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City broker upgrades Beazley on insurer’s bullish outlook for 2018

As expected, last autumn’s hurricanes and storms in the US and Caribbean knocked 43% off the insurer’s profits, but Beazley is bullish about its prospects for the year ahead
hurricane harvey impact
The hurricanes, storms and wildfires last autumn cost insurers an estimated US$135bn

Beazley PLC (LON:BEZ) saw its profits almost halve in 2017, but an upbeat outlook led to investors taking a punt on the Lloyd’s of London insurer.

Pre-tax profits in the 12 months ended December 31 fell 43% to US$168mln from US$293mln a year earlier, as the company paid out more than US$110mln in claims related to the hurricanes and storms that devastated parts of the Caribbean and the US last autumn.

READ: Beazley lifts previously lowered guidance

The group – which provides marine, casualty and property insurance and reinsurance – saw its return on equity also halve to 9% for the 12-month period.

Damage well-flagged; focus on future​
Much of that damage was already flagged in a trading update back in September, in which Beazley told investors that earnings would be around US$150mln lower because of hurricanes Harvey et al.

As a result, investors focused on the future on Thursday.

Tough competition has seen insurance premiums head lower in recent years, but they are now starting to climb again in the wake of those natural disasters which cost the industry more than US$135bn.

“The events of late 2017 have since spurred material price rises in the classes of business directly affected,” read Beazley’s statement on Thursday.

Gross written premiums – the principal source of an insurance company’s revenues – rose 7% in 2017 and chief executive Andrew Horton said there is “potential for double-digit growth” this year.

“Beazley achieved an underwriting profit in 2017, a year in which hurricanes, earthquakes and wildfires generated heavy claims for the insurance industry,” he added.

“More importantly, we delivered on our commitments to our policyholders, already paying out more than US$110mln in claims following the year's natural catastrophes. Premiums grew 7% in 2017 - a strong performance given market conditions.”

Numis likes upbeat guidance​

City broker Numis upgraded its recommendation for the insurer to ‘add’ from ‘hold’ on the back of the bullish outlook for the year ahead.

“Beazley has increased premium income growth guidance from mid-to-high single digit to “double digit”, reflecting a better pricing environment and increased catastrophe risk appetite,” said analyst Nick Johnson in the note.

“We increase our FY18 profit before tax forecast from US$246mln to US$267mln due to stronger premium growth (consensus is US$285mln) and we upgrade our FY19 PBT forecast by 14% to US$351mln. With a strong earnings growth outlook we move from ‘hold’ to ‘add’.”

On top of the recommendation change, which is a ‘buy’ to you and me, Johnson also hiked his price target for the stock by 14% to 610p.

Beazley shares gained 4.9% to 557.5p shortly after midday, making it the top riser on the FTSE 250.

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The group manages £7.8bn of funds: £2.8bn in the UK; £2.9bn in Sweden; and £2.1bn in the Netherlands.

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