Beazley Group Plc (BEZ.L, BZYGF.PK), a British insurer, Friday reported lower earnings for fiscal 2008, hit by negative investment returns amid the current global market turbulences, despite having a robust core underwriting activity.
The company also proposed a fully underwritten rights issue and placing of shares, priced at 86 pence a share, for GBP 150 million to support an US acquisition and Lloyd's activities expansion. The company further said that it will move its tax base to Ireland and that it continues to trade in line with Board's expectations.
In its preliminary results for the year ended December 31, 2008, the company reported a profit before tax of GBP 87.2 million, down 37% from the GBP 138.5 million in 2007. This included a foreign exchange benefit on non-monetary items amounting to GBP 46.2 million. Excluding this, profit before tax dropped 69% to GBP 41.0 million from the year-ago GBP 130.3 million.
Full-year profit attributable to equity shareholders declined to GBP 64.4 million from GBP 100.4 million in the previous year, while earnings per share decreased to 18.0 pence from 27.1 pence last year.
Annual revenues amounted to GBP 667.4 million, 4% below GBP 692.2 million reported a year ago, with year-over-year gross written premiums up 12% at GBP 875.7 million and net written premiums up 14% to GBP 740.4 million. Also, business written through its US operations surged 54% to US$269.1 million from last year's US$175.2 million.
However, net investment income plunged 140% to GBP 25.8 million, reflecting a 1.5% negative return on investment. This compares with last year's income of GBP 64.9 million, reflecting a 4.9% positive return on investment.
The company noted that its core underwriting activity remained robust in both its Lloyd's and US operations, despite the losses sustained during the US hurricane season. Investment returns fell due to the ongoing credit crisis and investment markets turmoil. Overall, rates on its renewal business declined 6% in 2008.
At its U.S. operations, the company continued to make good progress in developing its platform in 2008, with a premium growth of 54% at US$269.1 million during the year, and expects growth to continue in 2009 with a premium target of US$450m.
On a segmental basis, Beazley reported full year revenues of GBP 126.0 million at its Marine division and GBP 55.3 million at its Political risk and contingency segment. Revenues at Property business amounted to GBP 157.7 million and at Reinsurance unit GBP 54.9 million. Lastly, Specialty lines' revenues amounted to GBP 303.3 million in 2008.
The company said that it was in a "healthy" financial position, with investment and cash balances of up to GBP 2 million and net tangible assets amounting to GBP 360.2 million. The company further stated that its Board has proposed a final dividend of 4.4 pence per share, which will be paid on April 30 to shareholders of record on March 13.
Moving forward, the company announced a series of actions designed to capitalize on attractive growth opportunities while enhancing the tax efficiency of the business. The company said it has agreed to acquire to acquire First State Management Group, Inc., a US-based underwriting manager specializing in excess and surplus lines commercial property insurance, from the Hartford Financial Services Group, Inc. (HIG) for US$35.4 million in cash. The acquisition is subject to Lloyd's approval.
The company sees the acquisition to result in a significant increase its presence in the mid-sized US commercial property business. Besides, the group will also contribute additional capital of GBP 27 million to its Lloyd's syndicates to support First State's underwriting in 2009. The company noted that First State intends to underwrite about US$150 million of gross premium for 2009.
Beazley also announced plans to change its corporate structure through the creation of a new parent company, which will be incorporated in Jersey and tax resident in the Republic of Ireland. The proposed change is subject to shareholders' and regulatory approval. Andrew Horton, chief executive, commented, "The Republic of Ireland enjoys a stable and respected legal, regulatory and tax environment. The changes to our corporate structure should enhance the group's return on capital and competitive position."
Lastly, Beazley announced a fully underwritten rights issue of 165.59 million new ordinary shares and placing of 17.48 million new ordinary shares at the issue price of 86 pence per share. The company noted the rights issue will be made on the basis of 9 new shares for every 19 ordinary shares held by its shareholders.
According to the company, the 9-for-19 rights issue will help raise about GBP 142.4 million, before expenses, while the placing will help to raise approximately GBP 15 million, before expenses. Funds will be used to finance and support the acquisition of First State, as well as support the expansion of its existing underwriting activities at Lloyd's, the company added.
The company further said that the issue price represents an approximate 26% discount to the closing middle market price of 117 pence per ordinary share on February 5, 2009, being the last working day prior to the company's announcement noting media speculation regarding a potential capital raising.
The issue price also represents an approximate 21% discount to the closing middle market price of 108.5 pence per ordinary share on February 12, 2009, being the last business day prior to the announcement of the terms of the rights issue and placing.
The company also stated that the rights issue and placing is fully underwritten by Numis Securities Ltd., and is conditional, amongst other things, upon shareholders' approval. An Extraordinary General Meeting of the company has been scheduled for March 18, for the same. Following this, the company expects to initiate the rights issue and placing on March 19.
In addition, the capital raising will result in the issue of 183.07 million ordinary shares, which represents about 49.5% of Beazley's existing issued share capital and 33.1% of Beazley's enlarged issued share capital immediately following completion of the rights issue and placing.
Beazley stated that it continues to trade in line with the expectations of the Board, who "believe that, in the absence of abnormal losses, the rights issue and placing will boost its net assets and earnings per share in the medium term." Also, its underwriting performance, both at Lloyd's and in the US, remains solid with price increases starting to be seen in most markets.
BEZ.L is currently trading on the LSE at 108.75 pence, up 0.25 pence, or 0.23%, with 902,144 shares.
For comments and feedback: editorial@rttnews.com