piloted the first continuous binder at Lloyd's, which will
go live in January 2022. Continuous contracts form a key part of
the Future at Lloyd's vision for delegated underwriting. The new
forms of contract aim to improve efficiencies by replacing the
traditional annual renewal cycle, which can often be time and
labour intensive and prove highly disruptive to a coverholder's
business. The continuous contracts will be powered by a regular,
data driven, review process throughout the life of the contract,
this will also increase overall visibility of performance.
-- Product innovation
We have continued to develop and launch new products. This has
included:
-- Keel Marine Consortium: In June, Brit launched 'Keel', a new
marine consortium, to revolutionise the writing of Marine War and
breach call risks. Keel is an innovative compliance and placement
platform that provides instant, fully sanctioned screened and fully
supported quotes for breach calls, where vessels enter high risk
areas excluded from their annual protection. The new trading
platform has transformed the placement of such cover, which is
traditionally a time-consuming process. The platform has been well
received by brokers and should allow the class to grow market share
in this historically profitable segment.
-- E-trading portal: Brit has continued to expand its e-trading
portal. The e-trading portal provides a more efficient and
convenient method of placing business than traditional placement
methods.
-- Camargue Underwriting Managers (Proprietary) Limited (Camargue)
In October, Brit completed the acquisition of the second 50% of
Camargue, the South African coverholder and long standing partner
of Brit, at a cost of $12.6m. Brit acquired the initial 50% of
Camargue in 30 August 2016.
-- Scion Underwriting Services Inc .
In June, Brit completed the sale of Scion, recognising a gain on
sale of $18.3m. Brit founded Scion, a US casualty MGA, in 2018 and
it has grown to over $80m of premium in three years. Following the
purchase of 100% of Ambridge and the subsequent restructuring of
BGSU under the Ambridge brand, together we felt that a sale of
Scion to an MGA aggregator would be a better fit for their strategy
and ambitions. Brit will continue to provide lead capacity to Scion
and as such will retain a strong coverholder relationship with the
team going forward.
-- Commonwealth Insurance Company of America (CICA)
The sale of CICA completed in February for a consideration of
$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 $16.4m.
-- 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 2021, we ceased writing Kidnap for
Ransom and the Legal Expenses account was put into run-off.
-- New in-house broker facilities
We have re-modelled our 40th floor to provide a broker facility.
The Brit Broker Sky Lounge is a new environment with a variety of
collaboration areas where we can host our brokers and clients, in
an environment where they will want to meet and do business.
-- 2022 business planning
In 2022, Lloyd's market GWP is expected to grow to GBP43.7bn, an
increase of c.13% over planned 2021 levels. Lloyd's will also
permit growth in net exposure for the first time in four years.
Aggregate market stamp capacity is set to increase by 7.3%, with
58% of established Syndicates allowed to grow.
For 2022, Brit (Syndicates 2987, 2988 and 1618 collectively) has
a stamp capacity of GBP2,513m, a 17.3% increase over 2021. 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 11.8% over its
current 2021 year of account forecast. 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', 'core growth'
and 'core opportunistic' 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 26.3% over its
current 2021 year of account forecast. The 2022 plan promotes
continued diversification of the Syndicate's portfolio, by growing
the 'high performing', 'core growth' and 'core opportunistic'
segments in such a way as to generate a better balance between
Property, Specialty and Casualty lines. Growth in Syndicate 2988
premium is largely a function of greater penetration into Syndicate
2987's business plus selective growth of existing business.
Syndicate 1618's GWP is planned to grow in its second year of
trading. The first year of trading has been a great success and its
plan for 2022 reflects its rapid progress to date and the
significant opportunity that the Ki model presents. Growth is
planned to come from a combination of both its syndicate's renewal
portfolio and greater penetration into the follow market.
Financial Performance Review
Key Performance Indicators
At Brit we monitor and measure our performance by reference to
certain key performance indicators (KPIs). These KPIs are used by
us to manage our business and allow us to see, at a glance, how we
are performing.
Our four KPIs show the returns that we are generating, the
performance of our underwriting activities, our investment
portfolio and our financial strength . The development of our KPIs
over the five years (set out below) reflects our focus on
underwriting performance and improving underwriting market
conditions, together with the challenges presented by the increased
frequency and severity of catastrophe events, COVID-19, and the
increase in investment market volatility.
For 2021, we have simplified our approach to calculating a
number of our ratios, and have represented previous years' ratios
on this basis:
-- Underwriting ratios (combined ratio, claims ratios,
commission and expense ratios) are now presented after FX movements
on non-monetary items, after the impact of gains/losses on other
financial liabilities and before any adjustment for non-controlling
interests. The calculations contain an adjustment whereby the
premium paid for the loss portfolio reinsurance ($344.1m) is added
back to premium earned net of reinsurance, with an equal and
opposite adjustment to net claims incurred. The benefit of a $35.0m
reserve release resulting from the additional protection afforded
by the contract is included in the calculation. The Directors
believe that the ratios when calculated after these adjustments
present a more consistent and understandable view of the Group's
performance.
-- Return on net tangible assets (RoNTA) now represents the
profit/(loss) for the year after tax attributable to the owners of
Brit Limited (adjusted for amortisation net of tax, defined benefit
pension scheme's charges/credits net of tax, and foreign exchange
movements net of tax), divided by the total equity attributable to
the owners of Brit Limited at start of year (less intangible assets
net of deferred tax, and pension asset net of deferred tax),
adjusted on a time weighted basis for any distributions and shares
issued during the year.
Business KPI Commentary Track record
area
Overall Return on Return on net tangible assets (RoNTA) 2021 19.4%
performance net tangible shows the return generated by our operations 2020 (20.1)%
assets before for the owners of Brit Limited before 2019 18.9%
FX movements foreign exchange movements, compared to 2018 (15.2)%
(RoNTA) the adjusted net tangible assets deployed 2017 1.3%
in our business attributable to them.
The impact of the Group's defined benefit
pension schemes are excluded from the
calculation. The 2017 to 2020 figures
are represented on this basis.
In 2021, our RoNTA was 19.4%, reflecting
a strong attritional performance, solid
prior year reserve releases, an excellent
investment return and gains on disposals
of two subsidiaries, partly offset by
major loss activity and the continued
impact of COVID-19.
This return resulted in a five-year average
RoNTA of 0.9%. RoNTA for 2021 after foreign
exchange movements was 18.2% (2020: (19.6)
%).
--------------- ------------------------------------------------ --------------
Underwriting Combined The combined ratio is our key underwriting 2021 95.7%
ratio metric and measures the profitability 2020 112.7%
of our underwriting. It shows how much 2019 95.8%
of every $1 of premium is spent in the 2018 103.2%
total costs of sourcing and underwriting 2017 111.8%
the business and settling claims. A combined
ratio under 100% indicates underwriting
profitability.
Our combined ratio in 2021 was 95.7 %,
including 14.2pps in respect of major
losses and 1.3pps in respect of current
year COVID-19 related claims, partly offset
by 4.8pps of reserve releases. Over the
past five years, we have delivered an
average combined ratio of 103.8% despite
the impact of COVID-19 and extreme catastrophe
years of 2017 and 2018. Excluding COVID-19
related claims, our five-year average
combined ratio was 100.5%.
--------------- ------------------------------------------------ --------------
Investment Investment We assess the performance of our investment 2021 3.3%
management return portfolio by comparing the return generated 2020 1.0%
by our invested assets, net of external 2019 3.6%
investment related expenses, against the 2018 (2.0)%
average value of those invested assets. 2017 4.9%
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 2.2%.
--------------- ------------------------------------------------ --------------
Business KPI Commentary Track record
area
--------------- ------------------------------------------------ --------------
Capital Capital The capital ratio measures our financial 2021 139.1%
management ratio strength position by comparing our available 2020 122.1%
capital resources to the capital we need 2019 128.4%
to hold to meet our management entity 2018 130.4%
capital requirements. 2017 136.8%
Our financial position remains strong.
At 31 December 2021, Group capital resources
totalled $2,199.5m giving surplus management
capital of $617.9m (2020: $341.0m), or
39.1% (2020: 22.1%) over our Group management
capital requirement. During the period,
our capital requirements increased from
$1,540.3m to $1,581.6m, primarily reflecting
increased requirements resulting from
growth in our 2022 underwriting plans,
offset by reduction in capital requirements
due to increases in interest rates.
--------------- ------------------------------------------------ --------------
Overview of Results
The Group's income statement, re-analysed to show the key
components of our result, is set out below:
2021 2020 2019 2018 2017
$m $m $m $m $m
Gross written premium 3,238.3 2,424.4 2,293.5 2,239.1 2,057.0
Net written premium 1,998.3 1,775.6 1,656.2 1,482.4 1,530.8
Net earned premium (Note
1) 1,754.3 1,710.7 1,641.9 1,468.0 1,536.8
Underwriting result 90.6 (217.3) 69.7 (52.4) (181.5)
Return on invested assets,
net of fees 171.9 44.6 148.1 (83.3) 204.2
Gain on deconsolidation - - - -
of subsidiaries 19.8
Gain on business combination 6.1 - 10.2 - -
Corporate expenses (44.7) (23.6) (20.3) (20.0) (24.0)
Finance costs (18.3) (23.6) (23.7) (18.8) (17.1)
Other items 21.7 (15.6) 0.3 (3.4) 2.6
-------- -------- -------- -------- --------
Profit/(loss) on ordinary
activities before tax and
FX 247.1 (235.5) 184.3 (177.9) (15.8)
FX movements (19.8) 5.0 2.0 (12.4) 21.3
Profit/(loss) on ordinary
activities before tax 227.3 (230.5) 186.3 (190.3) 5.5
Tax 9.6 (1.5) (6.4) 23.8 16.0
Profit/(loss) for the year
after tax 236.9 (232.0) 179.9 (166.5) 21.5
Note 1: Including the effects of foreign exchange on
non-monetary items.
Group performance
Our 2021 result reflected premium growth, strong attritional
performance, solid prior year reserve releases, good investment
return and a gain on the deconsolidation of subsidiaries, partly
offset by major loss activity and the continued impact of COVID-19.
We also saw a further improvement in market conditions. 2020 was
dominated by COVID-19 and other major losses.
The result on ordinary activities for the year before tax and FX
was a profit of $247.1m (2020: loss of $235.5m), profit before tax
was $227.3m (2020: loss of $230.5 m ) and profit after tax was
$236.9m (2020: loss of $ 232.0 m ). Return on adjusted net tangible
assets (RoNTA), excluding the effects of FX, was 19.4% (2020:
(20.1)%). RoNTA for 2021 after including foreign exchange movements
was 18.2% (2020: (19.6)%).
Our adjusted net tangible assets at 31 December 2021 totalled $
1,740.6m (2020: $1,436.8 m).
Performance measures
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 claims ratio; Major
claims ratio; Reserve release ratio; and
-- Underwriting expense related: Expense ratio; Commission
expense ratio; Operating expense ratio.
The calculations of the claims and underwriting expense related
measures include the adjustment for the loss portfolio reinsurance
contract as referenced in the KPI section above .
Underwriting
Overview
Our underwriting result for the year was a profit of $90.6m
(2020: loss of $217.3m ) and our combined ratio was 95.7% (2020:
112.7%). The premiums, claims and expenses components of this
result are examined below.
Premiums written
Premium growth Growth at
constant
2021 2020 Growth FX rates
$m $m % %
-------- -------- -------
London Market Direct 1,663.9 1,344.7 23.7 21.7
London Market Reinsurance 639.6 533.4 19.9 18.8
Overseas Distribution 407.9 327.6 24.5 24.5
Discontinued underwriting 15.9 127.8 (87.6) (88.0)
Other underwriting 115.4 90.9 27.0 25.4
-------- -------- -------
2,842.7 2,424.4 17.3 15.7
Ki 395.6 - - -
Group total 3,238.3 2,424.4 33.6 31.8
Note 1: The 2020 figures have been re-analysed to reflect the
changes to the underwriting class monitoring structure introduced
in 2021.
Gross written premium (GWP) increased by 33.6% to $3,238.3m
(2020: $2,424.4m). At constant exchange rates, the increase was
31.8 %. London Market Direct business increased by 23.7% to
$1,663.9m (2020: $ 1,344.7 m), London Market R einsurance increased
by 19.9 % to $639.6m (2020: $533.4m), Overseas Distribution
increased by 24.5 % to $407.9m (2020: $327.6m) and Other
Underwriting increased by 27.0% to $115.4m (2020: $90.9m). Ki, in
its first year of underwriting, gained significant traction,
writing $395.6m.
The drivers of the increase in Group GWP, which was in line with
expectations, were as follows:
-- Current year premiums: In addition to the increase
attributable to Ki, we experienced growth in our core London Market
Direct (Financial and Professional Liability, Property, and
Ambridge Transactional) 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 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, premium growth
was seen in Ambridge Specialty Casualty and Ambridge Re, reflecting
rate increases and new business opportunities.
-- Prior year premium development: The book again experienced
favourable development on prior years, at a similar rate to that
experienced in 2020. This resulted in a year-on-year increase of
$6.5m.
-- Foreign exchange: The impact of foreign exchange resulted in
a $32.7m year-on-year increase in premium, which reflects the
movement during 2021 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 shows whether premium 2021 12.9%
rate change rates are increasing, reflecting a hardening market, 2020 10.6%
or decreasing, reflecting a softening market. A 2019 5.9%
hardening market is one indicator of increasing 2018 3.7%
profitability. The data reflects internal estimates 2017 (1.3)%
by Brit's underwriters, based on available year-on-year
underlying renewal data after allowing for changes
to terms and conditions. Generally, no adjustment
is made to the figures to reflect the impact of
inflation beyond the level of inflation in the
underlying exposure measure used in pricing.
In 2021, we achieved an overall RARC of 12.9%,
bringing the RARC since 1 January 2018 to 33.1%.
--------------------------------------------------------- -------------
2021 saw a continued positive rate environment, building on that
of 2020, 2019 and 2018, with an overall risk adjusted premium rate
increase of 12.9% across the portfolio (2020: 10.6%), bringing the
total increase since 1 January 2018 to 33.1%.
In 2021, London Direct increased by 15.3% (2020: 10.7%), London
Reinsurance by 7.3% (2020: 7.2%) and Overseas Distribution by 13.6%
(2020: 14.6%). All Divisions achieved rate increases, with the
largest increases achieved in Professional Lines, Ambridge
Transactional, Ambridge Specialty Casualty, Property Open Market,
Specialist Liability and Marine.
Retention rates
Measure Commentary Track record
Retention The retention rate shows the proportion of our 2021 83.7%
rate business that renews, on a premium weighted basis, 2020 76.1%
compared to the previous year. 2019 78.0%
2018 80.2%
2017 83.6%
---------------------------------------------------- -------------
Our retention rate for the period was 83.7 % (2020: 76.1 %). The
increase reflects the action we have taken to improve our
performance by discontinuing underperforming business lines over
the last four years and increased lines on renewals through
utilisation of its broker relationships and market presence with
increased lead positions.
Outwards reinsurance
Our reinsurance expenditure in 2021 was $1,240.0m or 38.3% of
GWP (2020: $648.8m/26.8%), an increase of $591.2m .
This increase primarily reflects a loss portfolio reinsurance
contract with RiverStone Managing Agency Limited (for and on behalf
of Lloyd's syndicate 3500). Under the terms of this reinsurance,
Brit ceded predominantly legacy years of account on certain classes
and certain discontinued classes of business underwritten by Brit
Syndicate 2987, for a premium of $344.1m.
Excluding this transaction, reinsurance expenditure was $895.9m
or 27.7% of GWP, representing an increase of $247.1m over 2020.
This increase reflects the impact on higher premium levels on
adjustable excess of loss contracts and proportional reinsurance
treaties, a new XL contract supported by the Brit-sponsored Cat
Bond issued in late 2020 by a segregated cell of Sussex UK,
additional Cyber protections and the reinsurance programme for
Ki.
Net earned premium
Net earned premium (NEP) in 2021 increased by 2.5% to $1,754.3m
(2020: $1,710.7 m) . At constant exchange rates, the increase was
1.2%. London Market Direct business increased by 19.8 % to
$1,111.2m (2020: $927.5m), London Market R einsurance increased by
8.8% to $392.4m (2020: $360.7m), Overseas Distribution decreased by
75% to $60.0m (2020: $239.8m), Other Underwriting increased by
57.3% to $98.5m (2020: $62.6m) and Discontinued decreased by 161.1%
to $(73.4)m (2020: $120.1m). Ki's first year NEP was $165.6m. T
hese movements reflected premium growth, partly offset by the
additional reinsurance spend.
Excluding the impact of the loss portfolio reinsurance contract,
which impacted Overseas Distribution and Discontinued, NEP
increased by 22.7%, to $2,098.4m .
Claims
Measure Commentary Track record
Claims ratio The claims ratio measures the performance of the 2021 58.4%
whole underwriting book, encompassing risks written 2020 72.4%
in the current year and in prior years. 2019 55.7%
2018 63.7%
2017 72.1%
----------------------------------------------------- -------------
The claims ratio can be further analysed into its underlying
components, as follows:
Measure Commentary Track record
Attritional The a ttritional claims ratio measures the performance 2021 47.7%
claims ratio of the underlying underwriting book by measuring 2020 52.5%
the effect of attritional claims. 2019 54.8%
2018 56.7%
2017 56.5%
-------------------------------------------------------- -------------
Major claims The major claims ratio measures the effect of claims 2021 15.5%
ratio arising from major losses on our performance. 2020 23.7%
2019 3.8%
The 2021 ratio reflects the impact catastrophe 2018 13.0%
events of 14.2pps (2020: 7.8pps) and COVID-19 related 2017 16.3%
claims of 1.3pps (2020: 15.9pps).
-------------------------------------------------------- -------------
Reserve The r eserve release ratio measures the performance 2021 (4.8)%
release of reserves held on the statement of financial 2020 (3.7)%
ratio position at the start of the year. A negative ratio 2019 (2.8)%
indicates an overall net release, which means that 2018 (6.0)%
prior year claims are performing better than estimated 2017 (0.6)%
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 2021 was strong, with a
reduction in our attritional claims ratio of 4.8pps to 47.7% (2020:
52.5%). This reflects favourable underlying claims experience
across our London Market Direct portfolio (principally Property,
Specialty and Programs and Facilities ) 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 was significantly lower
2021, with current year loss estimates of $28.2m (2020: $271.4m)
being reported within major losses in the period. In 2021, COVID-19
predominantly impacted our Contingency (Event Cancellation) book.
These losses have driven an increase of 1.3pps (2020: 15.9pps) in
our combined ratio.
Major losses 2021 2020
$m $m
------------------------------- ------
Texas winter storms 77.7 -
Hurricane Ida 200.5 -
European floods (Bernd) 18.0 -
Nashville tornado - 13.7
US civil unrest - 11.7
Hurricane Laura - 65.4
Hurricane Sally - 27.1
Hurricane Zeta - 15.5
Total before COVID-19 related
losses 296.2 133.4
COVID-19 related losses 28.2 271.4
--------------------------------- ------ ------
Total 324.4 404.8
CoR 15.5% 23.7%
As part of our standard reserving process, we released a $100.1m
of net reserves established for prior year claims, the equivalent
of a combined ratio reduction of 4.8pps (2020: $63.4 m /3.7pps),
maintaining trend of reserve releases since we started disclosing
them in 2004.
The 2021 release reflected:
-- Favourable claims experience across recent underwriting years
within London Market Direct (principally Property, Specialty and
Ambridge Transactional) and London Market Reinsurance (across both
Casualty and Property Treaty);
-- A release of $12.3m in respect of 2020 COVID-19 related claim estimates;
-- Continued overall net favourable development of other prior year catastrophe events; and
-- A release of $35.0m reflecting the additional reinsurance
protection afforded by the loss portfolio reinsurance with
RiverStone.
Our financial position remains strong and we continue to operate
a robust reserving process.
Underwriting expenses
Our expense ratio was 37.3% (2020: 40.3%).
Measure Commentary Track record
Expense The expense ratio measures the cost we incur to 2021 37.3%
ratio acquire every $1 of premium. There are two key 2020 40.3%
components to this - commission costs and operating 2019 40.1%
expenses. 2018 39.5%
2017 39.7%
----------------------------------------------------- -------------
The expense ratio can be further analysed into its underlying
components, as follows:
Measure Commentary Track record
Commission The commission expense ratio measures our distribution 2021 25.2%
expense costs and shows how much of every $1 of premium 2020 26.5%
ratio is paid to acquire our business. 2019 27.1%
2018 27.6%
2017 27.6%
------------------------------------------------------- -------------
Operating The operating expense ratio helps us understand 2021 12.1%
expense how much it costs us to support the underwriting 2020 13.8%
ratio activities. This ratio shows how much of every 2019 13.0%
$1 of premium we spend supporting our underwriting 2018 11.9%
activities. 2017 12.1%
------------------------------------------------------- -------------
Commission costs were $528.4m and the commission expense ratio
was 25.2% (2020: $453.3m/26.5%). This $75.1m increase was driven by
the increase in NEP, including Ki ($42.8m), while the decrease in
the ratio principally reflects a change in business mix towards
lower commission business and a continued drive to reduce overall
acquisition costs.
Our expenses are analysed below.
Operating expense ratio
Our operating expense ratio decreased to 12.1% (2020: 13.8%).
The ratio consists of the following components, each of these is
discussed in the sections below.
-- Underwriting related operating expenses for 2021 were $312.8m
and contributed 14.9pps to the operating expense ratio (2020:
$259.3m/15.2pps).
-- Underwriting related fee and commission income totalled
$56.6m, reducing the operating expense ratio by 2.7pps (2020:
$29.7m/1.7pps). These amounts are included in the operating expense
ratio as the expenses incurred in generating these fees are
included within underwriting expenses.
-- Gains on other financial liabilities were $2.5m, reducing the
operating expense ratio by 0.1pps (2020: losses of $6.0m,
increasing the ratio by 0.4pps). These amounts are included in the
operating expense ratio as they represent the underwriting result
in Brit's consolidated income statement attributable to third party
capital providers.
Expenses
Total expenses during 2021 increased by 26.4% to $357.5m (2020:
$282.9m). At constant rates of exchange, the increase was 20.4%,
reflecting that the majority of our expense base is in Sterling.
The main contributors to this increase were staff costs, reflecting
headcount growth, bonus accrual, and regulatory charges and levies.
These increases also include the costs resulting from the launch of
Ki.
At 31 December 2021, Group headcount was 854 (2020: 748). The
increase was primarily due to the launch of Ki, targeted
underwriting expansion in favourable market conditions, the
acquisition of Camargue and the related growth of support
functions. These were partly offset by reductions resulting from
the withdrawal from certain classes of business and the sale of
Scion.
The allocation of expenses within the Consolidated Income
Statement and the Segmental Information is as follows:
Disclosure of expenses 2021 2020
$m $m
Acquisition costs 179.9 145.4
Other insurance related expenses 132.9 113.9
------ ------
Total insurance related operating expenses 312.8 259.3
Other expenses 44.7 23.6
Total expenses 357.5 282.9
Other income
Other income totalled $78.3 m (2020: $ 14.1 m), as set out
below:
Other income 2021 2020
$m $m
Fee and commission income (Note 1) 56.6 29.7
Change in value of ultimate parent company shares
(Note 2) 21.7 (15.6)
----- -------
Total other income 78.3 14.1
----- -------
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 increased in 2021 by 90.6% to $56.6m (2020:
$29.7m). The increase reflects increased business written by our
MGA Ambridge Partners LLC, increased third party fee income in
respect of Syndicate 2988 and consortia, and the inclusion of
income generated by Camargue following its acquisition in 2021.
The generation of such underwriting-related income, derived from
the management of third party underwriting capital and from our
MGAs placing business with third parties, remains an important part
of Brit strategy and has the benefit of assisting Brit in managing
its expense base.
Included in other income was a gain of $21.7m in respect of the
change in value of shares held by Brit in its ultimate parent.
Gains 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. In 2021, the structured
undertaking is Sussex Capital and in 2020 were Sussex Capital and
Versutus II. Changes in the value of these liabilities during the
year are recorded in the Group's consolidated income statement as
'(losses)/gains on other financial liabilities'.
In 2021, the income statement impact was a gain of $2.5m (2020:
loss of $6.0m). Brit allocates these gains/losses to its
underwriting 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 with multi-asset, core
fixed income and specialised credit mandates.
The return on our invested assets was $171.9m or 3.3% (2020:
$44.6m/1.0%). This result is analysed below:
Investment return 2021 2020
$m $m
Income 58.4 73.2
Realised gains 59.4 7.5
Unrealised gains/(losses) 63.6 (11.6)
------- -------
Investment return before fees 181.4 69.1
Investment management fees (14.2) (12.6)
------- -------
Investment return, net of fees 167.2 56.5
Investment related derivative return 3.0 (13.9)
Return on associated undertakings 1.7 2.0
------- -------
Total return 171.9 44.6
------- -------
Total return 3.3% 1.0%
------- -------
2021 2020 2019 2018 2017
% % % % %
Return on invested assets,
net of fees 3.3 1.0 3.6 (2.0) 4.9
----- ----- ----- ------ -----
Equities rallied over the year, generating $125.9m (2020: loss
of $42.5m) of return as markets responded to additional stimulus
measures and the COVID-19 vaccine rollout. T he return on funds was
also positive for the year, with a gain of $59.8m (2020: loss of $
32.8 m).
The fixed income portfolio generated a small loss of $4.8m
(2020: gain of $141.5m), as income was offset by capital losses.
The short duration position benefitted the portfolio as yields rose
towards the end of the year. The US government bond yield curve
rose by up to 90 basis points across the yield curve over the year.
Investment grade credit spreads widened marginally while high yield
spreads narrowed as investors responded positive growth early in
the period amid the vaccine rollout, higher inflation expectations
and the more hawkish tone from the US Federal Reserve Bank towards
year end.
Cash and cash equivalents generated $0.5m (2020: $2.9m). 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 2021, the running yield (expressed as yield as a
percentage of invested assets) of our total portfolio was 0.9 %
(2020: 0.6%). This has increased over 2021 in line with the
increase 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 $1.7m
(2020: $ 2.0 m) .
-- 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 , contributed
$1.2m (2020: $1.0m) to this return; and
-- 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 held a 50% share, contributed $0.5m to this
return (2020: $ 1.0 m). On 4 October 2021, Camargue became a 100%
subsidiary of the Group and ceased to be an associated
undertaking.
Gain on deconsolidation of subsidiaries
2021 2020
$m $m
Commonwealth (CICA) 3.7 -
Scion Underwriting Services Inc 18.3 -
North America Property Insurance Series 2017 Account (2.2) -
A-3
Total 19.8 -
-- Commonwealth (CICA): On 5 February 2021, Brit completed the
sale of CICA, realising a gain on disposal of $3.7m. Brit
originally acquired CICA in April 2018.
-- Scion Underwriting Services Inc. (Scion): On 28 June 2021,
Brit completed the sale of Scion , recognising a gain on sale of
$18.3m.
-- North America Property Insurance Series 2017 Account A-3
('Account A3') (a segregated account within Versutus Limited): From
25 March 2021, Account A3 was deconsolidated by virtue of Brit no
longer having an economic interest in it. A loss on deconsolidation
was realised of $2.2m.
Gain on a business combination
On 4 October 2021 the Group acquired the remaining 50% of the
share capital of Camargue . At the acquisition date the investment
in associate was derecognised from the balance sheet of the Group
and remeasured at fair value for the purposes of acquisition
accounting under IFRS 3. This process resulted in the recognition
of a gain of $6.1m (2020: nil).
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 foreign exchange loss of $19.8m in 2021 (2020: gain
of $5.0m), reflecting the movement of the US dollar against other
currencies in which we trade and hold assets, and the impact of FX
related derivatives purchased by the Group.
The allocation of the FX result within the Consolidated Income
Statement is as follows:
Foreign exchange gains and (losses) 2021 2020
$m $m
Net foreign exchange (losses)/gains (1.1) (7.8)
(Losses)/Gains on derivative contracts - FX related
instruments (18.7) 12.8
------- ------
(19.8) 5.0
------- ------
Tax
Our tax on ordinary activities for 2021 resulted in a tax credit
of $9.6m (2020: tax charge of $1.5m), based on a Group profit
before tax of $227.3m (2020: loss before tax of $230.5m). This
credit comprised a current tax charge of $10.0m and a deferred tax
credit of $19.6m. The deferred tax credit reflects the change in
the UK tax rate from 19% to 25% from 1 April 2023 in accordance
with the Finance Act 2021 which was substantially enacted on 24 May
2021.
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, Germany 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 2021 Group rate varies from the weighted average rate in
those jurisdictions due to a number of factors. The principal
factors are an increase of $27.4m 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 19% for brought forward
balances to 25% for carried forward balances due to the increase in
the UK corporation tax rate to 25% from 1 April 2023 which was
substantively enacted on 24 May 2021. The rate is further
influenced by the impact of utilisation of US losses which were
previously unrecognised, 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 and our capital surplus increased by 81.2% in
the year. At 31 December 2021, Group capital resources totalled
$2,199.5m (2020: $1,881.3m), giving surplus management capital of
$617.9m (2020: $341.0m), or $39.1% (2020: 22.1 %) over our Group
management capital requirement of $1,581.6m (2020: $1,540.3m).
Brit has in place a $450m revolving credit facility (RCF), the
expiration date of which was extended by two years during 2021 to
31 December 2025. Under our capital policy we have identified a
maximum of $250.0m (2020: $250.0m) of this facility to form part of
our capital resources, with the balance available for liquidity
funding.
At 31 December 2021, the cash drawings on the facility were
$45.0m (2020: $130.0m) and a $130.0m uncollateralised letter of
credit (LoC) was in place (31 December 2020:
$130.0m/uncollateralised) to support our underwriting
activities.
At 31 December 2020, Ki Financial Ltd was party to a $50m LoC
facility to provide a proportion of the FAL for Syndicate 1618
through a segregated account of Sussex Re. This was fully utilised
and uncollateralised at 31 December 2020. During 2021, this
facility was increased to $130m and at 31 December 2021 it was
fully drawn and uncollateralised.
In addition, we have in issue GBP135.0m of 3.6757% subordinated
debt with a carrying value of GBP135.0m/ $182.9m (31 December 2020:
GBP135.0m/$184.5m). This instrument, which is listed on the London
Stock Exchange, was issued in December 2005, matures on 9 December
2030.
At 31 December 2021, our gearing ratio was 20.0 % (2020: 28.0
%).
Brit's invested assets (financial investments, investments in
associates, cash and cash equivalents and derivative contracts) at
31 December 2021 were $ 5,546.2 m (31 December 2020: $ 4,857.1
m).
Our asset allocation, on both a look-through basis and statutory
disclosure basis, is set out in the tables below:
31 December 2021 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)
$m $m $m $m $m $m $m $m
---------- ---------- ------------ ----------- ----------- ------------ -----------
Government
Look-through debt
basis securities - 2,232.6 - 21.8 - - - 2,254.4
Corporate debt
securities - 907.2 - 10.9 - - - 918.1
Structured products - - - 21.3 - - - 21.3
Loan instruments - - 38.3 3.0 - - - 41.3
Equity securities 480.1 - - 261.6 - 15.0 - 756.7
Alternative - - - - - - - -
investments
Cash and cash
equivalents - - - 39.0 1,510.3 - - 1,549.3
Investment related
derivatives - - - (0.8) - - 5.9 5.1
------------ -----------
Total invested
assets (statutory) 480.1 3,139.8 38.3 356.8 1,510.3 15.0 5.9 5,546.2
---------- ---------- ------------ ----------- ----------- ------------ -----------
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)
$m $m $m $m $m $m $m $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
---------- ---------- ------------ ----------- ----------- ------------ -----------
The short duration position relative to Brit's liabilities was
maintained over the year, which has benefited as the yield curve
has risen. Further rises could represent a better entry point to
longer dated bonds.
We reduced our credit allocation in the fourth quarter due to
continued spread tightness and inflation concerns. The allocation
to credit risk, is primarily defensive, focused on 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 (2021: $4,763.1m or 85.9% of the portfolio; 2020: $
4,225.8 m or 87.0% of the portfolio). The fixed income portfolio is
short dated, with a majority allocation to government bills.
Corporate bonds represent 16.6% (2020: 32.5 %) of the total
portfolio with 2.1 pps (2020: 1.0pps) of this figure being below
investment grade.
The exposure to equities and funds has increased over 2021
(2021: $778.0m or 14.0% of the portfolio; 2020: $ 628.4 m/12.9%),
predominately due to market movements.
The duration of our portfolio at 31 December 2021 was 1.50 years
(2020: 1.45 years), which is shorter than the duration of our
liabilities. US rates rose across the curve over 2021, as markets
priced in interest rate increases due to inflation.
At 31 December 2021, 83.2% of our invested assets were
investment grade quality (2020: 83.7%).
Outlook
Looking ahead to 2022 and beyond, significant uncertainty exists
for the insurance industry.
-- The frequency of major events and magnitude of the resulting
claims, with 2021's experience following on from those of recent
years including 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 there is increasing competition from local carriers; and
-- The industry continues to face political and economic
uncertainty and challenges. 2021 saw the economy start to return to
normal, albeit progress was impacted by further COVID-19 related
restrictions and supply chain imbalances. We anticipate lower, but
still above trend growth as we go through 2022 with heightened
volatility as the economy navigates higher inflation and the
gradual withdrawal of monetary stimulus.
However, there are a number of indicators to give us cause for
optimism, including continued 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 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.
We remain focused on our strategy:
-- 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 in a number of areas, including the continuous contracts
for coverholders and the changes to the Lloyd's Europe's operating
model.
-- 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. Initiatives in 2021 included the launch of our machine
learning algorithm to enable faster claims response to catastrophe
events.
-- 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, with our operations combining in 2021
under our Ambridge brand. We also 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 function, 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.
The sections below set out the approach to risk governance, and
the key risks identified, measured and managed under the RMF.
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.
Insurance risk is the key driver of our Group capital
requirements.
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 - natural Natural catastrophe events impacting
catastrophe Brit's (re)insureds, leading to large
volumes of claims.
----------------------- ---------------------------------------------
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
While 2021 has seen the relaxation of some of the measures
Governments implemented to try to contain the pandemic, there
continues to be uncertainty and challenges.
Pandemic exclusions offer some protection against new insurance
claims. However, there remains uncertainty around losses from
COVID-19. We would expect the level of uncertainty around
Contingency to reduce over time, however, within areas of the
account such as Casualty Treaty, Property Treaty and Open Market
Property the ultimate loss outcome is still to emerge and will be
influenced by factors such as coverage issues and the
interpretation of contract wording.
COVID-19 has also caused significant volatility in the financial
markets. Interest rates, while rising remain at depressed levels
and inflation continues to increase.
The Group continues to manage 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 caused a temporary shift from an office-based working
environment to a remote working environment for all staff. Brit
continues to monitor the situation and adapt its approach to
reflect current circumstances. Brit and its outsourced service
providers have adapted well to the changing situation and
operational performance has generally been strong.
Support mechanisms remain in place 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 operational risk has not identified any material
concerns or failings.
-- Insurance risk
In 2020, COVID-19 resulted in additional claims to the Group,
principally relating to event cancellation covers. The impact in
2021 has been limited. 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
The investment portfolio is actively managed to reflect market
developments and, in 2020, 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. This action has continued in 2021. The
volatility in investment returns experienced over the course of
2020 and 2021 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 2021, the Group
has not seen a material increase in defaults but continues to
monitor this closely.
-- Solvency and Liquidity risk
As at 31 December 2021, the Group held a surplus of $617.9m over
its management capital requirements. All regulatory capital
requirements have been complied with by the Group's individual
insurance subsidiaries throughout 2021. Our regulatory capital
requirements calculation as at 31 December 2021 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.
The Group has conducted stress testing of its underwriting
subsidiaries' liquidity resources, in order to assess their ability
to continue making claims payments as they fall due. This stress
testing demonstrated their continued ability to access sufficient
liquidity, even in severe stress scenarios. At 31 December 2021,
the Group held $3,803.7m of cash and short-dated government debt
securities, and $275.0m 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 2021 Brit was well within this threshold, with RCF
drawings equating to 10.4% of consolidated net tangible assets
(2020: 16.0%).
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. In line with
previous years, 2021 continued to see wildfires occurring worldwide
and the Atlantic hurricane season was the third most active season
on record after 2020 and 2015.
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
physical risks of increased frequency and severity of
weather-related natural catastrophes. This could result in
additional claims and could impact Brit in the short to
medium-term. 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
arising from increasing climate litigation against Brit's clients.
The claims arise from firms contributing to climate change, failing
to transition to renewables, greenwashing or directors' breach of
fiduciary duties. The nature of these claims could impact Brit in
the medium to long term. 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. This
transition risk could adversely impact Brit very quickly as
financial markets valuations fluctuate. 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 is managing the risks associated with climate change in
line with the RMF which is reviewed annually and regulatory
guidance developments are monitored through the committees and
working parties. This will continue to be an area of Management,
Risk Committee and Board focus, with a multi-disciplinary Climate
Change Risk Working Party to consider the financial risks
associated with Climate Change.
Climate change scenario analysis has been conducted as part of
the ORSA process, and Brit participated in the PRA's Climate
Biennial Exploratory Scenario (CBES) testing exercise in 2021.
Brit's Solvency II internal models include an allowance for the
impact of climate change. The analysis utilises catastrophe
modelling, expert judgement, scenario analysis and selected metrics
as tools to monitor and manage exposure to climate-related risks.
The outputs from these feed into business decision making. Brit is
compliant with PRA Supervisory Statement SS3/19 which sets
expectations for firms regarding their consideration of climate
risk.
Brit 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. An annual
review of equity holdings is conducted which includes a review of
the ESG strategy of underlying companies within Brit's equity
portfolio. Holdings of industries such as oil and gas, transport
and utilities, which deemed to materially contribute to climate
change are also monitored.
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 2021 or 2020. The 2021 financial information is derived
from the Company's unaudited 2021 statutory accounts and the 2020
financial information is derived from Company's 2020 statutory
accounts.
Statutory accounts for 2020 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 2021 are expected to be
available on the Company's website no later than 14 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 2021.
The statutory accounts for 2021 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
9 February 2022.
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 2021 unaudited statutory accounts, which have
been prepared in accordance with UK-adopted international
accounting standards in conformity with the requirements of the
Companies Act 2006, 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 2021
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.
Martin Thompson Gavin Wilkinson
Interim Group Chief Executive Officer Group Chief Financial
Officer
9 February 2022 9 February 2022
Consolidated Income Statement
For the year ended 31 December 2021
Year ended
31 December Year ended
31 December
2021 2020
$m $m
------------------------------------------------- ---- ---- -------------- --------------
Revenue
Gross premiums written 3,238.3 2,424.4
Less premiums ceded to reinsurers (1,240.0) (648.8)
------------------------------------------------------------- -------------- --------------
Premiums written, net of reinsurance 1,998.3 1,775.6
Gross amount of change in provision for
unearned premiums (370.4) (52.2)
Reinsurers' share of change in provision
for unearned premiums 126.4 (12.7)
Net change in provision for unearned premiums (244.0) (64.9)
Earned premiums, net of reinsurance 1,754.3 1,710.7
------------------------------------------------------------- -------------- --------------
Investment return 167.2 56.5
Return on derivative contracts (15.7) (1.1)
Gain on deconsolidation of subsidiaries 19.8 -
Gain on business combination 6.1 -
Other income 78.3 14.1
Gains / (losses) on other financial liabilities 2.5 (6.0)
Total revenue 2,012.5 1,774.2
------------------------------------------------------------- -------------- --------------
Expenses
Claims incurred:
Claims paid:
Gross amount (1,321.5) (1,326.8)
Reinsurers' share 437.6 391.4
------------------------------------------------------------- -------------- --------------
Claims paid, net of reinsurance (883.9) (935.4)
Change in the provision for claims:
Gross amount (402.7) (417.6)
Reinsurers' share 405.0 113.9
------------------------------------------------------------- -------------- --------------
Net change in the provision for claims 2.3 (303.7)
Claims incurred, net of reinsurance (881.6) (1,239.1)
Acquisition costs (708.3) (598.7)
Other operating expenses (177.6) (137.5)
Net foreign exchange losses (1.1) (7.8)
Total expenses excluding finance costs (1,768.6) (1,983.1)
------------------------------------------------------------- -------------- --------------
Operating profit/(loss) 243.9 (208.9)
Finance costs (18.3) (23.6)
Share of net profit of associates 1.7 2.0
Profit/(loss) on ordinary activities before
tax 227.3 (230.5)
Tax credit / (charge) 9.6 (1.5)
Profit/(loss) for the year 236.9 (232.0)
------------------------------------------------------------- -------------- --------------
Profit/(loss) attributable to:
------------------------------------------------- ---- ---- -------------- --------------
Owners of the parent 248.5 (229.3)
------------------------------------------------------------- -------------- --------------
Non-controlling interests (11.6) (2.7)
------------------------------------------------------------- -------------- --------------
All profits/(losses) arise from continuing operations.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
Year ended
31 December Year ended
31 December
2021 2020
$m $m
------------------------------------------------------- ---- ---- -------------- --------------
Profit/(loss) for the year 236.9 (232.0)
Other comprehensive income
Items not to be reclassified to profit or
loss in subsequent periods:
Remeasurements of post-employment benefit
obligations 18.7 (5.5)
Deferred tax (loss) / gain relating to remeasurements
of post-employment benefit obligations (6.5) 1.8
Items that may be reclassified to profit
or loss in subsequent periods:
Change in unrealised foreign currency translation
(losses) / gains on foreign operations (1.1) 2.3
Total other comprehensive income 11.1 (1.4)
------------------------------------------------------------------- -------------- --------------
Total comprehensive income recognised for
the year 248.0 (233.4)
------------------------------------------------------------------- -------------- --------------
Total comprehensive income for the year attributable
to:
Owners of the parent 259.6 (230.7)
Non-controlling interests (11.6) (2.7)
-------------------------------------------------------- ------- --------
Total comprehensive income for the year 248.0 (233.4)
-------------------------------------------------------- ------- --------
Consolidated Statement of Financial Position
At 31 December 2021
31 December 31 December
2020
2021 $m
$m
---------------------------------------- ---- ---- ---- ------------- -------------
Assets
Intangible assets 205.3 181.2
Property, plant and equipment 57.6 60.5
Deferred acquisition costs 321.8 247.3
Investments in associated undertakings 15.0 20.5
Reinsurance contracts 2,291.2 1,764.1
Employee benefits 113.8 48.8
Deferred taxation 47.9 49.8
Current taxation 10. 6 8.5
Financial investments 4,015.0 4,056.6
Derivative contracts 15.1 14.9
Insurance and other receivables 1,615.3 1,302.0
Cash and cash equivalents 1,510.3 775.7
Assets classified as held for
sale - 17.8
Total assets 10,218.9 8,547.7
---------------------------------------------------------- ------------- -------------
Liabilities and Equity
Liabilities
Insurance contracts 6,532.9 5,813.0
Borrowings 227.9 314.5
Other financial liabilities 95.8 62.0
Provisions 2.4 2.3
Deferred taxation 12.9 9.9
Current taxation 3.8 -
Derivative contracts 12.5 9.2
Insurance and other payables 1,184.1 620.7
Liabilities directly associated
with assets classified as held
for sale - 1.8
Total liabilities 8,072.3 6,833.4
---------------------------------------------------------- ------------- -------------
Equity
Called up share capital 10.0 8.6
Share premium 1,432.6 1,027.9
Capital redemption reserve 1.0 1.0
Capital contribution reserve 28.5 -
Foreign currency translation reserve (85.2) (84.1)
Retained earnings 525.5 639.2
---------------------------------------------------------- ------------- -------------
Total equity attributable to owners
of the parent 1,912.4 1,592.6
Non-controlling interests 234.2 121.7
---------------------------------------------------------- ------------- -------------
Total liabilities and equity 10,218.9 8,547.7
---------------------------------------------------------- ------------- -------------
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
Year ended
31 December Year ended
31 December
2021 2020
$m $m
---------------------------------------------- ---- ---- -------------- --------------
Cash flows from operating activities
Cash provided by/(used in) operations 622.5 (414.3)
Tax (paid)/received (8.1) 2.7
Interest received 57.9 63.3
Dividends received 10.1 6.3
Net cash inflows/(outflows) from operating
activities 682.4 (342.0)
---------------------------------------------------------- -------------- --------------
Cash flows from investing activities
Purchase of intangible assets (12.8) (6.5)
Purchase of property, plant and equipment (1.7) (1.2)
Disposal of subsidiary undertakings, net 31.8
of cash disposed -
Acquisition of subsidiary undertaking, net (6.4)
of cash acquired -
Dividends from associated undertakings 0.7 1.0
Net cash inflows/(outflows) from investing
activities 11.6 (6.7)
---------------------------------------------------------- -------------- --------------
Cash flows from financing activities
Proceeds from issue of shares 406.1 524.0
Repayment on revolving credit facility (85.0) (10.0)
Purchase of shares for share-based payment
schemes (16.9) (3.0)
Interest paid (9.7) (14.0)
Transactions with non-controlling interests 124.0 124.0
Dividends paid to owners of the parent (375.0) (20.6)
Net cash inflows from financing activities 43.5 600.4
---------------------------------------------------------- -------------- --------------
Net increase in cash and cash equivalents 735.5 251.7
Cash and cash equivalents at the beginning
of the year 775.7 520.1
Effect of exchange rate fluctuations on cash
and cash equivalents (2.9) 3.9
-------------- --------------
Cash and cash equivalents at the end of the
year 1,510.3 775.7
---------------------------------------------------------- -------------- --------------
Consolidated Statement of Changes in Equity
For the year Total
ended 31 December Called Foreign attributable
2021 up Capital Capital currency to owners Non-controlling
share Share redemption contribution translation Retained of the interests Total
capital premium reserve reserve reserve earnings parent $m equity
$m $m $m $m $m $m $m $m
-------- --------- ------------ ------------- ------------ --------- ------------- ----------------- --------
At 1 January 2021 8.6 1,027.9 1.0 - (84.1) 639.2 1,592.6 121.7 1,714.3
------------------- -------- --------- ------------ ------------- ------------ --------- ------------- ----------------- --------
Total
comprehensive
income
recognised - - - - (1.1) 260.7 259.6 (11.6) 248.0
Reallocation of
forfeited
rollover shares
to LTIP
schemes - - - - - 0.6 0.6 - 0.6
Issuance of share
capital 1.4 404.7 - - - 406.1 - 406.1
Dividend - - - - - (375.0) (375.0) - (375.0)
Acquisition of
Riverstone
pension plan - - - 28.5 - - 28.5 - 28.5
Transactions with
non-controlling
interests - - - - - - - 124.1 124.1
------------------- -------- --------- ------------ ------------- ------------ --------- ------------- ----------------- --------
At 31 December
2021 10.0 1,432.6 1.0 28.5 (85.2) 525.5 1,912.4 234.2 2,146.6
------------------- -------- --------- ------------ ------------- ------------ --------- ------------- ----------------- --------
For the year Total
ended 31 Called Foreign attributable
December up Capital currency to owners Non-controlling
2020 share Share redemption translation Retained of the interests Total
capital premium reserve reserve earnings parent $m equity
$m $m $m $m $m $m $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
------------------ -------- --------- ------------ ------------ --------- ------------- ----------------- --------
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.
Capital contribution reserve: The balance represents the amount by which the Group has benefitted from
asset transfers or contributions from the owners of the parent company, for which no shares have been
issued in exchange.
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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